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AWord tothe T Wise here has been an increasing amount of negative press about our industry lately. It started with a poorly researched article in the Los Angeles Times and spread across the country. Many of my clients are extremely upset over the mischaracterization of the buy here-pay here business and the portrayal of the stereotypical dealer. I feel your pain. You can certainly write responses to the editors or cry foul through your associations or just stew about it. Those approaches do little good when you attempt to illustrate a true picture of this business. Please consider the following as a far superior approach to your business and recognize that your actions speak far louder than just words. I ask that each dealer reading this article look in a mirror and ask yourself, “What kind of dealer am I?” Am I the type who repossesses vehicles multiple times? Am I a dealer who feels all vehicles should be sold “As-Is”? Am I a dealer who does not recondition my inventory because my customer doesn’t deserve it? Am I a dealer who treats my customer as a second-class citizen, undeserving of my concern? Do I charge the highest interest rate allowable in my state? Do I lie to my customer in order to sell a vehicle or to “trick” them into paying? Am I a dealer who sues for deficiency balances? If you answered yes to any or all these questions, you may want to rethink your business plan, mission, and consider a better way to reap the rewards of buy here-pay here. Despite conventional wisdom, we DO NOT make money selling a car over and over again. This approach requires that you pay (real money) to repossess cars, recondition cars and pay sales commissions over and over while NEVER collecting the profit. You also incur cash expenses to run the business and service the account. Secondly, it is unwise to be the “Repo King” of your market as you inevitably lose market

share when you run out of customers or as your repossessed customers share their experiences with family, friends, and neighbors. The old days of selling cars “As-Is” is long past. That strategy came from the fact that vehicles were once manufactured so poorly that the risk to cover them was far too great. Secondly, due to the lower retail prices and short-term contracts, it made little sense to stand behind those vehicles. Today, the average BHPH vehicle is purchased at auction for well over $5,000 and requires $1,000 more in repair and reconditioning costs. These contracts require three years or more to pay off. Warranting the vehicle pays off two ways. First, is that a formalized warranty is easy for your customer to understand and use and keeps the car running which is essential in your world. Secondly, it should give your customer comfort that we will back a product we did not manufacture and that we truly want to keep their car running. For all of you nay-sayers, please answer this question: What is the first thing you do when you repossess a vehicle for mechanical issues? YOU FIX IT! So fix that vehicle with this customer. It’s just good business. Proper reconditioning to vehicles is critical today as you write long-term contracts. The average contract requires 15-plus months to recover your cost of the car and an additional 3-6 months to recover the overhead associated with the vehicle. Do not cut corners or hope the customer will not care about the condition of the car. It is your responsibility to make the car safe and mechanically sound. It is a wise business move to do proper reconditioning prior to the sale so that your pricing will reflect the repairs and your customers will pay for those repairs over time. Repairs after the sale are troublesome for two reasons. The first is that any goodwill repair directly affects your bottom line and secondly, the bad will be associated with

broken cars, decreases the probability of the customer paying, and also the likelihood that they will recommend you to their friends and family. Your mark up to vehicles must be sufficient to cover your operating expenses as well the expenses for bad debt. Your vehicles are priced accordingly based on your costs. You need not be ashamed or embarrassed by that. You should offer services and programs to your customers that add value to the ownership experience. Long term warranties free vehicle maintenance, loaner cars, parties, giveaways, nomoney-down opportunities on their next vehicle and even lowered interest rates on second vehicles. These are services and programs nobody writes about. Each of you has a cost of capital to be in this business (whether you capitalize with your own money, private money or bank lines), it is finance 101 that you must charge more to lend than you pay to borrow. Every state has usury limits (okay some don’t) but ask yourself if you need to charge the state maximum on every deal? You may consider tiered interest rates based on customer contribution (down payment) so that you are not dictating the rate but allowing your customer to decide what level of financing they require or desire. Also, don’t “stuff” customers in vehicles. It is bad for business when you dictate the vehicle they can buy. Of course, you want to put them in an affordable vehicle, but give them choices. The collection process needs to be one that emphasizes customer service. The collection of the contract is paramount to your success. It cannot be your desire to take people out of cars but must be

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VIADA Summer Magazine 2012  

It's time for Convention!