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#401 - On Location: Investigating a Failed BHPH Dealership
#401 - On Location: Investigating a Failed BHPH Dealership
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About this episode
A visit to a struggling Buy Here Pay Here (BHPH) dealership in Texas reveals critical insights into the challenges faced by failing operations. The hosts discuss the alarming presence of repossessed vehicles, poor collections practices, and the potential for fraud. They emphasize the importance of cash flow management, communication with lenders, and scaling operations responsibly. Notable anecdotes highlight the dealership's rapid decline from a once-praised model to a cautionary tale, providing valuable lessons for dealers in the industry.
Topics:
buy here pay here
We're on location at a shuttered dealership in Texas to discuss one of the biggest cautionary tales in recent BHPH history. From alleged fraud to financial collapse, this episode breaks down what went wrong and the critical lessons every independent dealer needs to learn.In this special edition, we explore the downfall of what was once considered a poster child operation in the buy-here-pay-here industry. Just two years ago, this dealership was featured at industry conferences and praised across LinkedIn. Today? Lights are on, but nobody's home—and there's a lot of inventory sitting in limbo.What We Cover:The three major takeaways every dealer must learn from this failureWhy 80% repos on your lot is a red flag for serious cash flow problemsThe "debt vortex" - what happens when your ACV values invert on recycled inventoryFloor plan dangers for BHPH dealers and when (if ever) to use oneThe critical importance of communicating with your lender before things spiralHow to scale properly without getting ahead of your balance sheetWhy traditional practices with your own spin beats risky shortcuts every timeAlleged fraud tactics: double pledging collateral, falsified financials, and covenant violations.👇 Don’t forget to like, comment, and subscribe for more strategies from industry experts!Thank you for listening. We hope you learned something new. Let us know what you think.Leave us a review www.theindependentdealer.com [email protected] the businesses that support the podcast:🔹 Blytzpay – Credit card processing & text communication (Get 3 FREE months when you mention IDP!)👉 www.blytzpay.com🔹 Buckeye Risk Services – Education & reinsurance experts👉 www.buckeyerisk.com🔹 Taxmax – Flexibility with tax returns (Use code Podcast2024 for 40% off sign up!)👉 www.taxmax.com🔹 Ignite Consulting Partners – Identifying problems, creating solutions, helping your business thrive👉 www.ignitecp.com🎧 Listen to all episodes:https://anchor.fm/theindependentdealer📲 Connect with us:@independentautogroup | @jlukegodwin | @sendtojeffw💬 [email protected]
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Technical
Too Afraid to Ask
Term
buy here pay here
"The number one best practice here is no BMWs and buy or pay here."
Buy here pay here means you can buy a car and make payments directly to the dealership instead of a bank. It's often used by people who have trouble getting loans from banks.
Buy here pay here (BHPH) is a type of car dealership that provides in-house financing to customers, allowing them to purchase a vehicle directly from the dealership. This model is often used by buyers with poor credit who may struggle to secure traditional financing.
Car
BMW X3
"No, the X3, is that what this is? This is the worst buy or pay car you could have."
The BMW X3 is a luxury SUV that offers a comfortable ride and lots of features. It's a good option for those who want a mix of sportiness and utility in their vehicle.
The BMW X3 is a compact luxury SUV that combines sporty performance with practicality. It's known for its upscale interior, advanced technology, and strong engine options, making it a popular choice among luxury SUV buyers.
Car
Nissan Altima
"Oh, a fresh Nissan Altima."
The Nissan Altima is a car that many people use for everyday driving. It's known for being comfortable and good on gas.
The Nissan Altima is a mid-size sedan known for its comfort, fuel efficiency, and advanced technology features. It's a popular choice for families and commuters alike.
Select text to request an explanation
Hello, hello, hello.
Hey, how do you hear me?
Hi, we're your brothers.
Should we come around to that side?
Because there's.
Even worse than that is when you've been in a lot for five
or 10 minutes like we have, getting set up to film,
and nobody's even coming out to talk to us.
