The story of Herbies Auto Sales was almost a tragic tale of economic woes instead of a success story. The dealership, located in Greeley, Colo., could have easily become a casualty of the credit crisis and recession like so many other businesses. In April 2009, the bank holding the dealership’s line of credit failed and was taken over by the FDIC, freezing that line of credit. “We’ve been operating without a line of credit. It’s been very interesting,” General Manager Cindy Christensen observed. While such a thing could have marked the beginning of the end for many businesses, that was not the case for Herbies. “We’ve been in business for a long time, and we have hundreds of thousands of dollars coming in the door in payments every month,” she stated.

Immediately after losing their line of credit in April, “We had to tighten up. We had to change our philosophy.” They made a few adjustments to their underwriting guidelines and started buying slightly less expensive cars – a little higher in mileage, a couple of years older – to help them conserve their cash flow. “We’ve been very frugal, and we did not have to lay anybody off.” They negotiated with the FDIC and were forgiven some debt, leaving the dealership in better position than before. Of the whole ordeal Christensen said, “It was a real trial, but I think we learned a lot from it.”

Now, instead of relying on a line of credit from a bank, Christensen said they are currently pursuing a private placement memorandum (PPM) to raise capital, looking to private investors for funding. “We’re out there just gathering investors instead of working with any bank again after we got blown away [in 2009],” she said. A few people have already jumped in and loaned them large amounts of money. “We’re really excited because we have a lot of people that believe in our business. We’re getting investors, and they’re going to have a nice return.” She encouraged others in the buy here pay here business to consider this route. “If they’re having a hard time getting capital, check into a private placement,” she said.

With some adaptation, business has been able to continue, more or less, as usual. “We still sell between 70 and 80 cars a month,” said Christensen. Most sales are BHPH; Herbies has approximately 1,500 accounts on the books. Only about 15 percent of the store’s deals go through subprime finance sources like Wachovia, Capital One, Credit Acceptance or credit unions. She noted that in the “good old days” they used to have about 40 percent of deals through outside sources “and now we have to carry all that in-house.”
Herbies Auto Sales has been in business since December of 2000. The store is actually a division of Weld County Garage, a Buick and GMC franchise in Greeley that’s been around since 1908. Lee and Warren Yoder, a father-and-son team, have operated the franchise store since 1984. Establishing Herbies was not their first foray into the world of BHPH. In 1989, the Yoders opened a J.D. Byrider franchise store, one of the first  in the country. They later opened a second and operated both stores for a number of years. After closing those two stores in May of 2000, they decided to open their own independent BHPH operation.

“[Buy here pay here] is a wonderful business, and we wanted to take all the things that we had learned from J.D. Byrider and we wanted to apply them … We wanted to make it our own,” said Christensen, who has worked for the Yoders since 1995, when she started on the sales floor of one of the J.D. Byrider stores.

Along with Christensen, the dealership had only a few collectors and just five cars, leftover repos from their previous stores, when it opened in 2000. At first, the store-level operation was practically a one-woman show, with Christensen doing everything from entering inventory into desking deals. Today, however, Herbies employs a total of 35 people, and an interesting mix of people at that. The staff includes a former NFL player, a pastor of a local church and a woman who was once a competitive boxer.

Christensen said she’s always on the lookout for talent, whether it’s at a retail store outside the automotive industry or right under her nose, as in the case of Hector Herrera. “He was actually a customer here and we just loved him and he loved us and we ended up hiring him,” she said. Now, over five years later, he is the senior sales associate and one of their top salespeople. “We kind of stalk people,” Christensen joked, adding that she kept after one prospective employee for over a year before getting the woman to come to Herbies to work.

Christensen said the Yoders like to empower their managers and staff. Training is a big part of that. “Lee has been an awesome mentor to me,” she said. Additionally, she participates in 20 groups and, she noted, “He sends me to training all over.” She said she has learned well from the elder Yoder, and he gives her room to exercise what she has learned and train others within the dealership. “I have a team of eight leaders that I’m coaching and mentoring, and then they in turn coach and mentor the people under them.”

The store operates on a business philosophy deeply rooted in Christian values, which is evident in the dealership’s mission statement: “Herbies Auto Sales is committed to building relationships within our community that last a lifetime and in doing so honor our Lord, our employees and our customers.” Christensen said those are not merely words; they are truly the guiding principle behind what they do. She likes to open meetings in prayer, and dealership training includes daily one-on-one sessions to coach and mentor the staff on both a professional and a spiritual level.

