What Works and What Doesn't

The mortgage meltdown, the shrinking of the subprime credit market and the tightening of credit across the board have been bad news for many in automotive retail. However, buy here pay here dealers seemed to be in the perfect position to reap some benefits from the effects of the credit crisis. This has proven true for many, but others may still be waiting and wondering—where are all the customers that were supposed to be beating down the doors right about now?

“We haven’t seen the volume of [customers] on our lots like I think everybody thought we would,” said Brent Carmichael, a 20 group moderator and consultant with NCM Associates who previously spent 10 years as vice president of portfolio management at Auto Master Buy Here Pay Here. “When we saw the mortgage industry and all the problems … I guess we kind of assumed that all we had to do was sit back and wait, and they would just start pouring onto our lots. Well, that hasn’t really happened. We’re seeing them, but we’re not seeing them in the numbers we thought, so now it’s time to get a little aggressive.”

That means many BHPH dealers need to step up their advertising and marketing efforts.
In many cases, though, they don’t know where to start. The BHPH market has changed significantly in recent years, and some dealers are finding themselves in unfamiliar territory when it comes to how to best advertise their business to today’s BHPH customer. Unfortunately, there’s no formula that works for everyone; two dealers can market their lots in exactly the same manner and come up with completely opposite results. “If you ask a thousand buy here pay here dealers what works, you’re going to get a thousand different answers,” commented Mark Dubois, who heads up dealer education and training and moderates BHPH performance groups for CarBiz USA.

The success of advertising and marketing often depends on the dealer’s local market, how many other BHPH dealers are competing for that market, and whom they want to market to. Do they want to market to what Carmichael called “the new credit crunch customers,” people whose formerly-good credit ratings have taken a hit because of a recent economic hardship like a foreclosure or loss of a job? What about the subprime customers who can no longer obtain financing at traditional retail lots due to tightening of credit by those dealerships’ finance sources? 

Without a doubt, advertising and marketing for BHPH can be a rather inexact science, and there seem to be very few things that work for dealers across the board. With that said, here’s a look at several common marketing and advertising options and why they may or may not be the right choice for your BHPH business.

The Front Line of Advertising and Marketing 

Before you get too caught up in weighing your options and deciding where to put your advertising dollars, take a moment to remember that the easiest and most basic way to market your operation is, of course, to use what you already have—your lot. Are you doing anything to catch the attention of drive-by traffic? “The look and feel of your car lot is going to reflect your image to your customers,” said Dubois. “There are a lot of scruffy, run-down, beat-up, buy here pay here lots that look like a pawn shop. Then, there are a lot of buy here pay here lots that look and feel like a place you’d like to do business. They’re clean, they’re presentable … [and] they’re welcoming.”

Gene Daughtry, general manager of Best Ride, Inc. in Russellville, Ark., believes that overall lot presentation is hugely important for bringing in customers. He tries to fill his lot with late-model, nice-looking (albeit high-mileage) vehicles. “We have a retail-looking car dealership with what I would consider pretty upscale, retail-looking inventory, and that’s as much of a draw as any [advertising] that I do,” he said. Additionally, he has 40 color-coordinated balloons tied to the 20 vehicles on the front row. While it may not seem like much, many customers have told him they stopped in because the balloons caught their attention.

And, although he wants to give his BHPH lot a regular retail look, he also wants to make sure potential customers driving by get the message that Best Ride can help them. On a large marquee sign, Daughtry advertises what he considers Best Ride’s unique features as a BHPH lot—things like a 24,000-mile warranty, help with sales tax and reporting to Trans Union. “Those are our selling features,” he said. “One of those items will catch somebody’s eye and draw them in.”

Traditional Mass Media
Radio, television and newspapers have long been advertising staples for traditional retail auto dealers. “Both of those traditionally are very expensive, and it’s usually tough to chart the response that you get,” said Dubois. “One of the drawbacks to radio and TV is that the reach is too broad, and most buy here pay here dealers want their customer base to be fairly close and local so that making their payments every week is not a big challenge.”

