At a recent automotive conference, I made a presentation that concluded with this statement: "In the low yielding economic environment of today, BHPH profit opportunities have never been better.” I would like to detail my reasons for that conclusion.
1. Plenty of New Customers. Experian Automotive now estimates that over 20% of all used vehicle loans made during the quarter ending June 30, 2012, were with customers who had a 550 Beacon Score or less. About 16% of that market was attributable to buy here, pay here. Given the challenging economic environment of today, finding credit-challenged “unbankable” consumers is no problem. Finding unbankable customers who will repay their auto loans requires experience, education, and underwriting and collection skill.
2. Access to Capital. The capital markets are now opening and money is more readily available for good operators who have experienced management, efficient systems and favorable portfolio performance metrics. The private equity market is targeting the best BHPH operators with a willingness to invest large sums of capital. What do they look for? How do you find them? What are the benefits? Portfolio performance metrics (static pool and loss/liquidation calculations) are needed to make the right financial decisions.
3. New Technology. Electronic payment processing allows customers to pay anywhere. Payment device technology allows you to find and maximize recoveries when customers don’t pay. Social media is the best way to connect (and to collect) from subprime customers. Finding the best inventory has improved with mobile Internet tools and smartphone technology. Dealer management software systems now offer integration with all these technology tools. So, while the technology is available, the challenge of every BHPH operator is implementing it successfully. The current technology is the best in BHPH history!
4. Compliance Issues. Rules and regulations at both the state and federal levels are increasing in volume and in complexity. Prudent operators should establish a compliance department and appoint a chief compliance officer. A team of qualified professionals is needed to stay compliant. Some operators will comply while others won’t. State and federal regulators will determine who has been “naughty and nice,” and those who fail to comply may not be afforded a second chance.
5. Better Business Models. Although many different business models are used in BHPH today, some are more cash efficient than others. Any investment decision must be made with regards to their anticipated return on investment (ROI). BHPH is no exception. Operators who know their historical loss rates (from metrics) can project the ROI on their portfolio. Successful operators avoid trial-and-error mistakes and annually evaluate their business model from a cash efficiency perspective. In BHPH, cash is king, and those who fail to consider cash efficiency won’t remain competitive.
6. Skilled personnel. This is the final important ingredient: The right personnel are needed to execute efficiently and effectively. It takes more skill and knowledge to prosper than ever before. Experienced personnel must be trained and developed, not just recruited. In the future, the industry must strive to attract young, talented professionals with new skills. Smart operators realize that the more they learn, the more they earn.
Exceptional profit opportunities exist for operators who recognize them, and who develop the systems and processes needed to capitalize on them. Is the only thing holding you back that the old ways aren’t working anymore? If so, acknowledge and address the changes described above and make all the necessary adjustments in your own operations. Get the specialized training and education needed to be more successful.
BHPH opportunity knocks; will you answer?
