Making It Big In The BHPH Business With Jeff Clark

I’m pleased to have with us, Jeff Clark. Jeff is somebody that I’ve known for years. I know a good deal about what happens at his business. He’s going to be the one to talk specifics. I can share with our readers in particular that among the reasons I reached out to Jeff to include him is that a lot of dealers, especially those that are new to the business, need to hear from folks like Jeff because he’s a guy who came out of banking and chose to be in the Buy Here Pay Here business.

We’re going to spend a minute talking about that then his experience. I can say about Jeff’s operation that I can’t think of one Jeff that I’ve ever seen that’s more consistent in its results and more efficient. You run very consistently in performance, the volume of sales, collection, and efficiency run very consistently. I think people should pay attention to what Jeff can share about his experience and what he brings from business and from banking into the Buy Here Pay Here business. Jeff, let’s start with that. Tell me about your banking background and how that led you into the Buy Here Pay Here.

Thanks for having me. I appreciate it. I’m a 25-year commercial banking person. I started with NCNB and Hugh McColl. I worked my way up through the ranks of commercial banking and went all the way through a couple of their mergers. In ’96, I met a fellow and we started our community bank called Southern Community Bank and Trust. We ran it until we sold it in 2012 and it was a nice community bank that grew from eight employees in one branch to a little over 400 employees and a $2 billion commercial bank serving about nine counties in North Carolina. We serve small businesses, and the small businesses are all we’ve done. My strength is lending. I like to lend money, go out, and see all the different kinds of businesses there are. That’s what was fun.

When we sold the bank, we had dipped our toe into the Buy Here Pay Here business. Years before that, we opened our own subsidiary and we bought paper from Buy Here Pay Here individuals, had a good team running that for us, and we loved the margins. The margins in this business are much different than the ones in the banking world. We put in a little more capital and a little more risk, and enjoyed that.

When I exited the banking world in 2012, we started Hometown Auto & Credit and decided because of Inger Walter, who is a good friend of mine. He was very involved in the Buy Here Pay Here world. He helped walk me through that with a couple of other good people and got me started. I’m definitely not a car guy. I’m a banker that came at it from a different angle. I’m more on the money margin side than I am on the car side. I’m still learning the cars, that’s for sure.

I stepped into the car business in ’95 and I still don’t think of myself as a car guy. I fell into the finance side of it and I’ve been here ever since, so I get that part. Let’s talk about what your experience has been now that you’re in Buy Here Pay Here, some likes and dislikes, and maybe some challenges.

The number one challenge of getting into this business is capital. You never have enough money, especially when you’re getting started. I thought I knew that getting into it, but when you’re growing like crazy, I was doubling my business every year for years. It takes a ton of capital. That was hard, but the only reason I survived it was my banking background allowed me to have the resources of people and knowledge that could help me get the funding and help keep me going. That was a big surprise.

Buying cars is a lot harder than you think. That’s challenging and managing the portfolio. The collection side gets more important every year, doing that right, finding the right team to do that, and then keeping the cars running. The most important thing in this business is to keep the people on the books, paying, and happy. That’s part of the business.

You must adopt some approach or philosophy that you bring to the collection side of what you do to help keep customers on the books. Can you share some of what you’ve adopted that way?

My ACV is a low ACV. It’s under $5,000, so that’s on the lower end of the scale, and because of that, friends of mine say, “Jeff, your cars are long in the tooth. Get them to get it at 36 months. You’re going to have to work.” We have a much larger service shop than normal. We sell a car and it has a problem. We bend over backward to keep it running and they keep it going because the simple philosophy is if it needs to be fixed and they can’t afford it, we need to help them afford it and find a way to put aside loan in place if we have to. If not, it’s going to be a repo, and we’re going to have to fix it anyway. Let’s try to keep the customer in the car and not lose an account over a $500 or $1,000 bill if it’s within reason. We work hard to keep them in the car.

I watched you say that and it rolled off your tongue easily, but I don’t think you know from my perspective in the industry how hard that concept is to grasp for a lot of people. They never get introduced to that they don’t recognize the benefit that can be had by supporting the customer afterward through whatever that side note or whatever program they put in place. If you choose not to support it, you’re going to lose a lot of cards on your back road.

We didn’t start our reinsurance company with the warranty and vehicle service contract until year five. That’s been even a better boost for us. We’ve got a much more straightforward approach to helping those customers. With us managing the warranty and claims, we can be a lot more flexible, help the customers, and ultimately keep them in the car.

