Griffin’s Credit Quick began as just a single desk in the corner of the new-car dealership’s showroom and later moved into the group’s Isuzu store. Eventually, the Isuzu franchise was sold to allow the BHPH business to expand. That operation gave rise to a finance company, Union Acceptance Corporation, as well as four more stores in and around Charlotte. Walters is even contemplating a sixth location, another lot in Charlotte.
Each store currently averages between 25 and 35 cars per month. Walters acknowledged that business was not as brisk as it used to be. “The economic stimulus checks really helped, but when they stopped, it’s like somebody turned off the faucet,” he said. “Four-dollar gas has really hurt this customer, and frankly, our customer is not as well off as they were five years ago.” However, he remained optimistic. “All indications point to the buy here pay here business really flourishing in the next two years because of the drying up of the subprime finance business.”
Walters’ related finance company, the aforementioned Union Acceptance Corporation, collects payments for all five locations. The lots handle strictly BHPH customers; they do no secondary finance. “Some buy here pay here dealers dabble with secondary finance, but the secondary finance business, in my opinion, is a little more complicated and detail-oriented than buy here pay here,” he stated. “We’ve never been successful at having those operations on the same lot.”
Walters stated that he only hires people without automotive experience—green peas. He wants his employees to learn the stores’ policies and procedures without bringing in any preconceived notions. He also emphasized the importance of using word tracks. “We tell them not only what to say but how to say it … for instance, ‘What can I sell you today?’ not, ‘How are you doing today?’” he illustrated. “That’s what we’re there for and frankly that’s what the customer’s there for.”
The stores use a centralized approval process for underwriting decisions. However, he clarified, there’s no well-defined scoring method. “I guess we use the SWAG method—scientific wild-ass guess,” he chuckled. “A lot of people put in different scoring systems, but at the end of the day it usually comes down to a judgment call.” Walters said he prefers to look at a customer’s stability and willingness to pay, rather than focus on the amount of down payment. “Down payments are tempting, but you’ve got to look at the long term.” He said there were certain points to look for, like a customer’s time on the job, but said most stores will define those parameters based on the amount of risk they’re willing to take.
“Some people sell $3,000 cars, ACV. Other buy here pay here dealers sell $8,000 cars, so their appetite for risk is going to be different,” Walters explained. “The guy selling a $3,000 ACV can take more chances than a guy with an $8,000 ACV. In other words, there’s a lot of different ways to skin this cat. Both [dealers] can be profitable, both of them can be successful, but their levels of risk are going to be different. The quality of customer is probably going to be different. Hopefully the guy with the $8,000 ACV is going to get a better-quality customer.”
Walters’ stores warranty a vehicle’s engine and transmission only. He added, however, they will occasionally handle non-warranty repair issues in an effort to keep the customer happy and paying on time. “We try to get the customer to be responsible for their own repairs, but you’ve got to remember this: the customer’s not just buying a car, they’re buying what the car will do for them. That means, take them back and forth to work and deliver the kids to school and sporting events,” he said. “The car has to do what its original purpose was, and that was to deliver them from point A to point B, and if that’s not happening … then they’re not going to pay.” Repairs are outsourced, and when necessary, the store will help the customer make arrangements to pay for those repairs.
While helping with repair issues can make a customer less likely to default, there will always be customers who won’t pay. In those cases Walters, like many in the industry, has adopted the use of starter interrupt devices. It was a move he resisted for some time, partly due to cost and partly because he was concerned it might hurt his volume if customers were unwilling to purchase vehicles with such devices. “However, after doing it for years, now I wish I had started years earlier,” he said. He gave a couple of reasons for finally making the decision to install starter interrupts, the first reason being that the cost of the devices eventually came down. The other reason was an obstacle presented by being a BHPH dealer in North or South Carolina.
“In the state of North Carolina, we can’t garnish wages, so I didn’t have a lot of enforcement mechanisms … South Carolina’s the same way,” he explained. “I got tired of [customers] being able to use my product without paying for it.” The starter interrupt devices, he said, finally allowed him some recourse for non-payers. “And it’s amazing how responsive they are once the car won’t start,” he added. “You won’t be able to get in touch with these people for two or three weeks … you cut off their car, and they’ll call you in 10 minutes.”
