Capital for the LHPH Industry

Creating financial flexibility one dealer at a time

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


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.


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.


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 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!


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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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 


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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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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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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