2011 BHPH Industry Benchmarks

Posted 11 years ago

Annually NABD, with the help of SGC Certified Public Accountants (“SGC”), prepares buy here, pay here (“BHPH”) financial benchmarks from a database of their clients nationwide. These financial benchmarks are a composite of the “best performing” operators and are not an average of the entire database. Since 2006, the NABD benchmarks also include operating information on sales, collections and recoveries, and inventory management which were developed and supplied by NCM Twenty Groups (NCM”), based upon a composite of all of their BHPH twenty group members. The attached NABD benchmarks also include portfolio performance metrics which were compiled electronically by Subprime Analytics (“Subprime”) who, to date, has analyzed approximately $9 billion (over 1,000,000 individual deals) of BHPH installment contracts to identify loss rates, patterns, and trends. In the aggregate, these statistics provide a comprehensive look at the financial and operating performance of the BHPH industry for the last three years and some important trend information for earlier periods.



Some important developments occurred in 2011 which will impact the BHPH industry for several years in the future. In 2011, Experian Automotive determined that approximately 24,000 BHPH dealers nationally financed nearly 15% of all used vehicle sales. These new statistics are important for two reasons:

1. It represents a credible estimate of the size and breadth of the BHPH marketplace (well done, Experian!)
2. These estimates show how significant BHPH has become to used vehicle financing in America.

Millions of unbankable consumers depend on the BHPH industry to provide the transportation they need to work and to live. This segment will continue to grow if not otherwise constrained by adverse regulation.

Speaking of regulation, 2011 saw the creation of the Consumer Financial Protection Bureau (CFPB) as a direct by-product of the Dodd-Frank Act. The CFPB has been charged with regulating BHPH and other alternative credit industries. Although it is still too early to predict what new rules and regulations may be forthcoming, the cost of compliance will surely increase for the BHPH operator in the future. The BHPH industry and the consumer must work together to provide “unbankable consumers” with transportation solutions. BHPH operators are advised to make compliance a priority and to appoint a chief compliance officer to address old and new regulatory challenges.

Finding BHPH inventory at competitive costs was a major challenge in 2011. Reduced auction consignments and greater demand kept BHPH vehicle acquisition costs high. Unit sales in 2011 declined slightly due to the unavailability of inventory and from capital constraints. Dealers were forced to purchase higher mileage vehicles and to spend more on reconditioning costs.

Many operators attempted to offset vehicle cost increases with higher selling prices. Down payments in our database remained relatively flat thereby resulting in an approximate 3% increase in the average amounts financed. Repayments were also flat causing operators to increase their contract terms. This trend requires careful monitoring for its impact on future collections and losses.

Even the most profitable operators again could not “cover” bad losses with finance income (where income equals or exceeds bad debt expense). This occurred because bad debt expense increased by 3% while financing income increased by 2% (both expressed as a percentage of sales). The increase in financing income was primarily attributable to longer terms and larger amounts financed.

Many operators increased their reserve for bad debts (expressed as a percentage of receivables) in anticipation of higher net losses in the future. “Cash in deal” continues to increase absent corresponding increases in down payments and/or customer repayments.

As costs and expenses rise with inflation, so too will repo losses. Therefore mitigating these losses becomes more important than even before. Technology, including the use of payment devices now plays a more vital role in collections and recoveries. Automating customer repayments by ACH, bank debit cards, and other automated solutions increases efficiency, reduces collection costs and improves cash flow. Technology will play an important role in the future success of the BHPH industry.

A complete copy of all the 2011 BHPH Benchmarks will be published in the Used Car News “2012 Data Source Book” later this month. I encourage you to get a copy.