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.

Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.


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