“We have to abide by our mission statement,” she said. “We want to be a step above what has been known in the buy here pay here industry.” She believed the Christian-based business philosophy is a big factor in the store’s ongoing success. “I think it’s really helped our business. We only have 100,000 people in our market area,” she explained. “If we don’t do business in a way that’s pleasing, we’re not going to get that 60 percent repeat and referral business that we rely on every month.”

Christensen said they do very little advertising at Herbies and won’t stick with a particular medium if it doesn’t produce an adequate return. “I track everything. I track the referral source of every single deal we do.” Third-party leads are still part of the mix, while print advertising was ruled out several years ago. She said they’ve recently started doing a few regular radio spots and are also planning to sponsor sporting events and try their hand at talk radio.

She added that most of what little advertising they do is more for the purpose of branding the dealership rather than selling cars. For instance, a remote radio broadcast was done several months ago, complete with free food and giveaways, in an effort to brand the dealership’s new Web site,, which was launched in the summer of 2009. At one time, the dealership maintained a blind credit site in addition to a branded site, but Christensen said they’ve decided to stop using the blind site. “We were finding that even with the blind site, most of the business was generated from [the branded site],” she noted. “We’re just going to work on branding, branding, branding, and building new relationships within our community.”

Christensen noted that the type of customer they’ve been seeing over the past year has shifted. Along with the aforementioned bank failure came a high number of foreclosures in Greeley. “We were like the foreclosure poster child for the United States at one time because we had so many foreclosures per capita,” she said, adding that she’s seen a large number of customers who had once been prime credit but were knocked down to the subprime and BHPH tiers practically overnight. “Our credit scores are actually a little bit higher than they had been and we’re [seeing] a little bit more professional person,” she stated. “Our clientele over the last year, year-and-a-half, has really elevated.”

Unlike some BHPH operations, Herbies does not employ GPS or starter interrupt devices, relying instead on good underwriting. They look at job time and the customer’s time living in the area and verify everything up front. They then sit down with the customer and do a budget, factoring in everything from rent and utilities to food and cigarettes, making certain that once everything is accounted for the customer can afford the car payment. “If they don’t, then they don’t get to buy one because we don’t want to put them in a worse situation and then have to chase our car down on top of that,” said Christensen. “We don’t want to set our customers up to fail … we need to make sure that they can afford the vehicle and that they have a firm understanding that our goal is to help them establish their credit while offering them dependable transportation.”

Another important factor for success, according to Christensen, is “relationship-building from our collectors.” Constant and immediate contact with the customer is essential for good collections. As soon as a customer’s payment is a day late, a Herbies collector is on the phone with that person. “We don’t let it slide,” said Christensen. “We want to make sure we talk to them right away if they’ve missed their payment.”

As all BHPH dealers know, keeping the cars running is another important factor in keeping collections flowing. Herbies provides its own 90-day/3,000-mile warranty on any car not still covered under a factory warranty. “It’s a limited warranty, but we end up fixing a lot more,” said Christensen. “We know if their car isn’t running, they aren’t going to pay.” There is no service department at Herbies, so all repairs (as well as all reconditioning for the store’s inventory) are taken care of at one of the Yoders’ other service facilities. For problems that occur outside the 90-day warranty, Herbies will do a side loan for the customer to pay for the repairs or will split the cost of repairs with them. “Sometimes we even take care of it,” she said. “It just all depends on the situation.”

The events of the last year have certainly not soured Christensen’s view of the BHPH business. “It’s a great business if you run it properly,” she said. However, she cautioned, someone contemplating getting into BHPH needs to be fully aware of what they’re getting into. “Lots and lots of people want to get in the buy here pay here business, but they want to get in it for the wrong reasons. They think it’s easy money. They think that it’s the answer to everything, but if you don’t know how to run the business and you don’t know how to make those collection calls right away and you don’t know how to underwrite properly, it is a money pit.”

With the dealership having weathered the economic storm in 2009 and sorted out its funding issues, it is now considering expanding to include lease here pay here in 2010. Christensen is very optimistic. “I want to encourage people that if you do business the right way, no matter what the circumstances are, you’re going to come out OK in the end,” she said. “It was scary when we didn’t have any capital, but … we’re in a very good place. It turned out to be a blessing in the end.” She added, “We’re very encouraged and we just know that we’re going to have a great 2010.”

Vol. 7, Issue 1