Dealers Gather in Las Vegas To Understand the New World

LAS VEGAS — The mood of both dealers and vendors was upbeat during the 15th Annual Leedom Group Buy Here-Pay Here National Convention, a mood not lost on the nation’s top Twenty Group moderators who offered dealers a guide to the New Automotive World.

Chris Leedom, CEO of the Leedom Group and nationally recognized Twenty Group moderator and industry consultant, said the current marketplace represents a period of rapid transition and while it presents numerous challenges for many retailers, it also represents significant opportunity for many.

Leedom suggested that despite the great exodus of dealers in the past 12-18 months, he anticipates at least another 2,000-3,000 dealers will leave the marketplace in the next year.

“It’s not necessarily a bad thing,” Leedom said. “Many of these dealers were just dabbling in the business or otherwise just not serious. This presents dealers who have been able to hang on or sustain profitability the ability to absorb customers from those weak competitors.”

He said dealers who know what their core competencies are and can hone those skills are those that will survive.

“But you have to get to work,” he said. “It’s time to shine or get clobbered by your competition.”

He said it’s likely that the competition will be bigger players. As those with access to capital expand into markets left open by competitors who have exited the space, those players will get stronger, bigger and become much more formidable competitors.

“If you were a buy here-pay here dealers surrounded by subprime dealers 18 months ago, chances are you have more breathing space than you did,” Leedom said. “It’s survival of the fittest out there, and you have to be able to react to the new market.”

He said several of the keys to success is focus on the business with intensity. Now, for instance, is a great time to pick up new team members who have the training and expertise to help your team to the next level. He noted that having a good understand of the markets that your compete in is vital. You have ask yourself, if you’re winning in those markets and at profit-level that makes sense for the kind of capital expense you have and the risk you take on.

As for capital, Leedom said it’s one of the biggest struggles for dealers right now.

“If you have a capital source stick with them, even if it’s slightly more expensive,” he said. “Finding new capital right now is no easy chore. Build and maintain the relationships you have and you’ll be better off in the long run.”

Chuck Bonanno, Leedom Group executive vice president and Twenty Group moderator, spoke to the fundamentals of the buy here-pay here business and summed them up with what he called the 5 C’s: Customer, Car, Compliance; Competition and Capital.

He said that the term “bad credit” almost has no meaning any more. Consumers who were “subprime” customers two years ago had the ability to purchase new Suzukis or Hyuandais and even lower-end vehicles from other major manufacturers. Today, that is no longer possible, and that consumer is just coming to grips with that new reality.

“Subprime customers are coming to the realization that the can no longer drive new cars, and even late-model used vehicles are often beyond their reach,” Bonanno said. “It’s not just unemployment, it’s under employment. These customers depended on overtime, which just isn’t there. Now our payments cost them 25-30 percent of their paycheck.”

He said it’s up to the dealer to protect the customer from buying more car than they can afford. When the dealer is the financial institution, setting p the customer for failure, is setting up yourself for failure.

“This economy is cranking out buy here-pay here customers like they were Doritos,” Bonanno said. “These people now realize that bad credit has stopped their ability to get things like credit cards, homes and cars. These customers who are new to buy here-pay here will need to be retrained. They will not know what to think when they get a call when there are one-day past due.”

One of the biggest challenges facing buy here-pay here dealers in the short and long term s the access to affordable, quality inventory.

Bonanno said with fleet sales down, rental sales down and new car sales way off and buy here-pay here demand up, there’s no place for vehicle prices that fit the buy here-pay here model to go but up.

“It’s tough to find good buy here-pay here cars at the auction,” Bonanno said. “But that doesn’t mean you should just go to the one or two auctions you always go to and hope for the best. Expand your reach, find more wholesalers, put the ‘We Buy Cars’ sign back out front, get creative.”

He said going to one sale right now and buying 20 cars that fit the buy here-pay here model isn’t realistic. He also said dealers should get used to buying vehicles, especially trucks, with 150,000 miles on them.

“These vehicles are built better than they have ever been and there’s really no reason not to put them to work for you,” Bonanno said. “If you’re thinking about putting a better quality car out on the lot, think again. Better cars do not equal better customers.”

Compliance is another huge issue right now. While the rules for automotive retailers are already among the most stringent and complicated for any industry, the current administration and Congress are considering even tighter standards.

“For instance, right now a bill is being considered to eliminate arbitration for anyone charging more than 15 percent interest,” Bonanno said. “They are considering legislation, appointing czars and putting our industry under a microscope to make sure you behave.”

He noted that their goal is to “fine you, penalize you or shut you down.”

“That’s the real issue,” he said. “They don’t see the value in what we do and the risks we take to provide those services. Make sure you follow what’s going on at the local, state and national level. Write your Congressman, the White House and take an active role in your dealer associations. It’s important.”