Thank God I'm Crazy

Lately, there have been many experienced dealers interested in getting into the buy here pay here business. We field calls daily from people looking for better ways to keep customers from walking off their lots empty handed, and many think BHPH is the answer. Well, based on what has happened with the large national finance companies, it is the answer. The influx of calls and sudden popularity of BHPH reminds me of when I first made the decision to start financing customers myself. My family thought I was crazy.

It was Thanksgiving, and with all the family around the table, talking and catching up, my dad pointed out proudly to everyone that I was now a licensed car dealer. My brother-in-law Todd and my sisters all started asking questions that I tried to answer like an “experienced” businessman. Todd is a typical, proud but sarcastic and skeptical New Englander from Massachusetts. He wanted to flex his intellectual muscles and politely asked what my competitive advantages would be. When I told him that I was financing people with bad credit you could have heard a pin drop, a very rare occurrence in our house and one that usually meant something was seriously wrong.

My mother gasped, “These people don’t pay their bills!”

“Ma, I know, but they’re going to pay me.” I could tell by the look in her eyes she thought I was getting into something illegal. “Ma, listen. I have it all figured out, and everything’s legit. To sell cars, I have to get the customers financed, but the banks don’t want to do it. So I have to do it. Besides, have you seen how much money a banker makes?” She relaxed a little and probably had a vision of me in a suit and tie, carrying a briefcase. My older sister said I was crazy, and the rest of them looked at me like I had two heads.

Thank God I am crazy! I opened my first store 16 years ago and as a new independent dealer, I quickly learned that I could sell cars all day long, but the problem was getting my customers financed, especially on the old hoopties I was selling. Being a passionate Italian from the South Shore of Boston, I learned as a kid that you have to hustle in life to earn a buck, and I wasn’t going to give up.

One of the first cars I sold was a 1989 Pontiac Grand Am. It was a good car and I bought it right. I took it home, cleaned it up, put new tires on it and did everything I could to make it like new. I wrote a price on the windshield and put it out on the corner. Two days later a customer came in and wanted to buy it, so I wrote it up. But there was a problem. He needed financing. I knew better than to let a live customer go so I drove him to the bank right away.

The first bank said, “No, thank you.” The second said they would get back to us. The third finally agreed, probably because of my persistence, but with conditions. I never once thought I would have to negotiate. I thought they were all the same. They told me they would finance the deal but first I had to lower my price to be more in line with the “book.” What book? The valuation guide. I agreed; I wasn’t in a position to negotiate, but let me tell you, I didn’t like it.

I got the customer on his way and both of us were happy about the sale, but that whole bank thing was still gnawing at me. I opened up my copy of the finance contract. Wow! I knew banks had money so they must know how to earn it. But I never imagined they would earn so much, especially when I did all the work.

My profit on the deal was $805. Their profit was over $3,000. So, think about this for a moment. I worked hard, saved my money, found a car to sell, bought it, cleaned it up, reconditioned it and put it on the lot. I found the customer, sold the car and did all the leg work to get it financed. My cut was $805, and the banker’s cut was $3,195. All he had to do was sit at his desk, wait on me, analyze some paperwork and print out a contract. I couldn’t help but believe that I was on the wrong end of that business deal.

I’ve taken that same viewpoint with the rest of my career as a car dealer. I didn’t begin as a BHPH dealer. It found me. Today, it’s the only business I want to be in. BHPH is about selling cars to people with bad credit who need financing, then collecting the loans after the sale. If you do it right, it’s the most profitable segment of the business.

As a car dealer, I have only known special finance and BHPH. I’ve never done anything else. When I first started out, I was working on a very limited budget and many of the cars that I junk now would have been my front line back then. Finance companies wouldn’t sign me, so it was either a cash deal or I would have to take payments myself for a very short term. And believe me; my customers didn’t want to miss one of those payments either. I needed the cash badly so I made sure I had a very personal relationship with each and every one of them. The hard work paid off, and I was able to start growing my business.

As an independent dealer, I am proud to have a profitable relationship with every finance company I do business with. Our portfolios perform very well with each and every one of these companies because of our strict adherence to the fundamentals of finance. We focus on collectability and profitability on every deal whether it’s in-house or not. We stay in contact with our customers to keep up with how they are doing. We talk to our finance companies about our portfolios and work with them to locate customers who aren’t paying.

As our business has evolved over the years, the lines between credit tiers have blurred. I truly believe that a car dealer needs to be fully engaged in the business today. They have to be in special finance and signed with top C- and D-tier finance companies. Otherwise, they are simply giving too many deals and too much profit away to the competition.

I also believe that a special finance dealer who understands the concept of collections and finance should be doing buy here pay here. It’s absolutely amazing how quickly a portfolio can grow when done right. The 300 paying accounts that I own outright are a Godsend. Thank God I was crazy enough to get into BHPH.

Vol. 6, Issue 4