BHPH Report May/June 2016 : Page 1

Don’t be the mule on the buy-here, pay-here farm 10 17 America’s Best BHPH Dealers Sponsored by: J.D. Byrider adds third location in Arkansas 12 May/June 2016 | Volume 3 | No. 3 A Publication of NABD and SubPrime Auto Finance News The current state of the industry The view from Ken Shilson of NABD HOUSTON — Leading into the 18th annual National Conference for BHPH hosted by the National Alliance of Buy-Here, Pay-Here Dealers, we spoke with Ken Shilson, the president and found-er of NABD, about a host of issues impacting operators. BHPH Report asked Shilson about the diminishing market presence BHPH dealers possess nowadays, how moves made by in-vestment leaders on Wall Street are impact-ing dealers on Main Street, as well as some tidbits that dealerships can leverage during the second half of the year. subprime fi nance companies, credit unions and franchised dealers. Th at’s a pretty big slice out of the market, and therefore it has to result in some adjustments. One of the big adjustments is in order to survive today you have to have fi nancial fl exibility and cap-ital availability. You have to get your fi nan-cial house in order to be able to weather the SHILSON continued on page 9 The view from Steve Jordan of NIADA ARLINGTON, Texas — The National how membership continues to grow and Independent Automobile Dealers Associ-why it’s important for operators to gather ation gathers for the 70th time during its on an annual basis. National Convention in June. NIADA chief executive officer Steve What subjects are you Jordan shared with BHPH Report about discussing with how the small-business owners who NIADA members most make up the association’s membership are nowadays? How often? Why? adapting to changes in the marketplace, I can tell you a lot of the stuff on the regulatory and compliance side of the business is what we continually beat the drum on because that seems to be a con-tinuing concern with a lot of dealers. The ever-growing reach of the CFPB and FTC rulings and those matters are all front and center for dealers to be paying attention to and be aware of. I would also say small business survivabili-ty is a lot of what we’re talking about, just how to compete as a small business and mak-ing sure you’ve got a good JORDAN continued on page 8 How are BHPH operators surviving the storm from subprime fi nance companies that seems to have been going on for several years now? Based on numbers that Experian has provided through December 2015, it ap-pears that buy-here, pay-here has lost about 40 percent of its market share to Steve Jordan NIADA CEO Ken Shilson NABD President “You must have a compliance focus today. That’s because in the past the industry has not been scrutinized the way it is now.” Photo courtesy of NIADA “A lot of those things we’re talking through our Certified Master Dealer program and our 20 Group programs.” 2015 Industry Benchmarks from NCM Associates and Subprime Analytics 4-7 Cherokee Automotive Group | 301 Cascade Pointe Lane | Cary, NC 27513 A lender who allows you to spend more time on What Matters Most E. GREENVILLE, PA US POSTAGE PAID PRSRT STD Permit No. 555

The Current State Of The Industry

The view from Ken Shilson of NABD

HOUSTON — Leading into the 18th annual National Conference for BHPH hosted by the National Alliance of Buy- Here, Pay-Here Dealers, we spoke with Ken Shilson, the president and founder of NABD, about a host of issues impacting operators.

BHPH Report asked Shilson about the diminishing market presence BHPH dealers possess nowadays, how moves made by investment leaders on Wall Street are impacting dealers on Main Street, as well as some tidbits that dealerships can leverage during the second half of the year.

How are BHPH operators surviving the storm from subprime finance companies that seems to have been going on for several years now?

Based on numbers that Experian has provided through December 2015, it appears that buy-here, pay-here has lost about 40 percent of its market share to subprime finance companies, credit unions and franchised dealers. That’s a pretty big slice out of the market, and therefore it has to result in some adjustments. One of the big adjustments is in order to survive today you have to have financial flexibility and capital availability. You have to get your financial house in order to be able to weather the Storm, so to speak, where all this competition is going on. If you to sell a car today to pay the bills tomorrow you’re in deep trouble because it’s going to take time for us to regain our market share. It’s not going to come back automatically.

You must have a compliance focus today. That’s because in the past the industry has not been scrutinized the way it is now. You cannot ignore that big brother is looking. You can’t ignore it. Whether you’re big or small, or in between, you better get your compliance management system in place.

You have to have consistent underwriting. Trying to match what Wall Street is doing, what franchised dealers are doing and what credit unions have done is not smart. What is smart is to keep a consistent underwriting approach and follow your business model. I have a saying: Never match underwriting with stupidity. If you try to do it, you’ll end up with disastrous results. You need to be consistent and disciplined in your underwriting.

You need to get efficient by embracing technology. With the loss in market share, you have to reduce your costs. You have to operate more efficiently in order to operate more profitably. In other words, you need to be able to do more with less. Th e good news is that once the industry rebounds you’ll make that much more money because you’ve already streamlined things to be more profitable.