In addition to greatly improving his collection rate, the use of starter interrupt devices have also produced a gradual reduction in the number of charge-offs. Since customers are very responsive to this tactic, his collectors no longer have to spend their time constantly trying to track someone down. As a result, he has been able to reduce his number of collectors from 12 to just five, which also helped offset the cost of the devices themselves.
Walters stated that his delinquency rate is around 25 to 30 percent which, he explained, might sound bad to someone who doesn’t know the business. “The thing about buy here pay here that the novice dealer needs to understand is, unlike a bank … we start tracking delinquencies when a customer’s one day late … a bank starts tracking delinquencies when a customer’s 30 days late,” he pointed out. “A bank would freak out to hear 25 to 30 percent delinquencies.”
His rate of charge-offs is about the same as his delinquency rate. Since he can’t garnish wages, he does not pursue his deficiencies. “Some people sell them, some people turn them over to collection agencies, some people sue them and try to get garnishments or liens, and we do none of that,” he said. Walters sees no point in going to court. “Charge it off, send a demand letter … if somebody can’t pay you when they have the car, they darn sure can’t pay you when they don’t have the car … To me, it’s never made sense to sue poor people.”
Walters explained that most of his customers, at the time they purchase their vehicles, have every intention of paying on time and as agreed, but those customers are sometimes financially undisciplined or experience a change in their life circumstances and often end up stretching their money too thin. “There’s only so much money at the end of each paycheck and lots of our customers are overextended. The result of that is, someone’s not going to get paid. The idea of the starter interrupt devices is to put your payment up there with the power bill … Why do they always pay those? They pay those because if they don’t, they’re going to get cut off … Well, hopefully you’re bumping the car payment up on their list of priorities,” he reasoned.
While he doesn’t currently use GPS in his vehicles, due primarily to cost, he said he sees it coming one day because the technology is becoming cheaper and more prevalent. “I think all starter interrupt devices in the future will probably have GPS on them, so you cannot only disengage the starter, but you can locate the car as well.” He reasoned that as the cost of the collateral goes up, it helps to justify the expense of a GPS unit.
He stated that his stores’ inventory is currently in the range of $3,500 to $5,000 actual cash value. Where he goes to find the best vehicles in that value range, however, is information he keeps very close to the vest. “That’s something you never share with other dealers, where your rabbit boxes are hidden,” he cautioned. “You don’t want to specify where you’re buying your best cars. ‘The low mileage, best-quality cars I’ve ever seen are at such-and-such auction.’ Well, the next week you go there and it’s going to be the biggest crowd you’ve ever seen.”
Walters obviously believes in the power of word of mouth, which would explain his outlook on advertising and marketing. He described himself as “not big in marketing,” and said he instead relies on drive-by traffic, word of mouth and signage on the lot. “Have your lots looking good, the hoods open, the trunks open, the doors open, balloons out—that’s more my advertising,” he explained. “I’ve been doing this for 18 years. Customers know where we are; they know we’re the place to buy if you don’t have credit.”
Walters also expressed a belief that there’s more repeat business at BHPH lots than at regular dealerships. “I think they’re a more loyal customer than your average retail buyer,” he said. Another factor, he believed, was the short trade cycle of BHPH vehicles. His average contract length is 24 to 27 months. “In other words, if you come in and I sell you a car and you finance it for five years, no matter how much you like me, you can’t trade for four or four-and-a-half years,” he illustrated. “The trade cycle is shorter and … if you can take care of these customers, they’ll come back to you.”
While the bleak economic climate is taking its toll on the automotive industry as a whole, Walters predicted a bright future ahead for those in the BHPH industry. “The new car dealerships were getting [customers] financed at secondary or subprime finance sources. Well, those sources have since dried up … I think we will reap the benefits of that over the next two to three years,” he explained. “You should see customers that we haven’t seen in years because they have been getting financed at new car dealerships … those customers should come back to our lot.” He concluded, “I think the dealers that are still around have weathered the storm.”