How to Find and Maintain BHPH Customers

On November 21, Brent Carmichael will present TIADA's newest dealer education seminar, Collect the Cash, Not the Car. The course is designed to help you maximize every collection opportunity.  Register for the class today and take this opportunity to get to know Brent and some of his amazing professional advice regarding the BHPH world with his article reprinted below. 

How to Find and Maintain BHPH Customers
By Brent Carmichael
Executive Conference Moderator, 20 Groups
NCM Associates, Inc.

In today's ultra-competitive sub-prime and deep sub-prime environment, not only is it challenging to find a Buy-Here-Pay-Here (BHPH) customer, it's just as challenging to keep them, if not more so. The number of players vying for this customer is at an all-time high and not looking to shrink anytime soon.
As for BHPH dealers struggling to attract new customers and/or keep the ones they currently have, they have a myriad of excuses for losing their customer base. They easily blame their misfortunes on banks, finance companies, and even credit unions who have all been very aggressive in going after a customer base that they have readily turned their backs on in the past. They blame the vehicles they are selling; lamenting the fact that, because vehicles are lasting longer, customers don't need to replace them as often. They even blame the customers who have chosen not to buy because they simply don't want to have a car payment.

Now all three of these excuses do have some merit. Wells Fargo, Santander, Chase, and Capital One have all been very aggressive in dipping into the typical BHPH credit score range for the better part of the past 24 months. And we are seeing credit unions become a player as well. Unfortunately, with the cost of funds being as low as they are, and appears will be that way for quite some time, it is likely they will stay aggressive for the foreseeable future. Vehicles are better made than back in the day and are, therefore, lasting longer. Despite the mass of recent recalls, vehicle longevity doesn't seem to be headed in the wrong direction, either. And with the volatility of the economy in recent years, everyone is apprehensive to take on new debt.

So these are all legitimate challenges that face BHPH dealers' ability to not only attract, but keep customers. But I can assure you, they are not the only reasons dealers may be struggling with this. Having the opportunity to work with dealers in our 20 Groups, in classes that I teach, and in the consulting I do with BHPH dealers, I typically see that the reason some dealers are struggling is self-imposed.


Let's start with attracting customers. There are a lot of old and outdated thought processes about attracting BHPH customers. Our customer has evolved just like the customer of every other business. What attracts them today is not necessarily what it was 10 years ago, or even five, for that matter.

Can They Find YOU?

A recent study found that 80-85% of BHPH customers have done some to significant research online prior to ever visiting a dealership. This means that to attract our customer, you have to have a web presence, not just a website. Things to focus on would be Search Engine Optimization (SEO), Search Engine Marketing (SEM), and online reviews. Can the customer find you without typing in your dealership name specifically in the search bar? If not, they probably will never visit your dealership. Web technology is advancing at a head-spinning pace, so SEO and SEM should be handled by a professional to be truly effective. There are quite a few free ways to increase your web presence, but for it really attract customers on a consistent and ongoing basis, seek a professional.

Communicating the Right Message

When it comes to advertising to attract customers, conventional wisdom doesn't apply. Conventional wisdom says customers are price, down payment, payment, or interest rate conscious. Research has shown the advertising hot buttons for BHPH customers are simply quick and easy financing. What they are telling us is that they want their buying and financing process to be short, sweet, and to the point. They seem to not be too concerned with price, down payment, payment or interest rate. They want to get in and get their vehicle and not have to spend all day or jump through a bunch of hoops to get it. So maybe you are spinning your wheels trying to advertise lowest down payments or best prices and focus on the financing experience instead. As with all advertising, if you say it you have to be able to back it up.


Word-of-mouth is another way of attracting customers. Referral programs are a staple in just about every retail business. What better endorsement of your business to a prospective new customer, than a referral from someone who has done business with you? Customers are more likely to buy a product or service from a business where a family member, friend or co-worker has purchased and had a good experience.
Current customer referral programs are the most prevalent. Most dealers offer some sort of monetary reward if a new customer purchases a vehicle that was referred by a current customer. These range anywhere from $50 to as high as $300. Some referral rewards are simply applied as a payment to the referring customer's account. Some are paid in check directly to the referring customer. Some even offer to pay off referring customers' vehicles once they have referred a predetermined number of customers. Usually this number is around 10 and, frankly, I don't know of any dealer doing this that has actually had to pay it.

Now a referral need not always be from a current customer. The most effective referral programs reward referrals from anyone, including other dealers, vendors and even employees. It shouldn't matter where you get the lead, as long as you get it. Who better to get a referral from than, say, a repair shop you use on a regular basis? Or from the rent-to-own store nearby? Or maybe from the F&I manager at the new car store down the street? All three deal directly with our common customer on a daily basis.  

