Wednesday, Jun. 27, 2007, 08:00 PM UPDATED 11:59 AMBy Nick Zulovich
NASHVILLE — The competition in the buy-here, pay-here sector is heating up as more and more franchised and independent dealers are testing the waters by jumping into the business to boost profits.
During a free-wheeling workshop and discussion at the recent National Independent Automobile Dealers Convention and Exposition, three successful BHPH dealers addressed how this development is impacting their business.
What they said concerned them the most was not the increased competition, but the lack of educational training among many dealers entering the BHPH marketplace, and how the industry as a whole suffers if they fail.
John Linnehan, founder and chief operating officer of Credit Now Auto Co. in Ellsworth, Maine, said that he's noticed a spike in national interest on the part of both franchised and independent dealers in the BHPH industry.
"They're getting into it because the money is easily available right now. You can get a floor plan line, you can buy at the auctions, and there is a lot of available capital," Linnehan pointed out.
Linnehan said the BHPH segment remains profitable, but perhaps not as profitable as it once was five to 15 years ago.
"A lot of times people get into this segment and don't understand the cost of doing business. They make a lot of mistakes. They take the wrong customers. They buy the wrong cars. It's definitely a learning experience," he explained.
Not mincing his words, Ray Lyle, president of Nice Cars, of Chattanooga, Tenn., said, "In our area in southeast Tennessee and north Georgia, we've seen an increase of interest in buy-here, pay-here, both from franchise dealers and others. But what I've not seen is an increase in the learning level to be successful in the buy-here, pay-here business."
"There are people who want to come into this industry who don't know what they're doing but have a pocketful of money," he noted.
"I've had many franchised dealers call me up out of the blue and tell me that they're thinking about getting into the buy-here, pay-here business. My first response is, ‘What training and education have you received in buy-here, pay-here?'" Lyle told attendees.
"They then say, ‘Oh no, we just want to visit you.' I then say, ‘You have to convince me that you know something about this business,'" he stressed.
Continuing that thought, Lyle added, "I'm not going to take my time and try and assist them when they don't know even the right questions to ask."
Don Fincher, owner of Fincher Motors, of Houston, Texas, also chimed in. He, too, expressed concern about the negative impact of failure.
"It's true that there are more and more new-car franchised dealers getting into the buy-here, pay-here business because they see the profits. But if you don't know what you're doing, this is one of those kind of industries that will reach up and bite you real quick," Fincher said.
"Before you know it, you'll be out of business, and that hurts all of us, especially as banks see a franchised dealer going bankrupt," he reported. "That causes more damage to our business."
So Fincher said that BHPH dealers should unite and support various educational efforts offered by NIADA state associations, as well as from the National Alliance of Buy-Here, Pay-Here Dealers.
"We need to support all of these organizations," he told the audience.
The panelists also addressed their varying approaches on acquiring the right inventory for their market, along with discussing some of the challenges they face in acquiring those vehicles.
Here are some of the tips they offered their fellow dealers.
—Fincher: "I drive around and look at other dealerships and see what they have on their lots, and whatever they have, I buy just the opposite. I want to have what nobody else has.
"Also, our lot is square dab in the middle between stores owned by my brother and sister. I buy whatever they don't have. So we have a special niche in our market, and we only sell fast-moving cars — a lot of Cadillacs and Buicks with low miles. I buy them mostly at auction but can't rely only on Texas, so I go outside of my market area. We also buy via Manheim OVE.com and I go to other dealers who have my kind of vehicle but don't have need those cars themselves."
—Lyle: "Eighteen to 24 months ago, when franchised dealers started figuring out the only way to make money was to keep their used cars, we only had one buyer traveling our area, and his goal was to buy 100 to 125 cars a week.
"Today, we have two buyers not only traveling in our area, but now up and down the entire Eastern seaboard. They're looking for 125 to 150 cars each per week. And it's difficult to get it done even then."
—Linnehan: "We handle all makes and models, and we let our customers dictate what we should buy. We're very fussy. We'll try any segment out there worth buying, and we'll then track how it turns and what we can gross on it. If it's turning fast and getting good grosses, we add those vehicles to our buy list.
"But a whole new arena we've started up is a powersport division — ATVs, motorcycles and campers. We've been financing them. They're turning faster than our cars, and we have a third of the repossession rate that we have with our cars. Gross has been good, and our lots are flowing with customers. We've found a whole new breed of customers coming in."
But none of the panelists indicated they are pro-hybrid for their BHPH markets.
Linnehan said he has tried some hybrids in his specialty finance business, but they didn't pan out.
"I think we sold only one of them, so we ended up wholesaling them," he pointed out.
Lyle and Fincher both said hybrids were out of reach of their customers and that repair costs were out of sight. Plus, they said they expect to see hydrogen vehicles develop in the future, and they'll watch to see if that type of hybrid vehicle will take off. Otherwise, they both said they'll continue to pass on the current versions.
Linnehan, Lyle and Fincher also shared some helpful tips on how they hire sales associates for their respective dealerships.
"I've always gone by the philosophy that you hire the smile, and you can train the rest. I hire somebody who is personable and enthusiastic. If I hire somebody that I think people will like, respect and trust, we can train them on how to sell a car," Linnehan said.
"At least 40 percent of our sales staff are women," he added. "I'm thinking of opening up another lot, and we'll staff it totally with women. I think it's the right idea, and I'm willing to try it."
Lyle said none of his hires came from the car business. "We don't want to break your habits, good or bad. We want to you to learn our way," he explained.
"We never hire salesmen per se. You never start as a salesman; you graduate up to that. You start as a reconditioning guy, learning about cars, driving them and arranging for repairs," Lyle continued.
Almost all of his hires come from his employees themselves, Lyle added.
"We have an employment recruitment program, and we pay $600 for our employees to recommend other employees," he noted.
Fincher acknowledged that the worst decision he ever made was hiring those "older people who think they know all the angles, all the tricks."
"We've had tremendous success hiring college graduates," he said. "The car business is a great spring board for them, and they learn how to speak to people. They have a degree, and they can make a lot more money with you than they can make elsewhere. So I recommend hitting your local college campuses and find just the right potential sales candidates there."