Jeff’s results on what we call collection efficiency, and we don’t have time to go to explain how that math works, but from an efficiency standpoint, they collect very well and consistently getting the money in the bank. That doesn’t mean you don’t experience some charge-offs, but you’re a portfolio that’s live is active and is performing. That means you don’t carry a lot of dead contracts and you collect on the portfolio that is active and healthy.

The criticism that I get from my twenty group is that I probably charge off a little fast. We work hard and don’t let customers get very far behind, but our philosophy is that we’re going to do everything possible to keep them in that account. If we do that, then they need to do their part and make their payment. If they make their payment, they’ll be so surprised at how well we take care of them. If we can’t come to a resolution, we move quick and we don’t carry any dead account at all.

You can’t afford to and don’t want your asset list to be polluted or diluted and give you a false sense of the health of your business. I’m with you on that one. Can we talk about marketing? Your business is very consistent in your ACV. You mentioned the numbers, but don’t deviate much from that. Your model is your model. You pretty much stay in that lane in terms of the type of car you carry and what you price it, etc. On the marketing side, how do you keep your volume so consistent? Can you give us a sense of where any ad spend that you have? What’s the pie chart look like? A certain amount is going to social media or TV. How do you split that up?

From day one, I’ve had the philosophy to try a little bit of everything and trying to figure out what works the best. What worked years ago is different now. Years ago, the magazines were big, all the restaurants, and convenience stores. We got out of those magazines during COVID and I can tell you we got back in and we need to stay in them. We’re in them a lot less, but we’re in them.

At 100%, our arm is all driven on social media. We’ve gone through about six companies that say they can understand and help we’ll help you out, but we’re with a new group now that has proven to me that if you find somebody that understands Buy Here Pay Here, not just audit, and who our customer is and they can get those dials set up right which I can’t do in Facebook, Craigslist, and all of the hotspots out there, it helps. We’re not perfect. We have our ups and downs. We had a great month and then this month, it has been terribly slow. We’re turning the dial, seeing what’s going right and wrong, and try a little bit of everything.

This is a thing we ask for clients and out there on social media from time-to-time. Can you give me a sense of the percentage of customers that visit your lot and buy in any given month? What percentage are shopping for financing and a car?

I’d say 80% are shopping for financing and 20% for a car. They come to us for credit and financing because we’re the lender of last resort. These people, unfortunately, don’t have the credit to go anywhere else and they know that. By the time they come to us, they’re like, “What can you do to help me get a car, so I can take care of my family, take my kids to school, keep my job, and get a better job?” Those are our best customers. They’re not coming to us because they want a car. They come to us because they have to have a car and need a car.

That’s an important thing to think about because I know that’s true and that also rolled off your tongue pretty easily, but that’s another thing that we find that people that are new to this business have a hard time grasping. Sometimes they appeal to the wrong market. We see that. We work with dealers who are coming out of the franchise space or an independent space, and when they’re used to having cars, inventory, and talking about V6s and leather, it’s hard for them to make that paradigm shift into Buy Here Pay Here.

That’s good and helps our audience. We’re always trying to help people who are new to the business to get a better sense of what it means to be in the Buy Here Pay Here business. More than that, we’re trying to help them understand what it means to support this customer that they’re setting out to serve because we want people to understand the business they’re getting into and to be able to recognize what it’s going to take to support that customer throughout that experience.

One of the surprising things is we sell 80 to 100 cars a month on average. We pull 300 credit bureaus a month and we get 600 leads. It’s amazing that there are 600 people out there that want or need to buy a car. There’s 300 that we’d go all the way to full credit on and we only get to sell 100. It shows you that there is a deep, dark, big bucket of people that this industry needs to serve. There’s an opportunity there, so we’re working all the time to try to figure out how to widen our net a little bit while still being able to maintain our credit quality.

We had not planned to talk about this but one of the things my wife, Michelle, and I have been working on through the Octane Group is helping dealers to think about, and we’re incorporating a lot of our training and conversation around ethics and philosophy. What we see is that a lot of people are nervous about compliance. I’m not an attorney and only have an overview of what’s happening on the compliance field out there.

