HOUSTON — I recently surveyed mid-year 2009 buy-here, pay-here industry results and I learned the following:

1. Sales have been, for the most part, comparable to the same period of last year. Only operators who have expanded operations, added additional sales lots, changed their business models, made acquisitions or other changes reported appreciable increases over last year.

2. Sales have varied widely by geographic regions and have been limited by capital availability. Operators are concerned about loan renewals, lower advance rates and increased interest rates in evaluating opportunities to expand their portfolios. Many of the better operators seem to be employing a "controlled growth" approach.

3. Collections have been challenging. Consumers have also been stressed by a lack of credit availability, job losses, overtime reductions and other life events which preclude them from paying all their bills. Collectors must fight for every dollar!

4. Customer credit scores have declined significantly during the last 12 months. Mortgage defaults and other adverse economic events have combined to make consumer bureau scores decline. This trend is likely to continue even as America experiences an economic recovery.

5. The availability of special financing for customers with credit scores of 550 and above has contracted significantly. These consumers are not able to get bank loans or access the special finance market for auto loans. Recent statistics by CNN Marketing indicate less than 20 percent of all special finance deals are being approved by lenders today.

6. Bad debt losses in the BHPH industry increased during the first half of 2009 versus last year largely due to more voluntary repossessions. Consumers who lost their jobs or had reductions in their income levels opted in many cases to give back their vehicles rather than continuing payments.

7. Slow new-car sales, the Cash for Clunkers program and fewer trade-ins have combined to make finding the right vehicles at competitive prices a bigger challenge. BHPH operators must search more diligently to find the vehicles they need.

All of these factors have combined to make the BHPH environment a challenge, but opportunities for the future are bright!

The contraction of available auto credit for consumers with higher credit scores creates a great profit opportunity for BHPH operators. These consumers, who will need transportation in the months ahead, have limited financing options. Many will purchase vehicles from BHPH dealers for the first time. The industry finally has an opportunity to increase down payments and repayments in order to reduce portfolio risks and increase cash flow.

Enhanced payment-device technology has reduced bad debt default rates and increased collection efficiencies. At the NABD Underwriting and Collections Conference in Houston on Nov. 8-10, 2009, I will release a comprehensive report on the impact of these devices on the BHPH industry. This study was compiled by independent information and includes some interesting new insights into the use of these devices.

As I mentioned earlier, many successful operators have adopted a "controlled growth" approach. They have tightened underwriting criteria in order to limit sales volume. This approach will likely reduce industry losses in the future and conserve capital. Prudent operators are reevaluating their business models from a cash flow perspective. Although many business models are profitable the best ones maximize the cash return on their "cash in deal." This is more critical today, given limited capital availability.

Although voluntary repos have increased good operators have reduced bad debt losses by increasing recoveries. Payment device technology, collection diligence and improved market conditions for the disposition of repossessed vehicles have all had a positive impact. Operators must strive to continue this trend in the future.

Although 2009 is not yet over, I believe the aforementioned strategies will produce positive results in a difficult environment. Good BHPH operators seem to remain profitable in both good and bad economic times. The BHPH future looks particularly bright for those who can navigate successfully through the economic challenges of today.

Kenneth Shilson, CPA, is founder of the National Alliance of Buy-Here, Pay-Here Dealers (NABD), which will host its third annual Underwriting and Collections Conference in Houston, on Nov. 8-10, 2009. This conference will feature many of the nation's most successful operators who will discuss their underwriting and collection strategies. For more information or to register call (713) 290-8171. We also encourage everyone to visit the NABD Web site at www.bhphinfo.com for special discounts.