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Why LHPH in Today’s Market? Pandemic Upends Credit Scorecards and Drives Subprime Auto Lower

Trevor Watson | October 20, 2020

 

In a recent article published by the Wall Street Journal on October 18, 2020, the Journal identified another unique attribute of this pandemic-driven recession, FICO scores have improved while unemployment has spiked.  “The average FICO credit score stood at 711 in July, up from 708 in April and 706 a year earlier, according to Fair Isaac Corp.”  Obviously, this is a function of the massive financial stimulus and assistance provided by the U.S. government to stem the damage of the COVID pandemic.

However, there are still millions of Americans out of work and much of the stimulus has expired or will soon.  “First the macro stress occurs, and then it takes a few months for the strain to show up in people’s credit reports,” said Ethan Dornhelm, vice president of scores and predictive analytics at FICO, “Deferment programs and government stimulus are having a further effect of pushing out that stress for many people.”  While more assistance may be on the way, it is likely many of the jobs lost will not return and unemployment will remain stubbornly elevated for much longer than anyone had hoped.

Read the entire article here: https://www.wsj.com/articles/coronavirus-tanked-the-economy-then-credit-scores-went-up-11603013402

As the WSJ notes, “The disconnect has scrambled lenders’ underwriting models and sent them in search of new ways to evaluate applicants’ creditworthiness.”  This impact can also be seen in the Experian State of the Automotive Finance Market Q2 2020 report.  Deep Subprime loans accounted for only 4.35% of all used loans in Q2, a record low in the automotive market and significantly below even Great Recession levels (see chart below).

While lenders continue search for alternative bureau data to supplement their traditional scorecards during this unprecedented time, there remains the likelihood that the worst is yet to come for consumer credit.  “One big fear is that consumers’ credit quality could begin to sour… ‘We’re afraid that in a couple months there could be real damage to credit reports,’ said Francis Creighton, chief executive of the Consumer Data Industry Associations, which represents credit-reporting firms.”

The result of these factors in the auto finance industry will be a prolonged period of reduced subprime lending by traditional banks and finance companies.  Lenders will not jump right back into the subprime market with so much uncertainty over their scoring models, the time necessary to vet and back-test alternative bureau data as supplements, and the likelihood of deteriorating creditworthiness over the foreseeable future.

For dealers, this means a large percentage of the customers that walk on their lot will be unable to secure financing for a new or used vehicle.  These dealers will be forced to walk many of these customers that just a year ago would have been a deal, or if they can get the customer approved, pay much higher discount fees to hang the deal.

One solution to this challenge for well positioned dealers is to rollout their own Lease-Here, Pay-Here platform.  By implementing their own program, dealers can keep these customers, put them over the curb in a reliable vehicle, and enjoy additional profitability from retaining the financing on these customers.  The reduction in competition in the subprime space means LHPH dealers now have access to more customers, and customers of higher quality, who are still unable to get financing from a traditional source.  In addition, there are a number of tax benefits associated with the depreciation accrued from their lease portfolio that can help offset the income of their retail operation.

To learn more about all the benefits of Lease-Here, Pay-Here, check out our blog or download our free e-book here:

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Converting from BHPH to LHPH

Kevin Londerholm  |  October 13, 2020

Thinking about switching from BHPH to LHPH?

Most are familiar with the Buy Here Pay Here (BHPH) business model where a dealership sells a vehicle to a consumer and provides the financing on a traditional retail installment sales contract (RISC) for a specific term and APR.  The dealer then services the installment loan through its life.

LHPH is similar to BHPH, however, the key difference with LHPH is that the financial instrument offered by the dealership is a used car lease rather than an installment loan.

Changing the approach from SELLING vehicles to LEASING vehicles may seem daunting at first, however, there are some key similarities between the two business models that make the conversion simple for the dealership staff & operations.

Watch below as Tim Lawrence, COO touches on many of these similarities.  The conversion from BHPH to LHPH is easier than you think!


NIADA Convention 2020 – LHPH Capital

Trevor Watson  |  October 8, 2020

LHPH Capital was an exhibitor at the 2020 NIADA/NABD Virtual Convention over the last few weeks.  In case you weren’t able to swing by our Virtual Booth at the Convention, check out the On-Demand video below that highlights the Top 5 Advantages of Lease-Here Pay-Here in Today’s Environment, narrated by our VP of Business Development, Trevor Watson:

Founded in 2010, LHPH Capital is a boutique lending firm specializing in lines of credit between $500,000 to $15MM for dealers operating or launching a Lease-Here, Pay-Here (LHPH) program. Our flexible funding program is designed to help our dealer partners achieve their long term LHPH goals.

Reach out today if you are looking for LHPH funding: TWatson@lhph.com


Black Book Projects Lower Supply and Higher Valuations on Used Cars for Next Four Years

Trevor Watson | October 1, 2020

This week, Black Book released their projections for used car supply and the impact on used car valuations over the next four years and their forecast looks like more challenges ahead from a consumer affordability perspective.

According to Black Book, “…with the reduction in retail and fleet sales over the next several years, we project a substantial decrease of available used inventory in the years to come.  The graph above illustrates the numbers of returned vehicles up to 8-years-old.  This lower level of used inventory will be beneficial to used car prices as supply will be limited, helping to bolster valuations.”  Read the entire article here: https://www.blackbook.com/covid-19-market-insights-9-29-20/

While this supply constraint will be “beneficial to used car prices,” that translates into higher priced vehicles for consumers resulting in higher monthly payments.  In today’s environment, higher monthly payments, particularly for subprime customers will inevitably translate into higher delinquencies and charge offs for BHPH dealers.  Many BHPH dealers will attempt to mitigate the price increases by extending the term of their retail installment sales contracts (RISC) to keep the monthly payment in an affordable range.  However, extending the average term on your BHPH notes actually injects additional risk and results in higher losses over time.

The solution to the affordability challenge with ever increasing used car prices is to utilize a lease instead of a retail installment sales contract.  Thanks to the residual in the lease, a Lease-Here, Pay-Here dealer can offer a smaller payment on a higher priced vehicle than a BHPH dealer can on a RISC.  In the graphic below, you can see the difference between a lease contract and a BHPH contract on a $12,000 deal.  Both deals are at 36 month terms and the same interest rate, however, the lease payment to the consumer is nearly $100 less per month.

This is another reason why, for dealers who are looking 2-3 years down the road, LHPH is the right model to pursue.

Learn more about the benefits of Lease-Here, Pay-Here by downloading our free e-book here:

 

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LHPH vs BHPH with George Klinke

Kevin Londerholm  |  September 30, 2020

What is the difference between Lease-Here Pay-Here and Buy-Here Pay-Here?

Watch below as George Klinke, our EVP Business Development, clearly explains the different models for independent auto dealers to either SELL or LEASE their vehicles.

BHPH = Retail Installment Sales Contract, ownership of the vehicle is passed to the consumer

LHPH = Lease Agreement, the Dealer retains ownership of the vehicle while the customer makes a certain number of payments to use the vehicle

As George explains, the LHPH customer is given the option to either buy the vehicle at the end of their lease OR turn the vehicle back into the dealer and lease a different vehicle.  This flexibility in the LHPH Product is one of the many benefits both the dealer and the customer will get to experience with the Lease-Here Pay-Here model.

Contact us today if you would like to learn more about the LHPH Model!  twatson@lhph.com or 619-222-9990


LHPH: Bonus Depreciation

Eyo Toe & Kevin Londerholm  |  September 22, 2020

In the used car leasing model, the LHPH dealer becomes the lessor with ownership of the assets they lease to the consumer and retain in their portfolio.  This opens new opportunities for the dealership from a tax perspective.  The ability to depreciate the assets in your LHPH portfolio over time and report those losses on your Federal Income Tax in the form of a Net Operating Loss (NOL) is another significant advantage of LHPH.  These NOL’s can allow a LHPH dealer to reduce their annual income tax liability significantly.  While this has always been a compelling reason to migrate to LHPH, the new tax law in 2018 served to compound the benefits of leasing.

Whether you decide to use the bonus depreciation or follow straight-line depreciation standards, either model provides strong advantages over a BHPH portfolio. The 2018 Tax Cut and Jobs Act provided LHPH dealers with the ability to utilize 100% bonus depreciation of used vehicle assets in the first year for leases originated between now and 2023. After that time, the 100% bonus depreciation will decrease by 20% per year. This new law provides another tax savings opportunity for the near future. Alternatively, lessors can follow straight-line depreciation and depreciate the entire value of the asset the first year the vehicle is leased. All up-front profit is deferred, which results in little or no tax liability for the remaining years of the lease

Either way, there are strong tax advantages to a LHPH program for at least the next four years.  It is important to work with your CPA to forecast the impact of bonus and standard depreciation on your current and future tax liability as you assess the right LHPH structure for your business.


BHPH to LHPH: Make the Switch!

Eyo Toe & Kevin Londerholm  |  September 14, 2020

Watch below as Terry Bowdler, Founder & CEO of LHPH Capital, explains the Sales Tax Advantage that LHPH has over the BHPH model.  With traditional Buy Here Pay Here lending on retail installment sales contracts (RISC), state sales tax is paid at the time of the transaction on the sales price of the vehicle. This means the dealer uses the entire down payment for sales tax and is immediately cash-negative at the inception of the deal.

For LHPH deals in “pay-as-you-go” states, the sales tax is calculated only on the actual monies collected by the dealer (i.e. down payment, first payment). Sales tax is then remitted to the state on each lessee payment received for the remainder of the lease. With this structure, the dealer can pay sales tax over time, rather than all up front. This helps dealers start loans on a cash positive basis, requiring less capital to growth the business as well as better unit economics throughout the life of the lease.


LHPH and BHPH Take Market Share in Subprime Market

Trevor Watson | September 8, 2020

Is your LHPH program prepared to capitalize on today’s market conditions?

