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The BHPH Debate

August 2009, F&I and Showroom - WebXclusive

by David Kelly

There’s no doubt that obtaining financing for your customers has never been more difficult. It’s one of the reasons why the buy-here, pay-here (BHPH) approach is such a hot topic these days.

I realize this topic has been covered ad nauseum, but, as a dealer, I know firsthand the struggle we face with increasing revenue, increasing attrition, growing sales, cash flow, training, compliance, financing, floorplanning, buying inventory and closing deals.

It’s true that today’s economic crisis is forcing many of us to go back to the basics, but now might be the perfect time to seek out new revenue streams. But remember, if you choose to go down the BHPH and/or special finance path, don’t dabble, as it takes 100 percent commitment. Here are my seven points and counterpoints to taking the plunge into buy-here, pay-here.

1. Revenue Stream vs. Expenses

Point: BHPH will create a new revenue stream for your dealership. Let’s figure on an extra 30 deals a month at a minimum profit of $1,750 per deal. This equates to $630,000 annually, right?

Counter: Taking such a leap, especially one of this magnitude, will cost you capital. You will need inventory — some of which will come from trades — training, sales and office staff. And let’s assume you house your BHPH operation in a separate location. That means you’ll have to factor in things like rent, salaries, floorplan rates, loan service, and commissions into your plan — expenses that will cut into your potential net gains. And let’s not forget the risks involved in making such a move.

2. Sales vs. Loan Servicing

Point: You will no longer have to turn away good deals because you can’t obtain financing for your customers.

Counter: You have to service these loans, which will necessitate more staff, infrastructure, processes, and compliance!

3. Customer for Life vs. Reputation Risks

Point: You can create a true customer for life if he or she is handled properly. This could equate to tens of thousands of dollars of profit from one single customer.

Counter: The car’s quality will still matter. You’re only as good as the vehicle you’re selling, and poor car quality will quickly kill a dealer.

4. Brand Recognition vs. Brand Damage

Point: BHPH will increase your brand recognition, and you can easily become the only car dealer in town that truly services all credit tiers.

Counter: Branding can be difficult, especially in today’s climate. Your brand will be damaged if you sell bad cars. You simply can’t damage your brand if you want to survive.

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