7/28/09
5:03 PM
Page 1
August 3, 2009
www.usedcarnews.com
(800) 554-1026
www.BlackBookUSA.com
FINDING FINANCE
Former Franchise Dealers Scramble for Consumer Credit Sources By Ted Craig
University Chrysler in Oxford, Ohio, is starting life over again at the age of 78. The store has been selling new cars in this town since 1931. The owners are now switching to used cars after losing their Chrysler franchise earlier this year.
WELCOME to the
USED CAR BUSINESS A continuing series on franchise dealers moving into used car sales
The name will change once the state approves University’s used-car dealer license. “It’s going to be business as usual with the exception of not selling new vehicles or doing warranty work,” said dealer principal Greg Kenwell. Of course, business has a different meaning now than just a year ago. Financing presents one of the biggest challenges for dealers like Kenwell as they move to
Rush - Dated Material
UCN_01
used sales from new. Dealers who lose their franchise also lose access to a captive finance company. The change at University will prove minimal, though. Kenwell said Chrysler Financial stopped providing much financing last year when it exited the leasing business. The store finds alternate sources of credit for customers these days, mainly through credit unions. Captives are only one finance source dealers lose. Many finance companies avoid independents entirely, although dealers say that’s starting to change. Some finance companies are expressing a preference for independents, dealers report. But consultant Greg Goebel said many finance companies are leery of former franchise dealers entering the used-car business and will not do business with them without an existing relationship. These dealers must learn a new way of doing business. Many franchise dealers focus on selling late-model used vehicles to high-credit consumers. Selling used cars only requires expanding the client base. This means specialty finance, said Dave Anderson, president of Learn to Lead. “Dealerships that have not embraced secondary financing may now find this aspect of the business far more essential if they want to expand their reach in the used-car market,” he said. Hare Chevrolet in Noblesville, Ind., kept its franchise. Maintaining relationships with creditors proves more challenging, said dealer principal Courtney Cole. “They’re all hot and cold these days,” Cole said. Hare does considerable business in subprime finance already. This lack of credit leaves some
Photo by Kristin Craig ON THEIR OWN: Meadowbrook Motors draws customers through window signage, promoting its finance opportunities. The Rochester Hills, Mich., dealership had a Dodge franchise until this spring.
dealers considering in-house financing. Ken Shilson, founder of the National Alliance of Buy-Here, Pay-Here Dealers, warns that many dealers move too quickly when entering buy-here, payhere out of desperation. “A few of them are just going to be taken to the cleaners,” Shilson said. Shilson has heard numerous franchise dealers say they were considering in-house finance during the past few years. Now many are racing into it. Buy-here, pay-here is a major investment of resources, Shil-
son said, especially capital. Dealers entering the business need more money than they usually anticipate. It takes time to develop a good model to project these needs, Shilson said. It may seem dealers lack the time for this amount of planning. “It will be worse if they don’t know what they’re doing,” Shilson said. Jim Neubauer, marketing director for Vehicle Acceptance Corp., said the amount can be lower if the dealer’s willing to sell his paper to a company like his.
Dealers must adjust their operations, though, Neubauer said. One is adjusting inventory downward to fit the new business model. The other is losing money on service. Many buy-here, payhere dealers lose money because they believe they must keep cars running at all costs so customers will continue paying, Neubauer said. “Make sure the note is running before you fix the car,” he said. (The next installment looks at certification without a manufacturer.)
IN THIS ISSUE • State IADAs cut back on events as attendance drops. – Page 3
• A service contract provider partners with a tire store chain. – Page 5
• Politicians take aim at pre-dispute arbitration clauses. – Page 4
• Payment assurance technology continues growing. – Page 8
HOW CAN WE WORK FOR YOU? To learn more, turn to the back page.