According to Experian’s State of the Auto Finance Market for Q2, 2020, subprime loan originations fell to record lows as lenders mitigate risk in their portfolios by tightening credit standards in higher risk buckets. This leaves many consumers without traditional financing sources.

It also opens an opportunity for LHPH dealers to drift up the credit spectrum to capture more customers with higher quality than they have over the last decade. You can see the trend is just starting with BHPH gaining 90bps in market share over Q2 2019.

Contact us today to learn more about Lease-Here, Pay-Here and the LHPH Capital funding program.


2020 NIADA | NABD Virtual Convention

Trevor Watson | August 25, 2020

Come join us for the first virtual NIADA convention and expo!  We will be exhibiting during the event so bring all of your LHPH questions and let’s discuss how Lease-Here, Pay-Here is well positioned to help your dealership navigate the challenges of the COVID-19 recessionary environment.


Consumer Leasing During COVID

Kevin Londerholm  |  August 18, 2020

The Consumer Leasing Act (CLA) was passed in 1976 to assure that accurate disclosure of lease terms is provided to consumers before entering into a contract.  With this information, consumers can compare one lease with another, as well as compare the cost of leasing with the cost of buying on credit or the opportunity cost of paying cash.  Additionally, the CLA puts limits on balloon payments due at the end of a lease, and regulates advertising.

For consumers searching for their own transportation solution, leasing is an alternative to buying either with cash or on credit.  A lease is a contract between a lessor and a lessee for the use of property subject to stated terms for a specified period and at a specified payment.  Due to the residual value built into the lease, the consumer is often able to lease a newer, nicer car when compared to traditional vehicle financing.

During these times of economic uncertainty due to the COVID pandemic, our LHPH Dealers offer flexible used car leasing as an alternative to traditional vehicle financing.  Watch the video below of Tom Buiteweg, Attorney at Hudson Cook, LLP, who discusses the basics of Regulation M, governing consumer leasing under the Consumer Leasing Act.

Understanding the leasing basics is the first step in developing your own Lease Here Pay Here Program.  Contact us if you would like to discuss consumer leasing!


Collections: Lessons from the Last Six Months

Trevor Watson | August 4, 2020

Collections and portfolio servicing have been a rollercoaster ride since the onset of the COVID-19 pandemic in March of this year.  The initial lockdowns, furloughs and layoffs resulted in widespread implementation of deferment programs and moratoriums on repossessions.  The emergency stimulus from the government threw lifelines to millions of consumers and staved off the expected surge in delinquency and defaults.  Only to be followed by additional pullbacks after an unsuccessful attempt at reopening.  Now the moratoriums are expiring, the enhanced unemployment has lapsed and is likely to come back in a reduced capacity, while the economy struggles to find its footing in a patchwork of federal, state and local responses.

Amidst all of this, LHPH dealers are trying to manage their portfolios in a responsible fashion while understanding and working through the challenges their customers have been faced with.  Bill Elizondo, COO at AFS Dealers, has compiled a list of best practices for LHPH and BHPH collections learned through the first six months of navigating these challenges.

You can find his recommendations in the most recent NVLA LeaseWire:

https://www.nvla.org/page/elizondo_collections_leasewire#


Lease-Here, Pay-Here: DMS

Kevin Londerholm  |  July 29, 2020

When setting up your Lease-Here, Pay-Here program at your dealership, one of the most important decisions you can make is selecting the right Dealership Management Software (DMS).  This platform will be responsible for tracking leads, driving sales, collecting accounts, generating your financial statements, and much more.

Dealer Socket https://www.dealersocket.com/ recently published an article detailing the 10 steps to take as an auto dealer when selecting your DMS:

  1. Know Where You Stand: Audit your current DMS bill and identify any costs that aren’t necessary
  2. Assess the Market: Application Service Provider vs. Software as a Service
  3. Create Your List Needs: What do your employees like about your current system?
  4. Create Your Vendor Prospect List: Talk to fellow dealers through 20 Groups
  5. Demo Your Prospects: All of your key managers should participate
  6. Be Real About Pricing Costs: Ensure Pricing covers features and functionality
  7. Select Your Vendor: What do other dealers say about the DMS
  8. Map Your Installation: Spend time prior to the installation preparing for the conversion
  9. Plan Your Training: In-Person, Online, and Video Training
  10. Evaluate and Tweak Your New System: Keep a running log of questions

 

Reach out to us at LHPH Capital if you would like to discuss the DMS options in the market that provide a Lease-Here, Pay-Here module!


Agility, Technology, and Resilience in LHPH

Trevor Watson | July 22, 2020

A recent article on Auto Finance News, “Surviving Economic hairpin turns”, written by Shaimaa Elk, provides a succinct roadmap for subprime lenders navigating the unique circumstances brought on by the pandemic.

https://www.autofinancenews.net/allposts/operations/risk-management/surviving-economic-hairpin-turns-technology-insider/

Lease-Here, Pay-Here dealerships are actually small community-based subprime lenders, not just car dealers.  They provide and service portfolios of affordable leases on reliable transportation to consumers who cannot qualify for traditional bank financing.  As such, LHPH dealers can find value in Shaimaa’s recommendations for subprime lenders.

While some of these recommendations may appear geared for larger financial institutions, many of these apply directly to LHPH dealer-lenders or can be modified slightly to be applicable.  One example is integrating better payment technology to make the transaction as simple and easy as possible for your lessees who may not maintain a traditional checking account.

Other ideas could include joining ComplyNet through NIADA to ensure regulatory compliance with all the changes we are likely to encounter at the local, state and federal levels throughout this recovery.  In addition, preparing your collectors for remote work is a wise precaution to address now to keep your payments coming in, in the event you need to vacate the dealership for a period.

The list of ideas to build agility and resilience in your LHPH operation is long, but the general concepts laid out by Shaimaa are a good guide to get you thinking down the right path.


Reg M: Consumer Leasing

Kevin Londerholm  |  July 16, 2020

Before you launch your LHPH program, it is imperative that you become familiar with Regulation M: Consumer Leasing, it is to LHPH what Reg Z is to BHPH.  Here is a link to the regulation and commentary on compliance.

www.dealerdeskbook.com/resources/regmandcommentary/

In addition to Reg M, every state will have its own regulations revolving around the lease product.  You should always engage your own legal counsel to ensure you build and maintain your operation in compliance with Reg M and your state and local laws.

Watch below as Tom Buiteweg, Partner at Hudson Cook, explains Reg M and Consumer Leasing at our LHPH Summit in 2019:


Lease-Here, Pay-Here – Bankruptcy Remote

Trevor Watson | July 9, 2020

As the pandemic continues to impact people and the economy across the United States, it is reasonable to expect an uptick in consumer bankruptcy filings in the near future.  According to an article published by CNBC on July 8, 2020, 32% of households missed their housing payment for the month of July.  Unemployment claims continue to climb and the extra $600 unemployment payouts are set to expire at the end of the month.  Even if these are extended, they will not last forever and the continued increase in cases and rollbacks of re-openings likely indicates further distress in the future for the subprime consumer base BHPH and LHPH dealers service.

One of the many benefits of the product offered by Lease-Here, Pay-Here dealers is the bankruptcy remote nature of the lease.  Unlike the retail installment sales contract in Buy-Here, Pay-Here, a lease cannot be included in a BK.  The lessee must decide to either “accept” the lease and continue making the agreed upon payments, or “reject” the lease and return the vehicle to the lessor (the dealership).  There are no cramdowns available for Chapter 13’s or other headaches for the creditor typically associated with the bankruptcy process.

In today’s environment, migrating from the traditional BHPH model to the LHPH model continues to make even more sense.

Learn more about all the benefits of the LHPH model by downloading our FREE E-Book below.

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LHPH: Dealer Management Software

Kevin Londerholm  |  July 1, 2020

Identifying a LHPH compatible Dealer Management System (DMS) that can accurately print and calculate a lease is an essential step to starting your program.  There are a handful of DMS systems that currently provide a lease here pay here module.

AFS Dealers – www.afsdealers.com

DeskManager – www.automanager.com/auto-dealer-software/

Deal Pack – www.dealpack.com

Auto Master System – www.auto-master.com

Tune into this recent Auto Remarketing Podcast where dealers discuss the importance of selecting the proper Dealership Management Software.  The DMS will help run the entire operation efficiently, so choose wisely!

Access the podcast here: https://podcasts.apple.com/us/podcast/auto-remarketing-podcast/id1231126407?i=1000479757428


New and Used Inventory Crunch – How LHPH Helps

Trevor Watson | June 23, 2020

Every dealer is feeling the impact of the very unique market conditions brought on by the pandemic.  The statewide closures, injection of stimulus funds, moratoriums on repossessions and lease return extensions, combined with pent-up demand have thrown the used car market into whiplash.

Here is an excellent article that dives into the details of the current used (and new) car supply squeeze:

https://dealercenter.cargurus.com/blog/new-and-used-vehicle-inventory-drying-up-due-to-covid-19/

How LHPH Helps Dealers During Supply Challenges

This unforeseen situation has shined a light on an additional benefit of having your own Lease-Here, Pay-Here program:  Recycling of Inventory.  We often promote recycling of maturing leases from your portfolio as a significant advantage of LHPH from a profitability perspective, and it is.  However, the additional benefit of having a mature portfolio of leases with numerous lease returns coming back to each month is:  free inventory.

For dealers who have developed their LHPH program over the last few years, they have 10, 20, 30 cars coming back onto their lots each month, without having to buy those vehicles in the market.  These cars are debt-free, no flooring or lines of credit debt and fees weighing their operations down.  These dealers are not paying $2,000 over book to win the vehicle from their competitors on the block.  Many are still buying additional vehicles for the inventory right now, but they can be selective, thanks to their guaranteed flow of lease returns each month.

