BHPH vs Sub-prime Financing.

“If Capital is not an issue”

Buy Here Pay Here (BHPH) dealerships have the potential of creating the greatest profit in the long run due to higher gross profits combined with significant interest income. The nature of the business is personal. The relationship with one’s customer is developed over time creating not only the potential for repeat business but also the development of referral business from the satisfied customer’s coworkers, friends, and family. Control of the customer base is especially attractive as the dealer controls who is approved, how the deal is structured, and the ability to finance vehicles that do not qualify for subprime financing. Additionally, cash flow is generated from previous sales even when current sales are slow.

The greatest drawback to BHPH is the capital requirement. In addition you will have on going collections requiring a professional collection team with a separate work area. Other factors include securing payments and statutory compliance. There is also a risk associate with non-payment by the customer. The risk can generally be managed through effect collections and a sound underwriting process.

Ace Motor Acceptance Corporation (AMAC) “BHPH in a Box” program allows the dealer to enter or expand into a lucrative BHPH enterprise without the large capital investment. AMAC helps the business owner to meet those capital needs by providing funding to either create an upfront profit or significantly reducing the Dealers investment “on the street”. In addition this program creates a monthly cash flow associated with the customer’s payments. The dealer may choose to do their own collections or work with AMAC’s professional collections team, while still having the customer paying at the lot thus maintaining and nurturing these customer relationships as well as developing an expanding referral base.

AMAC has partnered with Auto Master to significantly discount prices to AMAC dealers for arguably the best DMS program in the industry. Additionally with AMAC’s Buy Here in a Box program the Dealer also can receive collections and underwriting training, static pool analysis, and floor plan assistance.

The major advantage of arranging sub-prime auto financing includes the greater upfront profits and limited or no recourse with failed deals which is not to be lightly dismissed as well as smaller staffing requirements for the business. However, there are drawbacks including the potential of lower overall profits due to the cost of discounts and acquisition fees. Additionally, the advantage of developing long-term customer relationship is lost resulting in less repeat business and customer loyalty. Thirdly, the business owner is limited by a finance company’s approval process and limits which may result in fewer sales and reduced income. Finally sub-prime companies experience financial market fluctuations when underwriting standards may tighten or relax bringing a degree of unpredictability to bear on sales.

Ace Motor Acceptance Corporation offers both sub-prime financing and their “BHPH in a Box” program, which is designed to both expand current BHPH businesses as well as develop new BHPH dealerships by providing both financing and the necessary tools for a successful BHPH business. When considering which business financing model best fits your business needs consult Dealers association or contact for a free consultation contact Wayne Garland at 704-882-7170.

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