CARY, N.C. -

The income tax refund. For typical buy-here, pay-here dealership customers, that’s an injection of cash averaging about $5,000, according to an estimation from Tax Refund Services and TaxMax founder Bill Neylan.

For years, those refunds meant the possibility of healthy down payments to move lots of metal off of BHPH lots between now and when spring flowers start to bloom. But competition from other auto industry participants and changes in consumer sentiment are creating obstacles, keeping BHPH operators from getting a significant slice of that refund pie.

“For buy-here, pay-here dealers who do not have a tax-season plan, their season is going to be business as usual, and they’ll be saying, ‘Wow, I’m not having that tax season I used to have.’ There is a huge difference between dealers who have tax promotions and those who don’t,” Neylan said.

To get the most out of tax season, Neylan and his company have a platform that can help operators turn vehicles during November and December. But since 2015 has already arrived, BHPH Report also reached out to a variety of sources to gather recommendations to help operators not only during the peak of tax season, but also as the year continues.

“I don’t think 2015 is going to be the best buy-here, pay-here year ever, but I think it’s going to be better than 2014 because the dealers who did suffer through tax season have either changed their expectations or figured out what cost them during their last tax season,” said Brent Carmichael, NCM Associates’ 20 group moderator and BHPH specialist.

Maintaining Discipline

Kevin Pendergrass owns and operates Carolina Auto Sales in Myrtle Beach, S.C. Pendergrass keeps about 50 vehicles in inventory at his dealership near the city’s airport and the heart of its tourist attractions. Many of his customers work in either the hospitality or construction industries.

While places such as Las Vegas received plenty of attention for their bankruptcy and foreclosure spikes stemming from the last recession, Pendergrass explained his market was hit hard with those negative developments, too. Couple those factors with the impact of competition from special finance companies, and the BHPH operator who has owned his store for more than 10 years called the last three months of 2014 “painful.”

Still, Pendergrass has managed to keep down payments an average of $1,580 on vehicles that retail for $9,995 or less.

“We do a good job of getting the down payment. I’m one of those that if you don’t ask for it you don’t get it,” said Pendergrass, who is a National Independent Automobile Dealers Association Certified Master Dealer.

Pendergrass is entering this tax season thinking he might be like other BHPH operators expecting to generate close to 50 percent of his annual sales and revenue during that span.

“Have the inventory prepared and people and procedures in place for when tax season happens. It’s such a short window,” Pendergrass said.

“The key to this business is you’ve got to work for the down payment, and you’ve got to satisfy that customer’s automotive needs through the term of the contract,” he continued. “If they have a problem, they cannot pay to repair it. I keep the car running for them for the whole term of the contract. If it’s more than a blown tire, something that’s substantial money, I’m there to help them.”

While Carmichael agrees that BHPH operators should do whatever is feasible to help their customers, he also emphasized that dealers must maintain their proven strategy, even if that customer’s refund could mean a healthy four-figure down payment.

“The focus should be the same every year for tax season. Underwrite the deal based on the customer, never on the down payment or the time of year or the time of the month,” Carmichael said. “We should underwrite the same on the first of the month as the 31st and the same in January, February or March as September, October or November.

“That’s my biggest piece of advice. Regardless of anything else, underwrite consistently throughout the year,” he continued.

And that discipline isn’t just associated with underwriting. Carmichael noted many of his BHPH operator clients are cutting back on how many vehicles they’re stockpiling.

“Last year for tax season, some dealers had a 120-day supply going into tax season. That way they didn’t have to worry about buying cars during the highest time,” Carmichael said. “But with tax season during the past two or three years being smaller and smaller from a volume standpoint, they’re not loading up as much on inventory, so that’s helped. They don’t need 120 days’ supply. They maybe only need 90 days’ supply this year.”

Expanding Tax Season

Tax Refund Services corporate trainer and marketing specialist Chip Wiley recommended that BHPH operators approach tax season from a different angle in order to expand the timeframe and possibly boost sales.

When Wiley explained what TaxMax can do, he indicated the “main thing we fight are misconceptions.”

Wiley continued, “Most dealers who we meet who have never moved cars like this in the fourth quarter, they think it’s no money down and see you in three months. That’s not how it works. This is just an opportunity.”

BHPH operators who use TaxMax still collect some money from buyers as a down payment. If the deal needs a $1,500 down payment to work and the customer only has $900, Tax- Max can estimate the customer’s refund and structure a deal for the store to collect the remaining $600 when the refund is issued.

“All we’re doing is helping the customer bridge the gap between what the customer can afford and what the dealer wants,” Wiley said. “Dealers don’t have to settle $900. They can get that other $600 on the back end when the refund comes around. Most dealers haven’t thought about that angle, which is why they haven’t considered it.”

Both Wiley and Neylan emphasized how positive the result can be beyond delivering the vehicle.

“It’s a win both for the dealer and the consumer,” Neylan said. “It’s a win for the dealer because it’s setting the customer up for success, therefore, the dealer is going to be successful. Plus, the dealer is going to put the consumer into a payment they can afford. If they’re getting that extra $600, $700, $800 they’re not normally asking for or settling for, now they have to push the term out a few months. Instead of $80 a week, it’s $92. It really benefits the consumer.”

Wiley added, “You set the expectation because you’re bending over backward for the customers.”

Looking Deeper in 2015

As Pendergrass noted, the tax season can be short, and BHPH operators needs to be ready when summer and fall arrive. What dealers and service providers are eager to see is when special finance companies lose their appetite for deep subprime customers and those individuals start heading back to buyhere, pay-here in great numbers.

“I’ve seen this cycle. That’s all it is. We will come out of it. Give us 24 months. That bubble will burst. And we’ll still be standing there. I really believe we are a service provider. It wasn’t for people like us, that person would not have transportation to get to work or church or the doctor,” Pendergrass said.

AutoStar Solutions president and chief executive officer Allen Dobbins shared a similar assessment, describing the peaks and valleys he has seen during the past 23 years.

“Consumers have gone through times where they’ve had favorable options like we have today, and they’ve had times where there were essentially no options and they could only go to various buy-here, pay-here dealers,” Dobbins said. “I would say that customers are more aware of options because the market is much more competitive because there is more availability between dealerships. They’re also more aware about the vehicles themselves.

“Mobile technology is giving them access to all kinds of information like Carfax reports and things that make them aware of what others are saying about who they might be doing business with,” he continued. “They’re able to weed through all of that and make a more educated decision just because of the information available on the Internet.”

“Customer service expectations are higher because they’re more aware,” Dobbins went on to say. “But in addition to that, when you talk about the legal pitfalls of doing things incorrectly, it’s probably become even more important today to take care of your customer and avoid potential long-term issues from various legal claims.”

Carmichael surmised that conversations with BHPH operators left him with the sense many have what he called “optimistic pessimism.” Carmichael’s client base stretches from Texas to California to the Midwest and the Northeast.

“They’re all pretty positive. They’re hoping for the best but preparing for the worst. I don’t know of anyone running scared or dealers who are saying this is not what I want to do anymore,” Carmichael said.

“I currently don’t work with any dealers who have a negative outlook on what the future is or where their business is going to be in five years,” he went on to say. “I think they all understand that as long as credit is issued there’s going to be buy-here, pay-here customers. Most have been in this business long enough to have been through a subprime resurgence, some even four or five cycles. They know it’s typically short-lived. This one has been a little longer than the others. They understand at some point it’s all going to come back around. This is the time to make sure they’ve got their house in order so to speak.”