Collections The key to Success for Any BHPH Dealership

A wise buy here-pay here Twenty Group moderator once said, “If you can’t sell a vehicle to a customer with limited means, a small down payment and who rarely pays anyone back on time, then you probably shouldn’t be in sales.” In other words, if you’re a buy here-pay here dealer, your in the finance and collections business, you just happen to sell vehicles. This month DBJ takes a look at three dealers who set the benchmarks in collections for their Twenty Groups.

Stacey Foerster

General Manager

Car and Credit Connection

Bay City, Mich.

Car and Credit Connection has two locations in Bay City and Midland, Mich. Together they move about 43 units a month. The operation has about 1,000 accounts and portfolio of $7.5 million.

Stacey Foerster, has been the general manager for 16 years, and the operation has been in business for 19 years. Year in and year out, Car and Credit Connection very near the top or sets the benchmark for all aspects of collections—without any collectors, per se.

Foerster has a simple philosophy when it comes to collection. Tell you customer right up front what you expect of them. Let them know that if they are one-day, one-dollar late you will knock on their door and ask them why they didn’t pay on time. Finally, knock on their door if they are one-day, one-dollar late.

“I am a firm believer in that the person that sold you the vehicle should be the person who you come to if you have a problem making a payment,” Foerster said. “The assistant managers at each store sell the vehicles and they do the door knocking, calling and assign the repossessions.”

Foerster said it’s a manageable job and that, on average, the assistant managers do about five door knocks a day. If a customer isn’t home, a door knob reminder is left behind and if the manager must return the next day, they’ll know if someone has gotten the message.”

She said she believe all buy here-pay here sales should be managed the same way, even if a company has 10 times the volume she has.

“I’ve heard all the arguments about us being small and the numbers make our system manageable,” she said. “My argument, is our system works. We have very low delinquencies and our charge-offs are far fewer than most dealers. How can you argue with that?”

Foerster said that the steps to a repo are swift. The assistant managers go to the house, look around to see if someone is still living there, go to their place of employment to see if the vehicle is there and, if they haven’t had contact with the person for 1-3 days, they schedule the vehicle for repossession.

If a vehicle is repossessed it’s kept on the lot a few days and the customer has the opportunity to redeem the vehicle before it’s reconditioned and re-sold or taken to auction.

“Our delinquency is 7 percent and our one-day, one-dollar late is 9 percent,” she said. “We consistently collect at 105 percent of our projection. Our net charge-off rate for the year is 20.7 percent. Our 12-month gross charge-off rate is 24 percent. What’s important is this business is cash flow. Our goal is to keep the customer in the vehicle and help them to keep paying, on time. The door knocks, I believe, are key to our success.”

She said it sounds harsh to be so quick on your customer’s doorstep if they’re one-day late with their payment, but, she explained, customers are told right up front what’s expected of them and what the consequences for not paying on time are, so she doesn’t believe it’s harsh treatment at all.”

On the other side of the customer service coin, Foerster said, Car and Credit Connection is constantly rolling out the red carpet for its customers. Employees are personable and friendly and regular customer appreciation events are held. Every child of a customer is given a toy, and they take the time to get to know each customer.

She said most of the customers will tell the company representative, they knew they would be coming, because it is explained to them in detail what will happen if they don’t make their payments.

“Yes, customers will have problems with their vehicle and we understand that,” she said. “We’ll work with them, but we tell them regardless of the vehicles’ condition or their ability to make their payment, we need to hear from them and know what the situation is. No communication is what triggers our response.”

She said the managers are never allowed to pick up a payment in the field. Customers must bring the money into the dealership.

“We offer a three-month, 3,000-mile warranty and beyond that if their vehicle breaks down and the estimate is more than $500 well help them get it repaired and work something out.”

Foerster said she out sources her repossessions to a licensed and bonded agent. They are insured for up to $1 million. She said she regularly makes sure the agent remains bonded and insured.

“We pay about $300 per repo and if the driver returns the vehicle to us within three days we give the driver a $25 spiff,” she said. “That helps with the redemptions. If I can get the customer back in quickly, we can help them get caught up. If it goes much beyond a week, they get overwhelmed.”

Shawn Richardson, owner

Express Credit Auto

Oklahoma City, Okla.

Shawn Richardson is the owner of the buy here-pay here store and Auto Advantage Finance, its related finance company. The operation has about 6,200 accounts in its portfolio and seven full time collectors. The company has 14 collectors.

Richardson is a firm believer in using the starter-interrupt and GPS tracking devices to help with collections.

“When you add everything together, price, taxes, installation, air time and pulling them out when you have to, the cost is about $200 a unit,” he said. “Our average ACV is between $6,200 and $6,500, so to me it makes perfect sense to insure my collateral. The technology has gotten better over the years. To me the starter-interrupt is more important than the GPS, because I really never want to see the car again. I just want to see a stream of payments.”

