|Amazing as this may seem to some of you, if I were to ask every Buy-Here Pay-Here dealer how many accounts they had on the books right now or what was the principal balance of those accounts, too many dealers would not know. If I were to ask those same dealers how many inventory units they had on hand or the value of that inventory, almost all would know. Most dealers have somewhere between ten and forty times the dollar value wrapped up in automobile notes than they do in unsold inventory. These dealers know every detail about every unit in stock, yet not many of those same dealers can tell you what their contractual delinquency and account regency is at this moment.|
|One might assume this attitude towards their receivables stems from their background. Many dealers come from the world of automobile retail and all of their training and experience has to do with buying, marketing and selling vehicles. Unfortunately that is only half the equation when it comes to the Buy-Here Pay-Here business. No, strike that! If you are in the Buy-Here Pay-Here business, you are a financier. You are a bank. Buying and selling cars is the easy part. Underwriting and collecting is the hard part. One of my Twenty Group members looks at his portfolio this way ”I have 200 vehicles in stock and 2500 vehicles on the street, therefore, I have 2700 vehicles,” There is a lot of truth to that statement. If you do not collect those customer accounts you will own those vehicles again.|
Many dealers I speak to in my travels say to me “Oh So-and-So takes care of the collections or I hired someone to watch my portfolio”. Of course they did and if they are wise, they pay that person well to manage the portfolio. But do these dealers know if that person is underwriting the desired customer or for the optimum term? Are they collecting every dollar possible? Are they repossessing too soon or too late? Well they better know. Are these the same dealers who go ballistic when the cash drawer is $5.00 short? This all may sound a bit harsh, but the reality of the situation is this, the most valuable asset you have and in some cases your entire financial worth is tied up in these BHPH loans. If the lion’s share of my money was tied up in one place, I sure would watch it very closely.
Dealers tell me they are “Cars Guys,” Great, but you are also “Bank Guys”. It is important to realize how much of your financial well-being is tied up in these loans. Take the time to learn how to evaluate the health of this “investment.”
Here is a simple quiz for you to determine how well you are paying attention to your biggest asset:
#1 How many accounts are on your books right now?
#2 What is the principal balance due on those accounts right now?
#3 How many accounts are 1-day/$1.00 past due right now?
#4 How many dollars did you collect last month?
#5 How many dollars do you expect to collect this month?
#6 How many charge offs have you taken this year? What are your net losses YTD?
#7 How many charge offs have you taken this month?
#8 How many accounts are out for repossession right now?
#9 How many skips do have right now?
#10 How many calls did your collector(s) make today?
#11 How many promises did your collectors take today?
#12 How many broken promises do you have from yesterday?
#13 Are there any gaps in your collectors efforts to reach your customers?
#14 How many accounts should each collector be responsible for?
#15 What are my static pool losses over the past two years?
#16 Are cash collections on a good trend or a bad trend over the last six months?
#17 Is delinquency trending up or trending down over the last six months?
#18 Is repossession frequency and charge offs trending up or down during the last six months?
#19 Are my loans being underwritten and closed exactly the way we require them to be?
#20 How do you know?
Simple enough quiz, right? How many of you knew all the answers? If you didn’t know the answer to every one of these basic questions, you are not 100 percent on top of your biggest asset. So what is the solution?
Easy, get educated! Get educated by consultation with professionals; Get trained through your state association; Attend conferences and workshops; Join a twenty group; Use the Internet; Talk to your accountant. By learning how to analyze the health of your loan portfolio, you will be able to act and react quicker to trends and ultimately be more profitable. Cover your assets!!!
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