Getting Ready

Are you getting ready for the tax season? If you are in buy here pay here (BHPH), lease here pay here (LHPH) or special finance (SF) you should be ready now. I’m sure you have already been experiencing the inventory shortage going on for months. Have you noticed that over the last few weeks it has gotten worse? Seasoned BHPH dealers started buying extra vehicles for 2011 in October. The obvious reason for early buying used to be better prices. Now the reason is that you will need to look everywhere, every day, to find enough vehicles to make sure you can hit your target numbers for the first quarter of 2011.

Finding enough of the right vehicles isn’t the only problem. We have a full service/recon operation in-house that is busy year-round. Our first-quarter inventory problem is compounded by the fact that as the tax season gets going, we are still reconditioning more vehicles than normal. Going into February, the vehicles we sold in mid-January start coming back for “something” that is mechanically wrong. It doesn’t seem to matter how much reconditioning we do; something invariably causes concern with customers about the “new” vehicle they just bought.

With the extra reconditioning going on along with the increase in sales, the shop is already crazy-busy. Then the wave of newly-sold customers, afraid something is wrong with their vehicle, crash (figuratively) into the overloaded shop and the fun begins. What takes priority—reconditioning the cars for inventory, the just-sold rig making a funny noise, the car being sold right now that suddenly develops an issue, or a one-year customer needing warranty work? Of course these are good problems to have, but still they are always challenging to solve.

Anticipating issues in advance is an excellent management trait. We try to load up our inventory and get done all the reconditioning we can before Christmas. This creates another problem—the accountant screaming about money. “Why are we buying all this inventory now when it’s so slow?” Cash flow is her concern. Cash flow is something we watch more closely from August through December, our slowest period. I have to stay on the accountant to make sure in August we have the cash and/or floor plan available to load up the inventory in October and November so we can maximize January and February.

Another aspect of tax season is customer retention. In BHPH, I have tried to maintain close to a 70 percent repeat/referral rate. Have you started contacting your customer base to find those customers who plan to purchase during tax season? You should have already made contact. If your customers want a new car and they have down money, they will buy somewhere.

The big tax preparation businesses (H&R Block and Jackson Hewitt) are gearing up to begin early tax preparation for the folks willing to pay big bucks to get 30 to 50 percent of their anticipated tax return now. If your customers qualify, they can get an anticipation loan in December against their 2010 taxes, buy something else and leave your car sitting. Some BHPH operations have already begun “zero down, drive away today” promotions.

I have chased enough customers, heard enough stories and repossessed enough cars to know we are not giving credit for tax money unless I see filed tax papers. When the “zero down” ads start, we counter that with, “You can still drive away today and keep your tax return.” In a sense, tax season has already started. If your customers are like ours, they want to get something else now, and if they can get a down payment, someone will sell them.

The customers planning to buy a vehicle in 2011 with their tax refund for a down payment have already begun to decide what they want to do. We work hard to make sure most folks in our area know what we do and why our operation is better than the competition. We never stop working our customer base for referrals and repeats. Our salespeople started sending letters offering pre-approvals, referral (bird dog) fees, special pricing, free gas and free oil changes to help guide customers our way when they are ready to trade. All of our employees who have customer contact get paid if they help sell a car. They are all reminding everyone they see to come to our store. 

Here comes January … Are you ready to make some money?!