What’s in store for your store in 2011? If it’s anything like 2010, it should be another good year to be in the buy here pay here (BHPH) industry. However, 2011 will not be without its challenges. In fact, there are certain areas of the industry that could become more challenging than ever.

To get an idea of what to look forward to in 2011, we first need to review how 2010 treated the BHPH world. Overall, it received very good treatment in spite of a few bumps and bruises.

From a profitability standpoint, the dealers I have the distinct privilege of working with enjoyed a 22 percent increase in profitability in 2010 versus 2009. This sizable increase was due mostly to the right-sizing of overall operations. Dealers focused on their entire operations from top to bottom to cut the fat and run the operations based on the cash they where generating instead of relying on lines of credit.

I expect this same focus to continue in 2011. Although funding sources have become more readily available, overall I think most dealers will be focusing again on generating the capital necessary to run their businesses from their businesses. As always, there will be those dealers looking to grow aggressively through borrowing, and rates will continue to make this a very viable option. I don’t see rates rising drastically in the coming year, so it will still be a good time to borrow. Having said that, I still see it being more difficult to secure new lines of credit in 2011. It’s going to take some patience and the willingness to educate some institutions on our industry.

With our dealer clients, we saw sales volume increase by almost three percent in 2010 over 2009. Not a record-setting year by any means, but this trend was driven more by cash management. Dealers seemed to want to sell what their cash flow dictated rather than sell as much as possible. We all know that we can sell as many as we want or have the financial resources to in this industry. There doesn’t seem to be a lack of customers needing or wanting what we have to offer.

The same will pretty much hold true for 2011. We should have the customers in the market to sell as much as we would want. The biggest question will be inventory availability. Now I’m normally a glass-half-full kind of guy, but when it comes to this, I think the glass may be half-empty. Even though the prices somewhat leveled off the last half of 2010, the number of vehicles was dwindling even more than usual.

In 2010, portfolio performance saw some stabilization from a dollar-loss standpoint, but from a number-loss standpoint, we saw a slight increase, or worsening. This, I believe, was driven by a couple of factors, the first being the need for inventory. I think some dealers accelerated their repo times when a desirable unit was involved. This also helped stabilize the dollar losses as the vehicles were repossessed earlier and in better condition and thus garnered higher recovery amounts. The other factor was renewed focus on both underwriting and the overall collection process. Dealers remained more disciplined in both areas, seeking quality over quantity.

We’ll see more of the same in 2011. Dealers have seen the error of their past ways and are enjoying the spoils of their more disciplined labor. I expect to see the average charge-off to remain essentially the same and the number as a percent of sold to remain higher than in past years, but I expect collections dollars to improve as well as overall collections effectiveness.

The biggest thing to affect our industry in 2011 will no doubt come from the compliance front. The Consumer Finance Protection Act was signed in July of last year, and with it came the establishment of the Consumer Finance Protection Bureau. The “rules” of the Act have to be drafted by August of this year, so we will know what kind of field we will be playing on. In the interim, I have already heard from a few dealers who have received a letter from the FTC (the Bureau’s governing body) informing them of pending audits.

This is something that has existing dealers debating whether to remain in the industry and is causing some who are looking at getting into the industry to delay their entry until the rules are set. This Act and Bureau will separate the men from the boys, so to speak. The dealers who are trying to the best of their ability to do the right things will survive and those dealers who like to operate in the gray areas will fall by the wayside. I’m sorry to say that the waysiders are going to cause the cost of doing business to increase for everyone else.

So here is the best advice I can give to existing dealers, as well as those wanting to get into the business in the coming year: don’t wait. Don’t wait to get compliant. Don’t wait to spend a little money to do so. Don’t wait to review all processes and procedures. Don’t wait to review all expenses. Don’t wait to review all your employees. Don’t wait to train. And definitely don’t wait to sell cars, collect money and make money.

Vol. 8, Issue 1

About the author
Brent Carmichael

Brent Carmichael

Executive Conference Moderator

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