Denny Long, senior vice president of direct marketing for Dealer Marketing Services, agreed with Dubois, speculating that a BHPH dealer’s target market area should only extend 20 to 30 miles away from the dealership, since most customers drive to the store every week to make their payments. However, in cases where the customer can pay online or agree to have their checking account automatically debited, geography would not be an issue.

Dubois and Long both agreed that dealers advertising on television and/or radio improve their chances of reaching their target audience by running their ads during time slots a BHPH-type customer is more likely to be tuning in. In doing this, Dubois stated that some dealers have seen a good deal of success, noting that many people in the typical BHPH demographic often work odd hours, like an afternoon or night shift.

Carmichael has a different opinion of radio and television media for BHPH dealers. “The best place to advertise for BHPH … is TV and radio,” he said. Several dealers would back that opinion, as they have experienced plenty of success with radio or television. Oftentimes, success or failure with this type of media may simply boil down to the dealer’s local market.

That seems to be the case with Autostart USA, a group of five strictly-BHPH stores in the Kansas City, Mo., and Kansas City, Kan., area. Their focus on television advertising is due in part to the local market. “Most of our competitors hit TV really hard in Kansas City,” said John Prentzler, Autostart USA’s director of auto operations. “We’re fairly new to the market so we need to keep our name out there.” Autostart advertises on five channels multiple times a day. “We hit the morning news shows [on] the major stations – ABC, CBS, NBC, Fox – and then they play again mid-afternoon during the Judge Judy/Jerry Springer-type shows, and then again during the nightly news.” After advertising on TV for just over six months, Prentzler reported, “We’ve seen a greater response … than with anything we’ve done.” He agreed that television was pricey – to the tune of $26,000 per month, in fact – but doable because the cost was split amongst Autostart’s five stores.

When Parker Toyota, a single-point franchise in Coeur d’Alene, Idaho, wanted to grow its BHPH operation, they first looked to radio and the local free classified papers. They achieved modest success with these methods and maintained slow and steady growth of the department. According to Sales Manager Eddie Fedele, who oversees Parker’s BHPH operations, over six months ago the dealership started to pull back slightly from radio in favor of television. Their hope was to reach a higher number of prospective customers, since television covers a broader geographic area and reaches into many of the surrounding smaller towns that radio might not reach.

“We primarily went to the [television] commercial because we were ready to feed more customers through the door,” said Fedele. “We were ready to take it to that next level and so far, so good.” Television advertising generated 146 responses in its first three months, compared to 100 responses from radio over a three-month period. Fedele has scaled back spending on radio by about $5,000. Most of their radio and television ads direct customers to their Web site, but the ads are still responsible for about 75 phone calls per month.

Charley Pompey, president of Car-Lotta Credit and Car Sales in Kingston, Pa., said his dealership was very big on TV and radio about three years ago. However, he’s been scaling back every year as a result of his success with online marketing. Any radio and television ads the dealership does are now focused on driving traffic online. He noted that tracking is difficult with both radio and television and said there was not much direct-response feedback. “I don’t like to run advertising if I can’t tell where my customers are coming from,” he stated.

Prentzler stated that Autostart saw no results whatsoever from radio, although he was unable to pinpoint why. “We recently tried a Spanish radio station, our biggest Spanish radio station in the Kansas City area,” he said. “We had no luck at all. That kind of surprised us.” They have since discontinued it.

One dealer who’s seen a great deal of success from radio is Daughtry at Best Ride. “Radio is inexpensive in this market,” he said. “I have a steady barrage of ‘Gene from Best Ride’ going on five stations,” he added, referring to the fact that all his commercials start with, “Hey, everybody, it’s Gene from Best Ride.”

