Is establishing a BHPH business right for your new car dealership? Many franchised dealers are already mining opportunities for the BHPH market. These dealers are in a position to source inventory for such a business, by moving trade-ins they otherwise might wholesale to their own BHPH lot and selling them at retail.

Some 20 percent of attendees at recent National Alliance for BHPH Dealers conferences were franchised dealers- Brent Carmichael, executive conference moderator and consultant to NCM Associates BHPH 20 Groups, notes that 70 percent of attendees at NCM BHPH conferences represent franchised dealerships.

The BHPH market is not just for the independent dealer anymore, notes Bob Blackburn of AutoLending Network. But new car dealers will have to capture people share&hellip-that is, do a better job of making sure they are not running any customers off.

When business was falling from the trees, dealers could afford not to do certain types of business, but now dealers have to tighten up their processes to take advantage of the marketing opportunity and BHPH is a huge opportunity, he adds.

According to Blackburn, the net profit for an average BHPH dealer is close to 15 percent, whereas its just three percent or so for franchised dealers. The reason for that is, in the BHPH business, the dealer has his money on the street.

This market truly favors new car dealers. For instance, by setting up their own related finance business, new-car dealers can realize a 40 percent tax discount on paper they sell to it because such deals are classified as at-risk transactions. Thus, a $10,000 note transferred to the related finance company is taxed at $6,000.

A new business

The playing field has changed. There is fuzziness between prime and near-prime, and credit is getting tighter from the top to the bottom. Whether the recession is relevant or not, consumers think it is, and when consumers think there is a recession, they turn to used vehicles in greater numbers.

Dealers need to take a hard look at their used operations and realize that they have two other business models at their disposal to help them sell used cars, notes Blackburn. They have people with good credit, people with bruised credit, and people with no credit. Is the dealer willing to do what is necessary by way of process and fundamentals to realize results from all three? These markets are thriving while everyone else is crying the sky is falling like Chicken Little.

New processes

These buyers deserve the same level of respect and sales professionalism you would give a prime buyer. These are astute buyers and just because their credit isnt perfect doesnt mean they dont have their dignity intact. Thus, you want to qualify them better-and upfront.

This is especially important in the BHPH business. Learning about the customers ability to pay upfront is mandatory. Even BHPH buyers want the nicest, most popular vehicles, and those are the wheels on your lot their eyes will settle on.

If you allow the customer to land on such a vehicle and you proceed with a traditional sales process, the chances are excellent that youll have to eventually switch the buyer to another vehicle, or worse, unwind the deal once their credit report is pulled. When you crush expectations, most buyers will walk. These buyers are payment buyers. Youll find that vehicle price is rarely a topic of discussion, just How much a month? or How much a week? Windshield stickers that break payments out as such will go a long way toward attracting buyers eyeballs to the vehicles they more likely can afford.

By structuring deal payment based on how the customer gets paid, a foundation for a more successful transaction is cemented. For example, if a customer is paid by his or her employer weekly, that is how you should structure your payment schedule with the customer.

Because a BHPH business is a risk-management business, be sure to follow appropriate underwriting criteria for every potential buyer. Collections will be critical, so have a plan to structure in-house collections and stay current on them or outsource this activity.

Equally important, the installation of payment-protection devices on every vehicle you sell will reduce losses, improve cash flow, and make selling deals to lenders and banks easier.

According to Ken Shilson, president and founder of the National Alliance of BHPH Dealers, in an analysis of four billion dollars worth of subprime loans, BHPH dealers make 10 key mistakes in their underwriting. To avoid these mistakes, gather enough information to:

·- Match the buyer to the right vehicle.

·- Make appropriate credit decisions.

·- Analyze the buyers financial ability to pay.

·- Assess their stability.

·- Assess their credit history.

Shilson, a proponent of protection-payment devices notes, however, that these devices are not a substitute for solid underwriting.

They are not an electronic eraser for bad underwriting, he says. All they do his help the BHPH dealer collect the payment owed and help the customer prioritize payments. They are not going to eliminate underwriting mistakes, but they will help you get the vehicle back quicker because youll know the customer is not paying and will help improve delinquencies and reduce collections costs.

Blackburn is pragmatic about controlling risk. The first time the customer is late on his or her payment, pick up the car, Blackburn advises. The stats tell us that if a buyer calls with a story about why payment cant be made on time and you believe it, 90 days later youll be sending out a truck to pick up that vehicle.

Is a venture into BHPH right for your new car dealership? The opportunity is great, as noted, and it affords new markets for dealers traditionally focused on prime and near-prime buyers. Still, it requires a change in mindset for most new car dealers.

The best personality for this business from an operators point of view is one who understands risks and knows how to react to risk, Shilson says. This business is going to cause the dealer some problems along the way and the dealer must know this going into it.