What the heck?
We've been on this lot a solid 15 minutes.
Nobody's come out to greet us.
No one's come to take our application,
get us approved for a car.
I don't know what kind of operation these guys are riding.
I think they're going to probably go out of business.
I don't see a bright future for them at all.
This is, they're doomed.
I think they're doomed.
They're there.
Yeah.
Hello, and welcome to this special edition of the Independent Dealer Podcast.
We are on location at a dealership in Texas
to talk about on-car marketing, the sales process,
and some best practices, Luke.
The number one best practice here is no BMWs and buy or pay here.
No, the X3, is that what this is?
X1, 2, 3.
This is the next three.
This is the worst buy or pay car you could have.
Hands down, it takes the cake.
It's the king.
The worst.
It's the worst.
Hey, just to jump in real quick and make sure you guys know
about Buckeye Risk Services,
still a great sponsor of the podcast
and a great partner to have at any dealership.
Yeah, sure.
Retail, buy here, pay here, no matter what.
Tax planning is so important.
And using a reinsurance company not only helps you
with your tax plan, it also helps with generating wealth.
And when you get toward the end of your dealership,
you need something else to pull money out of.
And it's a great way to just force savings account, right,
Jeff?
Yeah, yeah, forced savings account.
So if you are a dealer, buy here, pay here, retail,
and you're doing 20 to 30 cars a month,
call the guys at Buckeye.
You will not regret getting a reinsurance company set up.
You can sell your service contracts.
You can sell your ancillary products.
You can reinsure for your post-sale inspections.
You can, of course, set up your CPI,
Collateral Protection Insurance
if you're a buy here, pay here customer,
massive opportunities to build wealth,
and forced savings for rainy day funds.
Yep.
Good. Give the guys a Buckeye call.
Luke, here you have a beautiful bumper-to-bumper
inspection warranty.
Oh, wow.
Comprehensive 150-point inspection.
I wonder if they're going to get an 18 month from me.
What happens, Luke, when you got a lot of Rs
in your inventory?
You're in trouble.
That means you're recycling a bunch of repos, right?
R. R. R.
This is a power.
I'm guessing this entire line right here
is all R stock numbers, which means they're repos.
This is a new one.
Oh, a fresh Nissan Altima.
B.
R. R.
B.
You can do this all day.
So this is like, Tim, I mean, we just walked
and took a quick sample.
80% of these cars are repos.
I'm guessing 80% are repos.
What that tells us is a couple of things.
Okay.
Bad collections practices.
Very bad collections.
A lot of repos come on battle and those come in quickly.
You're not bringing in fresh inventory, which sucks.
And these look pretty clean.
I mean, they're not super beat up.
I didn't see the inside, but the outsides look okay
for the most part.
I'm not sure of the mileage.
No, we don't know that.
It could be some extremely high mileage.
And then you were running out of cash.
You run out of cash.
And so you're recycling as much as you can.
That's right.
And don't get me wrong.
These do look like pretty decent cars,
but the recycling of it,
and we were talking about the doomspower, right?
Yeah.
That you wrote all these loans
at a really high rate in 22 and 23.
And as you're bringing them back in as repos,
and these are pretty high value,
they don't meet what they used to meet.
And so you're rewriting loans at lower values.
Not hovering.
You're not your advanced rate.
That's right.
Your advanced rate is in bursing.
Yes.
We call that the debt vortex.
Doom.
The debt vortex.
It's a good example.
There we go.
Yep.
Hey everyone.
Just a moment here to talk about BlitzPay.
BlitzPay is my payment process provider,
PPP, PPPP, whatever it is,
but they're wonderful.
They get the money in the bank
and that's really what matters.
And it's simple to use, Jeff.
It's so simple and it helps us
with our collection process.
Yeah.
You know what I've really liked
and I'm going to fine tune this even more
is their cash pay network,
which is a crucial component
because we do have a lot of customers
that want to pay cash,
but I don't want to take cash in the office.