The commercials talk only about what Best Ride can offer the customer, like a 24,000-mile warranty and reporting to the credit bureau to help them improve their credit. He never runs the dealership’s phone number on the commercials, instead closing each commercial with, “You know where we are; come see us at Best Ride.” He believes that giving the phone number decreases the chances of getting customers on the lot. “What happens is, these customers want you to tell them everything over the phone because they don’t want to come over here and be told no,” he said.

He runs commercials on five local stations and hosts a weekly, one-hour radio show called “Nuts and Bolts,” where people can call in with various car questions. For the first five minutes of the program, he talks about Best Ride and what they have to offer no-credit or credit-challenged customers (still without giving out the store’s phone number). Sometimes he will highlight a particular salesperson or talk about their 14-bay service department. Additionally, commercials for Best Ride run twice during that hour. He gives $50 away to a caller each week. The catch? They must come to the dealership to pick it up. Apart from the $50 he gives away, the radio show costs him $100 per week.

The time slot for the call-in show was not chosen at random; during the 10:00 a.m. hour every day, the station’s DJ proposes a topic for discussion and listeners call and weigh in on the subject. People were already used to listening and calling in at that time, said Daughtry, so he simply took advantage of having that almost built-in audience by broadcasting in the 10 a.m. time slot on Thursdays.

While opinions differed on the effectiveness of television and radio, there seemed to be one point everyone could agree on. “Newspapers don’t work,” said Carmichael. He qualified that statement by clarifying that he was referring to regular daily newspapers, not the free classifieds found outside grocery and convenience stores. He said most BHPH dealers who do any print advertising will focus on the free classified papers “because it’s lower cost and it’s more our customer that’s going to pick up a Thrifty Nickel as opposed to the Dallas Morning News.” He also commented that the demographic for traditional daily papers tends to be older (usually 55 and up) than the typical BHPH customer.

Prentzler said Autostart’s stores do a small amount of advertising in a local newspaper about once a month. He stated that the ads generate a lot of phone calls but hardly any sales. They have seen some success with advertising in multiple free classified papers and a couple of Spanish-language papers.

“We’ve never been successful with newspaper ads,” said Fedele. “I don’t think our BHPH customer’s getting up and reading the paper every morning. I’ve tried it and tracked it, and it didn’t make sense so I dropped it.”

The Place to Be: Online
Dealers who do employ traditional mass media often use that advertising to drive customers to their Web sites. This is a shift from several years ago, when most BHPH dealers would have told you their customers were not online and did not have access to the Internet. Today, even if a person doesn’t have Internet access at home, they have access through the public library or at work.

Carmichael estimated that roughly two-thirds of the BHPH dealers he works with have active Web sites. “They understand that’s where customers are going to do their initial shopping,” he said.

“I absolutely think [BHPH dealers] need to be online,” said Long. “From what I’ve heard from my buy here pay here clients, there’s no better lead than one that came from their own Web site, and that makes sense.”

Pompey agreed, “Over 90 percent of car buyers will search the Web before they buy a car this year,” he said. “[BHPH dealers] need to participate in this.” In addition to his dealership, Pompey maintains a blog about BHPH Web sites and marketing and developed digaps.com, a company that provides Web-based marketing and consulting specifically for BHPH dealers. “I believe that the present and future of buy here pay here dealer growth in sales and collection dollars is in the Web,” he stated. “My dealership is selling between 40 and 50 percent of our cars from our Web site. My goal is 70 percent.” He reported that his store’s site receives over 250 credit applications per month. He also mentioned that 40 percent of their payments are received online.

While nearly everyone could agree that BHPH dealers need to have a Web presence, opinions on how to market BHPH dealerships online and exactly what to include on a BHPH Web site vary.
“The train of thought is to stay away from prices and mileages for BHPH cars because they are older, they do have high mileage and … you may run some people off,” Carmichael commented. He believes a BHPH site should emphasize the story of who that BHPH dealer is and what they can do for the customer, highlighting things like easy financing terms, low down payments and reliable vehicles. “Really what we want the Web site to do for us is to generate the contact and generate the appointment to get them on our lots. You want to advertise what you have but you don’t want to get too specific.”

