Your Next Profit Center?

The used-vehicle business is my favorite part of our industry, as most of you who read my column know. It represents the greatest opportunity for the new-vehicle dealers in total. It's also the department we individually have the most control over.

Consider a few facts: In 2002, there were approximately 43 million used vehicles sold compared to 16.86 million new units.

New-vehicle franchised dealers sold 16.4 million of those used vehicles in 2002, up from 15.9 million in 2001. Independent dealers and private sales accounted for the balance of 26.6 million.

At the National Association of Buy Here, Pay Here Dealers Convention in Las Vegas last month, attendees discussed the short- and long-term outlook of the industry in which dealers actively participate in the financing of subprime customers buying used units.

Industry experts discussed marketing, collections, legal and accounting issues. Those are critical areas in this business.

Tom Webb, chief economist of Manheim Auctions, spoke of the older used-vehicle market and its opportunities.

Nearly 20 million vehicles age eight and older were sold in 2002. Looking at personal bankruptcies, a new record was set between April, 2002 and March, 2003, according to government statistics. In that period, personal bankruptcies rose 7.1%, exceeding 1.6 million for the first time.

These statistics, coupled with the less than great sub-prime lending climate, present an opportunity and a challenge for new-vehicle dealers considering getting into buy here, pay here financing.

I spoke to several new-vehicle dealers who are seriously considering getting into it. While discussing the reason for that, one dealer says, “We trade for several older vehicles that still have a lot of life, but I'm forced to wholesale them because I don't have a finance source that will buy this paper.”

Another cited the wholesale losses he was taking on 7- to 8-year-old trade-ins. He knew there was still a profitable market in that segment.

I learned several things about this business at the workshops. Perhaps the most important: It's all about collections. Most of us have “grown up” selling cars and trucks and grown accustomed to selling in volume.

When someone asked, “What kind of month did you have,” I, and most of you, quote monthly sales volume. But volume can be your greatest enemy with buy here, pay here. In this business, it's the quality, not quantity of your subprime customers driving away in used cars you've financed.

Bad things happen to good people. A report from the Federal Reserve says, “Research indicates at household debt is at a record high relative to disposable income.

“Some analysts are concerned that this unprecedented level of debt might pose a risk to the financial health of American households. A high level of indebtedness among households could lead to increased household delinquencies and bankruptcies.”

Record high household debt, coupled with the 6.1% unemployment rate in May versus an average rate of 5.8% at the same time last year, provides insight into the current and immediate future of the buy here, pay here industry.

We also need to consider what CPA and convention chairman Ken Shilson calls underemployment. That describes the many whose income fails to provide for their basic needs.

If you are considering entering this business, or just want more information, visit the National Association Of Buy Here, Pay Here Dealers website www.bhphinfo.com.

This market segment isn't for everyone. It has its risks.

But if you have the inventory, personnel and commitment, this business could prove to be a very viable source of additional income.

Good selling!

Tony Noland ([email protected]) is the president and CEO of NCM Associates, Inc.