BHPH TALK ... from bhphconsulting.com

GPS vs. Starter-Interrupt (Or Both)

Jim Rhoads — Wed, 01 Feb 2012 21:28:47 +0000

Technology is a beautiful thing! And on behalf of all BHPH dealers, let me say a big “thank you” to all those providers who brought us GPS and starter-interrupt to help manage our poor credit portfolios! Now, which one is right for you? I’ll answer with a question. Do you want the payment or the car? Hmm. Well, what did you decide? Oh, I know, it’s not quite that simple but I do view this as a major difference. I view starter-interrupt as a payment motivator of sorts. When the customer is faced with the possibility their car won’t start, they call us! Or come in! Did I mention how much we appreciate you start-interrupt providers? Without GPS, we may not know right where the collateral is but that is not always first concern. Some of us in BHPH are pretty darn good at knowing where our customers are and where our collateral is parked. So, GPS may not be essential. For others with high cost vehicles, GPS may be what allows the dealer to sleep at night. Either way, as a BHPH “purist” I suggest that we all recognize that GPS is “making it about the car” rather than the customer or the payment. That’s okay for those who choose to go this way. I am simply suggesting that this philosophical difference is what should drive the starter-interrupt vs. GPS decision. (Got budget for both? Good for you!) For those choosing GPS only, please just avoid the trap of feeling like GPS is doing your collections job for you. GPS is helping you recover your collateral. Was that your goal? If not, remember that training and more training helps you collect more customers and payments.

Using (or Not Using) Debt to Income Ratio in BHPH Underwriting

Jim Rhoads — Wed, 01 Feb 2012 21:26:10 +0000

I am a realist when it comes to the BHPH consumer. The reality is that poor credit consumers will only manage properly what they are required to manage. I am also a realist when it comes to priorities for poor credit and lower income folks. They have to take care of their families just the same as those with good credit. They have to eat and they need a roof over their heads. As a BHPH dealer, I say the car payment comes next! So, as a “front-line” BHPH dealer, I suggest that debt to income ratios are of little use. Oh, I take into account the house payment and the number of mouths to feed, but I place all other debts behind the car payment and we make the customer aware that we see it that way! Again, they will do it if we require them to do so!

Payment Limits in BHPH

Jim Rhoads — Wed, 01 Feb 2012 21:22:36 +0000

If you’ve been around BHPH any time at all, you’ve heard the old story about the BHPH customer who says he couldn’t afford $200 per month but could definitely handle $60 a week. This is more of a reality than a joke. We have statistical proof! While I can’t tell you in a paragraph or two how much payment is too much, I can tell you there is a limit. And yes, every customer is different. But, on the whole, poor credit consumers are poor credit consumers because there is a limit to what they can manage. Push BHPH customers above $325/month (regardless of their income) and you’ll see a drop off in collection efficiency and a rise in delinquency and charge-offs! Doing well in this economy with an average payment above that, my hat’s off to you!

A.P.R. in BHPH?

Jim Rhoads — Wed, 01 Feb 2012 21:19:47 +0000

How much APR is enough and how much is too much in BHPH? The answer depends in part, on whether you intend to retain the contracts in your BHPH portfolio and collect them yourself. Why? Because marketability of your portfolio is a factor. Some buyers won’t have an interest in contracts with a low APR. Ok, so how much is too much? This question is a philosophical one and the answer lies in your position on costumers fulfilling their contracts. Do you want them to do so? Pay their account in full? I certainly do but not all dealers see it that way. Need a number? Try 19.95 in your business modeling. That is a reasonable target in most scenarios. In a state where you can charge more? What is your mathematical justification for doing so? Hmm….

Who Messed Up?! (in BHPH Collections)

Jim Rhoads — Wed, 01 Feb 2012 21:17:35 +0000

You run your past due list and there is someone on the list who was due yesterday but they didn’t show up and, what’s worse, they didn’t call! Somebody messed up! Problem is, it may not be the customer – at least not only the customer. In Buy Here Pay Here, we need to always look at ourselves first. Oh sure, the customers can be downright irresponsible or worse. But my experience reveals that we bear some of the blame some of the time. Sometimes we squeeze too hard for down payment and the customer neglects rent, or maybe we set the payments too high because we are trying to stay within a certain term. These are just a few examples. I see lots of ways we contribute to the customers’ failure. In a business like BHPH, there are some things we simply cannot control. So, we have to be very good at controlling the things we can. We can’t be the ones who “messed up.” Success in BHPH relies heavily on doing something for the customer that past creditors have failed to accomplish, providing a finance structure that the customer can handle. Then, simply holding them accountable for handling it!

