Wake up, Buy Here, Pay Here people. It's a beautiful day. Go grab yourself another cup of Joe and say hello to Jim and Michelle Rhodes on the Buy Here, Pay Here morning show. Take it away, you two. Good morning. We did it, hon. We did it. We made it to Friday. Oh. yeah we did uh good morning all well just so y'all know too today is the anniversary of our second date yeah that's true it is I mean it's not as exciting as the first day first date was just drinks second date was dinner we closed the restaurant down and yeah just talked and talked and talked and talked so today is that day and um yeah so a couple of things you know I've I have mentioned this quite a bit. This is Carla, F&I Legal Desk Book, 9th edition from our friends at Hudson Cook. Maybe if you show that enough, people will start to get the idea that, hey, if I send in some koozies or some mouse pads. This morning, I was looking through Facebook, and I saw Darla Boer was reading this on her flight. Terry McCauley wrote in, and he's like, Hey, Steve Levine. And so I just I wanted to give a shout out for this, too, because, you know, and actually this is more this is winning the fight, a guide to protect car dealers. And so those of you who know Steve Levine, he's from Ignite. He is is another law firm attorney. For dealers, this one is more stories and insight. And there's a lot of stuff in here that Steve has been very active in writing in a lot of the publications. And so there's a lot of pieces in here from writing that he's done and referencing. So this is more of just a straight story. Reference book. So if you want a good reference book, great one, Car Law, F&I Legal Deskbook from friends at Hudson Cook. If you want to read some things about insights and stories and whys, this is a great companion. So Winning the Fight, A Guide to Protect Car Dealers. Look at Michelle. She's starting to become a book. Well, you know, here's the thing, though, and this is our our legal friends need as much help as they can, too, because it's just such a dry subject. And, you know, it's but it's it's so important that dealers are paying attention to the things. And it's I I remember the first time I sat in on I think it was. Richard with Ignite that was speaking about... It's the first time that I heard something from Ignite, but he was talking about truth in advertising and all of that. And it was... It's dry subject, but for me, I'm like, I get this. This is the kind of stuff that... I don't know about you, but... I was brought up in a family that rules were lifeblood. I understand how rules and things like that can help protect you. One of the things that we see an awful lot, especially with our viewers, we talk about the golden 500, we talk about the silver 5,000, we talk about the bronze 10,000. And that's basically the Golden 500. They're the ones that come to all the conferences. And so they're hearing this stuff all the time. And we just because of what we do have the privilege of being able to reach a lot of people outside of that. And so plug, plug, plug. If you if you aren't familiar with a lot of the legal stuff, it's important. So good morning, Karen. We are looking forward to today's broadcast. So I grew up differently than Michelle. I have a lot of rules. I remember two rules. I grew up on a farm and ranch in Western Oklahoma, and there were only just two rules for me. One was don't play with rattlesnakes, and the other one was don't let your little brother play with rattlesnakes. That was about it. There was actually one other rule, because you were telling me about it this morning. You were like, I remember my dad. The angriest I've ever seen him is I was home, thought I was home alone, listening to the police. Do you remember the police? That was before it was now staying. Totally cranked up. His dad just comes in and he's in the middle of a business phone call. He's like, turn that down because you know all of us but growing up in the 80s and it's I think it's nowadays everyone has their their stereo on their ears yeah but yeah you'd listen these are two big speakers yeah so that's that's the other thing you remember from when you're a kid talked about this morning so okay um don't rattlesnakes yeah bad down the business Down to business. Let's see. Coming up, of course, last night we had our first V8 meeting. Yeah, he comes upstairs and he's like, that was the best one ever. And he says that every time. Well, they just get better. Yeah. Well, as the group kind of congeals and as the data gets more and more developed. Well, and the conversation was one of the dealers is doing some stuff with their capital. Right. And just a really, really rich conversation around the stuff that's around capital. And yeah, I just sat back and when the conversation kind of closed up, I said, does anybody else recognize how significant that conversation was? Because you got a young dealer over there who's planning for a line of credit and all the stuff that goes along with that. Yeah. And wow, the conversation was amazing. And these were our medium-sized, this is one of our medium-sized groups, so like 100 to 500 accounts. Right. You know, and some of them have been in business for a very long time. They just don't want to grow a ton more than, you know, the 500 or 300 or whatever