From my observation, it’s only those dealers out there that are mistreating customers that probably have much to worry about from a compliance standpoint. Those dealers like you that are out there supporting folks, helping customers, and trying to be a solution, compliance folks are probably not going to have any problem with what we’re doing. We still got across our Ts. The reality is we’re out there trying to help customers and be a good solution and asset to our community, then we’re probably not going to have compliance people knocking on our door.

We all work hard every day to do the right thing. If you do that, then hopefully, we’ll be in good shape.

Can you share with me what your perspective is? You said you started your dealership in what year?

January 1st of ’13.

With all your banking background before that, exposure to sub-prime automotive, and now your time as a Buy Here Pay Here dealer, what’s your perspective on the Buy Here Pay Here space overall, this segment of unconventional financing? What do you feel like that is going to shape up to look like in the coming decades?

Unfortunately, the amount of people in America that are going to need Buy Here Pay Here is not going to go low. It’s going to grow. The cost of cars is through the roof. Everything is more expensive. Financing’s going to be harder and harder. The business is good and interest rates are as low as they’ve ever been. The average interest rate for the last years is about 8%. Prime is at 8%. We are far below that so that when the interest rates kicked up another 2 or 3 points in the next years, whenever that’s going to happen, it’s going to make it even that much harder for the average person to get a conventional loan.

We’re here to serve customers for a long time. There are going to be great opportunities there, and nothing is better than for us to bring a customer in, have them pay us perfect for a few years, and be able to go and get a conventional loan for their next car. That’s a win and fantastic. We call those our hometown heroes and probably much great.

You also have a fair number of customers that have been on the books with you for most of your time and business.

Yes, absolutely. We have one gentleman. He’s in his ninth car with us. He’s paid us great and fantastic with multiple cars. People get used to coming where they’ve been treated and hopefully, we’re doing that with a lot of customers and when they come back, it’s great.

I can tell that you are. I’m going to guess he’s referred some folks in your direction as well.

Yes. I picked up a referral program from a friend of mine at another dealership that if you give us nine referrals, on your ninth referral, I give you your car for free no matter what the balance is. He’s up to seven, so he’s getting ready to get a free car.

He’s out looking for folks right now. I wanted to add my perspective on the thought about the outlook for the industry. I’ve been asked over the years to write or give my outlook on Buy Here Pay Here and my answer is boring. I tell them that my sense is our business is going to stay the same. What I mean by that is that I don’t see the need for unconventional financing going anywhere. Folks are going to need that help.

The reason I say it’s the same as even if the stock market and interest rates change and the economy takes a big swing, the reality for you and me in the Buy Here Pay Here space is we are already funding all the customers we can afford to fund. For the most part, the dealers are out there looking for capital and the exception is with the big groups out there that are operating on cheap source capital. They’re spread and things change for them. For dealers like you and folks I work with out there in smaller communities, they’re already funding all the business that they can afford to fund or taking all the risks they can afford to take. My experience is that it’s probably not going to change much.

I agree. I’m not worried about it going away or sink in it. There’s plenty of business for everybody to go around.

The mode of transportation may change. We may be financing some airborne vehicles or it may be shuttling colonies. I don’t know which direction it’s going to go. I know that people are still going to have a need and there are going to be some credit challenges out there. Our space is probably going to remain about the same as far as I can tell, but it sounds like you share that perspective.

This is great stuff, Jeff. I appreciate you making time to talk. Jeff’s an example of those kinds of dealers that we like to see out there who are treating customers right and enjoying the benefit of that. He’s built a nice, big, healthy business. I didn’t ask you about growth. What’s your outlook about growth? Do you feel like you want to grow? Are you going to stay in your lane? What are you thinking?

I’m where I want to be. Maintaining the portfolio is where I’d like to stay. I want to grow a little. It’s hard to keep the portfolios these days. That portfolio is one of the surprising things. It starts turning as you shorten the term, which is great because it generates a lot of cash. I want to grow slow. I won’t grow a whole lot in the next couple of years.

I appreciate you making time to talk. I’m probably going to invite you back another time because you and I could do a whole separate episode just on the finance details, interest rates, how to arrive at term, and all those kinds of things. You and I can talk about that at some length. We’ll ask our audience to tune in another time for that episode, but in the meantime, thanks again for joining us. Follow us over on social media, Facebook and YouTube. Find The Octane Group and that’s where you can also keep up with the episodes for the show. Thanks again, Jeff.

Thank you, Jim.