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Hot Topics from National Alliance of Buy Here-Pay Here Dealers’ 2015 Annual Conference

Posted 5:15 PM by

Back of Cars

Members of Katz, Sapper & Miller’s Buy Here-Pay Here (BHPH) Services Group attended the National Alliance of Buy Here-Pay Here Dealers’ 2015 Annual Conference – the largest used-car conference in the U.S. Taking place in Las Vegas, Nev., the 17th annual event addressed the following developments and trends affecting BHPH dealers.

Lease Here-Pay Here

Due to some significant tax advantages – specifically the elimination of upfront sales tax in most states – lease accounting continues to be an intriguing method of accounting for dealers. However, there are several challenges and pitfalls that dealers need to know before entering into lease accounting.

Lease accounting is complex. Both the balance sheet and the economics differ from a traditional BHPH model. Determining whether Lease Here-Pay Here (LHPH) makes sense for your operation is a complicated analysis that will require legal, accounting and software guidance. The legal and regulatory changes are significant, and a change to LHPH has substantial impacts on both your employees and your customers. 

IRS Audit Activity

The majority of conference attendees and practitioners agreed: The Internal Revenue Services’ (IRS) audit activity of BHPH operators remains high. If an operator is utilizing a related finance company (RFC), IRS agents spend a good amount of their time examining the RFC’s structure and transactions with the dealership entity.

It is important for the two entities to make payments or settle any inter-company balances. If payments are not being made on the inter-company balances, the IRS will question whether the RFC is a viable, stand-alone entity. Discount percentage and financial independence are other areas the IRS agents will look to challenge.  

Raising Capital, Selling Contracts

In the last 12 months, there has been more interest by dealers in selling loan receivable contracts.  In response, there are many available lenders looking to buy contracts and the market is competitive. Besides helping with cash-flow issues, selling contracts can act as a potential succession plan.  Dealers who are looking to close shop may be interested in liquidating their portfolio to expedite the process. 

Lenders had the following advice for dealers looking to liquidate their portfolio.

  1. Break down your portfolio into 3-4 groups, based on the customer payment history. This gives you an opportunity to sell by group and prevent delinquent accounts from negatively effecting a lump-sum purchase price.
  2. Look to liquidate over a period of time, at least 2-3 months, before closing your doors. When your car lot is active, your portfolio looks more attractive to lenders while they start to make collections from customers.

Industry Outlook

The BHPH industry has seen its ebbs and flows of subprime lenders encroaching on the higher quality BHPH customers. This trend typically lasts for a year before the customers return to the BHPH lots.  Now that we are in Year 2 of the current subprime lender trend, dealers need to know their plan for 2015. The following three options were discussed:

  1. Ride it out – focus on you current fundamentals of solid underwriting and collections.
  2. Chase it – add cars in the $15,000 sales price range to draw in better quality customers.
  3. Dip down – Reach for additional low-end customers with the hope that increasing volume will pay off.

Regardless of the strategy used for this year, it was evident the 2015 tax season was slower than usual, and, as a result, dealers need to look at all opportunities and means for increasing traffic.

Web Presence

Speaking of increasing traffic, every dealer should analyze their current Web presence, beginning with their website. It is important the website not only focuses on car financing (and not on the cars themselves), but also utilizes search engine optimization to help drive traffic.

Next, start viewing social media as a full-time job. Having active, consistent Facebook and Twitter accounts, with weekly or daily posts, keeps you relevant with your customers. It can also help boost traffic and provide new leads.

About the Author
Jeff Taylor is the partner-in-charge of the firm’s Dealership Services and Buy Here-Pay Here Services Groups. Jeff is experienced in the areas of mergers and acquisitions, cash management, financing, forecasts and projections, tax planning, and business structuring. Connect with him on LinkedIn

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