It's dangerous.
It's scary.
I got to make deposits.
So we're pushing it more and more and more.
And there's always the few customers
that don't quite understand technology
and push back,
but we're educating them more frequently
and it's really making my anxiety go down
because I don't have large cash deposits
at the end of a Friday.
Yeah, I'd hate for you to lose anymore here.
Yeah, it's stressful.
But the self-help options
are really what makes the difference.
You don't have to have customers calling you,
hey, run this card, run this card, run this card.
No, they can help themselves
because the portal is so easy.
It's mobile-friendly.
It's all right there on their little phone,
which everyone has,
and they can take care of their payments themselves.
That's the most important part.
Yeah, everybody needs a call.
Let's pay, get them to hook you up.
So as you guys know, we make light of the alleged...
We made a joke about this situation.
But it's really not a joke.
It's not funny because it could happen
to a lot of people.
These guys, maybe self-inflicted,
we don't know, allegedly.
Could be some fraud involved.
Yeah, Don Chu and his crew.
I don't know his first name, but yeah.
Chu Don, that's the Chu crew.
Okay, so you know, it's a tale as old as time
when it comes to the car business.
And a lot here lately,
when it comes to massively-scaled buyer payers.
Yeah.
Does it work on a scale, Jeff?
That's the first thing to ask in this situation.
Well, we've seen a lot of large places shut down,
and we've seen some small places shut down.
But the key component to both of them is cash flow.
Sure, right?
Leverage, cash flow, debt service.
And so everything we know about what's gone on here
is they outran themselves.
Yeah.
Which is interesting.
How can you outrun yourself
when you're securitizing and selling off?
And so you should have plenty of access to capital.
Yeah.
So another thing that could be out of line here
are expenses, right?
And what else?
Recoach our jobs increase.
Yeah, great.
And what happens when your collections don't look good
and your next securitization package
is not rated as it should have been?
I read that their last securitization
was rated at 12 cents on the dollar.
Yeah.
Which is-
Which is, I think I told you,
I'll buy them all for 12 cents on the dollar.
Yeah, maybe.
But if they're leaving the country,
then it may not be more 12 cents on the dollar.
Yeah.
So you do have an issue there,
and it's almost the perfect storm for these guys.
So you do feel some,
a little bit of compassion to the point where-
Well, people working here, sure.
Oh, absolutely.
The people working here and the folks with the car loans
that don't know where to go
and don't know what's going to happen with their vehicles.
But the fact that two, three years ago,
this was a poster child.
Yeah.
For the Buy Here, Pay Here world
and what a scaled operation can look like, right?
Yeah.
I mean, he spoke at an NIA function
less than two years ago.
And was like, this is how you do it.
Everywhere on LinkedIn and all around the auto industry,
this guy was praised for what he was doing.
But what he allegedly was doing was maybe double booking.
Yeah.
Maybe using multiple floor plans.
Yeah.
I don't know.
This is a lesson of what not to do.
Yeah.
Number one, I'll argue this,
and you may argue the opposite way,
but if you're in the Buy Here, Pay Here business,
you should not be using a floor plan.
I've said this before, right?
Yeah.
I can see the attraction.
You got to really look at your cost of capital
because you think, hey,
I don't want to tie up a million dollars in flooring.
I'd rather use that as a Buy Here, Pay Here notes.
I've been tempted to do that at times.
Well, if you don't have a lot of credit
on your receivables, then okay.
Yeah.
But what if you have a lot of credit
on your receivables and your max there?
Let's just say you're 50 or 60% there.
Yeah.
And you also don't have any pay for inventory.
Yeah.
Where you have it.
Where's your equity is the question?
There's none.
And that's what's happened here.
There's news reports that of course,
they still owe a lot of folks like Fifth Thirds
and Chase, a lot of money.
Their flooring line is still owed.
As you guys can see here, you look around,
they're full of cars.
It's been two weeks since this news hit.
They're full of cars.
