Advice on Securing Capital from CAR Financial

Buy here-pay here financing is perceived as one of the most risky investments by major banks and rediscount lending institutions. There is a perception in the marketplace that by avoiding the direct-dealer component of this industry, that a lender is somehow insulated from the reputation risk that is commonly associated with the used car sales process. Combine this with the recent turmoil in the capital lending markets, and it is no surprise that dealers and smaller finance companies alike are having issues with finding capital to manage their operations and support growth. Dealers who are fortunate enough to find capital are seeing lower advance rates, higher audit fees, custodian requirements, etc.

As if finding cars in today’s market is not difficult enough, now most dealers are struggling just to cash flow their business given these new lending restrictions. While time will likely allow capital to flow back into this market, it is unlikely that capital will be as abundant or as cheap as it was from 2005-2008. With lines of credit tightening and capital become more scarce, CAR Financial can assure dealers and finance companies that it can help by offering an array of products designed to infuse short-term capital to support this industry.

CAR has been in this industry through many of the ups and downs including the S & L crisis in the early ’90 s, the subprime public company melt-down of 1995-1996, the recession and market slowdown of 2001, and the most recent liquidity crisis of 2007-2009. It’s no surprise that history is repeating itself about every 5-7 years.

At CAR we look for dealers who have a realistic view of the asset level economics of their business, and work to provide capital to support this approach to business. We provide a local resource, who is an expert in this market and can understand our dealers’ needs specific to the market in which they are located. We are in this industry for the long run, and do not cross sell our dealer’s customers with other financial products or services.

With capital being scarce, we offer the following advice to our dealers and potential dealers in the industry today:

• Be realistic with the consumer and the deal structure. Selling a high-mileage unit to a consumer who has a high mileage driving habit for an extended term just does not work! Offset this practice by understanding your customer’s driving habits, and getting the consumer into the right car and right structure. If you cannot make this work for the consumer, don’t force it!

• Keep detailed records on your performance. If a finance company asks you to provide detailed records for approval, the inability to provide them will be seen as a shortfall in your business, and you will likely be passed up in favor of a dealer who has organized reporting.

• Maintain a history of how your deal structure impacts performance. You will be surprised at how term, down payment, payment amount, and the auto characteristics impact loan performance. If you have the going-in detail and can map this to the coming out results, you will be way ahead of the game when talking with a potential lender.

• Get a legal review of your documentation to determine if you are compliant with state and federal regulations. Without this process your assumption of asset value could be significantly different than the reality!

• Don’t assume you can sell any of your accounts as your exit strategy. Too many dealers have made this assumption, only to be shocked when one or more of the aforementioned issues results in the dealer receiving much less than anticipated.

If you are a successful BHPH dealer, or would like to talk to one of our industry experts, call (877) 570-8857, visit us at www.carfinancial.com or send an email to chris.tiller@carfinancial.com.