accounts. Right. But so it's, it's just, it's fascinating that, you know, when, when we were talking about this, you're like, yeah, I sent him the numbers the day before. And so there were very, that was just the, the stuff that they go through, it really wasn't talked about very much. It was just conversation that was, you know, as you start to develop relationships, it's that connect, right? part yeah yeah for sure okay and these dealers are getting to know each other so yeah yeah and then other announcements we've got uh with that group we've got um and I've got some material I can bring but I i would share most folks who are tuning in recognizing the description of of today's episode we said that this is one of I should have said at least two yeah uh because we it's a rich subject It's a big and important subject. It's something that I really haven't seen anybody take this on in the way that I'm trying to really drill down to the numbers. And so for me, it's not about asking anybody to change what they do as much as it is putting information in front of them so they can better make a judgment as to whether or not their current policy works. around trade-ins and negative equity and timing of trades. It's a difficult one. And it's like, I just am compiling more and more information all the time. And so I want to offer today some kind of alternative ways to think about some of this stuff or some additional ways to think about some of this. And I also had a conversation this week with Brent Carmichael, who was kind enough to give some time to contribute some education. I'm sure we'll be able to bring some clips of that. That's mostly for our V8 Plus meeting at the end of the month, but I'm sure we can share some of this. And I'll share some of what he and I talked about in that conversation this week, because it definitely relates to this subject. And I did put a poll out on the BHPH Success Group, if you haven't been in that. Yeah, there's been quite a few answers. already. The answers are coming in so far. It looks like the numbers are about where I would expect. It's just based on watching. I would urge people to go over and find that. You can just do a do a search in the BHPH thing for poll, or you can look up one of the threads. It should be pretty high on it because it was, you put it out there this morning. So today's topic is on negative equity and markup. Right. And, and it's, you know, we're kind of going the, you know, what's trading, trading in what, what that means. Right. Yeah. And I think obviously in our buy here, pay your space, it's got a different set of um things to think about you know if you think about trading the customer like is it one of one is it the customer's idea to trade or is it ours and and if the customer is asking to trade what would be our reaction like what would prevent us from trading so I think it's all the stuff that we we start to break down and think about and so in today you know it's in the context of this negative equity well why does the customer have negative equity at two years in or even three years in you You know, we're seeing term of loan in most of our groups is running around 36 months. We've got a few dealers out there at 42. There are some there would be some in the buyer payer space even longer than that. But for the most part, I think most of our dealers are in that 36 month range. So you're really just talking about. when can it make sense to trade and what, what are the things to consider in, in doing that trade? And we did an episode, I should go back and find it, but we, this same spreadsheet that I'm going to use to kind of present some numbers this morning, I use the same spreadsheet, um, many months ago to, to do some, some calculations of a similar nature. And at that time I was looking at 30 months, like I was just kind of analyzing 30 months and I picked that. Now I'm kind of moving everything to 24 months. And so in our, well, that's kind of come about and I've got more studying to do, but it almost doesn't matter. Like I can pick the mark and the lessons would be the same at 24 versus 30. It's just, I'm trying to move everything to 24 months because, one, we know the customer loses interest in their car. Well, okay, so let's talk about human nature. We know that a customer, our customers, after a couple of years, it's like they want something new just as much as we do. Or people that are in... that can go and finance at a franchise or whatever. The time when everyone paid off their car or paid cash or whatever, it's just a different landscape than it was. And there's a lot less people that actually pay off a car And this is just in general. This is not just sub-sub-prime. In general, there's less people that pay off a car than there used to be. And a lot of people after two years, that's a good mark. Three years, it's like, oh man, I'm really tired of this car. Really tired of this car. I want to do something different. Obviously, we're leaving out those scenarios where sometimes folks' circumstances change and there's a true need to change. It could be, you know, add some kids and need more room. It could be had a surgery and can no longer drive a stick shift with a clutch or whatever. There can be circumstances. So we're kind of putting those situations