According to Fedele, most of the conventional advertising Parker Toyota does for its BHPH operation is designed to drive customers to the franchise dealership’s site. The home page displays a conspicuous link for customers with credit problems, which takes them to a page that briefly states what the BHPH operation offers – things like flexible payment schedules and reporting to Equifax – and then lets them continue on to a credit application. He stated they receive an average of 125 applications on the site per month. “The whole idea is to get them to go to the Web site and fill out a quick and easy application,” he said, “Then it’s our BDC’s job from there to get the customer through the doors.”

Dubois noted that dealers should consult their state association to determine what information they are allowed to collect from customers. It’s also prudent to have customers acknowledge they’ve read the privacy policy before submitting any personal information.
Pompey was against posting inventory on BHPH sites, based on direct experience. “Buy here pay here dealers are not car dealers,” he explained. “Their goal is to get people financed, so why would I put cars up on my site?” The primary goal of any BHPH site, he said, is to get credit applications. He once thought it would be a good idea to post inventory online until he tested the idea a couple of times. During the periods he had inventory posted on his dealership’s site, credit applications on the site decreased by 25 percent. People visiting the site would browse the inventory and then leave if they didn’t find what they wanted.

As for listing inventory on third-party sites, Dubois stated, “Most buy here pay here customers are not looking to AutoTrader.com for their car because they don’t look for a specific vehicle with specific options; that’s not how they shop,” he explained. “A typical buy here pay here customer wants to know …‘How much down payment am I going to require, how much is my weekly payment going to be and will I get approved?’” He was in favor of including payments and down payments on a BHPH dealer’s online inventory, although he cautioned that dealers need to be aware of advertising regulations and compliance issues when doing so. “Anytime you post a payment, you absolutely have to disclose the full terms of that payment, which includes the price of the car, the stock number, the interest rate, the interest amount, the down payment required, the term of the loan—all of those elements.”

Carmichael knows many dealers who tried third-party listing sites, and said the strategy “worked for some as far as generating at least some interest.” However, much more important to dealers looking to compete in the BHPH arena, he said, are search phrases and keywords. “Something that a lot of the dealers are focusing on is getting their name somewhere at the top five or top seven [results] on the search engines,” he said. Internet-savvy dealers might be able to undertake search engine optimization or search engine marketing (SEO/SEM) on their own, but for those who are less knowledgeable, he noted that there are many services that specialize in SEO/SEM for dealers.

Daughtry reported that he has had little success in the past with the Internet and online marketing in general. In fact, he said, the only online presence Best Ride has is a link within the Web site of Cogswell Motors, a franchise dealership with which it is associated. That link goes to a single page that tells customers what Best Ride can do for them, but little else. “All we advertise is what we do, not what we sell,” he said. The site contains no credit application, only a photo of the store and its location.

When working at another dealership, one that had a Web page with a credit application and listed inventory on third-party sites, he said he often received information from people who weren’t serious about a car, like kids fooling around on a school computer or prisoners with Internet access. Customers who were serious about needing a vehicle, he said, would want to know everything online without visiting the store or would try to negotiate on price. “It’s frustrating for the salespeople,” he said, adding that many of the leads his salespeople were working turned out to be dead ends. 

Direct Mail and Purchased Leads
Direct mail and third-party leads are not commonly-used marketing methods for BHPH dealers, but should they be considered? It depends on who you ask.

“The general consensus is that [third-party leads] haven’t been effective in the past,” said Carmichael. “A few dealers have experienced some success, but as a whole, not so much.” There may be more opportunity in third-party leads in the future with the increasing number of customers who were bankable a few years ago, but now cannot be financed.
“We have not purchased leads before,” said Prentzler. “I talked to several other dealers and was told by each that they had never really had a lot of luck with them, so we stayed away.”

