Handling Repairs as a BHPH Dealer
If the cars do not run, the customers do not pay. Of course there are thousands of buy here pay here (BHPH) or lease here pay here (LHPH) dealers in this country, and there are lots of answers to the question: What do I do when a customer needs a repair?
At Best Ride, we operate differently than many BHPH dealers I’ve spoken with. We sell an $8,500 ACV vehicle, and we rarely sell to the typical BHPH customer. At Best Ride, we help the customer with sales tax, offer GAP, have credit reporting and sell everyone using a 7.5-percent interest rate. We are looking for the retail stores’ subprime customers over our BHPH competitors’ customers.
When I set up our business model, I intended to be different and attract a niche customer. To do that, I felt we must offer something more than the competition. Customer service before and after the sale is the main difference. We sell a great car buying experience, and that primarily means taking care of the vehicle before and long after the paperwork. We have a complete reconditioning program for our vehicles. Everything has new tires, brakes and fluids. We also test batteries, alternators, air conditioners, cooling systems and suspension components in an attempt to get ahead of immediate service issues.
Out of the gate, we have few mechanical problems with new sales. Since the store opened, we’ve offered a 24-month, 24,000-mile extended warranty on all our vehicles. Our inventory is primarily driven by the parameters of the warranty program. By offering this warranty in all of our advertising, it is usually the first topic of discussion with our customers after they ask about down payment.
In most BHPH operations, service is an expense that is necessary to keep your customers paying. We are able to repair nearly all drivability issues and things like power windows, electronics, A/C, etc., while also being able to rebuild or repair major components in the power train when required and make a profit in our shop. The customer is usually only out of pocket a small deductible. Through the warranty program, our customer also receives roadside assistance nationwide that includes towing. Another difference at our dealership is maintaining a service receivable account for a customer when repairs aren’t covered by the warranty or the customer’s coverage has expired.
When I tell folks in the business about this, I get a few “Are you crazy?” looks. Repairs are almost as sure as death and taxes, and this is one way to handle them. After working in this industry for 21 years at three different operations, I find this works best for me. Setting up this type of portfolio took extra cash flow up front, but the investment pays back plenty. Our model helps us to market to our customer base and simplifies collections so that we only need one collector for 700 accounts. Our service department stays busy and makes a nice profit every month. We set a maximum overall receivable balance for service work years ago and diligently watch those accounts. Our customers appreciate the opportunity to keep their cars working properly, and we have a better portfolio for it.
Our related finance company’s loss numbers in all categories run far below benchmarks and have been performing that way for almost seven years. I attribute that, in large part, to how we handle repairs and our attitude about customer service.