Would you like to make more money? If you answered no to that question, you can stop reading. If your answer was yes, you should consider entering the Buy Here – Pay Here business.
Retail Cars You Currently Wholesale
Buy Here – Pay Here offers you the ability to retail vehicles that you currently wholesale and make more profit. Taking trade-ins that don’t meet the standards for your retail sales operation to the auction can be a gamble. Selling prices at the auction rise and fall with the season, market conditions, demand and various other factors. With a Buy Here – Pay Here operation, you are able to set the selling price and make profit margins that are consistently higher than those at most retail only dealerships.
Sell Customers You Currently Turn Down
Buy Here – Pay Here also offers you the opportunity to sell to customers that do not have the cash to purchase outright and do not meet the qualifications imposed by your lenders. Like the wholesale marketplace with vehicles, the loan market is also always in a state of flux. Required credit bureau scores, stipulations and other credit criteria are constantly changing. Lenders move in and out of the various credit levels. The deal you were able to get bought a year ago may be turned down today. With Buy Here – Pay Here, you decide who you wish to finance, not some outside lender.
Service A Growing Market
The segment of the used car market of people needing Buy Here – Pay Here financing continues to grow. A study done last year by Experian shows that 15% of the population has a credit score of 550 or below. The percentage of Americans with credit scores below 620 has grown to 25 percent in 2010 from 14 percent three years ago, according Jack Tracey, executive director of the Community Auto Finance Association. According to the latest Experian study, 16.6% of all financed used vehicle purchases were done by BHPH dealers. On the leasing side, 23.6% of all used vehicle leases were done by LHPH dealers. Even as some potential customers improve their credit scores sufficiently to qualify for subprime or even conventional financing, an even larger number suffers setbacks that drop their scores out of the range acceptable to outside lenders and enter the Buy Here – Pay Here market.
So you have the cars and you have the customers – what else do you need to consider?
- First, you need to consider your available capital. While Buy Here – Pay Here can produce substantial profits and cash flow, there is a significant period where you will be putting large amounts of capital into the operation to pay expenses and replenish inventory as you build your customer base making regular payments on their loans. Depending on the price of car you choose to feature, this initial capital may total $500,000 or more before the operation turns cash positive and begins to generate more cash than it is consuming.
- The second thing you must consider is your aversion to risk. You will be the lender and collections, repossessions and charge-offs are part of the Buy Here – Pay Here business. The current industry average is that about 30% of the accounts you sell will be charged-off before the account is paid in full. Good underwriting practices, proper deal structure and a comprehensive, consistent collections system can reduce that number. Structured properly, a Buy Here – Pay Here operation can still make good money even with these losses figured in but you must understand and accept the risk before entering this business. Buy Here – Pay Here is not for everyone.
- The final point you must contemplate is understanding what you do not know. The Buy Here – Pay Here business is not the car business; it is much more like the finance business. A Buy Here – Pay Here dealership does not run like a typical car dealership. For example, you cannot afford to pay salespeople a commission for sales at a Buy Here – Pay Here dealership. You would be paying on money you may not collect. By understanding what you do not know about the Buy Here – Pay Here business, you will discover where you need help to make your operation a success. There are several outside firms that supply quality training and education in the field. There are also national conferences where you can learn more about the business. To be successful, you need to take advantage of every opportunity available to improve your knowledge of the business.
Only you can decide if the Buy Here – Pay Here business is right for you. The opportunity is there, the potential for profit is there. The customers are waiting. Don’t you owe it to yourself to at least consider adding Buy Here – Pay Here to your existing operation?
