The Car Store Moves Beyond BHPH to Encompass Wider Spectrum

The old adage, “Don’t put all of your eggs in one basket,” is a concept that has certainly been embraced by The Car Store. The dealership, which has locations in Laurel, Del., and Salisbury, Md., started as strictly a buy here pay here operation. Today, the dealership serves customers across the credit spectrum and boasts a service center and accessories store near its Salisbury location.

Two years ago, the owners of The Car Store further diversified their once BHPH-only business. They added a dual-branded independent service shop and accessories store (dubbed The Car Store Service Center and Auto World, respectively) near the Salisbury, Md., dealership.

Dealership Owners Greg Johnson and Ed Wilgus, both of whom have extensive backgrounds in the insurance business, also own several payday loan stores; their success in that business prompted them to try BHPH. They purchased the property of an out-of-business tractor dealership in Laurel and founded the first Car Store in 2000. A small store in Salisbury eventually followed in 2003; about three years later that store was relocated to an adjacent and larger building, a restaurant the dealership purchased and completely renovated.

The dealership’s related finance company (RFC), Delmarva Motor Acceptance Corporation, was founded about a year after the first Car Store opened. Around the time the RFC was founded, according to General Manager Rob Brown, the store began signing up with a few banks and doing some outside financing, although initially not at a high level. Brown estimated that for a while about 70 percent of the store’s business remained BHPH.

Today, however, the majority of deals are retail subprime and prime, the balance are BHPH deals sold to the RFC. Brown said the Salisbury location sells approximately 110 units each month and between 20 and 24 of those deals are BHPH, while the Laurel location sells about 50 units per month with half of those going through the RFC. Much of the rest of the stores’ business goes through outside finance companies like Credit Acceptance  and AmeriCredit.

The focus has not necessarily been on scaling back the amount of BHPH business the stores do; rather the emphasis has been on expanding to handle a wider range of sales and service customers and compete with new car dealerships. “We’ve been asked what our market is and I say the whole market’s our market because that’s really who we want to sell cars to—everybody,” said Brown. “We sell anywhere from a $4,000 ACV car up to a $40,000 [ACV] car.”

As part of the effort to expand the business, about two years ago the dealership acquired, “revamped” and built onto an independent service shop near its Salisbury location. The owners also added an accessories store that sells everything from wheels and tires to remote starters and toolboxes. While Brown estimated that about 65 percent of the service center’s business comes from the dealership – inspections, warranty claims, etc. – he said when it comes to servicing vehicles for BHPH and subprime customers, “[It’s a] struggle for them to have the money to repair their cars on an ongoing basis like they should … We give a lot of free service away to keep the cars maintained and keep the customers coming back.”

For that reason, The Car Store Service Center and its adjoining accessories store, Auto World, are focused on pulling in commercial work and customer-pay work from outside the dealership. Brown said advertising is relatively inexpensive in their area, so the service center and accessories store combined are able to spend between $3,500 and $5,000 per month for radio and television ads focused on pulling in business from outside the dealership’s customer base. “We advertise to the public for brake jobs and tire specials,” he said. “We really have tried to market and grow our business to the outside public that hasn’t bought a car from us.”

Another measure the dealership has taken recently is stepping up its presence online. “We have really gotten involved with the Internet in the last two years,” Brown stated. “It’s worked out very well for us.” In addition to the dealership’s website, inventory is listed on AutoTrader.com and cars.com. Over the last year, they’ve instituted a policy of taking a minimum of 12 photos per vehicle listing. In fact, Brown said they typically take between 27 and 42 photos per vehicle and in most cases do a video walk-around.

With the inventory listed online, Brown realized he would need a way to effectively track where their sales traffic originates. “I realized that a lot of people [who visit the website] will call or come in with a picture of the car instead of e-mailing,” he stated. He brought in a gentleman, a former salesman of the store, to field incoming calls, qualify the customers and ask how they heard about the store.

“He does a great job, sets the appointment and turns it over to a salesperson,” said Brown. “It’s amazing to me how many people were on the website the night before or that morning, and I wasn’t able to track that until I hired him ... It’s helped me understand that the Internet really is working.” He said just under a third of the dealership’s business comes from their online efforts.

