By  Kenneth Shilson, CPA

      President / Founder

      Subprime Analytics (

      NABD (


            The first half of 2015 is almost complete and for most buy here, pay here dealers (BHPH) dealers it has been extremely challenging. Competition from credit unions and franchise dealers, together with large subprime asset-backed auto finance securitizations, have reduced the market share of independent dealers. In addition, it has been more difficult for dealers to attract and retain the best subprime customers. Every operator should determine how their own business has been affected and what they must do to compete successfully during the remainder of 2015 and beyond!

            Unfortunately, reviewing historical financial statements and sales reports will not provide the necessary answers. Financial statements report gross sales profits which (in BHPH) too frequently do not convert into cash. Further, selling a vehicle and “keeping it sold” can be very different. Success in the BHPH business is determined by the latter (keeping the customer paying) rather than delivering the vehicle!

            Therefore, I encourage operators to take a “deeper dive” into their first half results by studying their bad debt losses. This helps them avoid repeating underwriting and/or collection mistakes, which have become more expensive due to increased “cash in deal” and operating expenses.

            Some operators don’t analyze losses because they have centralized underwriting with the same people making the finance decisions. They mistakenly believe that consistency assures success. Neither are valid reasons not to “look under your hood” because changes in the economy, their customers, local market conditions, and increased competition require operators to adapt.

            During the May 2015 NABD Conference in Las Vegas, new BHPH benchmarks were released. These are the most comprehensive metrics for the industry and (for the first time), include benchmarks for lease here, pay here -- which is becoming a popular alternative business model. The entire report can be downloaded free from in case you missed the Las Vegas Conference. Two videos are also available on that web site. The first video explains static pool, loss / liquidation and default-rate performance metrics. The second video explains how to use these metrics to evaluate portfolio performance and how to compare your business model with industry peers and the benchmarks.

            Although data from the first quarter of 2015 industry shows competition is decreasing, your ability to regain and grow market share is not assured. Some important decisions must be made. Should you increase or decrease ACV? Are down payments and repayments adequate and comparable to those of your peers? Is the term of your contracts too long? Answers to these questions will determine the return on your portfolio investment -- which is the most important measure of your profitability. Accrual basics net income shown on your financial statement is “fool’s gold”. At our NABD Boot Camp on August 22-23, we will discuss “best practice” tips which answer the aforementioned questions.

            Operators who sell their contracts also need to analyze portfolio performance in order to determine the performance metrics that will indicate the fair value of their portfolio. For instance, if their net static pool loss rate is 25% and they are offered a 20% discount from a buyer, the sale of these contracts may be advisable. Operators also need to know the projected runoff of their portfolio if “collected out” to project future cash flow and capital requirements.

            In the heightened regulatory environment of today, portfolio analysis can be used to make “disparate impact” calculations before regulators do. Performance analysis can detect increases in defaults and provide an early warning that customer complaints will likely follow.

            Hoping that the second half of 2015 will be better is not a prudent strategy – BHPH operators must be proactive to become competitive and successful. “Learn from your losses so you don’t repeat them!” Intelligence is the ability to adapt to change.” Good luck!


            Kenneth Shilson, CPA, is President of Subprime Analytics ( which performs data mining analysis of subprime auto finance portfolios for capital providers and BHPH operators large and small. The data can be extracted electronically from most dealer management software systems. Questions can be directed to or by calling (832) 767-4759.

            NABD is the only used car special interest group exclusively for the self-finance industry. Membership is open to anyone in the BHPH industry and to service providers. Members pay no dues. Upcoming NABD educational opportunities include a Buy Here, Pay Here Boot Camp in Charlotte, NC on August 22-23, 2015 and the 2015 East Coast Conference for Buy Here, Pay Here in Orlando, Florida on November 3-5, 2015. For more information contact NABD at (832) 767-4759 or visit the web site at