Capital for the LHPH Industry

Creating financial flexibility one dealer at a time

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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