What makes any referral program effective will be the value the person doing the referring perceives in the reward. If you have a referral program and you're not writing very many checks for referrals, then your customers, vendors, other dealers, or your own employees don't see the value of the reward, don't understand how the program works, or don't think highly enough of your business to tell anyone about it. The first two are fairly easy to fix. However, if the third is the case, then attracting and keeping customers is the least of your worries.

Some of you are thinking this all sounds great, but in my state, it's against the law for a car dealer to pay a referral or “bird dog fee,” as they are commonly known. This is usually true in states where car sales people must be licensed. There are two ways to you can get around this. The first would be if you have a Related Finance Company (RFC), the RFC can write the referral checks. And the second would be, if you don't have an RFC, to offer some sort of service as a referral fee. Oil changes, car washes, and details are the most prevalent among dealers who don't have an RFC and who reside in those restrictive states.


When it comes to retaining customers, the most important thing would be the overall dealership environment. Customers will buy again from a place they enjoy doing business with. A business with a positive, customer-friendly vibe where they feel appreciated as a customer is what we all want from any business.

Make the Experience Enjoyable

To accomplish this, you need to have a fun atmosphere in your dealership. Your employees should want to work there and want to interact with your customers. I was recently in a BHPH dealership just outside Cincinnati where there was just this enormous energy about the place. There were customers just hanging out and chatting with employees, customers in making their payments, and prospective customers working with sales people to buy a vehicle. And this was at 10 a.m. on a Wednesday morning. I can only imagine what it would be like at 5 p.m. on a Friday! The point being, the dealership was a place customers wanted to be. It was very relaxed, open and inviting. It was a good-looking dealership inside and out. The windows were painted brightly with the dealership's logo. It was very neat and clean on the inside. All the vehicles on the lot were clean, arranged in straight lines, and quite a few with their windows painted brightly, as well. It just looked like a very inviting place.

Too often I visit dealerships where it feels like customers are seen as almost a nuisance. And I can assure you that if I can feel it, the customers can, as well. I hear employees talking derogatorily about their customers, complaining about them. I guarantee you this bleeds over into how they are treated. This is most prevalent on the collections side of the business. Collections staff get frustrated when customers don't pay on time or break arrangements. Then in turn, their treatment of the customer suffers. We are in a customer service business, and the treatment of your customers should be about treating all customers with courtesy and respect regardless of account performance. It is, after all, the customers that pay not only the bills, but the salaries, too.

Inventory Mix

Inventory is another key area to keeping customers. When they purchased their vehicle, we sold the customer the dream that when they pay on that vehicle as agreed, we will be able to get them a nicer vehicle next time. We need to be able to live up to that from an inventory standpoint. It is important to carry some nicer, higher-end vehicles to step them up into or they will – because we know for a fact that they can – go somewhere else. A customer will only buy a '06 Ford Taurus with 120,000 miles on it so many times before they will want to step up. Granted, this should not be a significant part of your inventory – 10 to 20 percent at most. And for those two- and three-time customers, you should even be willing to go out find something specific they might want (within reason, of course).

Be Competitive

In today's competitive environment, you are going to need to be willing to sweeten your deal to keep customers. This could be in the form of lower down payments, longer terms or lower interest rates. We know our customer is getting a lower rate and longer term and in most cases, a nicer vehicle through the sub-prime market. The question is, are you willing to match their deals? While you may not be able to match the vehicle they are purchasing, for the right customer, you can match their financing terms. Not every customer is worthy of the special deal, but there are probably more than you think that would be worth the risk. Now a quick word of caution here: One of the biggest underwriting mistakes I see is with current or previous customers; usually this happens with the customer's payment. They can only afford what they can afford, so make sure you take that into consideration. Extend terms, lower down payment, or lower interest rates, but make sure the payment is affordable first and foremost.

Your Current Customers – Selling Forward

Looking to your current customer base is probably the most underutilized way to retain customers. Current customers on the books, paid-out customers, and even charged-off customers are all good avenues for retaining customers. Most dealers do a decent job with repeat customer business, yet overlook or flat out ignore their paid-out and charged-off customers.

