Protection With A Buy Here, Pay Here Operation
When the dealer is also the lender, the amount to finance becomes a concern. Some dealers use inventory cost as the down payment and then finance the balance. The additional cost of the service agreements is often too much liability for the dealership to bear.
Many of those same dealers will provide free oil changes to the customer during the loan period. This allows the dealer to inspect the vehicle at regular intervals to ensure the collectable is in good working order.
While this action is positive for customer satisfaction, and it verifies the good working order of the vehicle, it also limits the dealership’s revenue. A service agreement will pay the dealership shop for completing the needed repairs at 100 percent customer pay labor and 100 percent customer pay on parts. While the service agreements will not pay for oil changes, it does eliminate the customer’s concerns about purchasing a pre-owned vehicle. It also eliminates the fear of bringing in the vehicle to the repair shop when the customer hears, feels, or suspects something wrong with the major components.
“What makes a successful deal for the buy here, pay here lot?”
Buy here, pay here dealerships should reconsider their stand on including a service agreement for contracts they finance. It’s good for the customer, and helps reduce repossessions. It’s also just plain good business.
When people have a positive financial experience with a vehicle, they are very likely to return to the dealership to give the store an opportunity to take the vehicle in trade. This also builds customer retention, which is critical to a successful BHPH operation.
Are the profits in a buy here, pay here operation the same as in the dealerships where they outsource the financing? Perhaps. Let’s look at the total picture. The dealership makes a profit at the point of sale. They make a profit in the service department, and they make a profit on parts. The potential for profits exists during the entire ownership of the vehicle.
What makes a successful deal for the buy here, pay here lot? The right inventory, the right deal, the right protection, and on-time payments. How many of your customers have to choose between paying the repair bill and making the car payment?
Dealer Marketing Magazine, May 2006