No need for specific numbers, but what’s your assessment as to how many good operators have departed the business in the last couple of years? What void is it leaving?

I think that’s a great question and no one has asked me that question before. It’s a very valid question. My answer is none. No good operators have left the business because good operators understand that it’s a marathon, not a 100- yard dash. They’re prepared to stay the course. Operators. What we’ve lost is people who were over-leveraged, who didn’t discipline themselves properly, who tried to match underwriting with stupidity, who didn’t get compliant, who didn’t do any of the things that I just said.

They continue to fail. They will continue to fail as long as they don’t have a long-term plan. I know these guys. I know who the good operators are, not based on subjectivity but based on performance. They’re all still there.

Both Fitch Ratings and Moody’s have shared reports this year about the deterioration of subprime auto ABS. What’s your reaction to the concern shown by Wall Street?

I have been tracking this for two years now. I talk with Wall Street people who are both investors and securitizers. I have said for the last year, maybe the last 18 months, that there are some deep subprime securitizations that were poorly put together and poorly structured. To that end, they are starting to fail. What I mean by that is the securitizers who had no experience in the underwriting or collection of this kind of paper, those who did not structure deals where they matched the right vehicle with the right customer, are failing and will continue to fail. Not all securitizations are bad. Th ere are many that are performing well. Those people who structured them right and those people who did do the right matching process, that paper continues to perform. But I think in the months ahead more of these poorly structured ABS transactions are going to surface. Th is is going to create an enormous opportunity for the buy-here, pay-here industry to get the customers and those vehicles back from the defaults that come out of these poorly structured deep subprime deals.

At the federal level, how informed — or misinformed — are regulators and lawmakers when it comes to how BHPH dealerships operate? What can be done to improve the situation?

There are some regulators that I would consider to be fairly well informed and others who are not. I don’t think it’s fair to generalize one way or the other. What I would say is the key To this is a continuing communication, which needs to exist between the industry leaders and the regulators to try to help more of them to have a clearer understanding of the importance of subprime auto finance industry in America today. How important of a source of transportation it is? Now at the end of the day as the leaders step up to do that — and I want to applaud NIADA’s efforts through their leadership conferences that NABD totally supports — it’s not going to be what NIADA does or what NABD does, it’s what the individual operators do. We’re going to be judged by their actions. If the industry is waiting for us to make all of the problems go away, that’s not going to happen. They’ve got to take compliance seriously. They’ve got to operate properly within regulatory constraints to do the right things or suffer the consequences.

The NABD is approaching 20 years of hosting the National Conference. What’s your assessment of the journey not only for the organization but for the BHPH industry during that span?

We want to thank the tremendous support from the many operators in the industry and other, our sponsors, people who are involved in the industry who have embraced and supported us over that journey. To them I say this: Buy-here, pay-here is a vital source of transportation in America. Without the buy-here, pay-here industry, millions and millions of Americans would not have any transportation at all and would have difficulty working and living. Buy-here, pay-here is a critical component of the American transportation system. Our consumers are car dependent.

Now NABD has championed the cause for the self-financed, buy-here, pay-here operators throughout its entire existence. We believe that the industry continues to need that type of representation. At the end of the day, we believe that the education and the training that we’re providing and offering have never been more important in this journey. The journey is not over. The journey continues.

What pearls of knowledge and wisdom would you like to leave with BHPH operators going into the second half of 2016?

I urge operators to stay the course, to get their capital and financial flexibility in order to continue in the highly competitive environment of today. I urge them to reconnect with their customers, which will help them regain market share. I urge them to take compliance very seriously and to get a compliance management system in place.

I would also say to them if they are not willing to get the education and training necessary to help them do those things, they need to expect the worst results. We’re at a time where you have to have more skill and more knowledge to navigate the course successfully than ever before. That cannot be attained by doing the same old things every day and expecting a different result.

The view from Steve Jordan of NIADA

ARLINGTON, Texas — The National Independent Automobile Dealers Association gathers for the 70th time during its National Convention in June.

NIADA chief executive officer Steve Jordan shared with BHPH Report about how the small-business owners who make up the association’s membership are adapting to changes in the marketplace, How membership continues to grow and why it’s important for operators to gather on an annual basis.

What subjects are you discussing with NIADA members most nowadays? How often? Why?

I can tell you a lot of the stuff on the regulatory and compliance side of the business is what we continually beat the drum on because that seems to be a continuing concern with a lot of dealers. The ever-growing reach of the CFPB and FTC rulings and those matters are all front and center for dealers to be paying attention to and be aware of. I would also say small business survivability is a lot of what we’re talking about, just how to compete as a small business and making sure you’ve got a good business plan and budgeting and accounting. A lot of basic blocking and tackling is needed as well just because our members, when you boil it down, they’re small-business owners. They’re trying to figure out how to better serve their communities, sell more cars, provide top-of-the-line customer service and still figure out how to put their kids through college.

