Changing With The Times

Stepanek's business is about 75 percent buy here pay here. The operation has gradually built up $2.5 million on the books, with 350 to 375 active accounts. By steadily building up his books he's never had to sell a loan.

The key to his success, says Stepanek, was deciding early-on to treat low-credit customers with all the respect you'd reserve for a bank president. "I did something rare 10 years ago," says the dealer, "I started treating these people like human beings. When a guy walks in with $500 and that's all the money they have in the world, they should be treated the same way as somebody with $10,000."

The general attitude among dealers towards sub prime lending at the time, he says, was that they were their customers' last resort. And with nobody else to turn to, the dealers could treat them any way they liked. Now, of course, it's much better understood that sub prime customers make up one of the best categories of customers in the used car business, and their hard-earned money can create the foundation of an excellent profit center.

While Stepanek may not spend much time under the hood of a car any more, the mechanic's training has paid off in several ways. For starters, he is one of the best-educated buyers at an auction. His average car is three to 13 years old with anywhere from 70,000 to 100,000 miles on the odometer. In that class of vehicle, it's easy to get stuck with the kind of car that winds up sitting on a lot, or ends up eating your lunch just fixing it up.

"You need to recognize if that car has been maintained," asserts the dealer. "I can recognize problems with cars that other dealers don’t because of my repair experience." Within seven working days of purchase, Stepanek’s mechanics have changed the fluids, pulled wheels and inspected brakes, and checked the batteries and air conditioning.

Stepanek prices his products and manages his sales in such a way that 95 percent of the people who buy one of his cars also take an optional $1,500 limited, two-year warranty. The first year includes free parts, labor and coverage of the engine, transmission and air conditioning (not an option in a hot zone like Florida). If anything happens to the car while he's still collecting on the note, or at least covering his costs, he can get the car into his shop and back on the road in short order. "Obviously, they are all going to break," says Stepanek, "we just don’t know when." When they do break, a buy here pay here dealer with money rolling around on four wheels needs to be in a position to get them roadworthy again in short order. It's the only way to keep a customer paying on schedule. That's all part of acknowledging Stepanek's first law of buy here pay here: "If the car quits, your customer quits paying."

To stay on top of the cash flow, Stepanek makes sure that he times his customers' payments to their paychecks. If they get paid weekly, he gets paid weekly. That way payments stay in line with customers' income and don’t build up to the point they can devour a full week's pay. If they're so much as one day late with a check, his collections guy is on the phone to find out why.

The phone calls stay nice for the first few days, but by day four the message can be a bit chilly: "I need to see you by closing time today." But that's fairly rare, the dealer adds. In the last year, he's only had to repo about 40 cars. Stepanek estimates that 90 percent of his loans are paid on schedule.

The mechanic-turned- dealer has undergone a transformation on the technology side as well. Early on, Stepanek would use simple gut instinct to guide him in determining which customers to gamble on. No computers, no software, no tech support of any kind. His late father – whom he credits with giving him the kind of tutelage that led to his success – resisted any kind of new technology that was making the rounds.

"I couldn’t even get him to put in a credit card service," says the dealer with a chuckle. As the money in the business has grown, he's had to add new systems to keep track of the money. After starting with a spiral notepad to keep his paperwork, Stepanek is now on his third generation BHPH dealer system: Deal Pack, and he makes a habit of tracking his cash flow.

Gone are the early days when a customer could walk in and put $500 down on a car and Stepanek would have about $500 of his own money on the street. At $50 a week, he needed 10 collections to break even on the car. These days, a customer is driving off with more like $2,500 of the dealer’s money invested in a car. Now it takes six to nine months to break even. As he spends more and more of his time concentrating on expanding his inventory, he has to trust his staff to follow new procedures.

That means would-be customers now have to show his dealership some proof that they can meet their obligations - a pay stub, a utility bill with their address - and allow for checks with landlords, employers and personal references. As 2004, Stepanek has started pulling credit reports as well.

Stepanek considers himself fortunate in the people he's hired to help him grow the business. When he opened his north county lot in early 2001, he called Frank Burton, the recently retired general manager of a local Dodge dealership, to see if he would be interested in running it. He wasn't – Burton said he was past working that hard - but he did have a son named John, who was looking to move to Florida.

Based on a 30-minute interview and a handshake, John Burton moved his small family halfway across the country for a job that guaranteed him $200 a week. Says Stepanek: "He couldn't pay his bills with that. Needless to say, he was very motivated."

Against everybody's advice, Stepanek designed a compensation system for Burton that combined sales and collections so that he helped build receivables. It's worked great for both of them. "He's making a very good living," says Stepanek. The people skills learned on the green as a golf pro have made Burton a clear winner at the buy here pay here game.

"John reminds customers when they are due and reminds them to come in when they are late," says Dave Keller of Davis, Keller and Wiggins, Stepanek's accountant. "He's just very proactive, and he's a really good people guy."

Eventually, says Stepanek, Burton will take over more and more responsibilities on the sales and collections side. This will allow Stepanek more time to buy additional cars. If he keeps hiring the right people, working the systems he's put in place and doesn't get blown away by the next big hurricane, 10 years from now he'll be able to look back again and smile at how far he's come.

Vol 2, Issue 11