Of course, growing and maintaining a lease portfolio to the maturity point takes time, discipline and dedication.  Dealers who may read this and think, “that doesn’t do me any good at this moment,” should remember, we have now seen two significant supply crunches in the last 12 years alone.  With little doubt, there will be more of these events at some point in the future.  Preparing now and building your lease portfolio will allow you to ride out the natural fluctuations of the future used car market, whether those are large or small.


Auto Remarketing Podcast

Kevin Londerholm  |  June 23, 2020

The Auto Remarketing Podcast recently interviewed Ken Shilson, founder of Subprime Analytics.  He discusses his annual BHPH benchmarks that can help dealers gauge how their business lines up with their peers.  Ken also offers the key pieces of advice for dealers managing the COVID pandemic:

  1. Integrate technology into your business.  Some tools include web-based DMS providers and payment portals.
  2. Manage your cash flow with more detail.  Keep only essential expenditures.
  3. Review your business model and make sure it is cash efficient.  Is your investment generating enough return for the risk?
  4. Create metrics for determining what your return is on a loss-adjusted basis and create future forecasted cash flow statements.
  5. Determine your strategic business plan from an operational perspective AND a financial perspective.
  6. Be proactive to identify changes in the market.

Here at LHPH Capital, we are helping our LHPH dealers navigate through these tough times caused by the global pandemic.  Having already identified the opportunity in the market for leasing used car vehicles has made it much easier to weather this storm.  If you are interested in learning more about how LHPH Capital can help you implement the 6 tips above & more, please reach out!

Listen to this podcast from Auto Remarketing here: https://soundcloud.com/autoremarketing/ken-shilson-of-subprime-analytics


Lease Here Pay Here Success

Kevin Londerholm  |  June 18, 2020

The first question every dealer researching LHPH asks is, “can I make more money with LHPH?”  The answer to that question is yes.  There are numerous new profit opportunities that come with the implementation of a LHPH program.

With a Lease-Here Pay-Here deal, the dealer leases the vehicle to the first consumer and then services that lease through its term.  The LHPH dealer makes the same profit as a BHPH dealer from the original mark up on the car and earns a rent factor on each payment equivalent to a similar interest rate on the BHPH note.

However, when the lease matures, the dealer still retains the vehicle (the asset) and can re-lease the same vehicle again, or sell it, without purchasing new inventory.  When the vehicle is leased again, the dealer makes a profit on the markup a second time, as well as the rent factor on each payment (interest) from the new lease, creating a second stream of payments generated from the same asset.

Listen below to the high level of profitability that an Independent Auto Dealer can achieve through operating a LHPH Program:


Top 10 Benefits of Lease-Here, Pay-Here

Trevor Watson | June 17, 2020

Why would a dealer choose a Lease-Here, Pay-Here program over the traditional Buy-Here, Pay-Here model? Here are the top 10 benefits of LHPH.

To learn more about each of these, download our free LHPH E-Book here:

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Lease Accounting

Kevin Londerholm  |  June 11, 2020

One element that every dealer entering the LHPH business should be aware of is accounting.  Lease accounting is different than what most dealers are accustomed to from their BHPH or retail experience.  However, proper lease accounting will allow the dealer to maximize the tax benefits afforded to them from the used car lease product.

Using a LHPH compatible software (DMS) will help with the proper reporting, however, retaining an accounting firm with consumer leasing expertise is highly advised.  They can assist you with transitioning your current books and advise you on the best way to optimize your standard and bonus depreciation for tax purposes.  One such firm with extensive consumer leasing experience to consider is Katz, Sapper & Miller.  See Mike North explain the classification of a lease in the video from our LHPH Summit below:


Subscription Services During the COVID Crisis

Kevin Londerholm  |  June 4, 2020

During these times of economic uncertainty due to the global pandemic, Lease-Here Pay-Here or the subscription as a service model are excellent alternatives to the traditional vehicle ownership model.

Many consumers would be very hesitant to sign up for a long-term loan as unemployment numbers have dramatically increased across the US over the past few months.  A simple alternative to meet the transportation needs of consumers is a short-term lease.

Tune into the Webinar hosted by Auto Finance News where Brian Allan, senior vice president of strategic partnerships at HyreCar, explains how the LHPH/subscription service model is a solution for consumer affordability concerns.

You can access the Webinar here: https://www.autofinancenews.net/utility/daily-post-6/subscription-service-advantages-amid-covid-19-webinar/


Used Car Prices Continue Up – More Subprime Affordability Challenges Ahead?

Trevor Watson  |  June 2, 2020

https://www.autoremarketing.com/subprime/average-new-car-aprs-drop-levels-not-seen-2013-used-stays-nearly-steady

This new article released by Subprime Auto Finance News (link above) touched on trends for the month of May 2020, as we watch states slowly loosen their lockdown orders.  While the title of the article refers to the average APR’s of new and used car deals, what stood out even more dramatically were used car prices.

Used car prices continued their climb that begun after the Great Recession and reached a new average high at $22,721 in the month of May.  Of course, prices are not currently stable and had plummeted in the previous months of March and April.  In addition, there are numerous threats on the horizon for inventory levels, from looming rental car bankruptcies to delayed lease returns and deferred repossessions that could flood the used car market with inventory before long.  However, new car manufacturing has been nearly cut off for some time now and new rental car fleet orders are likely gone for the foreseeable future.  Depending on consumer demand, these factors could keep used car supply strained and prices up for the next few years.

Subprime customer affordability in the BHPH industry has been a challenge for almost a decade, as indicated by the continuous extension of term on in-house portfolios in the annual BHPH reports.  As used car prices have marched steadily upward, the only way dealers could offer a monthly payment within reason to a subprime customer has been to stretch term.  If prices continue to rise, or even merely stay at their current levels for the foreseeable future, subprime customers already experiencing financial challenges from the pandemic will be hard pressed to afford a traditional BHPH loan.

Lease-Here, Pay-Here is the solution to subprime customer affordability in today’s uncertain environment.  Thanks to the lease structure and the incorporation of the residual value, a dealer can offer a customer a payment significantly lower than their BHPH competitors on the same vehicle.  This sets up their customers for success with a payment they can actually afford, without extending term.  This results in better performance, less delinquency, less collection costs, lower charge off and higher profitability for the LHPH dealer.

Learn more about all the benefits a Lease-Here, Pay-Here program can offer by downloading our free e-book here:

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LHPH: Insurance & Liability

Kevin Londerholm  |  May 30, 2020

Mike North, accountant at Katz, Sapper & Miller, stated at the LHPH Summit in 2019 that after discussing the sales tax advantage, dealers want to discuss insurance requirements and liability regarding a Lease-Here Pay-Here program.

Virtually all States require the buyer/lessee to have full coverage, or at least State Minimum Financial Responsibility Limits (liability), to finance or lease a vehicle.  These state minimum coverages can vary substantially by state.  In addition, the lease agreement the lessee signs may require greater coverage than the state minimum car insurance requirements. It is important to be aware of both, so the lessee and lessor are compliant with state regulations and with the lease agreement.

In 2005, President George W. Bush signed into law the Transportation Equity Act of 2005, a comprehensive transportation bill which included the Graves Amendment.  This amendment relieved rental car companies and lessors of vicarious liability which before, meant the renters and lessors could be held liable for the negligent acts of a driver who was using the vehicle.  The Graves Amendment declares that leasing companies shall not be held vicariously liable under any State law for damages sustained in a motor vehicle accident.

There are a handful of states that may require additional due diligence on the part of the lessor.  Always consult your legal counsel to identify any state-specific insurance regulations that may apply.  Reach out to LHPH if you have any Lease-Here Pay-Here questions!


LHPH: Dealer Employee Buy-In

Kevin Londerholm  |  May 26, 2020

Used car leasing offers an answer to the challenge of affordability and performance.  Thanks to the incorporation of the residual value in the lease, a LHPH dealer can offer the same monthly payment on the lease of a vehicle with a $11,000 agreed upon value  as a BHPH dealer can offer on a vehicle with an $8,000 sales price.  Both deals provide the consumer the same monthly payment, down payment, and the same 36-month term.  However, the LHPH dealer can offer a newer vehicle, with lower miles, likely to last the entire term, and result in better portfolio performance over time.

Watch as Nick, our experienced LHPH Dealer, explains that after educating his staff on the benefits of the LHPH program for their customers, his employees truly bought into the in-house lease product.


Lease Here Pay Here Programs

Kevin Londerholm  |  May 18, 2020

Shifting to or launching a new LHPH program allows dealers to overcome the affordability gap for subprime customers, creates new profit centers, offers a superior competitive advantage, and allows the dealer principal to defer tax liability for years to come, among other benefits.  All thanks to the unique aspects of the lease.

See below as Stan, one of our top LHPH Dealers, describes how he decided that he wanted to be a LHPH Dealer and largely leave retail sales behind.

 


Federal Income Tax Advantage of Lease-Here, Pay-Here

Trevor Watson | May 14, 2020

As opposed to a Buy-Here, Pay-Here (BHPH) model, with a Lease-Here, Pay-Here (LHPH) program, the dealer becomes the lessor with ownership of the assets (the vehicles) they lease to the consumer and retain in their portfolio. This opens new opportunities for the dealership from a tax perspective.

The ability to depreciate the assets in your LHPH portfolio over time and report those losses on your Federal Income Tax in the form of a Net Operating Loss (NOL) is another significant advantage of LHPH. These NOL’s can allow a LHPH dealer to reduce their annual income tax liability, sometimes to zero, depending on the size of their portfolio. While this has always been a compelling reason to migrate to LHPH, the new tax law in 2018 served to compound this benefit.

