Quiz Show: Using Questions to Increase BHPH Profits

As a moderator with NCM Associates, I make my living with questions. Not only do I challenge my clients with questions about their business practices, but I also must answer to their concerns and worries. Put simply, questions are my life.

It’s a great challenge. I think the habit of questioning things is critically important for all car dealerships, but especially for BHPH dealers who face an ever-changing and detail-oriented business, subject to many rules and regulations.

Oddly enough, these rules and regulations tend to invite inaction by BHPH dealers. Once we finally figure out a business process that works, it can be very hard for us to even consider changing it. That’s a problem. This reluctance to change can not only cost us potential profit given today’s complicated compliance landscape, but it runs the risk of costing us our business entirely.

So what things should we take a look at and question? EVERYTHING! Here’s a few to get you started.

Question your advertising

Are you still pouring the majority of your advertising dollars into television, radio and print?

I’m not saying these media are dead, but I see far too many dealers spending their budget on traditional marketing channels while completely ignoring their own website, digital marketing, and social media.

We know that 90 percent of American adults have a cell phone, and more than half of those phones have internet access. In fact, practically half of the U.S. sleeps with their phone so they don’t miss a text or email!

Your BHPH customers are no different. They have a phone, and they use it to shop for cars before they even think about looking in person. Unless they see your dealership online, it’s doubtful they’ll even make it to your lot.

Like everything else, advertising isn’t cut and dry for our BHPH industry. Not only do you need to pick the right platform for your ad, you must be sure to comply with industry regulations. Here’s an example: Are you still advertising zero down to get customers in the door when in reality virtually no one can qualify for your zero down?

Open up any industry publication and you will see stories of BHPH dealers getting hammered for this type of advertising. Transparency is the new buzz word in the industry, and if your advertising is misleading in any way you are playing with fire. Don’t get burned.

Question your collections

I could write an entire article on collections compliance but that’s not the point I want to make here. Instead, let’s talk about your collections culture.

Your entire organization needs to understand the BHPH customer. Our customers are likely to have problems making payments at some point. Does your staff understand that it is their job to help the customer through these times? Or do they still have the attitude of “give me the money or give me the car?” More importantly, are your collectors well-trained in connecting with the customer—empathizing with them and defusing problems—while still demanding payment?

The best collections culture can sympathize with the customer while successfully collecting payment in full. Most of the time I see departments who are excellent at being nice to the customers and truly understanding their situation, and then I see collections departments who are great at collecting payments in full. I rarely see collections departments who excel at both.

The collections department is the key to your long-term success. The sales department will sell the first car, but it’s up to the collections department to sell the repeat business. Make sure your collections team is one of the best.

Question vehicle repairs

I’ve found two typical approaches to vehicle repairs: Fix everything or fix nothing.

Let’s think about the “fix everything” approach. Do you help your customer with repairs on their vehicles after the sale? Where do you draw the line? Are you financing that repair if the customer cannot pay for it?

Have you checked with an attorney to see if it is even legal for you to finance the repairs and have it paid back through a “side note?” I’m going to bet that there are a lot of you reading this right now who are financing repairs illegally.

Now, what about those of you who don’t fix anything? While you don’t want to repair all the problems, you might reduce your charge-off rate and your repeat business if you loosened up your repair policy a little bit. Complete a repossession analysis to show how many of your repossessions are related to mechanical problems—would a new repair policy improve that?

Question the sales process

Here’s a little-recognized truth: Repeat and referral business is far more effective in BHPH than in the new-car business. But, I rarely see BHPH dealers training their salespeople on how to generate their own leads. Don’t let your salespeople rely on you to put enough customers on the lot through advertising.

And, thinking about that customer, does your sales staff actually serve the customer or just take orders. An effective sales team will match the right customer to the right vehicle and process effectively to maximize down payment. When your sales team actually sells, there will be greater collection potential throughout the life of the loan. Use your sales team to plan for success from the beginning of a transaction.

Question accounting and legal advice

When I’m asked to explain the BHPH model, I often say that we’re in the finance business … and we happen to sell cars, too. Our clients need solid financial advice and guidance. When you do it right, not only have you helped someone out, but you’ve also made a profit.

Because finance and law play a major role in our industry, you need well-educated, reliable advisors.

Does your accountant truly understand the BHPH/LHPH model and all the tax implications that come along with it? Just because they are an accountant doesn’t mean they know what’s best in this industry.

The same goes for attorneys. Find someone who is well versed, not just in the auto industry, but in the BHPH industry as well. Hire the right financial and legal experts. (And, if you think it’s too expensive, just look at what it’s costing your peers who didn’t hire them.)

Question everything

When I write that I want you to question everything, I mean everything. Don’t just stick to the suggestions I’ve listed above. I challenge you to go into your dealership and play devil’s advocate for every policy and procedure you have in place. Ask your staff how you could change things or do things differently to produce better results.

Once that’s done, take your questioning to the next level. Ask your peers to analyze and critique your business. If you don’t have an established relationship with your peers, take the time to join a 20 Group, which facilitates peer-to-peer collaboration and continuous improvement.

Then do something with your answers.

No matter which option you choose—examining your business on your own, enlisting friends for help, or joining a 20 Group—the most important thing you can do is willingly listen to the answers. You are likely to find items that need immediate attention. By critically examining your business, you can start fixing these problems with confidence.

And then you should start questioning again!

Blog originally published in the September/October 2015 issue of the BHPH Report. Be sure to check out the full issue!