And the cars are still here.
The flooring line has not come to pick up the cars.
I'm guessing because it's tied up in bankruptcy
and they don't have the relief of stay
to pick these cars up.
But they're all sitting here.
They're all sitting here.
There's 40 cars, maybe.
Yeah.
And we're not talking about $5,500 ACV cars.
There is $20,000 and $30,000 cars sitting there.
And the lights are still on.
Yeah.
The doors are locked.
The radio's playing.
The radio's playing.
The landscapers are here doing landscaping.
Yeah, they're upgrading the coverage, the ground coverage.
I don't know that they know they're not gonna get paid.
They're not getting paid.
Should we tell them?
I don't think so.
I think so and on my job.
And FedEx is trying to deliver packages here.
There's notes on the door.
Not on this door, but on a collection's notices.
So, Luke, the rail, what are the takeaways for dealers?
Let's talk about just like the three main takeaways
the dealers can learn from this lesson
as we watch this all unfold.
We'll get more details as time comes.
Straight up fraud.
We all know that's the number one thing, right?
Don't be dumb.
Yeah, don't outrun what you can do.
Yeah.
It is a maze of focus, right?
And if you get desperate
and you're tempted to double pledge collateral
or you're tempted to skimp on your covenants
or you're trying to bring your ACV repos back in
too high so they look good,
just don't make a bad situation worse.
Yeah, that's my number one.
State within your covenants of your bank.
The bank put those covenants there to protect you.
And protect them.
Yeah, remember that.
And if Chocolore would have done that,
I believe that we would still be open, right?
I don't know.
I don't know how deep it was.
But that would lead me to number two,
which is communicate.
You've got to communicate with your lender.
Whether it's your flooring line,
depending on your flooring line,
they may work with you.
They might not.
We know many that just tell you to take high.
Your lender will absolutely work with you.
I guarantee you they will work with you
when you call them and say, hey,
they don't want to be put in bank fraud.
They don't want your notes.
They don't want to collect or they don't want
to have to service them.
They will absolutely work with you.
So communication is the number two advice I'd have.
Don't make the situation worse.
If it is getting worse, communicate.
And what would you say the third takeaway is?
The third thing is a scale, a scalability.
So many dealers we talk to want to grow.
They want to have multiple locations
and do all these grand things.
And I'm not saying don't grieve.
I'm not saying that, but I'm saying scale properly.
And that means maximize the one location
because that one location, your expenses are going to be
the lowest they're ever going to be.
And once you maximize your footprint there,
then you can grow a little bit.
But don't have locations that think that automatically
you make five times the money because you're not.
Well, and really the story of that
is not getting out ahead of yourself with your debts.
That's right.
If you're going slow and you're scaling slow,
then you're adding your own equity in along the way
and you're not just doing it with 100% debt.
And I think this was said on the podcast a while back,
but is growing off of your balance sheet
instead of going off of debt.
And that's really where this comes from.
They may have been going off the balance sheet,
but their balance sheet may have been falsified.
So make sure you're doing it the right way.
Have people working your balance sheet the right way.
Yeah, and that means,
and if you're growing off of falsified financials,
that means you're growing off of debt.
You're trying to fake your equity to make it look better.
Just a real tragic story, but a great warning.
I think for everybody here, pay here dealer.
Hey, one real quick unique break in in the podcast.
I'm going to let Luke pitch his consulting company
in the middle of a podcast.
And he's going to owe me an Acai bowl
next time we get together and a foot spa.
So Acai bowl, foot spa in exchange,
or if you haven't heard already,
Luke is doing an onsite in real life collections training
for you or your collections manager.
It's going to be down at the Dallas Fort Worth.
Dallas Fort Worth at Dallas Lovefield Fairfield Inn
and Suites on December 10th, all day long.
All day.
All day, come in the night before,
spend a night at the,
we've got a great rate for this for the hotel,
free breakfast, free lunch,
and then you can get out of town at the end of the day.