The 2018 Tax Cut and Jobs Act provided LHPH dealers with the ability to utilize 100% Bonus Depreciation of used vehicle assets in the first year for leases originated between now and 2023. After that time, the 100% bonus depreciation will decrease by 20% per year. This new law dramatically increased the tax savings opportunity for LHPH for the next decade.

As an example of just how impactful this can be; imagine you start leasing 15 cars a month for the next twelve months and the average Actual Cash Value (ACV) of the vehicles you lease is $7,000.  If you chose to take the Bonus Depreciation on your taxes for that year, you would have the option to depreciate all 180 vehicles in your portfolio the full ACV value of $7,000 each.  This results in a total deduction of $1,260,000 against whatever profits you made from your dealership that year.  That represents an incredible opportunity for the dealer principal to defer tax liability, even in the first year of operation.

Alternatively, lessors can still follow the more traditional straight-line depreciation and depreciate the value of the vehicles over the life of the lease and spread that impact over time, if that is what your CPA recommends.  You may not need $1.2MM in depreciation year one when $250,000, or 20% of the $1.2MM, fits your tax needs better and you can save the rest of the depreciation for future years.  Of course, if you continue to build your portfolio, you will have even more depreciation to work with in the following years.  Often, the depreciation piece even makes dealers who do not reside in “pay-as-you-go” states opt for LHPH over BHPH once they pencil it out.

Either way, there are strong advantages to a LHPH program for tax purposes. It is important to work with your CPA to forecast the impact of bonus and standard depreciation on your current and future tax liability as you assess the right LHPH structure for your business.

Learn more about all of the benefits of LHPH by downloading our E-Book here!

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The LHPH Advantage

Kevin Londerholm  |  May 11, 2020

Making the switch from selling retail vehicles to creating an in-house leasing program is a big decision for an independent auto dealer.  After careful planning with their teams and discussions with their lender, each of our LHPH dealers adjusted their business models to offer their own lease-here pay-here program.  As Nick at Markosian Auto explains, the switch from selling retail to creating his own LHPH portfolio was the difference between achieving short-term profit vs. creating long-term wealth.

If you are a dealer interested in creating your own in-house used car leasing program, reach out to us ( TWatson@LHPH.com (619) 222-9990 ext. 1010 ).  LHPH Capital can help offer suggestions on vendors, accounting firms, deal structure, and more!


LHPH Sales Tax Advantage

Kevin Londerholm  |  May 7, 2020

Are you a BHPH Dealer that is tired of paying state sales tax at the time of the transaction on the sales price of the vehicle?  Are you tired of using the entire down payment for sales tax?  Are you tired of paying state sales tax up-front and immediately being cash-negative at the start of the deal?

It is time you made the switch to LHPH!

For lease-here pay-here dealers in “pay-as-you-go” states, the sales tax is calculated only on the actual monies collected by the dealer (i.e. down payment, first payment).  Sales tax is then remitted to the state on each lessee payment received for the remainder of the lease.  With this structure, LHPH dealers can be cash-positive from Day 1.

Watch as Mike North, Partner at the Accounting Firm Katz, Sapper & Miller explains that this sales tax pain that BHPH dealers feel is the the #1 reason they make the switch to LHPH.


The Future of Subprime Auto Finance

Trevor Watson | May 4, 2020

As states and localities begin planning for reopening business and getting back to the “new normal,” everyone is wondering what exactly that will look like for auto finance.  This article from AutoRemarketing.com offers some insight.

https://www.autoremarketing.com/subprime/editor-what-will-subprime-auto-finance-resemble-after-crisis

For dealers currently in a position to look three, six, or twelve months down the road, there are a few takeaways.

  • Subprime customers will still need transportation.
  • Lenders are tightening credit standards and potentially exiting the space which will leave many of your customers without an option for traditional indirect financing.
  • There will be fewer opportunities to hang your subprime deals and you will walk more of your customers for the foreseeable future.
  • Now is the time to ensure your in-house program is dialed in and well capitalized to meet the needs of all your customers over the next twenty-four months.

LHPH Capital continues to fund our existing dealers and take applications for new dealers interested in capitalizing their existing LHPH program, or transitioning to LHPH, in anticipation of the future market conditions.

Contact us to discuss how you can benefit from developing and capitalizing a Lease-Here, Pay-Here program.

TWatson@LHPH.com

(619) 222-9990 ext. 1010


From Retail to LHPH

Kevin Londerholm | April 30, 2020

At our 2019 LHPH Summit, many of our most experienced LHPH dealers had the opportunity to discuss their decision to create their own in-house leasing program.  Watch as Nick at Markosian Auto describes how he made the decision to switch from primarily running a retail program to focusing on his leasing program in 2010 – after the last recession.  If you are a dealer looking to start your own in-house leasing program, don’t hesitate to reach out to Trevor Watson, VP of Business Development TWatson@LHPH.com.  We are happy to help guide you through the same process that our LHPH dealers have made while creating their own Lease-Here Pay-Here Program.


Why Lease? Why Now? Cash Flow.

Trevor Watson | April 27, 2020

Sales Tax and Cash Flow Advantage

With traditional Buy Here Pay Here lending on retail installment sales contracts (RISC), state sales tax is paid at the time of the transaction on the sales price of the vehicle. Typically, this means the dealer uses the entire down payment, and often some of their own capital, to pay sales tax.  The result is the dealer is immediately cash-negative at the inception of the deal.

For LHPH deals in one of the 31 “pay-as-you-go” states across the nation, the sales tax is calculated only on the actual monies collected by the dealer (i.e. down payment, first payment). Sales tax is then remitted to the state on each lessee payment received for the remainder of the lease. With this structure, the dealer can pay sales tax over time and with the money paid by the lessee, rather than all up front. This helps dealers start leases on a cash positive basis, requiring less capital to grow the business as well as better unit economics throughout the life of the lease.

A simple example would be a car you sell for $12,000 and get a $500 down payment on from the customer.  With a BHPH deal in a state with a 7% sales tax, you will owe the state $840 in sales tax when you roll that car.  The entire $500 of the customer’s down payment, plus $340 of your own money just went out for tax, and it will take months of successful customer payments before your cash flow recuperates.

If you had leased this vehicle in the same state with “pay-as-you-go” sales tax, you would have paid 7% of the customer’s down payment, or $35 ($500 x 7%), in sales tax to the state when you put the vehicle over the curb.  The other $465 of that down payment is yours.  You are already in a positive cash flow position from the outset.  Now the customer will make a $410 per month payment to you, of which you will remit $28.70 ($410 x 7%) to the state in sales tax each month.  Multiply this impact over the 10, 20, 50 deals you roll per month and leasing quickly makes an incredible impact to your cash flow.

If you would like to see a list of the 31 “pay-as-you-go” states or learn more about the other 9 financial and operational advantages of LHPH, download our LHPH E-Book here.

 

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Lease-Here Pay-Here: Mike North, CPA

Kevin Londerholm  |  April 21, 2020

Mike North, CPA & Partner at the accounting firm Katz, Sapper & Milller, serves in the firm’s TransactionBuy Here – Pay Here and Dealership Services Groups and also has considerable experience in the equipment leasing industry.  Mike has extensive experience advising clients in accounting, financial reporting, auditing, compliance, and internal control matters.

Listen as Mike presents one of the main reasons why an independent auto dealer chooses to transition from Buy-Here Pay-Here to Lease-Here Pay-Here: Sales Tax Advantage.

  • BHPH: On a retail installment sales contract, the sales tax is paid at the time of the transaction on the sales price of the vehicle. This means the dealer will use the entire down payment for sales tax and is immediately cash-negative at the inception of the deal.
  • LHPH: In “pay-as-you-go” states, the sales tax is calculated on the actual monies collected by the dealer (i.e. down payment, first payment). The dealer can pay sales tax over time, rather than all up-front.  The dealer can start each loan on a cash-positive basis.

 

 


Dealer Resources for COVID-19 Pandemic

Trevor Watson | April 6, 2020

The National Independent Automotive Dealer Association (NIADA) has compiled an excellent resource page for dealerships trying to navigate the COVID-19 pandemic.  Visit their site for more information regarding:

  • CARES Act
  • Payment Protection Program application
  • SBA Economic Injury loans
  • State specific information
  • Vendor contact information

Access it here: https://info.niada.com/en-us/covid19


LHPH – I Have a CFO and So Can You

Kevin Londerholm  |  March 18, 2020

At our LHPH Summit hosted late last year, LHPH Capital’s owner and founder, Terry Bowdler, sat on a panel discussing the importance of having a Chief Financial Officer (CFO) at your dealership.  Although many independent auto dealers may not have the volume to warrant a full-time CFO, a fractional CFO is the perfect place to begin getting more strategic with your operations.  A CFO will be able to help you generate accurate financial statements and give you greater insight into your dealership cash flow. As the economy heads into some potentially turbulent times, the help of a fractional CFO could help steer your dealership towards a bright future.  Watch the video below & reach out to us if you are interested in seeking the help of a fractional CFO.

 


How to set your Residual Values for Lease-Here, Pay-Here

Trevor Watson | March 10, 2020

One element of leasing that we receive a lot of questions about is, “how do I set an accurate residual value?”  Most dealers are familiar with new car leasing and the science behind the setting of residuals on new cars.  A lender in new car leasing will live or die by how accurately they can predict a three-year residual on the vehicles they lease today.  Many people in the auto industry have heard the horror stories from the previous residual value crises that knocked many big-name players out of the industry, once upon a time.  This leads to a degree of anxiety about attempting to set their own residuals on their LHPH program.

Great news!  Setting residuals on Lease-Here, Pay-Here is not nearly as challenging or frightening as it is with new car leasing.  Residual risk is not a significant risk for LHPH dealers if they follow some basic guidelines and focus on the purpose of LHPH; offering reliable vehicles that can run multiple full-term leases.  Here are the three primary ways to set your residuals.