A lot of those things we’re talking through our Certified Master Dealer program and our 20 Group programs. Operational training ties into that as well. But also on the buy-here, pay-here side and how to survive in the subprime world we live in. Even traditional lenders, they’re just buying so deep right now. A lot of buy-here, pay-here dealers are having to adjust to those business practices.

Those are a lot of the things we talk about and continue to talk about with our dealers just because they’re all top of mind right now.

How impressed are you with the independent dealers who are managing to survive or even thrive in this difficult marketplace?

That’s a great question. Obviously I would say I’m very impressed by the dealers who have been able to navigate a lot of the industry changes over the last several Years. I think we’re in a very unique environment where over the last couple years a lot of the content at our convention has been about embracing change and adapting to change. Last year, the theme of our convention was ‘Ready, Set, Change.’ This year our theme is ‘Success by Reinvention.’

I think what we’re seeing is the dealers who are surviving and arguably thriving in the current marketplace are doing so by intention. They’re not doing it by accident. What that means is they are succeeding because they’re recognizing a lot of technology changes in the marketplace, how consumers are buying cars now using technology. Certainly even being intentional with investing in compliance and understanding how you’re reporting credit is a really important factor these days. How you’re collecting on your debt and portfolio. That all has a direct impact on your ability to navigate all of that change. The dealers out there that are intentionally investing in compliance and learning changing consumer behavior and the car buying process are the ones we are seeing succeed.

Also, dealers that are successful are looking for additional ways to augment their revenue and grow more sources. Some are getting into the lease-here, payhere opportunities that exist now. Dealers who are intentional about how they can survive are the ones that are thriving.

What unique ways are current members bringing new members into the NIADA fold? How important is it to keep membership climbing?

I think that’s hugely important to keep membership growing and to keep it on an upward trend. A lot of the reason we’ve seen year-over-year growth in membership over the last couple of years is because we’re giving dealers a place to grow and get plugged into the NIADA and state association structures. Whether it’s through a group or serving at the state level as a board member for an association or going through a certified master dealer program or a workshop or seminar or even the National Leadership Conference we’re doing in Washington, D.C., now, what we’ve really worked hard at doing is making sure dealers feel like there is a place for them within the association structure at the local, state or national level.

I think that’s hugely important for our dealers to buy into the association and what we’re doing. Because we have seen year-over-year growth in membership now for the last two years, that underscores to me that dealers are buying in and they are looking for ways to get involved. I’m happy to provide a lot of those entry points into the industry through the association. That’s what got me really excited.

At the federal level, how informed — or misinformed — are regulators and lawmakers when it comes to how dealerships operate? What can be done to improve the situation?

That is an ongoing, major part of our strategy. There are certainly a lot of informed legislators, but there are also a lot of uninformed legislators and regulatory folks that provide oversight into our industry. Whether it’s the election cycle every two years shuffling the deck on who the actual elected officials are, there’s always turnover in staff. There’s always turnover in committee assignments. Certainly who controls the House or the Senate dictates leadership at the committee level and a lot of that leadership at the committee level translates into new staff or staff we might have relationships with already. It’s a constantly changing environment of people at the federal level certainly on the legislative side. It’s a constant education and re-education strategy that we’ve engaged in to make sure legislators that are seeking to govern our industry have a good understanding about how dealerships operate, and so they know some of the unintended consequences of legislation they think might be a good idea but upon further review could have a pretty dramatic effect on small-business owners.

One of the biggest things we struggle with and fight is not only is there so much misinformation out there, but we find ourselves educating but also re-educating people because a lot of the misinformation comes from consumer groups and advocates. Even some of the legislators themselves, because of the growing influence of consumer advocates and groups, they put a lot of misinformation into that environment and we’re having to snuff that stuff out.

How important is it for NIADA to gather during the National Convention as well as at other times during the year?

It’s important for all the reasons we discussed. At the center of what we do is we are an association. We’re an association of used-car dealers and small-business owners from around the country. Our convention arguably is the one time every year when we can get together as like-minded dealers and share stories, learn about things that are happening in other parts of the country, hear from other dealers. The association is about people. We would be nothing if we didn’t have the people who are running the small businesses and being a part of what we do.

This is a really great time for NIADA to bring everybody together as dealers who can share stories but also learn from other industry experts who can help them be better operators and learn how to be more successful. We also get to honor some of the association traditions like our National Quality Dealer of the Year Award. It’s just such a great time for everyone to come together.

Read the full article at http://digital.subprimenews.com/article/The+Current+State+Of+The+Industry/2483700/302552/article.html.

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