We end at 430, so it'll give you time to fly home
we're in the center of the country.
It's only $315 right now.
So you need to register.
It's a collections bootcamp with me.
It's going to be awesome, Jeff.
You got to be.
So I can send my collector out there.
I'm going to be a couple hundred bucks for flights.
I'm going to be a couple hundred bucks for the class
and a couple bucks for hotel room.
So under a thousand dollars,
I can go out and get some one-on-one training
for my collector in a real life scenario, right?
Like you're going to have role play.
You're going to teach them stuff.
You're not going to teach them bad habits.
Are you?
No bad habits.
We're going to learn how to,
to take that customer's objection
and turn it into a promise to pay or payment.
And just think, Jeff,
if I came to your dealership and did this,
it would probably cost you $4,000 to $5,000.
But you can come do this for less than a thousand bucks.
Yeah, I can get training.
Now I want to ask another question.
Does it matter which payment platform, DMS I'm on?
You know, obviously everyone listening uses Blitzpay,
but are you going to teach regardless
of what system you're using?
It doesn't matter.
This is across the board.
This is just wonderful.
Like it doesn't matter what's DMS, you know.
We're going to train you to go about
doing collections the right way,
making the right phone calls,
making the right text messages, using the right scripts,
learning how to push back
when a customer pushes back in the right way.
It doesn't matter if your own IDMS
is going to be way helpful for you.
If your own Blitzpay is going to be way helpful for you.
But also I work with other DMS's all day.
So we're going to get it done
and we're going to really train you up
for after tax season, before tax season.
And obviously everyone knows,
we've talked about this in multiple episodes.
It is getting harder and harder to collect.
Collections is a huge issue right now
and it will get worse.
But we're on our way down a slope of delinquencies,
repossessions, people being,
just having tighter paychecks all the way around.
So when you learn your, help your collector learn
how to collect the payment and not the car,
you're going to save on repos,
you're going to save on charge offs.
Luke will guarantee you
that if he doesn't save you the cost of the trip,
he will refund it, right Luke?
I will not guarantee you that
because your trainers have to be engaged.
But other than that, I'll tell you this,
you will save charge offs by coming to this,
your recent seed will get better,
your delinquency will get better,
and you will be happier as an older.
Excellent, that's what I'm looking for, Luke.
I'll see you there.
You could probably get into some more in-depth stuff,
which I think we should at a better time.
But you've got things like underwriting guidelines,
repo guidelines, you know,
putting all your eggs in one basket or one demographic.
Oh, I mean, for years this was,
hey, they're doing something different than everybody else.
They're financing done documented.
It's the people who don't have bank accounts,
people who can't get financing anywhere else.
And I'm not saying that that doesn't work.
I'm saying this is what we see now after that has happened.
Now, what that has to do with people leaving the country
or people out of jobs, I don't know.
But maybe it was easier to cook the books that way too.
Yeah, yeah, yeah, when you can't verify
who's making the payment
because the social security number isn't a social security
number or it's tied to 10 different people.
Maybe you're bringing,
allegedly bringing money back into the banking system somehow.
Maybe you're doing that through making people's car payments.
You might be.
Because you have money coming into the States
from somewhere that you don't know.
You never know.
Maybe you never know.
I don't know.
Allegedly these things may,
hypothetically may have happened.
We don't know this.
We don't know this.
We're just speculated.
And I think that if you do things traditionally
and then put maybe your spin on it,
maybe that's a way to do it.
Maybe not just go wholeheartedly in opposite directions.
At a large scale, maybe not one.
Yeah, that's true.
Maybe not.
Well, we'd better get out of here before we get re-possessed.
Yeah, we might be getting re-possessed pretty soon.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah, yeah.
Yeah.
Yeah.
Yeah.
Yeah, yeah.
Yeah, yeah, yeah.
Yeah.
Yeah, yeah.
Yeah, yeah.
Yeah, yeah, yeah.
Yeah, yeah, yeah.
Yeah, yeah, yeah, yeah.
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