  1. Most LHPH dealers use a 20% residual of the Agreed Upon Value of the car (the sales price).  So if they bought a car for $7,000 and lease it to the customer at $10,000, they will set the residual at $2,000 (20% of the $10,000).  A key reason for the 20% level is maintaining compliance with Regulation M for consumer leasing.  While Reg M technically allows for residuals to be set down to 10%, keeping your residual up at 20% or greater will ensure you do not run into issues with disguised retail installment sales contracts. This level has also proved to be fairly accurate for most vehicles in the $5,000-$10,000 range.
  2. Other LHPH dealers will set their residual based on the term and the ACV of the vehicle.  If they are rolling higher value vehicles, maybe around a $12,000 ACV unit, and leasing it for $15,000 on a 36-month lease, they will probably be up toward a 30-35% residual.  If the term is shorter, they will raise the residual and if the term is longer, they will drop the residual.  However, we do not recommend extending your term over 36 months, it really isn’t necessary to keep the payment in the sweet spot of $400-$500/month thanks to the residual on the lease.
  3. The third method our dealers will employ is utilizing MMR to set their residuals. We have dealers who will check MMR on a deal by deal basis.  They will look up what a similar vehicle, 3 model years older with roughly 60k more miles on it, is going for at auction today and set their residual at that number.

 

While residual setting is important in LHPH (for customer affordability and term), it is key to remember the primary goal of your platform.  The goal with LHPH is to spin the same car for 2-3 full term leases before you liquidate the vehicle.  Therefore, the residual on the first one or two leases is not overly important, if you can put the vehicle back out a second or third time.

By the time you reach the last lease cycle, if you miss the residual by $500, or even $1,000, you have made a solid ROI on that vehicle over the course of its useful life.  As a dealer, you step up on an occasional trade in your retail business today and pay $500-$1,000 over ACV to get a customer into another car.  The same applies here, however, that single vehicle sale is not nearly as profitable as the long-term profitability of your lease fleet units.


Lease Here Pay Here – Average Deal

Kevin Londerholm  |  March 2, 2020

At our LHPH Summit in 2019, our VP of Business Development, Trevor Watson, asked our experienced LHPH Dealers what their average lease deal looks like.  The deal structure (term and agreed upon value) is generally based off of the purchase price of the inventory.  As our dealer panel explains, inventory for a Lease-Here Pay-Here Dealer can differ from a BHPH dealer’s inventory due to getting multiple turns on a single vehicle.  This results in vehicles with a higher Actual Cash Value (ACV) purchased from an auction mixed in the lot inventory with vehicles that have been returned to the dealership after a successful lease transaction with a slightly lower value:

  1. Higher ACV: New inventory that has been purchased from the auction may have a term of up to 36 months and may cost the dealer up to $9,000 initially.
  2. Lower ACV: A vehicle that has successfully run the term with an original lessee is returned back to the dealership, reconditioned, and re-leased to another customer.  The second or third lease on the same vehicle would most likely have a shorter term with a lower agreed upon value.

Whether the vehicle is new to the lot or it is recycled inventory, the goal for our LHPH dealers is to lease vehicles to their customers that will successfully run the length of the lease term.  Check out the video of our dealers explaining their deal structure below:

 


Lease Here Pay Here – Inventory Sourcing

Kevin Londerholm  |  February 12, 2020

When an independent auto dealer begins researching the benefits of creating a Lease-Here Pay-Here Program, one of the most intriguing benefits is the increased profitability from creating greater Return on Asset (ROA).  When a lease-here pay-here deal matures, the dealer can still retain the asset at the end of the customers lease contract.  This provides the dealer with the option to either re-lease the same vehicle again or sell the vehicle at auction.  Re-leasing the vehicle creates additional profitability as a second stream of payments is generated on the same asset with a new customer.

Therefore, successful LHPH Dealers approach the sourcing of their vehicle inventory with the intent to lease a vehicle to two or even three customers during the useful life of the asset.  This mindset of creating the greatest Return on Asset begins with the vehicle purchase for the dealer.  Check out how Nick Markosian (featured at the LHPH Summit 2019) approaches the sourcing of his LHPH inventory below:


Annual NVLA 2020 Conference

Trevor Watson | February 4, 2020

The National Vehicle Leasing Association hosts an annual conference each year with insightful speakers, informative sessions, and practical breakouts on the most important topics related to leasing in the current environment.  For the last few years, the NVLA has incorporated a track dedicated to Lease-Here, Pay-Here as the model has become increasingly more popular.

Come meet top LHPH dealers from across the country, build connections and share best practices for managing your LHPH platform.  The LHPH Capital team will also be in attendance to help LHPH dealers locate capital to build and grow their businesses.

Checkout the NVLA website for more information:  www.nvla.org

See you in Austin!


Lease-Here Pay-Here and Dealer Management Software

Trevor Watson | January 28, 2020

When it comes to LHPH, not all Dealer Management Software (DMS) is created equally.  There is no shortage of DMS systems that are capable of handling a Buy-Here Pay-Here operation, but only a handful that are compatible with Lease-Here Pay-Here.  The ability to properly calculate and print a lease, handle residuals, manage pay-as-you-go sales tax, and amortize the lease correctly are all important pieces of a successful DMS for LHPH.

Identifying and implementing a lease-friendly DMS system is the first step for any dealer looking to enter or transition to LHPH.

We have identified five DMS systems that our dealer customers have vetted and use currently to manage their Lease-Here Pay-Here businesses.  As more DMS providers add lease modules to their platforms that prove out, we will continue to update the list.  Download our free E-Book to learn which DMS systems have the ability to help you launch your LHPH program.

 

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LHPH Dealer – Nick Markosian

Kevin Londerholm  |  January 20, 2020

One of the most successful LHPH Dealers in the country, Nick Markosian, attended the LHPH Summit in late 2019.  He was featured in many panels relating to Best Practices, the Subscription Model, and more.  See as Nick introduces his dealership on a 2019 Performance Review Panel alongside other experienced dealers & industry experts.  Attending industry conferences like the LHPH Summit is an excellent way to get one-on-one feedback from the Lease-Here Pay-Here industry’s top performers.

Please reach out to LHPH if you have any questions or would like to schedule a dealership site visit with Nick Markosian!


Lease Here Pay Here Dealer Panel

Kevin Londerholm | January 14, 2020

Every year at the LHPH Summit, our Lease Here Pay Here Dealers reflect on the progress they made in achieving the goals they laid out for their dealerships.  Examples of some goals include revamping their underwriting procedures, opening a new location, increasing portfolio size, or decreasing net charge offs. The goals created by our LHPH Dealers are measurable and they use their weekly team meetings throughout the year to keep their staff focused on the right areas within the business.  Creating a platform at the LHPH Summit to openly discuss past success and/or shortcomings allows the dealers to hold themselves accountable and receive valuable advice from their experienced peers in the industry.  Tim Lawrence, LHPH COO, presented the Dealer Panel in the short video below.  Stay tuned as we highlight our LHPH Dealers and the progress they made in achieving their dealership goals!


How to Reduce Your Average Term with Lease-Here, Pay-Here

Trevor Watson | January 8, 2020

Anyone familiar with Auto lending, and particularly with subprime auto lending, knows that one of a lenders’ greatest risks is the term they put their loans out at.  The longer the average term, the higher their frequency and severity of loss will be.  It makes sense, the lender is providing financing to individuals with poor repayment history, and the longer the individual has the loan for, the more opportunities for life events and/or vehicle breakdowns to take place, resulting in default.  Severity of loss is also impacted by the term, since the principal balance of the simple interest loan reduces slowly toward the beginning of the loan and accelerates toward the end.  Meanwhile, the vehicle depreciates the entire time.  This means defaults in the first half of the loan typically result in larger losses than defaults in the last half of the loan.  Therefore, the longer your original term, the longer your exposure to the first half of the loan.

The challenge the Buy-Here, Pay-Here industry has encountered over the last decade is the price of vehicles has continued to rise steadily.  Numerous factors have played a part, the lack of new vehicle production during the Great Recession, Cash for Clunkers removing existing supply, regulation and market demand pushing new safety technology and MPG efficiency – driving new car costs higher, among other market factors.  The result is the traditional “perfect” BHPH car of $10,000 or less is not only harder to come by, it is now an older model year vehicle with higher miles than it was just 5 years ago.

In addition, the BHPH dealers’ customers have not seen their incomes grow at the same rate as the cost of used cars.  This has left BHPH dealers in a struggle to put customers with relatively thin incomes into ever more expensive cars or opt to purchase older vehicles with higher miles that come with additional mechanical issues and breakdown far more often.

The result from the steady price inflation (not unlike New car financing) has been dealers resorting to extending the terms of their Buy-Here, Pay-Here notes in an effort to keep monthly payments in an affordable range.  According to Subprime Analytics, the average term of a BHPH note has increased over 7 months in the last 8 years to an astounding 43 months in 2018 (44 months in 2017).  Attend any BHPH conference and the conversation is constantly around bringing terms back down.  Everyone seems to know extended term is injecting risk and losses into their portfolios, however, no one seems to know how to solve for the challenge.

Here is where Lease-Here, Pay-Here offers a solution.  By using a lease instead of the traditional Retail Installment Sales Contract (RISC), a dealer can introduce a residual value into the calculation.  In the following diagram, you will see a comparison of a LHPH deal on a $12,000 vehicle with a 20% residual versus a BHPH deal on a $12,000 vehicle with a traditional loan.  Both deals are at 36 months and both at a 24% interest rate (or IRIL – interest rate implicit in the lease) and you can see the corresponding monthly payment for the customer.  The lease offers a base payment nearly $100 less per month.

The BHPH deal would need to extend its term out to 50 months to get a payment in the neighborhood of what the lease can offer at 36 months.