Daughtry stays away from them too. “My success ratio with leads in regular retail years ago wasn’t very good.” He explained, “We have up until recently had about all the traffic we need. I do not sell loans and we operate out of our cash flow, so I watch how many new loans we do. Until March, we had been growing steady since inception. Our focus is about portfolio performance and not total sales.”

Pompey does not believe in purchasing third-party leads. “I believe that a well-developed Web site and Web strategy is much more effective and cost-efficient,” he stated. “If your site is not productive or you do not know how to get your own leads, you may be forced into buying leads from someone else,” he added. “To me, it’s a last resort.”

Not everyone was against third-party leads. Fedele has purchased third-party leads before. For about six months, his operation spent approximately $6,000 per month on them. “We had some success,” he reported, “although it was very time-consuming.” When Parker Toyota cut its advertising budget, Fedele decided their advertising dollars would be better spent elsewhere.

Carmichael  stated that traditional direct mail – purchasing addresses within a specific zip code for bulk mailings – is not very effective for BHPH. Traditional BHPH customers, he explained, tend to be a little more transient than most people and change jobs frequently. The closing rate from most direct mail efforts of that kind is two percent. However, he said, he is seeing a great deal of interest among BHPH dealers in using direct mail for more targeted campaigns. That can include something as simple as targeting past customers with a low or zero balance to garner repeat business, or dealers can look for new customers by targeting people with recent bankruptcies or repossessions and low credit scores.

Long agreed mail campaigns for recent bankruptcies and repossessions could work very well for BHPH dealers. “It’s much easier, because they have a very narrow, very targeted audience,” he said. “They can define their market easily.”

Dubois has seen mixed results with direct mail. “I’ve worked with some marketing companies that can really drill it down to a specific audience, and that’s probably the best advantage of direct mail.” He still favors targeted direct mail over purchasing conventional third-party leads. “The leads that typically come in from lead-generating sources are, in my experience … looking for a specific car,” he stated. “There are lists, like recent bankruptcies, that may be worth pursuing because it’s a little bit more specific and little bit more targeted, but to just say, ‘Send me leads for customers that are looking for cars,’ is just a waste of time [for BHPH dealers].”

Do-It-Yourself: Referrals, Bird Dogs and Community Involvement
According to Carmichael, BHPH dealers tend to rely more on referrals than traditional retail dealers. He emphasized  the importance of mining a dealer’s own database and reaching out to existing customers to encourage repeat business and ask for referral business. He added that most BHPH dealers he knows pay their customers at least $100 for referrals.

Long agreed that the best advertising for BHPH is word of mouth and referrals. “Birds of a feather flock together,” he pointed out, “so make sure that you’re letting your customers know, ‘Hey, we can help your friends and neighbors.’” He also said he knows of many BHPH stores that pay spiffs to managers and salespeople at regular retail stores. “Every day there’s people going into those stores that they can’t help; they might as well send them someplace that’s going to pay a little spiff. That’s smart guerilla marketing for a BHPH store,” he said.

“Especially in this market,” Dubois added, “I think it makes good sense for the manager and the operators of a buy here pay here dealership to get around to the other independent dealers and the new car dealers that are really struggling to get their customers’ credit bought … you provide them with a referral fee, or a bird dog, to send the customers that have been declined credit at their store to your buy here pay here dealership.”

However, dealers should exercise some caution before instituting a paid referral program. Long pointed out, it’s not legal in all states, and in some cases the dealership could be opening itself up to liability issues, so dealers need to make sure they know the statues and regulations in their state. But, he added, “If you can [legally] pay a bird dog, by all means, pay a bird dog.”

Daughtry has seen success in garnering referrals both from customers and other dealerships. “We have an aggressive referral program,” he said; his dealership pays customers $50 per referral and $100 to anyone at another dealership who refers a customer. Daughtry works his existing customer base from multiple angles. Every customer they sell is required to provide a list of references as part of the verification process. Each person on that list is notified by letter that their name was given as a reference; the letter also lets them know Best Ride is there if they have any vehicle needs or know someone who does. Existing customers who make payments by phone are mailed receipts, and with that receipt the dealership includes a reminder about the program. “You’re searching for good bird dogs,” said Daughtry. “There are those people that are good at that. You’ve just got to figure out which ones they are and then you work on them.”

