You keep hearing that dealers are making good profits in Buy Here Pay Here. You have decided that you would like to pursue the business. What is your next step? After all you may have been in the car business for years. You understand buying and selling cars. You know how to run a compliant Finance Department and a profitable shop. Isn’t BHPH or LHPH just other ways of financing cars?

The answer is not as simple as it might seem. A BHPH or LHPH operation takes dedication. You will have to be diligent every day. You will not only be running a car dealership; you will be running a finance or leasing company. The daily operation isn’t more difficult, just different. You will have trouble being successful if you put a few high mileage, low dollar trades on a lot and have your used car manager do a few notes.

In BHPH/LHPH or Dealer Controlled Financing (DCF) you will be selling cars, dealing with service and doing contracts. Simultaneously you will be collecting the payments from customers that are financially challenged and need your help keeping their personal lives straight. Most of these customers are good folks and they intend on paying you. Just remember every time you sell a car it costs you up front. The money comes in as you collect. 

You should decide what type Dealer Controlled Finance operation you would like to be. I have been involved in 3 different operations in the last 16 years. One operation financed cars that had an ACV around $1,500 to $2,500. There was little recon and very little service offered after the sale. All loans were 24 months with weekly payments.

From there I moved to a BHPH operation that was part of a large high-line dealer group. We had an ACV average of about $10,000 with a full recon schedule spending about $700 a vehicle. We offered service contracts, GAP and Credit Life. Some of our loans exceeded $20,000 financed with 48 month terms and 26% interest (in Texas). This operation had a $17M portfolio with 2,500 cars on the books.

The last operation was a combination of the two. We kept the ACV closer to $7,000 average with a full recon schedule of about $600 PRU. We offered service contracts and GAP on every loan with 36 months being the standard term. Our loans would average about $12,000. We were in Arkansas where the usury was very low when we started and during 2012, we ran all loans at 7.5% interest rate. Our operation also reported all activity to Trans Union.

All these operations were primarily BHPH. In other words we marketed the business as “in house” financing and we would sell a few cars for cash. Some dealers are primarily “retail” and they do a few in house loans with the right customers. I believe this is one of your first decisions as you consider a plan to become a Dealer Controlled Financing (BHPH/LHPH) operation. How you advertise, how your salespeople greet customers and how your shop operates will be different depending on what type dealer you have decided to become.

As with any automobile retailing business you will have accounting, service, inventory, sales and fixed operations. In BHPH or LHPH you will also have the functions of another company--your finance or leasing operation.  You will be building a portfolio that will require underwriting and collections. These positions are not typically filled from your existing associate pool.

There will be new compliance issues, tax laws, paperwork and operational aspects you may not expect, but if you are ready to get started there is plenty of help available. NCM Associates offers webinars, on-site
and off-site training and consultation along with 20 groups specific to the Dealer Controlled Financing or BHPH/LHPH industries. You don’t have to go it alone or guess; invest in some training, mentoring or consulting. Save the money and headaches of learning as you go. Brent Carmichael and I have 40 years of combined experience we can share to help you through your BHPH adventure.

Gene Daughtry is an executive conference moderator, trainer and consultant for NCM Associates with specialization in sales, finance and special finance for franchised and BHPH/LHPH dealership operations. To reach Gene, email gdaughtry@ncm20.com or call 913.649.7830.