| Three Keys to Capturing the Under-Served Buy Here, Pay Here Market |
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| Written by Joel Kennedy |
| Tuesday, 10 November 2009 00:00 |
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This year has proven that dealers with a strong focus on the under-served and buy-here pay-here (BHPH) market are winning. And, as we approach the wintertime, the underserved car market will continue to thrive, here’s why: Increased competition
There has been a drastic up-tick in new market entrants. Both independent and franchise dealers are aggressively pursuing the underserved and BHPH car shopper. Buy-here-pay-here shoppers, in particular, are seeing their options expand and are patronizing these new dealerships.
Increased demand and reduced supply for collateral
This increased competition in the marketplace has driven up the values of used autos available at auction. One look at the recent Manheim and ADESA statistics will show that used autos have been selling over book. At the same time, the “Cash for Clunkers” program removed some inventory—dealers indicate that as many as 20 percent of these traded vehicles would have been “retail-able pieces”.
Dealers that are winning in the competitive marketplace are utilizing basic strategies for success. Success in serving the underserved and BHPH market can be broken down to a simple recipe:
1. Collateral
While used cars at auction are generally selling over book, there are still deals to be found. The key is to own the right cars! One hint is to stick around until the end of the auction and pick up a few deals after your competitors have filled their bellies and gone home. Also, trade-ins should always be evaluated and considered as retail pieces. 2. Deal structure
A strong customer down payment (relative to vehicle book) will make a deal. Additionally, work with your customers to get them in the right vehicle with a payment that makes sense to their financial situation. These two factors will go a long way in ensuring that you have satisfied customers and lender partners. 3. F&I and lenders
I am one who believes that there is a lender out there for every borrower and the F&I desk is where it all comes together. Lender programs in this space come with fees and discounts, which are designed to reflect the risk of the underwritten population. Dealerships that do well in this space have strong F&I staff that are adept at finding the win for the customer, the dealer, and the finance lender. The market for the underserved and BHPH customer has grown and this has created a competitive bright spot in an otherwise gloomy automotive industry. The economic fundamentals of “basic transportation” for the underserved have taken hold and we have seen an expansion of capacity available to BHPH customers at franchise and independent outlets. The overall benefits to the consumers and dealers are substantial and have taken the underserved market to a new level of service that begs the question: Are they really underserved anymore?
Joel Kennedy is EVP/COO and cofounder of Pelican Resource Group, LLC (www.pelicanresourcegroup.com), an innovative lending and servicing partner currently operating in the Mid-Atlantic region. For more information please call 866-989-9688, ext.702.
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