Investment Banker to Independent Dealer

Twelve years ago, Tom Strickland came out of retirement to become an independent auto dealer. For most of his life, he was an investment banker, so to learn about the business, he worked at a friend’s buy here pay here (BHPH) dealership before starting a BHPH operation in Palatka, Fla.  

About five years after opening Strickland Auto Sales, he was offered a sales position at a franchise dealership and accepted. However, after being his own boss for more than 40 years, Strickland discovered that going to work for someone else was quite a challenge, but stuck with it for almost three years. Eventually, after working for two different franchise dealerships, he tired of it. “[Franchise dealers] have so many fees that they tack on—dealer fees, pack fees … People just don’t like that. I didn’t like it.”

In the franchise world, Strickland “didn’t like working for $100 and $125 flats and doing all the work.” As an independent, he was still doing all the work, but also making all the money. He also missed the consistency and stability that came with owning a business. He said, “Every time you turn around, [franchise stores] bring in a new general manager, and of course, they’ve got a brand new philosophy and change the pay plans. You never know what’s going or coming … From a sales standpoint, I didn’t care for it.”

Strickland just preferred being an independent dealer. “I just like the used car business better than I like the new car business.” After quitting the new car business, a friend suggested reopening the independent lot—something he had already been considering. That was the extra nudge needed. He said, “So I opened it back up in ‘07, and here we sit.”

Second-Time Independent
In its first month back in operation, Strickland Auto Sales sold 18 vehicles, which was slightly above its current average of 15 to 17 per month. Upon reopening the dealership, indirect special financing was at the core of the business model and BHPH was to be a small percent of it. However, the economic climate affected financing.

As indirect financing for subprime customers started declining in 2008, SF business shrunk. Strickland said, “The secondary lenders tightened up on what they’d advance on a vehicle … Deals that you could have made decent grosses on a year-and-a-half ago, you can hardly make any money on [today],” adding, “It’s forced me back into doing 80 to 85 percent of my business as buy here pay here.” As of mid-September, 115 to 120 BHPH accounts were on the book, a number which will increase. “Eventually, I’m going to have to bring somebody else on board because I’ll probably have 250 to 300 accounts on the books within a year,” he said.

The 15 to 20 percent of business that is indirect SF gets sent to one of the three special finance companies that work with the small independent dealership. These companies seem to want only the customers with minor credit issues in the credit score range of 520 to 575, according to Strickland, who added that they sometimes take on customers with repos or slow pays, as long as they have income and residence stability.

Stickland gets a handful of prime deals, mostly acquaintances and friends who come to him for a specific vehicle. For those deals, he said, “Generally, I use credit unions because credit unions will give better rates than the banks.”

While there are typically 30 to 33 vehicles on the lot, Strickland said, “The lowest I’ve ever been down was probably 23.” He does all the buying and is meticulous about what sits on the lot. Most vehicles are four to nine years old. However, a good, older vehicle with low mileage will occasionally make it to the lot. “I’ve got two cars on my lot right now that are ‘98 model vehicles, but they’ve got only 55,000 miles on them.”

Two auctions (one Manheim and one Adessa) supply most of the vehicles, and the average cost per vehicle is around $4,500. Every vehicle gets a post-sale inspection. He said, “That costs me $90 [per vehicle], but to me, that’s cheap insurance.” If an inspection uncovers a problem that will require a repair exceeding $500, the vehicle can be returned, which happens about 15 or 20 percent of the time.

In addition to the post-sale inspection, each vehicle is examined by a mechanic from one of the two independent service centers he’s been working with for over 10 years. He attributes the dealership’s success, in part, to “putting out a quality used vehicle and spending the money to make them roadworthy.” On average, $475 is spent on each vehicle for reconditioning. He said, “We don’t sell junk … we’ve built a good name here for putting out a good vehicle.”

The dealership also helps take care of the vehicle after the customer purchases it. If a customer, especially one who pays consistently, has problems with a vehicle, Strickland will work with them in an effort to keep the account in good standing. “Usually what I’ll do is I’ll pay half of it, and they pay half of it. And I usually wind up financing their half,” he said. “My attitude is if I have to spend $300 or $400 … to keep a good customer on the books, I’m going to do it.”

A lot of his customers don’t have the money to keep their payments current and afford a major repair. He can either help them or risk the account becoming delinquent. However, it’s important the customer pay for some part of the repair. “I don’t care what it is; they’re going to pay something for them. That way, I’m not fixing it for them, so I don’t have to worry about an implied warranty.”

When Strickland considers toting the note himself, the “bottom line is how I feel about it when I talk with them.” While his underwriting is based on “gut feel,” the proper checks and balances are in place. He said, “The main thing I do is the customer interview.” To verify the customer is who he or she claims to be, he also does a credit check, requires the names, addresses and phone numbers of 10 references, and calls at least three of those references.

Each applicant’s evictions and stability are also considered. “If they show they’ve had five evictions in the last two years, then I’ve got somebody that’s not going to pay. That would be a deal-breaker.” Stability, another major factor when making underwriting decisions, is a must. “We want someone to be in the area at least a year and have some job stability.”

When structuring a deal, terms stay between 24 and 36 months. Strickland said, “People in the buy here pay here industry say that’s stretching them out too far.” However, if the terms were shorter, customers wouldn’t be able to afford their payments. He doesn’t want to set customers up for failure.

Most customers pay between $340 to $370 per month for their vehicles, divided into two payments a month, due on the fifth and twentieth. Customers on fixed incomes have a monthly payment, due on the fifth. To keep payments in this preferred range, down payment is important. He said, “My cheapest down payment is $800. Every now and then, I’ll have a vehicle like an SUV that will be $2,500. Typically, my average down payments are around $1,200.”


Since reopening Strickland Auto Sales, the collections process has improved. He said, “I now use starter interrupts on all my vehicles, so if they don’t make the payment, the car doesn’t start.” GPS units are also in some vehicles.

“With the starter interrupt system, I put a code in and that’s it … No questions asked,” he stated. With his GPS units, he has to login to the system and prompt the starter interrupt feature. He added, “It sure has a bearing on improving your collections.” His have improved drastically, and delinquency is about nine to 10 percent, which is “pretty phenomenal.”

“I’ve got the best marketing in the world—satisfied customers,” said Strickland. Customers who refer their friends, family, or coworkers to him receive a birddog spiff of $50 each time a referral turns into a sale. The birddog program accounts for half of the dealership’s sales.

In addition to the dealership’s reputation for having quality used vehicles, having a prime location helps as well. He said, “I’m on the main road through our town. It’s very visible. It didn’t take long for people to say ‘Hey, you’re back in business.’” He didn’t have to do any special advertising to let the community know Strickland Auto Sales was back in business and still had an above-average month the first month back.

Other than the birddog program, the only other advertising the dealership does is in the local Penny Saver, a publication that’s free to consumers. He said, “I advertise every week in it, and I get good response from it.” When it comes to newspaper and television advertising, they’re “just too expensive.”

Adapting with the Market

Even though Strickland had to change course from the original plan and focus more heavily on BHPH than SF, it’s allowed him to continue to run a successful business during a recession. He said, “We’re hanging in there … I’m still paying the bills. There are a lot of people shutting their doors because they can’t get financing.” Fortunately, he has the capital and the expertise to handle financing his own vehicles, instead of having to rely on indirect financing.

Vol. 6, Issue 11