This example is merely scratching the surface.  What if you have a particularly strong unit that may have a 25% or 30% residual?  You could either, offer the customer an even better payment or shrink your term to 30 or 24 months and their payment would remain the same.  Alternatively, the LHPH dealer could offer the customer a $15,000 vehicle on a 36-month lease and have a payment still less than what the BHPH dealer is offering on their $12,000 car.  That $15,000 car is likely a year or two newer and with lower mileage than the BHPH dealer’s vehicle.  On aggregate, this will likely translate in to fewer mechanical failures and better overall portfolio performance.  Not only does this present a competitive advantage for the LHPH dealer, it does so while reducing average term length in the portfolio.

There are solutions to the term challenges the BHPH industry is currently experiencing in the face of increasing used car costs.  The key is thinking outside the RISC box and understanding the flexibility a lease model can offer to reduce term and the associated risk.

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Driving LHPH Into the Future

Kevin Londerholm  |  January 2, 2020 

LHPH Capital hosted its annual LHPH Summit in San Diego at the Hard Rock Hotel on November 8 – 9th, 2019.  Watch as Tim Lawrence, Chief Operating Officer, introduced the purpose of the Summit: to create a platform for LHPH dealers to share best practices and become better operators.  LHPH industry experts were given the opportunity to share their knowledge & lessons learned as they navigated their journey to becoming some of the most successful LHPH Dealers in the nation.  Stay tuned in 2020 as we release highlights from the LHPH Summit which covered topics from importance of accounting, access to capital, sourcing inventory, cash flow, the subscription model, underwriting software, and much more!

 


Operating Lease Accounting Handbook for Lease-Here, Pay-Here

Trevor Watson | December 16, 2019

Many Lease-Here, Pay-Here dealerships started as Buy-Here, Pay-Here dealers, building a portfolio of retail installment sales contracts (RISC) that appear on their balance sheet as a large asset of receivables.  The accounting method for recognizing the individual loans and the monthly payments is very common and familiar to most dealer principals and their Controllers.

At some point, the dealer principal discovers the laundry list of benefits to Lease-Here, Pay-Here, and decides to make the transition.  There are a few small hurdles in the process; a migration to a LHPH compatible DMS, a new lease contract instead of the old RISC, some basic training for his or her staff to understand the Language of Leasing, and they are off and running.  (You can find all of this information in our free E-Book here.)

After the transition, there is one piece where we get a few questions from the dealers, simply because it is a little different than what the Dealer and their Controller are accustomed to:  Operating Lease Accounting.  Unlike the BHPH method of accounting where the loan goes on the books as a large receivable, with Operating Lease Accounting, the lease is recognized on their books as the ACV of the underlying vehicle and the payments are then recognized as revenue on a monthly basis.

The benefits of this method allow for the dealerships to enjoy the favorable tax treatment of the lease by booking depreciation and using the depreciation to offset their annual income.  For many dealers, this means a large percentage (or the entirety) of their annual tax liability will be deferred for years to come.

We recently developed an Operating Lease Accounting Handbook to help our dealers remain compliant with the GAAP rules surrounding Operating Lease Accounting and enjoy this substantial benefit of LHPH.  As always, you should consult with your own tax professional to ensure you conform to all local, state, and federal regulations.

If you would like to read our new handbook, give us a call at (619) 222-9990 x 1010 or email us at TWatson@LHPH.com to learn more.


LHPH Insights from Katz, Sapper & Miller

Trevor Watson | December 9, 2019

Here is a link to a recent article on the benefits of the Lease-Here, Pay-Here model from a top 100 accounting firm.  Take a couple minutes to read this blog post from Katz, Sapper & Miller.  This firm works with BHPH and LHPH dealers across the country, which gives them a unique and valuable perspective on the industry.

https://www.ksmcpa.com/blog/subprime-automotive-and-the-growing-lease-here-pay-here-model


Looking for more information on Lease-Here, Pay-Here and LHPH Capital?

Kevin Londerholm | December 4, 2019

Are you interested in finding more information, events, and articles about Lease-Here, Pay-Here and how it can benefit your dealership?  Visit our LinkedIn page, https://www.linkedin.com/company/lhph/ for more resources and any upcoming events happening in the LHPH world.


A BHPH Veteran Operator talks to AutoRemarketing about LHPH

Trevor Watson | December 2, 2019

Gene Daughtry has over 20 years of Buy-Here, Pay-Here experience.  Hear his thoughts on Lease-Here, Pay-Here and the opportunities LHPH can offer for both independent and franchise dealers.

https://www.autoremarketing.com/bhph/podcast-daughtry-tips-help-dealers-all-sizes 


BHPH vs LHPH Benchmarks

Trevor Watson | November 25, 2019

Interested in how Lease-Here, Pay-Here dealers stack up to their Buy-Here, Pay-Here peers?  Here is a comparison of recent benchmarks between the two models.  In 2018, LHPH dealers were rolling larger dollar vehicles, on leases that were eight months shorter in term, with the same monthly payment as the average BHPH dealer.

In subprime lending, you need to keep your terms as low as possible to reduce your risk, while still keeping the customer’s payments affordable.  LHPH provides the financial instrument to do just that.


Lease-Here, Pay-Here a Counter-Cyclical Program for Dealers

Trevor Watson | November 18, 2019

According to the New York Federal Reserve’s Quarterly Report on Household Debt and Credit, auto loan and lease originations increased 1 percent overall in the third quarter of 2019.  However, the weakest performance for the quarter came in subprime originations totaling $30.15 billion, down 7.4 percent from the year-ago quarter.

“This was the first negative year-over-year comparison for subprime originations after four straight quarters of year-over-year gains,” according to Automotive News.

https://www.autonews.com/finance-insurance/auto-loan-lease-originations-grow-q3

As subprime losses accelerate in the ABS market and large market share subprime lenders, such as Santander Consumer USA, see defaults exceed Great Recession levels, subprime auto lenders are tightening credit standards and even pulling out of the market all together.

https://www.dallasnews.com/business/autos/2019/10/25/dallas-subprime-auto-lenders-loans-souring-at-fastest-clip-since-2008/

The vacuum left by the retreat of subprime finance companies in the auto space is an incredible opportunity for LHPH dealers.  First, the pool of subprime customers that can not qualify with traditional lenders grows, which translates in to more deals for LHPH dealers in general.  Secondly, LHPH dealers begin to capture the business of customers who are closer to the near-prime or non-prime credit segments, as opposed to the deep subprime customer LHPH dealers have been financing for the last 6-7 years.  The result is both an increase in originations volume and an improvement in their overall portfolio performance, resulting in greater profitability.

For those who have been considering building their own Lease-Here, Pay-Here platform, now is the perfect time to enter the space.  It is a counter-cyclical program well suited for today’s market.  To learn more about how to launch your LHPH business, download our free E-Book here.

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Launching Your Lease-Here, Pay-Here Program

Trevor Watson | November 11, 2019

The barriers to entry for Lease-Here, Pay-Here are not as numerous, or as difficult, as many dealers believe.  In the end, there are only three hurdles holding back dealers from enjoying all the benefits LHPH has to offer their customers and their dealerships. Those three hurdles are:

  • Your Dealer Management System (DMS)
  • Access to Capital
  • Fear of the Unknown – The benefits are clear, but switching from a BHPH model they have used for years to a LHPH model involves change…and change can be frightening

If you follow these “how-to” steps and engage the resources provided throughout our free E-Book, you will find you can create your own LHPH program and take advantage of all the opportunities this model can offer you, your dealership, and your customers.

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Lease-Here, Pay-Here Differentiation

Trevor Watson | November 4, 2019

As a Buy-Here, Pay-Here dealer, how do you differentiate yourself from your competition?

When we ask this question to active BHPH dealers, we have found five common responses from the industry that are outlined below.

Although these BHPH dealers are trying their best to compete in their markets, we have found that each of these responses has an unintended, adverse impact to the dealership.

Here are the five most common ways a BHPH Dealer can attempt to stay competitive and the negative side-effects that accompany the competitive adjustments:

BHPH Differentiator Negative Side Effect
1. We offer lower down payments than our competition. Lower down payments typically mean you have a higher cash-in-deal and experience higher charge offs.
2. We offer lower monthly payments than our competition. If your lower payments are a function of offering older vehicles with higher mileage, you are likely experiencing higher losses in your portfolio due to mechanical breakdowns.

If your payments are lower because you extend your average terms, you are also experiencing higher delinquency and losses in your portfolio.

3. We offer lower costs cars than our competition. Older vehicles with higher mileage equal more breakdowns and defaults.
4. We are more aggressive with our approvals.  Everyone is approved. You can only out run your delinquency and losses to a point.  Lower underwriting standards will eventually catch up to you and run your profitability into the ground when you slow originations.
5. We have “better” customer service than our competitors. We hear this from almost every dealer, and it is on pretty much everyone’s website.  This message doesn’t differentiate your dealership, even if it is accurate.

When we ask LHPH Dealers how they compete in their respective markets, their responses avoid any negative side effects that are listed above.

Lease-Here, Pay-Here Dealers offer programs to their customers that differentiate themselves from their BHPH competitors while bringing the following positive benefits:

  • Offer Lower Monthly Payments (while shortening your average term)
  • Provide Newer Vehicles with Lower Mileage (reduce your mechanical breakdown defaults)
  • Ability to offer lease-return trade-ups to well performing customers
  • Improve customer retention
  • Provide your customers a program that genuinely offers more affordable and reliable transportation than your BHPH competitors
  • No need to sacrifice down payments or the quality of your vehicles for affordability. Stop the “fog a mirror” underwriting now that you can attract higher volume and better clientele.  Keep your average term down while holding payment-to-incomes in line.

 

Learn more about what a Lease-Here, Pay-Here program can do for your dealership by downloading our free E-Book here.