aside. So now we're saying the customer really just... has an interest in trading can we make it make sense or could we even proactively create a program policy where we look you're reaching out at that route to them at that that period of time and it's like hey so I'll give you two quick nuggets from the conversation with um brent carmichael and these are things we've talked about in his appearances in the podcast before but he said that their studies suggested like they went back and did some studies with some of their groups and pretty sizable you know high quantity of accounts that they studied across multiple dealerships and they found that only about 15 of the customers made it all the way to maturity and paid off their account okay okay is that surprising is that surprising so that's that's like that's like one and a half people per hundred customers and they got quite specific no 15 is 15 or one out of yeah one and a half out of 10 that's what I'm trying one and a half out of 10 will actually pay it off Yeah. And he, I just had to have people have confidence and they even went so far as to verify that the final payment was, and I think he said the final payment came in at like $250 or something. So as an average, so what that says is these are not insurance payoffs. These are customers actually making it all the way to maturity. And I don't know if you noticed this week, a shout out to Tommy Brandis and Gunner up there in Pennsylvania. I've seen their posts go out where they're, they're presenting their customers with titles. They do that all. I mean, I guess I pay closer attention because it is all the time that they have pictures of or it's either titles or it's referral checks. Titles and referral checks. Titles and referral checks. And as a former dealer, when I see Tommy in one of those photos, I think he's sitting there smiling and happy for the customer and he's like, dang it, there goes another car payment. You know? Yeah. Well, I mean, that is the nature of our business. You hate to lose a customer. You want to see them be successful. And I know that he gets repeat customers. And so someone may pay off a car, but then they bought another one. So they have this car. So there's lots of different ways of that. But the value of keeping a customer is... massive. And for those dealers out there, because there's a lot that it's like just burning through customers, they don't understand necessarily the value. But those of you who do have You know, you get repeat and repeat and repeat and repeat. You understand there's a tangible value and there's an untangible value. And the tangible value is, you know, one, you're keeping the payments coming in and, you know, that matters. And the other tangible value is how much does it cost you to gain a new customer? Right. That's another tangible value. I'm making notes because I want to make sure I circle back to the thing about Brent Carmichael, the other nugget that he shared. I'm going to phrase this in the form of a question because I think we're going to let dealers answer for themselves as we go through these next couple of episodes on this subject. I think that's my goal here is not to tell dealers how they should do business. It's because one of the things we both recognize about buy here payers, dealers love the flexibility of being able to do business the way they want to do business. What I'm trying to do is put information in front of them to help them make better judgments about the success of their business. And one of the things that Carmichael said- The value of some of these things. Yeah. And so Brent Carmichael said, and he's said it in some of our podcast conversations in the past, is like, is the car the asset or is the customer the asset so that's that's a question I want our listeners to ponder as we go through a lot of this math and we think through this because there are some intangibles to think about here that's like a major I'm sorry that's a major that's that's for a lot of people it's it's a paradigm shift because if you're really looking at the customer as your asset. That's the asset. It's not the car. That's the asset. What a paradigm shift. We've talked about this in the context of the Tommy conversations in the past. Tommy's been a guest with us many times. For those who don't know, Tommy Brandes is not only is he the creator of the BHPH Success Group, but he's also currently the executive director of the Mid-Atlantic region and that association up there. He is a 30 plus year dealer. He marked his 30th anniversary. Oh, you guys have known each other for decades. 