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Johnson of Chickasha's BHPH Business Flourishes As Sub Prime Market Grows

Rarely are comparisons ever made between used car lots and small-town grocery stores. Yet, for Johnsons of Chickasha’s four buy here pay here (BHPH) lots located in Oklahoma, the analogy couldn’t be more fitting. The employees of each BHPH lot know 75 percent of their customers by name. When customers walk onto the lot, they might hear, “Hello, Mr. Smith, how are you today?” or, “Afternoon, Mrs. Davis. How’s the family?”

Dealer Lonnie Robertson, who estimated roughly 42 percent of their total business is sub prime, knows the value of incubating so many long-term relationships. He described 2006 as “the most profitable year we’ve ever had,” both for his Dodge-Chrysler-Jeep dealership and four BHPH stores. Each BHPH lot works with about 100 people and all four lots sell a combined average of 40 cars per month. Though new car sales have been satisfyingly steady, Robertson attributes their success directly to their used car and sub-prime customer base. This large market, he said, “has paid dividends for us…it is what has carried us through whenever tough times arrive.”

It was not long after Robertson arrived at the dealership in 1989 that the company reached a fork in the road. Their current Dodge dealership in Chickasha had been open barely a year. However, the store was turning down too many customers who could not finance a new car or even make payments on a used car through special finance. Robertson and his colleagues realized that not only was a new market beckoning, there were a lot of people in the community who needed help.

The company started researching the best options to either expand special finance or start a buy here pay here program. They encountered business plans that stressed enormous profits and high interest rates. Robertson and his team, however, wanted a fair deal for both parties: a place where customers could pay off their loans quickly and avoid repossession. They attended a BHPH seminar that emphasized taking care of the customer.  Johnsons’ mindset is, “We all have one boss—the person who walks through the door”. This seminar convinced them that with the right attitude they could get started.

Thus over time, what may have started as an innocent subplot helped redefine their business. These days, roughly 70 percent of Johnsons’ customers have some type of blemish on their credit and while some have “pretty decent credit” many can not be approved for traditional financing. “We know that our customers need help, but we also know that any of us could fall into hard times. We want to help honest people back on their feet,” said Robertson.

The company launched Johnsons Easy Car Credit, their first BHPH store, in 1995. Since then, Johnsons has purchased BHPH stores in Guthrie and Stillwater, Okla., 74 miles and 107 miles away from Chickasha, respectively. They opened a fourth Johnsons Easy Car Credit store in Lawton, Okla., about 45 miles from Chickasha. “We’ve got a pretty good range of BHPH stores,” said Robertson. All four BHPH stores are standalone, while simultaneously operating under the Johnsons corporate umbrella. The Dodge franchise store promotes itself with radio, TV commercials and infomercials, while the BHPH lots’ most successful marketing is word of mouth.

Robertson quickly countered the notion that all BHPH businesses have an appetite for collections. “We’re not really taking advantage of anybody. We’re just trying to help people get dependable transportation to and from work and a decent deal.” For example, while some BHPH dealers may saddle a customer with a 21 percent to 28 percent annual percentage rate (APR), Johnsons loans their money at 12.95 percent interest. They try to select cars under a certain mileage range, normally nothing over 150,000.

They also limit themselves to short-term financing. “We only loan money on an 18 to 20 month contract,” said Larry Holliday, general manager of all four BHPH stores. If a customer buys a $12,000 car with Johnsons’ short-term financing, they will normally pay $700-$800 in interest. At a dealership, said Holliday, the same car may cost between $2,000 and $3,000 in interest. Instead of making payments over a period of 72 months, Johnsons’ BPHP customers can become owners in 12-14 months. “It’s a pretty sweet way to buy a car!” said Holliday.

“The real challenge is finding inventory for the note lots that meet specific standards…We look for cars that we feel will make dependable transportation and will run the note,” said Robertson.

Though they stress willingness to work with each customer individually, Johnsons also has basic customer criterion. They look for buyers with stable jobs who live within a 15-mile radius of the lot and are longtime residents of the area. They avoid situations where a car payment totals over 30 percent of the customer’s income, or a buyer who could easily disappear out of town. He said, “As long as they’re open and honest with us and they can afford to make a payment, we’re going to try and help them out.”

That same adaptability allows them the chance to breathe new life into their customers’ credit. If the dealership can’t sell someone a car conventionally or even through special finance, “We take them to one of our note lots,” said Robertson. For their next purchase, the managers lead them up to special finance. Once that is done, the customer can move up to a conventional purchase. “In the process,” he stated, “we have basically helped the customer repair their credit.”

As general manager of all four BHPH lots, Holliday visits at least two stores every day to assist with daily sales training. He holds monthly meetings with all managers to assess each month’s performance and forecast the next month. He and his employees also attend the occasional BHPH convention or seminar. Boasting of his GM, Robertson said, “Larry’s done an outstanding job for me this year.  A large part of our success is attributed to what he’s done.”

On a particularly cold week, due to bitter winter weather, the manager and assistant manager at the Chickasha store scrape ice off the cars. In fact, all lot employees, usually two to a store, are expected to scrape ice off the cars during the winter months, make sure all the cars are started, wipe each car down once a week, move them around the lot, and even clean their own building. “We run it simple and easy,” explained Holliday. “Our salespeople need to know how to check the car in, sell the car, take the payment stub, and collect on the account, etc. We do all the work ourselves.”

Holliday believes in keeping the operation small. “It’s really about selling cars first and collections second,” he said. “Some businesses put collections first, but if you don’t sell the car and the service, you don’t have anyone to collect from.”

Collections are every bit as close-knit as the daily operations. Every day, all four stores print out delinquency reports. The reports show at a glance which customer payments are due and which are late.

Holliday estimated they handle an average of 15 to 20 collection customers per day. “We call each customer ahead of time and remind them,” he explains, “Then follow up with a face-to-face meeting the day after the payment is due, or if they haven’t responded to our call.” Interestingly, collections are the one step the salespeople cannot get involved with for at least six months to one year. While they may call a customer who has a delinquency, it is the managers who must make the daily field calls, even leaving door hangers as reminders.

Holliday is equally involved. One particular customer bought a car at the Chickasha lot and has since moved to North Oklahoma City, about 70 miles away. Holliday picks up the customers payment every week at the Guthrie, Okla., store, so she doesn’t have to drive the 70 miles to Chickasha to make a payment.  Other customers are halted by medical problems and cannot even drive to the nearest BHPH lot. In these cases, the manager or Holliday will make a “payment house call,” if needed.

Holliday has even allowed customers to pay interest only and delay the rest of their payment for a week, such as when severe weather prevents customers from getting to work. “As long as people call us and stay in touch with us, we’ll help them through thick and thin,” said Holliday. “If they have a problem, we’ll help them. We’ll do what it takes. Anybody can sell a car and then repossess it, but not everybody can sell a car and collect from people who have never paid on time.”

Holliday, who once managed large franchise dealerships, was originally hesitant to move to the BHPH business. “At first I kept thinking, ‘I don’t want to mess with people who won’t pay.’” Now, however, he believes the switch was a worthy trade-off. The customers, he said, seem easier to deal with, and he likens the atmosphere to that of a mom-and-pop grocery store. “It’s a whole different world,” he declares. “If you sell a car at a big dealership, you may never hear from them again. This past year has been a blast. Yes, we have to collect the money, but we also get to shake hands and say ‘Hi’ to our customers every week, call them by name, and watch their kids grow up. It’s a lot of fun.”

 Vol 4, Issue 3



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