Houston -

The first half of 2013 is now in the rearview mirror for the buy-here, pay-here industry, and it's time to look back. Many operators reported lower unit sales versus the same period last year. Two important questions are, "Why?" and "What can be done to improve unit sales during the remainder of the year?" 

Experian Automotive provides excellent information quarterly on automotive market share. Experian's numbers for the first quarter of 2013 indicated that BHPH market share declined 6.4 percent. Although a 6-percent decline is not good, the real math is worse. 

Experian reports that BHPH market share declined from 17.1 percent to 10.7 percent. Therefore, the real decrease was actually 33 percent of the previous market. Correspondingly, subprime auto financing increased almost the same percentage. 

OK, enough bad news already: what caused the decline? A careful analysis of the first-half performance reveals that the following influences adversely impacted BHPH sales:

1. Tax refunds were slow to arrive and somewhat smaller when they did. Some never arrived at all.

2. Additional payroll withholding reduced low-income earners ($30,000 to $50,000 per year) take-home pay by $600 to $1,000. This really hurt their liquidity.

3. Gas and food prices increased sharply compared with 2012, consuming more of each customer's disposable income.

4. The U.S. economy has rebounded somewhat, however, overtime hours and workforces have been reduced.

5. The subprime auto finance industry has been extremely aggressive in buying deals from deep subprime customers with bureau scores as low as 460. Worse yet, these customers are being sold new and late-model vehicles with long repayment terms and very large monthly payments, which they can't afford.

6. Subprime customers are encouraged to "give back" their existing vehicles by subprime finance companies, and to purchase the vehicles described in No. 5 above. This has resulted in more voluntary repossessions for BHPH operators.

Enough negative news, what should the BHPH industry do in response?

My suggestions start with what not to do. Operators should not change their business models by putting too little customer into too much vehicle. This is a "road map for failure" as documented by more than $11 billion in contracts I have analyzed.

However, operators must not sit back and wait for the market to return. If you do nothing, you cannot expect different results.

The answer is to rebuild a stronger bond with their BHPH customers. As I survey the operators who are maintaining or growing market share, I note one common trait – they are proactive.

At a recent NABD Boot Camp meeting, several of the nation's most experienced operators offered creative ways to compete proactively. Here are some of the ideas:

1. Place a welcome telephone call shortly after each sale and ask for referrals.

2. Hold customer appreciation events.

3. Strengthen warranty or extended service-contract programs.

4. Offer free maintenance services to good paying customers.

5. Maintain more-positive contact with customers during the entire term of their contracts.

Other suggestions were discussed but readers should get the message.

Successful operators today embrace technology. Payment devices, the Internet, pay portals and other technology have increased efficiency, profits and cash flow. Technology plays an important role in competing successfully, and its use is strongly encouraged.

However, operators should not replace their personal customer bond with a technological substitute. The industry needs to help customers make better longer-term decisions when purchasing their next vehicle. A short-term default created by unrealistic repayment terms does not provide the "transportation solution" they really need.

I deeply respect the creativity and innovative ideas posed by the successful operators in the BHPH industry today. They represent many of the best business people I have ever met and they are survivors. The future of the automotive industry in America needs them to be!

At our upcoming NABD East Coast BHPH Conference in New Orleans on Nov. 3 through 5, we will focus on how to find and keep our best customers. This is a great time to network and make each other successful. 

Good luck during the remainder of 2013 and let's make 2014 our best year ever. For more information on upcoming NABD events, call (832) 767-4759 or visit www.bhphinfo.com.

Editor's Note: Ken Shilson is the founder of the National Alliance of Buy-Here, Pay-Here Dealers and the president of Subprime Analytics.

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