More Flies with Honey (BHPH Collections)

Jim Rhoads — Wed, 01 Feb 2012 21:11:48 +0000

I picture it being some sweet and very wise grandmother from the Midwest who originally suggested that one can catch more flies with honey as a way to suggest that a softer, sweeter approach might produce better results. As I picture the scene from the porch of her farmhouse, I don’t figure she was talking to a Buy Here Pay Here dealer or collector. That would ruin it! But BHPH dealers should take a page from grandma’s almanac. The reality is that human beings don’t look forward to paying bills. None of us look forward to that! So, rather than using an approach that involves a big stick, why not incorporate some incentives for customers to pay as agreed? Why not make a stop at your BHPH location something the customer looks forward to? How about free drinks? Maybe free check cashing? A reward program for on-time payments? Or just a friendly face who takes a minute to listen? Not all customers will respond, of course, so you should keep the big stick close by. This approach should be just one part of your collections program and one that will prove to cost less than most enforcement methods. It will also improve customer relations and employee morale! See, grandma was sweet and wise!

Rolling to Term (When Setting BHPH Prices)

Jim Rhoads — Wed, 01 Feb 2012 21:09:41 +0000

Our primary work is Buy Here Pay Here startups. One area that even experienced business people have trouble with in BHPH, even those who come from the retail car business, is pricing. We emphasize to our clients that it is important to focus on what I have come to call the “reward to risk ratio.” This is simply a measure of the gross profit to the cash-in-deal/exposure. So, to maintain a healthy ratio, we need plenty of down payment and the selling price has to be high enough to yield ample profit. Sounds easy enough but it takes time for most of our clients to settle into that margin. What’s so hard? Why not just “double it and add a thousand” as the old-timers suggest? Or why not just multiply cost times 2.5 and go on down the road? The answer lies in the term or contract length. In BHPH, we operate within some very real limits: down payment according to what the customer can manage or the market will bear, payment amount according to what the customer can or will manage, and, finally, the life expectancy of the vehicle. It is this last one that dictates selling price as much as anything. The down payment will be the down payment. And pushing payments much over $300 per month can be hazardous to your BHPH health! So, the price we set on our BHPH units is limited mostly by the term of the loan and how that term compares to the reasonable life expectancy of the vehicle itself. For that reason, I suggest preparing a quote at the anticipated down and installment. Then, just “roll to term” to see where the contract length falls at you’re A.P.R. and the price you are thinking. From there, you can decide whether the term matches the vehicle. No one can make that determination better than the person who has sat in the driver’s seat of the vehicle! There is no crystal ball, of course, but I suggest dealers maintain a degree of flexibility on term rather than locking in on a target term and requiring the customer to fit that mold. Requiring too much down stifles sales! Requiring too much payment leads to repos and charge-offs! High selling prices can also impact loss rates and cause the dealer to pay more income tax along the way. Reasonable terms at healthy reward to risk ratios make for happy customers and happy dealers!

Deferred Down

Jim Rhoads — Wed, 01 Feb 2012 21:02:35 +0000

I find it interesting that some BHPH dealers have sworn off
deferred down payments altogether. As a dealer myself, I am not in that group.
I do, however, recognize that deferred down payments must be negotiated
properly to be worth pursuing. Press for too much and you put a customer in a
pinch out of the gate. Our mistake! Ask for too little or delay regular
installments and it’s not worth the trouble. Proper training should ensure that
your salespeople are getting additional money without over squeezing. Bottom
line? A deferred down can reduce the dealer’s near-term exposure, and help the
customer attain the wheels, what’s not to like?

Welcome BHPH’ers!

Jim Rhoads — Wed, 30 Jun 2010 12:33:33 +0000

Welcome to BHPH Talk - soon to be Buy Here Pay Pay Here Central! One stop for chat, links, news, etc. The goal of this site is simple: to help folks in BHPH buy better cars, attract more customers, and finance and collect more effectively! One simple goal that depends on you! Jump in!

Thanks!

Jim Rhoads

CEO, Four R Consulting