Richardson said his repo rate is about 33 percent (benchmark), and 37 percent of his 42-month term notes go to term. His one-day, one-dollar late is less than 10 percent, recency is at 95 or higher and delinquency is between 7-8 percent.

“We track everything with the collectors,” Richardson said. “I have a manager that handles all that, and we just won’t accept a collector that has a high repo rate. When you are as large as we are in a crowded market, you’ll run out of customers.”

His philosophy on collections is simple as well. He will hire both a experienced professional and someone who has never done collections before. What’s key for Richardson is that there is low-drama when the collector gets to work, they are happy people with a very good attitude to customer service. They have to want to help the customer keep their cars.

“I look for someone who truly looks at their job as helping people improve their lives,” he said. “There’s really no other way to look at this job and be successful at it.”

He pays his collectors hourly and incentivizes them on both their delinquency and repo rates.

“A good collector can make $50,000 a year and that’s very good money here in the Midwest. If you aren’t hitting your numbers, you’ll only make $25,000 and we don’t want you, and the employee won’t want the job.”

Good underwriting helps with collections, at Express Credit Auto the two are completely separate.

“We have what I feel is a very good program and we make sure it’s in place at all stores and adhered to religiously,” Richardson said. We use the starter interrupts, have solid underwriting and that helps us to underwrite the highest risk customers and get them into a better car than they’ve ever had. All these things help keep the customer paying.”

Richardson meets with his collections manager regularly, but he also spends, on average, one day a week with his collectors.

“Our manager gets them specialized training, but when I give them the face time, I let them know that I believe what they do is important and they know they are appreciated. I’m also there to make sure there aren’t any logjams.”

Express Credit Auto now has more than 100 employees, and he makes sure that the collectors are part of the group.

When the company does have to repo a vehicle, Richardson makes sure everything is handled properly and to the letter of the law. The customer is given 10 days to redeem the vehicle. If it’s not redeemed, the vehicle is taken to auction and sold. Express Credit will pursue the deficiency balance.

“There are problems going after deficiencies, and I’m not recommending for everyone. You have to make your own decisions based on where you are, your market, business and legal climate.”

Because he pursues deficiencies there are occasional complaints to the state attorney general.

“We keep meticulous records,” he said. “When the AG comes to vision, we know all our ducks are in a row. We keep records like a publicly traded company and we’re ready for Armageddon. We bring in about $20,000 or about 1 percent of our charge-offs of $2 million. Sometimes I don’t think it’s worth it. It’s a lot of ill-will for not a lot of money, and I often wonder if I’m not putting a lot of negative energy out there.”

Richardson uses a CPA who started a repo company as his repo agent. It’s a great company. The firm hires a lot of professionals, who are sticklers about their jobs. Express Credit pays about $150 per repo and collects about 100 vehicles a month.

“Our average repo cost is between $400 and $500,” Richards said. “That includes the repo fee, title fee, auction sale fee and a detail.”

Shane Rhodes, owner

Rhodes Auto Sales

Houston, Texas

Rhodes Auto Sales moves a lot of vehicles from two Houston-area locations. The two stores move about 130 units a month and keep about 110-120 on the lot with about 40 in make-ready at any given time. The dealership at a $16.8 million principle portfolio and 1,850 contracts on the books. Rhodes started the business 12 years ago and was “washing my own cars” at the time.

Rhodes believes strong collections starts with strong underwriting, but that being said, underwriting can be a slightly moving target.

“If traffic is down, we may loosen up a bit, if traffic is strong we may tighten down,” he said. “We may move between a $1,000 down to a $1,500 down. He had 860 applications on the two lots in February and did 130 deals. We won’t do pre-qualifying on the phone, and that’s why our closing ratio is low. We get everyone in, and then qualify him or her.

Rhodes has four full-time collectors and one person who does nothing but work with customer insurance. Each collector has about 400 accounts.

“I didn’t start there,” he said. “When I first joined the Twenty Group on Monday morning, I was at 40 percent one-day, one-dollar late, now it’s down to 15 percent. I just didn’t think it was possible, but when I saw others doing it, I new it was possible.”

He said not having enough collectors was the biggest mistake he made in this business, and had to hire an extra one for a while to “get out of the hole.”

He said he hires quality people and pays them a decent salary. Prior collections experience is preferred, but not a prerequisite. His collectors will call on day one and day two and do a door knock on day three.

“We use the GPS devices and that helps us locate vehicles,” he said. “It’s a significant expense, but if you’re in a metro area, you really can do with out them anymore given the rise in ACV. We have the ability to use the starter-interrupt, but you have to use them judiciously. If you use the starter-interrupt, you have to locate the car first, or the customer will just leave it wherever it is. We never leave the car off overnight. This gives the customer a chance to get back to where he needs to be.”