20 plus years, I think. But he's a guy who's done this for a long time. And I think when I think about the asset, what is the value of a customer who's literally been, the family has been in your books for decades. What is the value of that? It's a hard thing to measure. Yeah. And so it's like that deal about handing the customer the title. And so these dealers in the survey that we put out this poll, and again, keep taking that poll. We'll keep bringing you back to that poll because we want to hear. Because we're going to be talking about this for a while. Yeah. So we just barely threw it out there this morning. But it's like, I think this policy that I hear a lot of dealers talking about how to deal with negative equity. And I've had some new awareness, I think, around this subject. And I think Um, it's kind of, we won't go that deep into the math today, but it's kind of around this idea that when we think about, let me give you two things to ponder. Most dealers, even dealers in a 20 group, they're, they're used to measuring something called months to breakout. Okay. So what is that? That's, that's your cash in deal at the time of delivery, which again, I'm always thinking about people who are brand new to the business listening podcast. So that's our cost in the car. And that includes recon. The total cost of the car minus whatever down payment we got. I typically measure it only at the time of delivery. I don't count any deferred downs or future down payment. So I'm just looking at our, our risk at the time of delivery. So now you take the customer's payment. How many payments would I need to collect from the customer? This is principal and interest. Obviously, when you make your first car payment, if you go finance a car tomorrow, when you make your first car payment next month, it'll have some principal and some interest. For today, we're talking about buy here, pay here and simple interest. But there's not much of anything that we're talking about that wouldn't also apply to other forms of interest and lease your pay here. It's all kind of the same math. Okay. So the thing I want to plant today just as a seed and we'll continue to work through it. I've started creating some calculation tools and I need to finalize those before we bring the thing to the next episode. But When we know that the finance income that we charge the customers, that anybody, any bank charges, that's to offset losses, right? So we charge interest, and that interest is really meant, because we calculate interest coverage, 20 groups to probably look at interest coverage. Certainly banks look at interest coverage. They're looking at, is the portfolio generating enough income, interest income, to cover the net losses in the portfolio? That's what our interest is there to really do. So, when you think about that in that context and you say, okay, every payment that I collect from a customer is going to have a certain amount of interest and a certain amount of principal. Well, we know in a simple interest environment, let's focus on 24 months. In the first 24 months, the customer is going to pay a fair amount of interest, right? So, that means at 24 months, they've got a high balance on principal because they've been paying mostly interest and they haven't reduced the balance. Yet, that all that interest that we collected was supposed to be for losses. But if I trade the customer at 24 months, I don't experience any charge off losses. Well, I mean, yeah, whatever it is that would normally just fall out of the thing beforehand. I've got other numbers to look at in terms of how it impacts my P&L and cash flow, and I've got those numbers to talk about here today. But I think what I'm really driving at is that when you think about that that interest income is really meant to drive that, it's really meant to cover our losses, then if I start to calculate months to breakout applying only the principal, our months to break out is much longer right I mean it just because I'm I'm collecting an example back to your 500 and make it easy math if if your first payment on your on your car is 500 and 300 of that is interest and 200 of it is principal then it stands to reason that if I'm only applying the principle to the risk the actual cash that I have in the car then obviously my months to breakout is much longer. I'm only applying principle. You with me so far? I don't want to make sure I'm losing the listeners. So I'm really just saying, Put aside the interest as other income for a moment. The interest that I collect from the consumer and say, I'm reserving that for losses. But now this customer is sitting in front of me in 24 months and I didn't have a charge off loss. I'm looking at trading the customer in and I've sort of penalized that one customer. Now I realize we do this on a portfolio basis. That whole thing about interest is supposed to cover our losses. It's aggregated, right? It's in a portfolio. And so we get it. It's meant to cover the whole thing. So the interest I collect from customer one also helps to cover the losses of customer three and four or whatever. So, but when I think about on this one customer base, of course the customer's got negative equity at 24 months. I've created a scenario where they're paying mostly interest. Yeah. Well, you're, you've created a scenario where, uh, with high interest where, and simple interest that, that at 24 months, they're, they're not going to have, yeah, they're still going to have quite a bit left on their, on their loan. Cause it's, it isn't, isn't the way that simple interest works. Correct me if I'm wrong. Is that the, like towards the end of the contract is when you see the bigger amounts that start. The principal starts to get reduced. That's right. So it's kind of lopsided. So of course we wrote recognize that's part of why we have this problem. And by here, and especially in 2024, I had this conversation with Brent. I was surprised to hear. You know, here we are roughly four