Embrace Change: Keys to Success in 2010

I’m not much of a prognosticator, but then again, I know of no one who fully predicted what would happen to our economy, politics and our industry over the past two years. With the caveat that these are my opinions and I could be wrong, let me give my outlook for what 2010 may look like.

First, there are more buy here-pay here customers than ever and more coming our way every do, so the opportunity to sell cars is greater. Mortgage defaults continue to climb, and since no one is giving these millions of consumers a FICO mulligan for their real estate misfortunes, they will continue to arrive on our lots in record numbers. Couple that fact with the necessity to drive to survive in this country, then it is easy to deduce that there will be an increased demand for these services.

The challenges to this opportunity are the supply of low-cost, quality, wholesale inventory. As the new-car volume remains at near historic lows and your demand stays high, the cost of inventory will remain high. Scarcity of vehicles that meet our demands will be a problem going forward, and many are already finding alternatives to their traditional inventory sources. New car dealers are keeping and retailing many of the vehicles they historically sold to the independent used car dealers and buy here-pay here dealers in particular. The higher price of inventory will lead to more cash-in-deal (money on the street), longer note terms and reduced cash flow.

Secondly, the cost of doing business will continue to rise. While the price of fuel peaked and then ebbed, even modest reports of economic green shoots seem to spike oil prices. Prices of just about everything from advertising, to office supplies, to rent, utilities, insurance and taxes continue to rise and that puts more pressure on you to keep costs down and more pressure on your customers to make timely payments. Of course, rising inventory costs is the 800-pound gorilla in the room.

This year will also see more “big players” enter the buy here-pay here arena as smaller mom-and-pop stores exit. The cost to start a buy here-pay here operation has risen steadily over the past few years and typically now requires an initial investment from a minimum of $550,000 to well into the millions. This fact has kept many undercapitalized players from entering and has also pushed out small players with limited funds. The new players will consist of well-capitalized companies (many new-car franchises) looking for profit opportunities that fit well with their current business model. While there will be fewer new competitors, those who enter the game will be more competitive. The need

to rise above the competition will be paramount to existing dealer’s future suc-

cess.

A significant trend that has emerged is in the repayment of notes. Dealers must be prepared to offer several forms of payment and payment methods. Consumers want the ability to pay by credit and debit cards, they want to use ACH and automatic bill paying and they are embracing Web payments. Most of the BHPH and LHPH software firms now offer a variety of payment methods. Many of us old-timers find this hard to believe and have even expressed doubts that this is possible, but we have seen dealers taking a higher and higher percent of payments electronically in 2009. Increases in the usage of these payment methods is a foregone conclusion. Don’t forget about offering your customers incentives to stop by the dealership to make a payment. Drawings, give-

aways, free oil changes and other incentives get customers to your door and give you an opportunity to inspect your collateral.

As we predicted a few years ago now, more and more dealers are using Refund Anticipation Loans and tax season continues to be pushed up rather than strung out through April 15. Refunds are expected to be higher than ever, with more refunds in the $5,000 range rather than the $3,000 range. Take advantage of this to get delinquent customers current and get larger down payments on those vehicles where you have more cash in deal.

Overall, we are very optimistic about buy here-pay here in general, but we warn those who fail to get educated, train their people and prepare may get left behind. The industry is moving forward faster than at any time in recent history and in many circumstances is moving away from traditional methods. Those dealers who embrace change will prosper and those who stick to tradition will be left behind. Good luck, good health and may you have a prosperous 2010!