Your Daily Operations Magazine
Search Close Menu

Dealer Ops

Rent-To-Own Pays Off On The Bayou: Independent Dealer Successfully Switches Business Plan

Donnie Cochran, owner of Bayou Auto Sales in New Iberia, La., thrives in the used car business, but he doesn’t run his business like a traditional used vehicle operation any more. He rents vehicles to customers with the option to purchase once the vehicle is paid off.  The practice is similar the buy here pay here (BHPH) business model, but the rent-to-own (RTO) model has big advantages over BHPH.

Bayou Auto Sales opened its doors in 1992 as a traditional used car lot, but when the tragedy of 9/11 occurred, the industry took a hit. Struggling in a soft used car market, Cochran knew his business needed to change. He said, “I just took a step back and said, ‘If I’m going to stay in this business, I’m going to have to do something different’… I wanted to start financing my own cars, so I didn’t have to be dependant on the banks and finance companies because they had tightened up so much after 9/11.” He certainly didn’t want to leave the industry, but he “realized that something else had to be done to be profitable.”

Shortly after this realization, Cochran spoke with a service provider representative who happened to have a brother that owned a successful independent dealership nearby. He soon arranged a visit to this thriving dealership and learned it practiced the RTO model. Cochran, who liked what he saw, met with Mike Garner, marketing director at Louisiana-based SEADRA (South East Auto Dealers Rental Association), to learn about the advantages of the RTO business model in the dealership. The only other company in the United States that offers the RTO business model to auto dealers is Northland Auto Enterprises, of Minnesota.

Just three short months after 9/11, Cochran implemented RTO at Bayou Auto Sales. While the RTO business model is similar to that of BHPH dealers, there are significant differences.

Avoid Bankruptcy Problems
The first and perhaps the most striking difference is that the dealer maintains ownership of a rented vehicle until the end of the rental term. Then, and only then, does the renter acquire ownership. This equates to no dollars lost to bankruptcy, which BHPH dealers often face. Cochran chuckled while recalling his recent trip to Las Vegas to attend the 2007 BHPH conference. He and Rod Cochran, his brother and general manager, sat in on a seminar where bankruptcy was the topic. While the speakers were giving advice on surviving customer bankruptcies, his brother looked at him smiling and said, “We don’t have this problem.”

Recovery v. Repo
Also for the dealer, maintaining ownership simplifies the recovery of vehicles. In RTO transactions, the term repossession doesn’t apply, since the customer doesn’t own the vehicle. At Bayou Auto Sales, collecting payments hasn’t caused a lot of trouble. Cochran installs PassTime starter interrupts in every vehicle, and all customers must agree to the use of starter interrupt device in the rental contract. He allows his renters a 5-day grace period before the starter interrupt device is activated. Recoveries don’t consume much of his staff’s time; they only recover, on average, two or three vehicles a month. Cochran believes the starter interrupt device “teaches” his customers “how to pay.”

Grand Theft Auto
Another advantage of maintaining ownership of the vehicles customers rent is a much lower “chase rate” than the vehicles owned by BHPH customers. Al Lentsch, owner of Northland Auto Enterprises, coined the term “chase rate”, which is synonymous with delinquency rate. The national average chase rate in RTO is about five percent, compared to a rate of over 30 percent in BHPH. The reason is simple; if a car or customer goes missing, the car can be reported as stolen if the customer doesn’t pay since the dealer still owns the car. Grand theft auto is more intimidating to a customer than a ding on their credit report.

Cochran is pretty pleased with his customer base. He hasn’t had many problems with recovery and has only has to report a few vehicles stolen in the past six years. He has a lot of faith in his underwriter and brother, Rod, who has been the GM at Bayou since 2001. Rod has been in the collections business since 1988, which offers priceless experience he now uses at Bayou Auto Sales in the underwriting and collections department.

According to Rod, as long as a customer has a significant deposit to put down on the vehicle (typically between $1,500 and $2,000) and has never been habitually delinquent, that customer can be approved. The reason the approval process is relaxed is because the dealership still owns the vehicle, so it can easily be recovered if the customer doesn’t pay. However, most customers pay due to the starter interrupts. According to Rod, Bayou Auto Sales delinquency rate is a microscopic 0.04 percent.


Vol 5, Issue 8



Number of EVs to Double by 2021

U.S. electric-vehicle sales forecasted by the Edison Electric Institute would require the...

The number of electric vehicles on U.S. roads will double in the next three years, according to a new report from the Edison Electric Institute.


AutoSource Names Brad Walsh CEO

Bradley J. Walsh has been hired as the new CEO of AutoSource, succeeding founder Luke Kjar as chief executive of the Utah-based branded title dealer group.


Used Cars Add to Hot Streak

Subcompact cars such as the Honda Fit enjoyed a 0.6% increase in average retained values in...

Black Book’s November Used Vehicle Retention Index finds value and demand have pushed pre-owned prices skyward for the seventh month in a row.

Dealer Job Finder

See more


Waymo Rolls Out Self-Driving Taxis

Self-driving, revenue-generating taxis have officially hit the streets of Chandler, Ariz., and...

Waymo has set a new standard for driverless-vehicle proponents and ride-hailing providers by launching Waymo One, a revenue-generating autonomous transportation service.


2020 Jeep Gladiator

Pricing has yet to be announced for the 2020 Jeep Gladiator, a new vehicle that promises...

Chrysler unveiled the all-new Jeep Gladiator at the Los Angeles Auto Show in late November. Billed as “the most capable midsize truck ever,” the new vehicle marks Jeep’s return to the pickup ranks for the first time since the Comanche ended its production run in the 1992-MY. The Gladiator is due in showrooms in the second quarter of 2019.


Cars Outpace Trucks in Lost Value

Pre-owned full-size cars such as the Chrysler 300 depreciated by an average of 0.77% in Black...

Black Book’s latest Market Insights Report finds used cars continue to depreciate faster than light trucks, but strong incentives for new cars indicate sustained demand for some types.