August 2011, Auto Dealer Today - WebXclusive
Over a decade ago, Larry Goodman was working at a franchise dealership that also had a buy here pay here (BHPH) business. At that point in his life, he’d been on the franchise side of the industry for about 30 years and never really considered running a BHPH operation.
Then, he began observing how the dealership ran its BHPH business, and he didn’t like what he saw. “[Customers] were treated rudely, and after watching that, I started getting interested in [BHPH].” He felt he could run a BHPH business better and treat customers with respect.
Almost 11 years later, as the operations manager of Drive Away Cars in Christiansburg, Va., Goodman believes he has perfected his buy here pay here business model. “We’ve got a large business here now; we keep about 300 active deals on the books.” And he not only treats customers with respect, he also takes good care of them and their cars, which is what differentiates Drive Away Cars from BHPH operations like the one he witnessed at the new car dealership.
“We treat [customers] like most new car dealers do their new car customers … All you’re really doing is treating people with respect. If you treat people with respect, they usually treat you with respect,” he said. “[BHPH customers are] regular people, just people that have had problems. Most people, they’re honest, they’re hardworking.” He added, “There are certain people that no matter what you do, it’s not going to work, but that’s ok. That’s a very small percentage, and this is a game of percentages.”
Goodman estimated that 80 percent of customers “pay perfect” and that the remaining 20 percent sometimes run into problems, but most of the time he can work with customers to avoid repossessions. “I get people with catastrophic problems … Sometimes we’ll skip a few payments.” He said some dealers “get aggravated when they’re not getting their money exactly on time” and will repossess vehicles that may not necessarily need repossessed, which is something he adamantly tries to avoid.
Goodman hasn’t had much trouble recovering vehicles when needed. “I guess we’re lucky because we’ve been able to find them. We’re pretty good at finding cars when we’ve needed to.” If customers aren’t paying and haven’t contacted the dealership to make payment arrangements, the dealership will call the customer a couple of times. However, with prepaid cell phones, customers can easily change their numbers, so the dealership doesn’t always have a working phone number. The dealership requires six references from a customer at the time of purchase, and with that many references, Goodman said they can usually “network and find out where the customer is within a day or so.”
During underwriting, the dealership checks for time in the area. “We want to make sure they’re not transient because I don’t want to chase cars in Kentucky or Utah.” He prefers his customers to have lived in the area their entire lives, but said five years in the area usually suffices. The dealership also checks applicants’ criminal backgrounds. “I want to make sure I don’t have a drug dealer or somebody that’s habitually in the police department,” he said. He estimated the dealership turns down about three percent of customers.
Drive Away Cars, a buy here pay here dealership in Christiansburg, Va., strives to be a complete resource center for its customers. The dealership offers oil changes, state inspections, service loaners and diagnostics checks to customers at no cost during the term of their loan, along with a $500 line of credit in service.
On almost two acres of land, the dealership includes a front sales lot with 15 to 20 vehicles that are ready to roll, a back lot with 10 to 15 vehicles that will be moved to the front line once reconditioned, a small recycling yard that contains vehicles used for parts, a six-bay service department, and a rental operation.
There’s a total of nine people employed at the dealership—five in service, one in reconditioning, one coordinator, and two in collections and deliveries. The dealership sells between 15 and 35 vehicles per month, depending on the time of year. The service department does not do any outside customer pay work, as it stays busy with internal work and servicing the vehicles of their current BHPH customers.
Goodman’s goal is to be a complete resource center for his customers. “We’re a full-service dealership. We go the extra mile for our customers, so if they’re having a problem, we consider it our problem,” he said. Many of the dealership’s customers are extremely loyal. “We’ve got entire families that won’t buy a car from anybody but us.”
For the life of the loan, a customer receives free oil changes and state inspections, and when the vehicle is in for service, the customer is provided with free a loaner car. While many customers take advantage of these perks, not all do, but that doesn’t mean they’re bad customers. “Some of them go quietly off into the sunset and make their payments on time.” Regardless of whether customers use the complimentary services, as long as they’re paying, they’re good customers.