Every year, Daughtry’s  dealership hosts a Halloween party with a costume contest and prizes for kids 10 and under. He said he used “McDonald’s thinking;” if he can make the kids want to attend, the parents will most likely bring them. “The place just packs up,” he said, “because there’s some free money, because it’s a fun thing to do, and they’re not having to come buy a car or look at a car.”

For the past five years, the dealership has also played host to an annual hot rod show to raise money for a local rescue squad. Businesses donate door prizes, bands donate their time to provide live music and the dealership sells refreshments and raffle tickets for a vehicle they’ve reconditioned and donated. Daughtry said his total expense for the event is around $2,000. However, he gets a great deal of free publicity from radio and newspaper coverage of the event.

He added that the raffle tickets are a great source of leads, since everyone must include their name, address and phone number on the ticket. After the event, Daughtry distributes the tickets to his salespeople who then call those people to thank them for attending and remind them that Best Ride is there for their vehicle needs. If an address is provided, they will send a letter as well.

Despite the fact that it’s nearly impossible to ultimately determine how many sales result from these events, Daughtry believes they are effective simply because of the exposure. He speculated that roughly 25 vehicles each year are sold to people who attended one of these events.

Dubois categorized such events as promotions rather than advertising and commented that they can be time-consuming and may not necessarily result in any new sales. However, he said the effectiveness of community involvement, including the sponsorship of local organizations, can greatly depend on the dealer’s market area. “Sponsoring little league teams and stuff like that, I think that’s just a judgment call,” he said. “In some smaller communities, that might be a really good idea, but in some larger communities it might not be the best bang for your buck.”

Tracking Your Efforts
Regardless of how BHPH dealers choose to advertise and market, it’s a good idea to have some way to measure the return on investment or, at the very least, get a general impression of where to concentrate future efforts. The problem with several of these advertising and marketing methods is the difficulty in assessing their effectiveness. Online credit applications are extremely easy to track, but mass marketing like television, print ads and radio can be more difficult to track, requiring BHPH dealers to make a greater effort to determine how their customers arrived at the store.
“The pitfall of having such a targeted market is, mass marketing’s a little tough,” observed Long. He said in his experience, many BHPH dealers who use radio or television are unable to effectively track the results. He said these methods can be effective if dealers make the effort to nail down their demographic. “Unfortunately, a lot of times people will make advertising decisions based on what they do,” he said. For example, he said, when he asked a roomful of dealers if they advertise on the radio stations they listen to, 95 percent of them raised their hands. The problem there, he pointed out, is that those dealers are probably nothing like the typical subprime or BHPH customer. “They want to hear their own ads,” he remarked. “You don’t make any money hearing yourself on the radio.” The same reasoning applies to the placement of television ads.

Dealers must make the effort to find out what their target audience is listening to and watching. To that end, Prentzler said every Autostart customer completes a marketing form. In addition to finding out how the customer heard about the dealership, the form asks for the Internet sites they’ve visited to look for cars, what television shows they watch and what radio stations they listen to. Recently, through the use of this form, they’ve learned that a majority of their customers listen to a particular radio morning show. This knowledge will enable them to more precisely focus their radio advertising efforts.

Is there a perfect marketing plan for BHPH dealers? Ultimately, BHPH operations have to face the same advertising and marketing decisions as all dealerships—choosing wisely based on their targeted demographic market, tracking results of executed campaigns, and making appropriate adjustments to those campaigns to maximize ROI. Every dealership is different and has a unique personality in the community it serves and their marketing decisions should reflect that. The form of media through which their message is delivered is really irrelevant as long as it delivers results.

Special Finance Insider Vol. 3, Issue 3