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Thirty Leases Per Month with Two Turns of Your Fleet

Tim Lawrence | October 29, 2019

One of the numerous advantages of Lease-Here, Pay-Here compared to BHPH is the recycling of inventory.  Unlike BHPH, with the lease, the dealer’s vehicle will come back to the dealership when the lease matures to be reconditioned and returned to the lot to be leased out again.

In the video below, you will see how a dealer leasing 30 units a month experiences a dramatic surge in cash flow and profitability as their portfolio matures and they begin recycling their fleet.

To learn more about this and all the other benefits Lease-Here, Pay-Here can offer your dealership, download our free E-Book here.

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Bonus Depreciation

Trevor Watson | October 21, 2019

Depreciation and the dealer’s ability to defer Federal Tax liability is one of top three advantages Lease-Here, Pay-Here dealers cite as the initial reason they considered the product.  In 2018, the Tax Cut and Jobs Act included a section called, “Bonus Depreciation.”  Watch the clip below to learn how Bonus Depreciation has made LHPH even more advantageous to dealers.

Learn more about all the benefits of Lease-Here, Pay-Here by downloading our LHPH E-Book.

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Flexibility to Adapt to Changing Market Conditions

Kevin Londerholm | October 15, 2019

Market conditions in the Auto industry are changing rapidly, which can be disruptive or create opportunity. You may ask yourself; how can my dealership adapt to these new products, ideas, and generation of consumers?

  • Economic cycles
  • Vehicle technology
  • Consumer affordability relative to vehicle cost
  • Ride-share programs
  • Subscription models
  • New ownership models
  • Changing wants and needs of the younger generations

The more flexible your business model, the greater ability you have to adapt to changing market conditions. So, how can you become more flexible? One increasingly popular way to be competitive with the listed factors above is to incorporate a Lease-Here, Pay-Here model. Using a lease as your financial instrument provides the ability to overcome consumer affordability challenges, offer programs for your ride-share drivers, create your own subscription agreement, and maintain your flexibility for whatever is over the next horizon.

Find out more about how an LHPH model can help you effectively navigate rapidly changing market conditions by reading our E-book.

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Lease vs. Loan 101

Tim Lawrence    October 3, 2019

In this short video clip, our Chief Operating Officer, Tim Lawrence, explains the differences between a lease and a loan at the 2018 NABD Conference.  At the most basic level, this is why a LHPH dealer can offer smaller payments, with shorter terms than a BHPH dealer can on the same vehicle.

To find out more about the advantages of a Lease-Here, Pay-Here program, contact us at (619) 222-9990 ext. 1010 or read our FREE E-Book!

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Lease-Here, Pay-Here and Consumer Affordability as Used Car Prices Rise

Trevor Watson | September 30, 2019

The average price of a used car increased 14.8% between 2013 and 2017, and it continues to rise in lock step with new car prices.  As a result, the average monthly car payment has grown year-over-year.  This can be a strain on any car buyer, but particularly for the credit-challenged customer of a Buy-Here, Pay-Here dealership.

Lease-Here, Pay-Here provides an answer to the affordability issue.  Thanks to the structure of a lease, a LHPH dealer can roll a customer on a higher price vehicle and offer that customer the same or lower monthly payments than their BHPH competitor can offer on a cheaper unit.  This means LHPH dealers can adapt to the changing market, lease newer model year vehicles with lower mileage, and still maintain consumer affordability without extending term.

We recognize that affordability and the quality of your vehicles are important to your customers, and to your bottom-line. The Lease-Here, Pay-Here model provides an opportunity to move more units and create new revenue streams, while making it easier for your customers to obtain a vehicle from you and pay full term.

To find out more information about the LHPH model and LHPH Capital’s funding program, click below to read our E-book or call us at (619) 222-9990 ext. 1010.

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LHPH: Collateral Control Benefits

George Klinke | September 24, 2019

Consumer bankruptcy filings are rising across the country and on pace to reach nearly 800,000 in 2019, according to the American Bankruptcy Institute.  Bankruptcies take a significant toll on Buy-Here, Pay-Here dealers, their portfolios, and their profitability.

The Lease-Here, Pay-Here model offers dealers a higher degree of collateral control using the lease as a bankruptcy remote product.  The lease cannot be included in the BK.  There is no redemption for a Chapter 7, or cramdown for a Chapter 13.  The customer has two options, accept the lease and continue making payments, or reject the lease and return the vehicle to the lessor.

To learn more about the collateral control benefits of LHPH, click here to download our E-Book.

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Lease-Here, Pay-Here with EVP George Klinke

Trevor Watson | September 16, 2019

Watch this short clip to hear our EVP, George Klinke, explain what LHPH Capital does:

To learn more about our Lease-Here, Pay-Here funding program, call us at (619) 222-9990 extension 1010.


Are You Cash Negative at the Inception of a BHPH Deal Due to Sales Tax?

Kevin Londerholm | September 9, 2019

A major advantage of a Lease-Here, Pay-Here program is the sales tax advantage that allows dealers to be cash positive at the inception of a deal. For lease-here pay-here dealers in “pay-as-you-go” states, the sales tax is calculated only on the actual monies collected by the dealer (i.e. down payment, first payment). Sales tax is then remitted to the state on each lessee payment received for the remainder of the lease. With this structure, the dealer can be cash-positive from the moment they roll the vehicle.

Note: If your state is not listed here, this does not necessarily indicate LHPH will not work for you. Sales Tax is one of many benefits LHPH offers.

Contact us at (619) 222-9990 ext. 1010 to discuss how you can build an LHPH program or learn more from our Ebook!

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LHPH Dealership Interview – Markosian Auto

Tim Lawrence | September 3, 2019

“My experience with LHPH Capital has been nothing but 100% positive!” – Nick Markosian

Read more of the informational interview below to find out why this LHPH dealer principal is so pleased they made the switch from a BHPH program.

What was the original catalyst for your transition from BHPH to LHPH? “There were of course the attractive advantages of fewer regulations, easier repos and depreciation, but the actual catalyst was almost going broke during the 2008 recession and needing the cash flow of $600 more per unit from the decreased sales tax.”
Now that your LHPH portfolio is mature, are there any advantages that caught you by surprise? “The recycling of inventory that came back to us every month in a profitable way was a huge surprise.  There were more expired leases and trade-ins than repos so having 50-60% of our inventory as assets already paid for out generating cash flow again made a huge difference.  I think another surprise was the simplicity of the accounting, especially because we didn’t need a RFC.  The only money on your P&L is the lease payment income; whereas with BHPH it’s all smoke and mirrors.”
What is the typical customers response when they hear leasing instead of buying? “First, I’ll say we’ve never had a customer say they won’t do business with us because we offer leasing.  The two biggest concerns are that they won’t own the car in the end or that it might be an exotic scheme to take advantage of them.  We take that as an opportunity to educate them on the differences and benefits to them and then compare the buying cost to the leasing cost.  In the end, they care most about having a lower payment and knowing they have a way out by turning in the car if they have trouble making a payment.”
What were your greatest obstacles during the transition? “Figuring out how to do leasing with our BHPH DMS was by far the biggest challenge.  We just kind of shot from the hip mainly and didn’t realize how important it was to get the right CPA and DMS in place.”
What has been your overall experience working with LHPH? “Nothing but 100% positive.  Terry is incredibly knowledgeable about our business and has trust and faith in us.  I consider Terry a friend and not just someone who lends me money.  You guys are awesome.”

To find out more about the LHPH model and the benefits your dealership can enjoy, please refer to our E-Book, Lease Here Pay Here, Why Do It & How To Launch It

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LHPH Frequently Asked Questions

Trevor Watson | August 26, 2019

Do you have a Buy-Here, Pay-Here program and are looking to learn more about Lease-Here, Pay-Here?  LHPH has been gaining popularity over the last 10 years as dealerships discover the benefits it can provide. 

Below are a few of the most frequently asked questions when beginning to explore the LHPH model.

What is a LHPH program? – A form of lending designed to assist consumers find reliable transportation who may otherwise not qualify with traditional bank and finance company lenders.
– Similar to BHPH, however, using the lease as the financial instrument instead of an installment loan to gain many unique advantages
– LHPH dealers maintain ownership and often lease the same vehicle several times over the life of the unit resulting in greater profitability
What major benefits are associated with an LHPH program? – Improves cash flow with “pay-as-you-go” sales tax
– Allows the dealer principal to defer tax liability 
– Closes the affordability gap for subprime customers
– Creates new profit opportunities
– Differentiates the dealership and creates a competitive advantage
– Better protection from consumer bankruptcy claims
What are some key differences in the LHPH model?  – The lease instead of the loan
– No need for a Related Finance Company
– Not all DMS systems have a LHPH module
– In order to enjoy the tax advantages, your accounting will look a little different

To read more about the various benefits a LHPH program offers, and learn how to launch your own platform, download our FREE E-Book below.

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BHPH vs. LHPH

By: Caitlin Luke & Zanah Naji  | August 19, 2019

Beyond the positive impact of Federal Income Tax deferral and cash flow enhancement from “pay-as-you-go” sales tax, when the Lease-Here, Pay-Here model is compared with the Buy-Here, Pay-Here model, the benefits of leasing for auto dealers are numerous.