Additionally, the dealership runs diagnostics on vehicles financed through the dealership at no charge to the customer during the life of the note, and customers are allowed a $500 line of credit in the service department to help cover any major repairs. The dealership does this because when customers’ vehicles have problems, Goodman wants them to bring their cars to the dealership right away to be diagnosed and fixed, as opposed to waiting because they can’t afford the repair right away. He knows if they wait to bring the car in, it will likely get worse. This helps ensure his customers’ cars are running properly, and by offering them a line of credit for service work, they can still make their car payments instead of having to possibly skip a payment or two to cover the service.
In sales, the dealership keeps things simple, so customers can easily understand the car-buying and underwriting processes at Drive Away Cars. The dealership doesn’t have traditional salespeople. Instead, customers choose their own cars and can easily see whether they can afford the down payment. The dealership’s down payment system is very simple and is written on the wall inside the dealership; the required amount down is based on the selling price of the car.
Customers make two payments a month (on the first and the fifteenth of each month). “Everything we do here is very simple, so our customers can understand what we’re doing. That way, once they figure it out, they come in and say, ‘Well I found a car I like for $5,895, and I have $1,000 today,” he said.
Goodman said the dealership sells vehicles as high as $7,995, but his sweet spot is just under $6,000. The dealership doesn’t typically keep many cars priced over $6,900 on the lot, and it rarely has cars below $2,000. Most of the dealership contracts range from 24 to 30 months, and vehicles need to run well for the contract term.
One factor that doesn’t necessarily affect whether a car will run well is mileage. “Cars are built so well today that if they’ve been maintained, mileage doesn’t mean a lot. I do like to have low-mileage cars when I can get them, but it’s not a factor as far as whether I can sell them,” he said. One example he provided was a 2004 Sonata that had 360,000 miles on it when the dealership first sold it.
“We made a mistake when we bought it,” admitted Goodman. The buyer missed the price announcement and when he saw a nice Sonata going cheap, he snatched it up not realizing the mileage. However, the car exceeded expectations. “That car [was] on the books for two years, and it functioned very well. We just performed regular maintenance on it,” he said.
At about 430,000 miles, the transmission finally went out. “It’s amazing [vehicles] can go that far now,” he said, adding, “You’ve got to keep the oil changed and keep them serviced.” He plans to fix the Sonata and put it back on the street.
While the dealership seems to have their BHPH business down to a science and running smoothly, Goodman allows customers some flexibility. While payments are set up for a semimonthly schedule, there’s a week-long grace period and if customers “want to pay weekly, they can come in weekly.” He added, “If they want to pay monthly, they just pay two payments at a time.”
Drive Away Cars also allows customers to trade in their vehicles at any time, which is working very well for the dealership, according to Goodman. “I’ll trade [customers] on the first payment. It makes no difference to me … They just have to come up with the down payment for the next car. Since we’re not using a related finance company, we can do that,” he said. “If I’ve got all happy customers and I’m collecting what I need to collect, life is grand … We’re in the collections business; the cars are just a way to collect the notes.”
Another profit center and source of inventory for the dealership is its rental operation, which consists of about 20 late-model cars ranging from 2004 to 2008. The dealership will rent them for about a year and transfer the cars to the sales inventory, which is especially handy when tax time rolls around.
The dealership has operated the rental business since it first opened. Goodman believed the two operations would complement one another, and they certainly do. Rental rates range from $14.95 a day to $39.95 a day, and the dealership offers weekly and monthly rates. The rental fleet includes two white PT Cruisers adorned with the dealership’s logo and contact information. Typically, a PT Cruiser would rent for $24.95 a day, but these two rent for $14.95 a day since they serve as rolling advertisements for the dealership.
Vol. 8, Issue 6