19 Nov

A great article that Ken Shilson, founder and President of the National Alliance of Buy Here Pay Here Dealers, wrote and has graciously allowed us to share with you here.

New developments in the Buy Here, Pay Here (BHPH) industry are happening at an unprecedented pace, and new operators are entering the business in record numbers! Both new entrants and experienced operators are seeking exceptional profit opportunities in the low yielding economic environments of today.

Caution! The old ways aren’t working like they used to and operators need to understand all the new developments, how to capitalize on the profit opportunities, and avoid the fatal pitfalls to prosper in BHPH today. To succeed BHPH operators need:

a)      Capital

b)      Access to the right vehicles

c)      Technology and efficient systems

d)     Trained personnel who execute effectively

e)      Knowledge of the rules and regulations (both federal and state)

f)       A cash-efficient business model that maximizes ROI (return on investment)

g)      Prudent financial management that monitors performance.

After reviewing the list above you may conclude that nothing is really new? Take a closer look:

Capital – The capital markets are opening and money is more readily available for good operators who have experienced management, efficient systems, and portfolio performance metrics. More sophistication is expected when borrowing money today! The contract purchase market is extremely competitive and operators today should carefully consider whether to hold their contracts or sell them off at favorable prices. Therefore, portfolio metrics, static pool, loss/liquidation and default rate analysis is needed to make the right decisions.

Technology – New technology is changing the way BHPH business is being done. Electronic payment processing allows customers to pay from anywhere. Payment device technology enables you to find and maximize recoveries when customers don’t pay. Social media is the best new way to build a bond with your customers and texting is replacing emails. Wow!

Personnel – It takes more skill and knowledge to prosper than even before. This knowledge requires specialized training and monitoring. “Inspect what you expect”! Experienced personnel must be trained and developed, not recruited. In the future the industry must find new ways to attract young, talented professionals with technology skills.

Vehicles – The supply chain has shortened and become highly competitive and expensive. New car trades may improve supply during the next few years, but not overnight. Operators today need to carry a broader mix of inventory to meet customer needs (and budgets). Technology is needed to broaden sourcing and identify new procurement opportunities!

Compliance – The rules and regulations at both the state and federal levels are increasing in volume and complexity. Operators should establish a compliance department which is directed by a Chief Compliance Officer. An outside team of professionals, including a competent, knowledgeable attorney; a CPA; and a banker are now needed more than ever!

Business models – with capital becoming more expensive and vehicle acquisition costs rising faster than customer down payments and repayments, a more cash efficient business model is needed. While various BHPH business models can be profitable operators must consider ROI in selecting the best one. Calculating ROI requires an estimate of future losses. Loss estimates must be based upon portfolio metrics and loss curves. More analytical skill and sophistication is needed to project losses and capital requirements.

Financial management/monitoring – trial and error mistakes are very expensive and must be avoided. Operators must learn from their losses, not repeat them! Expenditures must be carefully scrutinized by competent financial professionals who monitor performance and recommend changes to maximize profitability and cash flow.

Operators who recognize and implement the strategy above will prosper today and in the future while competitors who don’t fail. Visit for more information or call 832-767-4759.

NABD is the only used car special interest group exclusively for the self-finance industry. Membership is open to anyone in the BHPH industry and to service providers. Members pay no dues.