Benefit BHPH LHPH
Return on Asset – Original markup of the car
– Interest received on monthly payments
– Life of the asset per dealership: One turn 
– Original markup of the car
– Rent Factor (interest) received in monthly payments
– Life of the asset per dealership: Two to three turns before end of life
– Markup and Rent Factor on each additional turn
Associated Fees for the Dealer – None – Acquisition Fee
– Purchase Option Fee
– Disposition Fee
– Security Deposit
– Excess Mileage Fees
– Excess Wear & Tear
Affordability for the Customer as the Market Price of Vehicles Increases – Credit challenged customers struggle to meet high monthly payment amounts
– Options are buying cheaper cars or extending loan terms
– Higher chance of loan defaulting
– Credit challenged customer has smaller payments than a similar BHPH vehicle
– No need to extend term to keep the payment down
– Better portfolio performance
Inventory Quality – Dealers forced to sacrifice quality of inventory
– Must buy older vehicles with higher mileage
– Faster deterioration of lower quality vehicles 
– Result: Increased service, increased collections, increased repossessions, and reduced profitability 
– Dealer can buy higher quality inventory for same monthly payment to the consumer
– Opportunity to recycle inventory two or three times (sometimes more)
– Result: Reduced service, reduced collections, reduced repossessions, and increased profitability
Competitive Advantage – Low
– Dealers sacrifice quality and profitability to meet customer affordability
– Saturated market
– High
– LHPH dealer able to offer customers newer model and lower mileage at the same monthly payment as an older BHPH car
– No need to sacrifice quality and profitability
Customer Retention – Standard communication when customer makes payments
– At the end of loan, the customer might return to trade the vehicle, or they may pay off the vehicle without communication
– Minimal opportunity to retain
– Communication is increased as customer comes in for both monthly payments and maintenance
– When customer ends their lease, they must return to the dealer with the vehicle
– An additional opportunity to sell the unit for residual, or lease them another vehicle

To speak with a LHPH employee more about the differences between LHPH and BHPH, please contact us at (619) 222-9990 x 1010.

Or download our FREE E-Book and learn more below:

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Understanding Lease-Here, Pay-Here

By: Trevor Watson   August 1, 2019

Lease-Here, Pay-Here as a method of financing subprime customers is not a new product, however, the prevalence of the Buy-Here, Pay-Here model in dealerships throughout the country means LHPH is not nearly as well understood as BHPH.  This results in a number of misunderstandings about LHPH due to a general lack of easily available information. 

For instance, a common concern you will hear dealers raise when talking about LHPH is the risk of vicarious liability and the cost of insurance to mitigate the risk.  While that was a challenge for LHPH dealers at one time, in 2005 Congress passed the Graves Amendment that effectively bars vicarious liability claims against lessors, unless it can be proven the lessor was truly negligent.  There has yet to be a successful claim against a lessor since the Graves Amendment was enacted. 

While the Graves Amendment is a federal law applicable to all of the United States, on a more regional level, many dealers in Texas have long believed the Sales Tax benefits of Buy-Here, Pay-Here were superior to those of Lease-Here, Pay-here in Texas.  This is another misunderstanding of LHPH and how Sales Tax actually works on a lease in the state of Texas.  Read this article below to learn more about how the process actually works, and how you can make your cars more affordable to your customers while building sales tax credits for your dealership through LHPH in The Lone Star State.   

Check out the link to the article below:  

http://digital.subprimenews.com/publication/frame.php?i=604310&p=28&pn=&ver=html5


LHPH E-Book – Now Available for Download!

Trevor Watson | July 23, 2019

LHPH Capital is excited to announce the launch of a new E-Book, Lease-Here, Pay-Here: Why Do It and How to Launch It

LHPH is growing in popularity and dealers across the country have many questions surrounding the model, its benefits, and what steps they should take to build their own platform. 

To help answer these questions, provide industry resources for additional information, and create a roadmap for those dealers that are ready to start their LHPH program, we developed this FREE E-Book.

Click on the link below to download your copy today!

http://lhph-5346625.hs-sites.com/lease-here-pay-here-why-and-how-to-do-it

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LHPH Training School – NIADA

By: Kevin Londerholm   June 12, 2019

There are many resources available to dealers interested in learning more about Lease-Here Pay-Here. NIADA is offering a LHPH Training School that is a blueprint for learning the LHPH business.

The 2-Day Certification Program will cover:

  • The challenges and opportunities with leasing
  • Key drivers to success with leasing
  • Leasing terminology
  • Marketing, advertising, and merchandising ideas
  • Mechanics of a lease payment structure
  • Depreciation and residual value metrics
  • Compliance awareness, including Regulation M
  • Best practices for deal structure, underwriting, and collections

For more information and the dates for the next LHPH Training School, contact Mark Dubois by phone (888) 906-8283 or by email at mark@niada.com.

Here is a link to the NIADA YouTube Channel: https://www.youtube.com/watch?v=0c4DGG2c994


LHPH Deal Structure

By: Trevor Watson   April 29, 2019

New dealers to LHPH, and those who are transitioning from BHPH to LHPH, tend to initially omit some key opportunities inherent in a well-structured lease.  These fees represent some of the many advantages of the LHPH model when compared to a traditional BHPH deal.  Below are ranges for the recommended fees you should be including when structuring your leases:

  • Acquisition Fee             $495-$895
  • Purchase Option Fee    $350-$450
  • Disposition Fee             $350-$450
  • Security Deposit           $500 or greater, maintain consistency
  • Mileage Fees                $0.10-$0.15 per mile
  • Wear & Tear                Determined by the condition at time of return  

Don’t leave money on the table when you are desking your leases, build these into your standard lease agreement to ensure consistency across all your deals and improve profitability. 

Every dealer is different, give us a call and let’s discuss the right levels for your dealership based on your business model.   


2018 NABD Conference – Is LHPH a Better Alternative?

Kevin Londerholm    February 4, 2019

Is LHPH a Better Alternative for your dealership? We certainly think so and so do our dealers.

Watch as our Chief Operating Officer, Tim Lawrence, presents on a few different lease-here pay-here models at the 2018 NIADA Conference in Las Vegas.

Lease-here pay-here can bring many benefits to your dealership and has a similar BHPH sales process, however, it requires a slightly different mindset.

See as Tim presents the steps to obtaining your own LHPH Program, differences with BHPH, and main benefits for the customer, dealer, & lender when leasing is offered.

Link to Tim’s Presentation: https://www.youtube.com/watch?v=YpL3GY4frio&t=2s

Fill out your information on our Contact Us page if you are ready to offer a used car leasing program at your dealership!


The Language Of Lease-Here Pay-Here

By: Kevin Londerholm   January 7, 2019

As 2018 comes to a close, we reflect on our year spent attending industry conferences, staying up-to-date on the new tax law effects, and discussing the inner-workings of the lease-here pay-here business model with our current dealers and prospective clients.  

We began 2018 by attending the NVLA Conference where our Founder, Terry Bowdler, won the prestigious Clemens-Pender Lessor of the Year award.  Our Executive Vice President, George Klinke, sat on a panel for the lease-here pay-here track at the same NVLA Conference.  Midway through the year, our Chief Operating Officer, Tim Lawrence, had the opportunity to present to a full room of dealers at the NABD Conference in Las Vegas on the topic of leasing.  We continue to see a growing interest in offering leasing! 

To conclude the year, LHPH Capital hosted a Dealer Summit where LHPH best practices were discussed among our current dealers.  Many dealers reflected on how they made the switch to leasing at their dealership and discussed the changes in their operations.  Besides the accounting and the dealership management software, the biggest change was in the language of leasing.  

Our LHPH Dealers discussed the importance of truly understanding the basics of leasing and having a solid foundation of trained employees at the dealership.  Below is a list of installment loan terms that BHPH dealers would be familiar with.  In the column next to the installment loan terms are the related vehicle leasing terms: 

Installment Loan:       Vehicle Leasing: 

Reg Z                           Reg M

Sales Price                  Capitalized Cost

Down Payment          Cap Cost Reduction

Amount Financed         Adjusted Cap Cost

Principal                        Depreciation

Interest                           Lease Charge

Balloon Payment            Residual

Interest Rate                   Money Factor 

All of our LHPH Dealers shared that once their employees were trained on the Leasing Program and the language of leasing, the employees were pleased to offer newer nicer cars to their customer base for the same monthly payment!  

We would love to discuss these leasing terms with dealers interested in offering a lease-here pay-here program via a phone call (619-222-9990) or email klonderholm@lhph.com.  

LHPH Capital will be attending the Industry Conferences this year and we look forward to seeing you there! 

Happy New Year and much success in 2019! 


Top 5 Lease-Here Pay-Here Advantages

By: Kevin Londerholm   October 29, 2018

When talking to dealership owners, managers, and employees at industry conferences and at our San Diego office, we are frequently asked what the benefits are for running a lease-here pay-here program as opposed to a buy-here pay-here program.

Among the numerous benefits that used car leasing can provide a dealership and its customers, we listed the Top 5 Advantages for Lease-Here Pay-Here below:

  1. Federal Income Tax Advantage:The NEW TAX LAW provides a huge tax advantage with the ability to utilize 100% bonus depreciation of used vehicle assets in the first year until 2023. The dealer can defer all up-front profit and may not pay much income tax (if at all) for years to come.
  2. Sales Tax Advantage:Benefit both the customer and the dealer. In pay-as-you-go states, the sales tax is calculated only on the actual monies collected by the dealer (i.e. down payment, first payment, acquisition fee). The dealer doesn’t lose the entire down payment to sales tax and can be cash positive at the inception of the deal.
  3. Competitive Advantage:Is a direct result of the dealer’s ability to offer the customer a better car for the same payment without losing profit. This allows the dealer to compete with the aggressive subprime lenders and lease much higher ACV vehicles.
  4. Collateral Control:The dealer has ownership of the leased vehicle (asset) and can recover the vehicle easier and often faster because the dealer is named on the title.
  5. Residual Cash Flow:Is the most dynamic aspect of leasing. Once the dealer’s lease portfolio matures and the leases have completed their terms, the dealer experiences an astonishing influx of cash either by leasing the paid off vehicle again or by wholesaling the vehicle.

Our current LHPH dealer clients and their customers enjoy these benefits, among many others, due to offering a leasing program as their main product.

We would love to discuss these advantages with dealers interested in offering a lease-here pay-here program via a phone call (619-222-9990) or email.

If your dealership is already offering used car leasing to your customers, we especially want to hear from you!

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