Making Buy Here, Pay Here Work For You!

Posted 19 years ago

By: Kenneth B. Shilson, CPA
Now that 2005 is more than two months old, it is clear that some real challenges lay ahead for the buy here, pay here industry this year. Specifically, vehicle acquisition costs have been increasing steadily since 9/11 and dealers must now pay considerably more for the same vehicles than they did a couple f years ago. In addition, the cost of capital is also increasing. These two factors willl make it much more difficult for dealers to maintain or increase profitability in 2005. In addition, legal and regulatory compliance has never been more important.

Given the aforementioned environment, this article discusses how successful dealers are facing these challenges. It is apparent that prudent “management of risk” is now the key to success in the buy here, pay here industry. A pnldent risk management approach includes at least two important steps:

1. Controlling credit losses through intelligent underwriting, portfolio
management, and analysis and;
2. Avoiding legal and regulatory pitfalls.

Although these risk Inanagement steps may seem evident, they require considerable knowledge, discipline, training, and a focus on dealer operations instead of sales. In short, dealers nlust work slnarter, rather than harder, to prosper. In order to meet the aforelnentioned challenges, dealers should develop an action plan which begins with more education. Such education can best be obtained from the following sources:

1. Reading automotive trade publications to obtain an awareness of current
2. Networking with other dealers and experts to determine the best practices to
3. Attending industry and dealer ITIeetings and conferences in order to learn how
others are solving industry problelTIs.

After dealers obtain more knowledge of the buy here, pay here enVirOnlTIent, they should take prolnpt and decisive action. This includes developing systenls and processes which allow them to prosper in good economic times and in bad, and to minimize risks.

As I consult with dealers nationally, I note that some dealers have good system and processes while others don’t. Those that don’t, usually suffer from either a deficiency of knowledge or execution. Both can be fatal!

On developing good systems and practices, dealers must focus on a disciplined
approach to their business which involves implementation of cost controls, requires continual elnployee education, and includes a monitoring program which makes
supervisors “inspect what they expect”.

Finally, dealers must “learn from their losses”. Everyone likes to emphasize the
things they do well and minimize those things they don’t do well. In that regard, the best dealers utilize portfolio analysis techniques to identify underwriting and other mistakes. This analysis enables them to control their losses and lnaximize collections and cash flow.

If you want to prosper in the buy here, pay here business today you need to realize that doing the right things is not rocket science, but is a science! Good luck!

Kenneth Shilson, CPA is President of Subprime Analytics which performs electronic portfolio analysis. Mr. Shilson is also the fowlder of the National Alliance of Buy Here, Pay Here Dealers (NABD) which will host its annual conference in Las Vegas May 4-6, 2005. For further information on NABD 2005 visit Mr. Shilson can receive emails at