Rhodes Auto Sales has a repo rate of about 35 percent, and that has gone down in recent months.

“I’m in the same group as Stacey Foerster and I understand why she does what she does,” he said. “But Houston is far different than Bay City. You can get just about any where in her towns in 15-20 minutes. It takes me 25 minutes to get to work and I only lives a few miles away.”

Rhodes said he’ll do whatever it takes with a customer to try and keep in him a vehicle, but he’ll not let anyone get over 30-days past due.

“People will say that they can’t get the money, but when you get ready to take their vehicle they find the money. It’s amazing. If you let someone get 45 days past due, they’ve basically stolen your vehicle.”

Customers in need of repair work have a friend in Rhodes.

“I’m among the most lenient dealers in the country when it comes to repair work,” Rhodes said. “We’ll do what it takes to repair a vehicle. If it’s under warranty, we get them on the road quickly. If it’s a paid repair, we set up a side note with the $50 bi-weekly payment. We do the repairs ourselves, so we do whatever we can to keep them on the road.”

Rhodes puts a higher quality ACV vehicle on the road than many buy here-pay here dealers, but comparable to what many in his region of Texas offer.

“Our average ACV is about $6,900, and that has gone up about $400 this year,” he said. “We recycle about 30 percent of the vehicle we repo, and flip the rest at auction.”

He said he has to spend more money on vehicles in Texas. There is a lot of competition in his market, customers typically put 25,000-30,000 miles a year on their vehicles, and it’s 100 degrees or hotter for most of the year.

“You have to sell vehicles that will handle the miles and the heat,” he said. “Otherwise you get them back, and they’re not worth anything.”

“Yes, customers will have problems with their vehicle and we understand that,” she said. “We’ll work with them, but we tell them regardless of the vehicles’ condition or their ability to make their payment, we need to hear from them and know what the situation is. No communication is what triggers our response.”

She said the managers are never allowed to pick up a payment in the field. Customers must bring the money into the dealership.

“We offer a three-month, 3,000-mile warranty and beyond that if their vehicle breaks down and the estimate is more than $500 well help them get it repaired and work something out.”

Foerster said she out sources her repossessions to a licensed and bonded agent. They are insured for up to $1 million. She said she regularly makes sure the agent remains bonded and insured.

“We pay about $300 per repo and if the driver returns the vehicle to us within three days we give the driver a $25 spiff,” she said. “That helps with the redemptions. If I can get the customer back in quickly, we can help them get caught up. If it goes much beyond a week, they get overwhelmed.”

Shawn Richardson, owner

Express Credit Auto

Oklahoma City, Okla.

Shawn Richardson is the owner of the buy here-pay here store and Auto Advantage Finance, its related finance company. The operation has about 6,200 accounts in its portfolio and seven full time collectors. The company has 14 collectors.

Richardson is a firm believer in using the starter-interrupt and GPS tracking devices to help with collections.

“When you add everything together, price, taxes, installation, air time and pulling them out when you have to, the cost is about $200 a unit,” he said. “Our average ACV is between $6,200 and $6,500, so to me it makes perfect sense to insure my collateral. The technology has gotten better over the years. To me the starter-interrupt is more important than the GPS, because I really never want to see the car again. I just want to see a stream of payments.”

Richardson said his repo rate is about 33 percent (benchmark), and 37 percent of his 42-month term notes go to term. His one-day, one-dollar late is less than 10 percent, recency is at 95 or higher and delinquency is between 7-8 percent.

“We track everything with the collectors,” Richardson said. “I have a manager that handles all that, and we just won’t accept a collector that has a high repo rate. When you are as large as we are in a crowded market, you’ll run out of customers.”

His philosophy on collections is simple as well. He will hire both a experienced professional and someone who has never done collections before. What’s key for Richardson is that there is low-drama when the collector gets to work, they are happy people with a very good attitude to customer service. They have to want to help the customer keep their cars.

“I look for someone who truly looks at their job as helping people improve their lives,” he said. “There’s really no other way to look at this job and be successful at it.”

He pays his collectors hourly and incentivizes them on both their delinquency and repo rates.

“A good collector can make $50,000 a year and that’s very good money here in the Midwest. If you aren’t hitting your numbers, you’ll only make $25,000 and we don’t want you, and the employee won’t want the job.”

Good underwriting helps with collections, at Express Credit Auto the two are completely separate.

“We have what I feel is a very good program and we make sure it’s in place at all stores and adhered to religiously,” Richardson said. We use the starter interrupts, have solid underwriting and that helps us to underwrite the highest risk customers and get them into a better car than they’ve ever had. All these things help keep the customer paying.”

Richardson meets with his collections manager regularly, but he also spends, on average, one day a week with his collectors.

“Our manager gets them specialized training, but when I give them the face time, I let them know that I believe what they do is important and they know they are appreciated. I’m also there to make sure there aren’t any logjams.”

