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Buy-Here, Pay-Here Dealers Advised to Do the Math

Average FICO score of used-car buyer lower than national average score

Buy-Here, Pay-Here Dealers Advised to Do the Math

1. Average FICO score of used-car buyer lower than national average score


2. BHPH dealers who pursue customers w/ lower credit scores need good business practices

3. Buyers in this segment have no financial capacity; job loss, illness can lead to bankruptcy

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4. BHPH dealers who stay on top of losses can make compensatory adjustments, make profit

Significant Points


1. Ken Shilson, founder of National Alliance of Buy-Here, Pay-Here Dealers


2. Says mistake for dealer to try to lessen risk by upping down payment

3. If buyer defaults, "that extra $500 is something the dealer is going to have to eat"

4. Ron Peterson: Stigma gone from bankruptcy, many buyers tightly leveraged

5. Says dealers need to understand true nature of losses in BHPH setting

6. Can better price vehicles, set interest rates, control number of loans they make


"If a buy-here customer goes through the loss of a job, the dealer is in trouble. Most buy-here, pay-here customers can't even be out of work for two weeks because they have no savings to service debt." -- Ken Shilson, founder, National Alliance of Buy-Here, Pay-Here Dealers

"Dealers often look at ability to repay based on someone having their job and wanting to do anything to keep his car. They shouldn't assume that a buyer will let his kids go hungry to keep his ride." -- Ron Peterson, attorney, federal bankruptcy trustee, Chicago, IL

"This is the world buy-here, pay-here dealers have chosen to operate in. Losses come with the territory, but as long as a dealer has a good program to recycle his inventory and is vigorous in repossessing cars, he can make money." -- Peterson

"Some guys don't do the math. Guys who have great accounts receivable numbers, but don't know how to read a static pool chart to learn their losses are in trouble because they don't know what adjustments to make in price, interest rates or number of loans they should make."




Sourced From: Used Car News, August 21, 2006

Used Car News 8-21-06
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