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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5. Outside Loan Servicing vs. In-House Servicing

Point: There are a number of loan servicing companies that will manage these loans for you, so all you have to do is sell the car. Your profit is in the sales price and the down payment, while the principal payments come back to you as well. The interest, however, goes to the loan servicer.

Two loan servicing companies that come to mind are FinCo Management and Pelican Resource Group. These companies provide huge benefits, especially when it comes to compliance. They both offer programs that allow you to start receiving a cut of the interest once you meet a minimum number of deals.

Counter: Why give the money away to someone else when you can do it yourself? My opinion is mixed on this issue. If you’re on top of compliance and have a great attorney to help develop your BHPH operation, then you can manage this internally. However, if you’re not fully committed to being compliant, then let the pros handle it for you. The cost if you do make a mistake, and you will, is just too severe to risk it.

6. Advertising vs. Training

Point: No additional advertising is needed, as you probably already have a host of customers that can’t obtain financing through traditional avenues.

Counter: Your staff must be trained to handle these customers. You are going to have to figure out a way to convert these customers from the high-dollar new or used vehicles to the lower-dollar units. As I said previously, you probably have a host of customers that fit the BHPH model; however, if you mistreat them, especially at this critical juncture of the deal, you may lose them forever. And is there anything worse than losing a willing and able customer?

7. Increased Cash Flow vs. ... ?

Point: You will be able to increase your fixed operations revenue and increase cash flow. The rule of thumb with BHPH is that the down payment will cover your true cost of the vehicle so that your risk is limited. This means that any payments made by the consumer are 100 percent profit. Obviously, I am speaking in generalities here, as there are exceptions, such as you being willing to take less money down to put a low-risk customer into a more expensive car.

Counter: As much as I try to come up with a counterpoint to this one, I can’t. I don’t see a downside. Maybe I’m missing something, but increasing fixed ops, cash flow and customer retention all sound like good ideas in any car market, let alone the one we’re currently struggling through.

David Kelly is director of finance operations for the McLean, Va.-based Easterns Automotive Group. He can be reached at david.kelly@bobit.com.