The NIADA analytics for 2015 had some interesting statistics.
By and large, BHPH dealers are spending more on cars, and getting less down. A quick comparison to just 4 years ago(2012) shows that the average BHPH unit cost is up almost $1400. At the same time, the average down payment is down by about $125.
The good news is that average percent of accounts past due from 2012 to 2015 slipped from 28.6% to 17.6%, a significant drop of eleven percent. However, reflecting the higher costs as mentioned above, the average charge off per vehicle is up by $800. Bad debt as a percentage of sales climbed from 18% in that timeline to 25%.
Here’s the meat of this matter: Even though there are less past due accounts, dealers have higher bad debt ratios. This could simply mean that you are repossessing or managing the receivables more.
Are you in the Sub-prime business? Most say yes, but analyze your average credit score. Experian Scorex puts sub-prime at credit scores between 550-619. Anything below 550 is considered Deep Subprime.
What “business” you are in should be a determining factor as to how you manage it.
The deeper into subprime you get, the worse your collections will be. This is just simply the nature of it. People don’t have poor credit because they pay on time. Understanding and accepting this is part of the deal. The trick is how to work with them.
We said it before, you can’t just look at the score, you have to look at what makes up the score.
I’ve heard so many dealers complain bitterly about 50-60% collection ratios, but the same dealers are the ones with “Everybody Rides” posted out front in huge letters. I’m not saying you can’t have expectations, but again, you have to temper the expectations based on the customer.
I am a firm believer in working with people instead of screaming at them or threatening them. If you tell them a car is going to cost $500 a month, and they hesitate, then take that as a cue to ask more questions. Ask yourself, can I accept $425 for 42 months instead of $500 for 36 months?
Point is, find out what works for the people you have chosen to do business with. Ask. Large companies spend huge amounts of money targeting their bases. They take the demographics and desires, and retool advertising and stock to meet the needs and wants of the chosen base. There are so many BHPH dealers out there who simply stumble on the business, but make no real effort to determine what business they are in. This is a major reason why so many BHPH lots are here today and gone tomorrow.
If you realize you are in the wrong business, then it’s worth a little money to remake that business into the niche you want it to be, because you will profit rather than spend a few years losing money until you are bankrupt.