Why Buy-Here-Pay-Here Operations Compromise An Already Suspect Automotive Sales Industry

I had an interesting phone call and quasi-interview this morning with a regional buy-here-pay-here automotive franchise based out of Georgia . After spending over an hour to complete an online application with this company for a ground-level sales consultant position this past holiday weekend, I was contacted by the company's HR representative who was tasked with providing details about the position for which I applied.


For those of you who are unaware, buy-here-pay-here automobile dealerships (otherwise known as "dirt lots" or "tote-the-notes") are independent dealerships that specialize in selling used vehicles and providing in-house financing for their customers. Typically, the dealership will hold one company as the dealership proper and another company as their "finance arm". Nonetheless, these dealerships are facilities that most often deal with disenfranchised buyers who lack the creditworthiness to purchase at a traditional franchise dealership.

What is problematic about BHPH operations is that they normally sell higher mileage, less mechanically sound vehicles which can be acquired by them at an advantageous price and finance them through their finance arm making the entire purchase captive to themselves.

Is there anything illegal about this practice? No.

But, cutting right to the chaise, here is how a successful BHPH operation works for the dealer:

1) Their buyer purchases higher mileage pre-owned vehicles that do not necessarily have to meet the more stringent guidelines or standards expected in a franchise dealership operation.

2) The buyer's goal is to buy vehicles that are often in a pre-determined price bracket set forth by the dealer. The buyer may be directed to pay no more than $5000 for an automobile and no more than $8000 for a truck in order that they may double the price for retail sale and require applicable down payments.

3) Dealers are in the business of acquiring cash down payments and often cover the entirety of the equity position they have in the vehicle after retail preparation. In other words, they pay $3000 for a six-year-old Toyota Camry with 89,000 miles and have a total of $3500 in the vehicle after reconditioning. Hence, you are asked for $3000 down payment to "buy" the vehicle. In this case, the dealer has only a $500 deficit in his actual cost before you ever agree to the 36% finance rate when sitting down to complete a contract.

4) BHPH dealers live off of a portfolio. In other words, the scam artist that talked this guy into becoming a "dealer" told him that "the more cars you have in the street, the more payments you have coming in and the bigger the portfolio." Most of these "dealers" have zero true automotive experience and only look at the down payment as your obligation to increase their portfolio - and wealth.

5) Clearly, BHPH dealers prey upon buyers with poor credit and those whose desire to purchase is based upon need rather than want. Furthermore, THEY own the bank, so their desire is to get as much down payment as possible and finance that vehicle for as much as possible and for as long as possible keeping their accounts receivable clerk as busy as possible.

6) BHPH dealers may or may not attempt to be congenial with buyers, but all either directly or indirectly operate under the overt threat of repossession of the buyer's vehicle. Nowadays, nearly all BHPH operations utilize GPS technology and track the vehicle and also have the ability to employ a kill switch that will disable the vehicle if timely payment is not received. Moreover, "dealers" are told that they need to maintain a certain repossession percentage based upon a risk matrix.


Here is what is also problematic about the whole BHPH mentality: franchise dealers theoretically operate under the same methodologies, but in a far less exuberant fashion. Franchise dealers seek to buy low and sell high, sell financing, and build their portfolios as well. However, as much as I can criticize many franchise dealers for not exercising integrity, BHPH operations are typically predatory and seriously compromise the reputation of an already precarious love-hate (mostly hate) relationship between car buyers and car dealerships.

So, back to my phone conversation this morning...

After reading almost 200 reviews online about this company - all of which were negative - I picked up the phone and called the HR representative who had left a message for me earlier in the day.

Now, I have been in the automotive game for over seventeen years, and while I will admittedly acknowledge that I do not know everything, I am more than familiar with the typical BHPH business model, and this conversation proved to be no different.

I was first once again amazed at the fact that someone looked over an application that would be indicative of a GM at a minimum or a corporate position, but quick to point out that "no management positions are available" and that they "were only looking for a sales consultant." She was quick to point out my extensive experience, but that "they send new hires to Georgia for a week to train them how to do things 'their way'." So, I played along.

For those of you who are simply consumers, I do not expect you to necessarily understand, but this was yet another prime example of yet another automobile group who thinks they are going to change the face of automobile sales and reinvent the business.

To the contrary, today's conversation only prompted me to take the time to sit down and warn consumers and potential automotive employees about the pitfalls of becoming involved with the vast majority of these companies as their methods, acumen, integrity level, and business practices are inherently suspect. And, in the case of the company with whom I spoke today, their very, very tainted reputation far and away precedes them, and they carry a BBB rating of "F". Not good.

I spent six months employed with one such company a few years ago while between jobs. The dealership was run by a former boat captain who had never sold an automobile in his life, had no sales or management training, and who just happened upon the job because he captained the boat of a wealthy real estate developer who got the advice to go into the BHPH business. The dealership was unpleasant, the GM was clueless, the office manager smelled like she had been rolling in an ashtray, our buyer was a good guy but had received no real training, and they had two sales consultants with a combined 45 years of automotive experience. All we could do was shake our heads daily at the level of cluelessness. A lot of the same cluelessness exists in franchise dealerships, too.

In closing, I have two very valuable pieces of advice:

1) If you need a car, take that $3500 down payment and buy a car in CASH! You would be surprised what you can find if you look. There is 0% interest and you own it free and clear.

2) If you are a potential automotive employee, you will want to heavily consider the reputation of the company in order to save yourself many, many headaches.

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Copyright 2017, Robert Liotti, The Car Business Insider. All Rights Reserved.