It has happened again. Special finance has risen from the ashes and put the franchised car dealers back in the bad credit business.

How many times have we seen this? I know at least four times for me personally. The special finance lenders get capital and start writing some lower beacon customers on “newer” used cars.Soon that turns into 520 beacons getting bought on new cars.

By then the factory finance companies are in the hunt and buying some very risky paper. For a while, everybody is making big money until the reality hits and the losses from doing business with typical buy-here, pay-here customers starts to mount.

While all the cars are rolling of the new-car lots, the BHPH dealer has slowed in sales and watched car after car be dropped of because his customers “got a new car” or some other excuse masking that fact.

Tools Proactive BHPH Dealers Used

So did BHPH dealers watch what happened this time around and make some changes? Over the last 18 plus months, many BHPH dealers suffered through a tough time. Not all of them.

Some BHPH dealers understood there would be more market swings over the years and began instituting changes a few years ago that included newer, lower mileage vehicles. Many of them went to a lower, more competitive interest rate and reporting credit. With that. Some even began offering real, longer term service contracts to their customers.

I know of several dealers that stopped being as concerned about upfront cash down in lieu of deferred downs or no downs to roll the rigs. Many offered attractive incentives to existing good customers to allow early trading so they would stay on the books. All of these changes were on top of improving customer service and softening how they collected their accounts.

Why did they do this? To keep their current customers satisfied doing business with them and improve the perception of their business in the market. So when the money rolled out and so many BHPH customers were buying new cars down the street, the BHPH customers of our improved dealers weren’t so interested in changing.

A Missed Opportunity

The special finance boom we experienced wasn’t just taking customers away from BHPH dealers.

There were those customers who have just waited. Some waited for fresh financing, or their situation to come back to life. Many people just hung on to the same car for five, six or even 10 years hoping to improve their credit enough to finally go buy a good car from the “big retail store.”

I wonder if you realize how many customers were in your market that could have used your help, but they would never consider buying a car from you because of their perception of what you do. Many customers waited because they wanted something “better,” something different than they believed they could get at your dealership.

Since my start in the car business, I have been involved in three unique BHPH operations. Over the last 17 years, I have seen ups and downs caused by market changes and politicians alike.I have talked with dozens of dealers and continue to talk with many of them every month about What is happening. I watched as some dealers lost 30 to 40 percent of their portfolios from a combination of repossessions, lost sales and changing tactics to be more competitive.

At the same time I saw numbers on some BHPH dealers that gained 25 percent in portfolio size without adding a new location. Te difference comes from a variation of reasons but the constant for the improving dealers was what was offered and how customers were treated.

Future Planning for Next Storm

The goal of my last startup was to attract the special finance customers in the market I was in.I wanted an operation that provided greater service and a better opportunity to our customers than the special finance dealers and their lenders could offer.

We had a business model with an actual cash value a little above the benchmarks with full recon, including new tires. Experience I received from a $20 million high-line operation confirmed offering a long-term, quality service contract while having side loans available for maintenance and other repairs would have a positive effect on our marketing and portfolio. We also offered GAP to each customer. We never changed our term beyond 36 months so the customers could trade within about two years which kept our customers coming back knowing they wouldn’t have the current car too long.

I know BHPH customers want a great looking, brand new car that never breaks down, burns gas or has payments? But they generally realize they really would like the closest thing they can get to that with as little pain as possible.

Try advertising flexible down payments, “We’ll work with what you have available.” Just be careful and not qualify customers based solely on down payment.

We used a deferred down program and averaged about $1,300 per unit sold. We had a set interest rate for all approved customers that was below our competition and certainly the special financing available. We reported all loans to the credit bureau.

All this and we had a very interesting mix of inventory that was able to be covered with a long-term, comprehensive service contract. Our Program, combined with friendly and helpful customer service (including softer collections), allowed us to generate above 75 percent repeat and referral business over the last eight-year period which included the horrible summer of 2008.

As with any business facing headwinds, being as lean as possible will help.

Take a look at your personnel, any deadwood or hours you can reduce? What about inventory? Can you operate with less in stock? When you buy (if you can find cars to buy) do you try to be selective to reduce days in inventory?

If you will read the magazines available like this one, pay attention to blogs and attend a couple of conferences each year, you will be able to see the headwinds coming.

The very best thing you can do, please trust me here, is join a 20 group. Truly participating in 20 groups is the single best way to improve your operation I know of.

The latest special financing boom has already begun to subside. Are you still doing what you always have, or did you make some changes to help keep your existing customers satisfied and possibly attract a different type of client to buy from you.

Ask yourself and others what you do (or don’t do) that drives customers to the special finance dealer down the street.

What are your prospects seeing or hearing that makes them stop at your competitors before coming to you? Is it a great website? Is it the inventory? Is it the way they are advertising? What is it your customers talk about when they discuss the vehicle they bought from you with friends? Why not start now to change that perception?

So next time there is a big downturn in BHPH across the country, you’re one of the dealers that continues gaining business.

Gene Daughtry is an experienced trainer and consultant specializing in BHPH/LHPH dealership operations. Daughtry now is director of BHPH operations for PLS Financial and has begun a multistate project of building new BHPH dealerships in several states. He has 17 years of BHPH experience.Follow Gene Daughtry on LinkedIn, go to his website , email him at or call (479) 970-4049 if you have questions.