Currently, all of the advertising done for the dealership is directed at attracting prime customers. “We actually stopped advertising subprime credit,” Brown revealed. “We beat the drum so much over the last 10 years that locally everybody knows where to come to buy a car if they have derogatory credit, so we focused on going after a high-end customer and promote 4.9 percent interest rates [and] certified cars.” Spending is focused on the Internet and radio and television spots. “I’m not a big print guy,” he said. “I don’t believe as many people read the newspaper as … search online, so I wanted to focus my money … online,” adding, “ I’m happy with the results.”

Even though the dealership has expanded beyond BHPH, it is still an area that’s important to business. Brown said he has two full-time collectors working about 930 accounts through the related finance company, which is located in Delmar, Del., about halfway between the two dealerships.

With two stores (one in Laurel, Del., and the other in Salisbury, Md.), the owners of The Car Store, Greg Johnson and Ed Wilgus, are transitioning their business model from predominately buy here pay here to include vehicles and financing options for all types of customers. The goal was to handle a wider range of sales and service customers and compete with new car dealerships.

Having the RFC off-site has been beneficial, he said. “It keeps a car guy from making a car decision on a finance deal. What I mean by that is that car guys want to sell cars, and underwriter wants to underwrite a loan that’s going to perform.” By sending deals over to the RFC just as they would submit a deal to an outside finance company, it ensures a deal will be made based on the underwriting guidelines and not simply the desire to move a car down the road. “Before, I used to make those decisions in the midst of trying to sell a couple hundred cars a month,” he said, adding that this would lead him to sometimes make “a car decision on underwriting a deal.” He explained, “I think I was probably more worried about selling that car than collecting the paper because I could always chase it later.”

When it comes to underwriting deals at the RFC, he said, “One of the better decisions that we’ve made in the last couple of years is hiring somebody that can underwrite this paper and slow the whole process down.” The individual Brown hired has previous experience as a mortgage underwriter and broker, and the decision to bring him on has resulted in a more careful underwriting process and better decisions. Where decisions were previously made in about a half-hour before, this underwriter “probably takes an hour or two after he goes through the whole process of the landlord, the references, income, exposure forms [and] book-out sheets.”

Although they are careful in their underwriting decisions, Brown said 100 percent of the vehicles financed through the RFC are equipped with starter interrupt devices and GPS locators. While starter interrupts have been used for quite a while, they only added GPS devices about three years ago when they deemed the technology inexpensive enough. Brown said the addition of GPS is “actually very cost-effective for us because it’s not a repo anymore, it’s just a tow job, and our repo expenses have gone down because of it.”

The typical BHPH vehicle carried at the dealership is $4,500 to $4,700 ACV, Brown said, and they work hard to get more down payment. “The average buy here pay here dealer gets probably a little less than $1,000 down … and my average down payment is probably closer to $1,700,” he stated. “We’d really rather sell people a car they really like [and] want to reestablish their credit on … I believe that if people like the car, they find ways of coming up with money to get into [it].” He said they routinely ask customers to come up with more money down and, said Brown, “They seem to fight for it.”

The move from mostly BHPH to 25 percent BHPH has been a gradual one, but has still presented some challenges. Brown said the biggest is running a blended sales floor and “getting the staff to treat everybody the same … making sure that the 440 scores get treated comparably to an 800 score.” He said things like the vehicle walk-around, demonstration and overall presentation of the dealership should be the same for every customer regardless of credit. “I think we’ve worked hard at getting the salespeople to buy into that and understand that just because [customers] have bad credit, it doesn’t make them bad people.”

To qualify customers without bringing them inside and pulling their credit, salespeople are trained to investigate customers’ situations and ask simple questions such as, “Where did you purchase your last car?” Brown said, “If you train your salespeople properly, I believe you can get them to lead a customer to the right car on the lot without bringing them inside and embarrassing them and interrogating their credit.”

In the future, Brown said he’s hopeful the store will add one more location. He’d also like to see even more business go through the RFC, although possibly for a slightly higher credit customer. “I think we’re about to grow it again and lend more money maybe on a little bit more expensive cars to customers with more income to dispose of,” he said.

Vol. 7, Issue 10