Good People, Bad Credit

A few years ago I learned how to sell cars in volume and with better margins by engaging the World Wide Web. Until then, without admitting it, I simply played chase the leader.

At times I would throw buckets of money at the Sunday auto section of my hometown paper. Other times, I'd chase customers with obscene discounts. Inevitably, I'd wind up trying to convince myself that the real deal was in the trade-in or the warranty service down the road, or in after-sale products or referrals or volume.

I never really made much more than a good living from my franchised dealerships back then. Ok, a damn good living. But, I never got rich with that strategy and consequently my team and I never really had much fun in the pursuit.

Before the Internet, my only taste of big profits came from spotting opportunity that dealers were bypassing or ignoring as it lay at their feet.

But, bigger than anything I've seen before is the opportunity flowing from today's folks with a few bucks of income but challenged credit.

This group is willing to pay retail for high-quality used and mainstream new cars. Lenders are learning that a lot of these customers are out there, customers who consider an offer as their last chance to demonstrate both a willingness and ability to honor a car loan.

When properly qualified, this group contains good people whose credit has suffered from bad circumstances.

They're different from bad credit customers. It's an important difference. Bad credit folks are, overwhelmingly, bad folks.

They're tough to handle, tough to get done and tough to service after the sale. Mostly they are hard to do business with in a legal way and make money.

Start with what level of notice that the buy-here pay-here dealers give to non-paying customers before repossessing a car.

Imagine having to send a letter to a dead beat offering that “citizen” 45 days to catch up before repossession. Imagine the condition of that car if you could find it.

There are hundreds of tote-the-note lots in every market; almost as many as there are attorneys waiting to sue you if you do it wrong. My research shows that the note lots are almost as over-dealered as new-car franchises, and we've all seen what happens to profits when markets are over-dealered.

I'm breaking sales and profit records with folks who really deserve and need another chance (as evidenced by their income and willingness to make payments).

These customers have some cash to put into the deal, but demand solid, quality transportation (usually within three years of new). The opportunity to serve that community has potential for volume, margin and integrity.

Staggering is the arbitrage between the retail rates that this group is willing to pay, and low cost of funds for lenders willing to offer them a loan.

That margin enables financial institutions to take greater risk than ever before. The caveat is that the retailer who aggregates and sifts through these leads must have a whole new staff with which to serve the two masters — customer and lender.

The new world order of “buy here, pay here” includes folks on the dealer's side who heretofore only resided on the banker's side. Funders, auditors, verifiers, and telemarketers are all part of the equation (and cost) of this new opportunity.

I'm reminded of a conversation I had with my Datsun-dealer father early in my career. He told me, “Son, you're going to find that the real money in this business is made on the opportunities that you can control yourself.

“If you wait for someone else to hand it to you, the margin will have been sliced to the bone whether it's a franchise, a hot new product or a stock tip. By the time it's offered up, it's been butchered.”

Dad always believed in used cars and credit as the dealer's domain, beliefs I always challenged. Isn't it interesting that during these tough times, I'm walking in clover because of substantially the same market opportunity that hooked dad almost 60 years ago.

Peter Brandow is a veteran dealer in Pennsylvania and New Jersey.