Express Credit Auto now has more than 100 employees, and he makes sure that the collectors are part of the group.

When the company does have to repo a vehicle, Richardson makes sure everything is handled properly and to the letter of the law. The customer is given 10 days to redeem the vehicle. If it’s not redeemed, the vehicle is taken to auction and sold. Express Credit will pursue the deficiency balance.

“There are problems going after deficiencies, and I’m not recommending for everyone. You have to make your own decisions based on where you are, your market, business and legal climate.”

Because he pursues deficiencies there are occasional complaints to the state attorney general.

“We keep meticulous records,” he said. “When the AG comes to vision, we know all our ducks are in a row. We keep records like a publicly traded company and we’re ready for Armageddon. We bring in about $20,000 or about 1 percent of our charge-offs of $2 million. Sometimes I don’t think it’s worth it. It’s a lot of ill-will for not a lot of money, and I often wonder if I’m not putting a lot of negative energy out there.”

Richardson uses a CPA who started a repo company as his repo agent. It’s a great company. The firm hires a lot of professionals, who are sticklers about their jobs. Express Credit pays about $150 per repo and collects about 100 vehicles a month.

“Our average repo cost is between $400 and $500,” Richards said. “That includes the repo fee, title fee, auction sale fee and a detail.”

Shane Rhodes, owner

Rhodes Auto Sales

Houston, Texas

Rhodes Auto Sales moves a lot of vehicles from two Houston-area locations. The two stores move about 130 units a month and keep about 110-120 on the lot with about 40 in make-ready at any given time. The dealership at a $16.8 million principle portfolio and 1,850 contracts on the books. Rhodes started the business 12 years ago and was “washing my own cars” at the time.

Rhodes believes strong collections starts with strong underwriting, but that being said, underwriting can be a slightly moving target.

“If traffic is down, we may loosen up a bit, if traffic is strong we may tighten down,” he said. “We may move between a $1,000 down to a $1,500 down. He had 860 applications on the two lots in February and did 130 deals. We won’t do pre-qualifying on the phone, and that’s why our closing ratio is low. We get everyone in, and then qualify him or her.

Rhodes has four full-time collectors and one person who does nothing but work with customer insurance. Each collector has about 400 accounts.

“I didn’t start there,” he said. “When I first joined the Twenty Group on Monday morning, I was at 40 percent one-day, one-dollar late, now it’s down to 15 percent. I just didn’t think it was possible, but when I saw others doing it, I new it was possible.”

He said not having enough collectors was the biggest mistake he made in this business, and had to hire an extra one for a while to “get out of the hole.”

He said he hires quality people and pays them a decent salary. Prior collections experience is preferred, but not a prerequisite. His collectors will call on day one and day two and do a door knock on day three.

“We use the GPS devices and that helps us locate vehicles,” he said. “It’s a significant expense, but if you’re in a metro area, you really can do with out them anymore given the rise in ACV. We have the ability to use the starter-interrupt, but you have to use them judiciously.

“If you use the starter-interrupt, you have to locate the car first, or the customer will just leave it wherever it is. We never leave the car off overnight. This gives the customer a chance to get back to where he needs to be.”

Rhodes Auto Sales has a repo rate of about 35 percent, and that has gone down in recent months.

“I’m in the same group as Stacey Foerster and I understand why she does what she does,” he said. “But Houston is far different than Bay City. You can get just about any where in her towns in 15-20 minutes. It takes me 25 minutes to get to work and I only lives a few miles away.”

Rhodes said he’ll do whatever it takes with a customer to try and keep in him a vehicle, but he’ll not let anyone get over 30-days past due.

“People will say that they can’t get the money, but when you get ready to take their vehicle they find the money. It’s amazing. If you let someone get 45 days past due, they’ve basically stolen your vehicle.”

Customers in need of repair work have a friend in Rhodes.

“I’m among the most lenient dealers in the country when it comes to repair work,” Rhodes said. “We’ll do what it takes to repair a vehicle. If it’s under warranty, we get them on the road quickly. If it’s a paid repair, we set up a side note with the $50 bi-weekly payment. We do the repairs ourselves, so we do whatever we can to keep them on the road.”

Rhodes puts a higher quality ACV vehicle on the road than many buy here-pay here dealers, but comparable to what many in his region of Texas offer.

“Our average ACV is about $6,900, and that has gone up about $400 this year,” he said. “We recycle about 30 percent of the vehicle we repo, and flip the rest at auction.”

He said he has to spend more money on vehicles in Texas. There is a lot of competition in his market, customers typically put 25,000-30,000 miles a year on their vehicles, and it’s 100 degrees or hotter for most of the year.

“You have to sell vehicles that will handle the miles and the heat,” he said. “Otherwise you get them back, and they’re not worth anything.”