This snapshot, brought to you by Katz, Sapper & Miller’s Buy Here – Pay Here (BHPH) Services Group, summarizes issues and challenges gleaned from recently held BHPH automobile dealer conferences and their current and future impact on the BHPH market.
Insurance/Warranty Sales – Many dealers are considering or already offering a variety of after-market products such as auto warranty/extended service contracts (separate or embedded); collateral asset protection for leasing; GAP insurance, etc. As car sale margins decline, additional revenue sources are becoming increasingly important. It is imperative that these operations are structured in a way that complies and takes advantage of the relevant provisions of the tax law. Offering such products while providing valuable protection can provide additional revenue with minimal cost. Whether you already offer such products or will begin anew, analyzing and considering changes to your insurance products offered with each sale is an opportunity to increase profit and lower taxes.
Capital Sources Loosening – In recent years the number of lenders who attended and exhibited at BHPH automobile dealer conferences had declined sharply. In 2012, the amount of lender exhibitors increased; discussion among BHPH owners shows that opportunities for capital are becoming more prevalent. All dealers who have had capital shortages in the past and are performing strongly should consider capital opportunities in the BHPH market.
Inventory Shortages – Dealers are continuing to struggle to find appropriate automobiles for resale. According to industry experts, this problem will persist for several more years due to increased demand and recent decreases in the production of new vehicles. Dealers need to be creative and look to adopt new methods of acquiring inventory including utilizing such options as classified ads/for sale by owner, Craig's List, eBay, and other electronic sources.
Fraud – With the increased usage of electronic information and the availability of software applications that make it easy to reproduce and modify electronic information, dealers are seeing a rise in fraud. Dealers should examine their internal controls on a regular basis to make sure that they have adequate controls in place to detect and prevent fraud.
Consumer Financial Protection Bureau (CFPB) – There has been much discussion in the BHPH industry concerning the newly formed CFPB. The CFPB is still in the start-up and fact finding phase, but it has been ramping up quickly and hiring many staffers. There is great speculation as to the type of regulation that will come out of the CFPB, but little doubt of increased regulation on the BHPH industry. Dealers should continue to monitor the progress of the CFPB, so as to quickly adapt to any new regulation.
Community Involvement and Customer Relationships – With the rise in activity from the CFPB and increased competition, dealers are finding it beneficial to become more involved in and make contributions to their community. Additionally, they are finding the need to be more proactive in creating long lasting relationships with their customers. It is important that the community has a positive perception of the BHPH industry, recognizes the role that dealers play in their community, and understands it is a benefit to have these types of businesses in their neighborhoods. Taking the time and effort to create relationships with customers has shown to increase sales via returning customers, assist with collections, and help customers reestablish themselves in society.
Leasing – Leasing continues to be a hot topic in the BHPH industry. There are several advantages to a Lease Here - Pay Here model over a BHPH model, but the largest roadblock for dealers looking to convert continues to be their lending sources. Considering this is a relatively new topic in the BHPH industry, lenders are finding it difficult to get comfortable with the leasing model and are taking a hard look into understanding its benefits. Leasing appears to be gaining more acceptance in the lending community, however, which is a great sign for those dealers wanting to make the switch.
To further discuss any of the items above or learn more about how Katz, Sapper & Miller can help your dealership, please contact Jeff Taylor or Kevin Sullivan.