Let's start with current customers on the books. Most dealers have a dollar balance at which they start soliciting customers to buy. Usually, this is somewhere around six months remaining on the contract. In my opinion, this would be the latest point to start this effort. This is about the time our customer is starting to see the light at the end of the tunnel, so starting after that will make it tough to keep them. I do not recommend a practice I've seen in some dealerships, where they set a remaining balance target before a customer is eligible to trade. An example would be that a customer has to have paid 75% of their beginning balance before they would be eligible. Dealers who base the solicitation start date on the customer, their pay history, and the vehicle will have more success getting that customer into a new contract before they have a chance to shop around. The bottom line is that from a sales process standpoint, you should have a set time frame to start soliciting current customers to buy.

Before you decide to start soliciting your low balance customers, make sure you are prepared to deal with the possibility of negative equity on their trade. We talked earlier about sweetening your deal from a financing standpoint and this would most definitely fall into that category. It can be handled in a few ways. It can be rolled onto the new note, which would require more of a down payment from the customer in conjunction with their trade, a higher payment, or a longer term. It can be forgiven, which would invoke 1099-C requirements. Or a combination of both, where some of the negative equity would be added to the new note and some would be forgiven. There is no right or wrong answer. It all depends on how important it is to retain the customer.
Market to Paid-Out Customers

If you haven't done so recently, now would be a good time to solicit your entire paid-out customer base. Start with the most recent and work your way back. Most dealers don't have a formal follow-up process for a customer who pays out. It should be very similar to the follow-up process for a customer who buys and the ones who don't buy. As soon as you get a call for a payoff for a customer, you should be in contact with that customer immediately to see if there is anything you can do to keep them, whether they are calling for the payoff themselves, or especially if it is another dealership calling.

The day a customer pays off, there should be some sort of contact, whether by phone call, email or text, thanking them for their business and reminding them of your referral program. This should be done by both a representative from the RFC (If you have one) and the customer's original salesperson (if they are still employed; otherwise, the sales manager). Also, a handwritten thank you card should be sent. After that, some sort of regular contact via text, email or mail just to let them know you are still there for their vehicle financing needs and would love to have them back. Most dealers have the attitude that the customer will be back on their own so why work so hard; or that our customers move all the time and the information we have is not any good. Both attitudes are reactionary, and to retain customers, you have to proactive. Data from our dealer clients shows that the average time at residence for sold customers is 30 months. Maybe our customers are more stable than we give them credit for.

Second-Chance Customers

Let's talk about your charged-off customers. No, I'm not crazy. You have a history with the customers you charged off, albeit not the best one. Most dealers will finance a customer who has had a repossession with another dealer, so why not resell to one who has had one with you? If you aren't currently pursuing deficiencies, why not give them a second chance? If you are pursuing deficiencies, why not take a look at those that are outside of the statute of limitations? Obviously, I'm not suggesting you should resell all your charge-offs. There will be some who have burned the bridge for good. But I'll bet there are quite a few who are in a better position now than when they were charged off. A simple second chance could earn you a customer for life.


I mentioned earlier that I've seen the results of these strategies in dealerships across the country, so I am confident they will work for you, too. But what works today may work forever…technology, new competition, the economy, and many other factors impact our BHPH businesses. Staying informed about what works – and what doesn't – is critical to maintaining and growing your operation. Consider ways to connect with and learn from other BHPH dealers. I can't overstate the importance of getting out of your dealership from time to time to work on these strategic issues with your peers. There's no need to reinvent the wheel when you can learn what is already working in their dealerships. Then invest in your employees with formal training to make sure their attitudes and processes are in alignment with yours. When you know what you want to accomplish and how to achieve it, and everyone is working from the same page, life is easier and achieving your goals is more realistic!  

Whether you are a BHPH dealer struggling to find and keep customers, or you're the most successful operator in the country, you know the days of hanging out a shingle and drawing customers to your lot are over. Today's BHPH customers are using the Internet to find quick and easy financing from dealers who will treat them with courtesy and respect. Fortunately for them, but unfortunately for us, these customers now have a multitude of options. If at least 50% of your current monthly sales are not from repeat and referrals, then one or more of the things discussed here is probably lacking in your operation. Most of these recommendations come at little to no cost to implement or fix. Some will take a financial commitment. But all of them require a desire to do better and the will to make it happen.

Brent Carmichael is a trainer, consultant and Executive Conference Moderator for NCM Associates supporting Buy-Here-Pay-Here and related finance operators. Brent's experience includes over 17 years in sub-prime finance and collections, 11 of which were in BHPH. His expertise includes sales, collections, reconditioning, and operations. Brent and his family reside in Louisville, Kentucky.


By: Ricci
On: 10/21/2016 13:45:24
Thank you for your time in writing this article. Full of great information. We have not thought of soliciting Charged off accounts, and your happens. Thanks again! Ricci

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