years out from what I would think of the peak of COVID. Like, you know, peak of COVID was kind of that spring into summer and when it was... It's over. When dealerships were shut down. But we're four years out. And it's like, I think about... Because remember, I was concerned. I went out there on social media and said, we got a thing we got to be prepared for because cost jumped. We still use our same method to mark up from cost. So price went way high. Either payments were going to follow and go way high, which they generally did, or term was going to get longer. Well, term gets longer. That means at 24 months, we're likely to be in an even position. worse position. Obviously, this all depends on the value of the car and how the market has treated the value of the used car. So there's so many layers to this to think about. But for right now, I just want to think about, you know, of course, we've got the customer in a negative situation at 24 months. And I think Are we going to lose the customer? We did our own analysis with one of our clients who's been in business for 15, 18 years. And because of software change, we were only able to study like the seven years or so. But it showed the same kind of thing where their success rate is pretty high, but they don't have that many customers to make it to 36 months. Even if in our case, we were only measuring the ones that were... Well, and if your full term is around 36 months, just like what Brent said, it's like 1.5 of every 10 customers are making it. The rest of them are, are, yeah. So you could have it still, could still resolve successfully through an insurance settlement. It could be an accident. It could have been an internal trade. You trade them into another account, whatever. But it's like, so it doesn't, doesn't mean the account ended badly with the other 8.5 in your example. But so certainly charge-offs and repos are going to be a big piece of that. And then you have to look at how did the customer do. But I think when we really start to look at this hard math, I think what I'm trying to present to dealers, and I guess we can show the screen here. I'll put it up. Yeah, if you got it. Yeah. We'll try to make it, we'll try to expand it. Yeah. Yeah. And so again, if y'all are listening on audio on our syndicated stations, please go to YouTube if you want to see the charts. Or if you're just kind of listening to this live on Facebook or something, you're driving around, go back and look at it when you can sit at a desk and look at the charts. It's helpful. And while they're doing that, I haven't asked. just hit that subscribe like and subscribe like and subscribe yeah yeah okay subscribe button on the youtube channel because that's where you'll find so much of our stuff right yeah so this is um now I'm going to share this other part this whole thing is built on an amortization I used a mortgage calculator amortization and yeah I saw him working on this and I was like um we're buying a house yeah so this one this one actually amortizes the numbers I have in there this one actually amortized out to be um It's just 22 percent interest, but I think I need to look at the rest of this. But bottom line is what I was able to do then is take that amortization, And because it doesn't matter, I'm only amortizing based on the, and I just realized I've got a problem here, Michelle. I've got something I've got to fix. So we may have to continue this to the next episode because I didn't catch that that amortization is built on a different price and I'm not sure I can change it and have it all work right in the middle of this conversation. So I don't want to, I obviously don't want to present numbers that are incorrect, but let me just kind of present the idea and the layout because this part would be relevant. What I'm looking at and the methodology that I'm using here is to basically say, and let's keep this 30-month part hidden for now because that was the old data. I just kept this so that we'd have these labels over here on the right side as to what you're seeing. I hit a bunch of columns. You can see right here, it jumps from month 3 to month 21 so that we can have it all on the same screen. But I'm basically taking an amortization and I'm saying, okay, if the customer came to trade us at the 24-month mark. What does that look like? We can pick whatever the value, like the yellow cells are the ones that I can plug in and change. So over here, I've got some structure that says, that's the part I changed at the last minute, not realizing the other part wasn't going to follow, is that the selling price, 13.9%. I've got an inventory cost of $8,000, which results in a gross profit of $5,900. I've got some add-ons to be financed. It obviously affects the amortization and then the down payment. So that's going to let us get to an amount financed. And so that needs to drive these numbers. And it does look like actually this amortization is using that number from my calculations here. So we may be okay. I think for today, until I get a chance to reconfirm everything, we'll just kind of focus on the method that I'm using. So I'm, I'm basically, um, looking at now, if my car was $8,000 cost at the time that I financed it originally, then obviously we can all pick a number as to what we think that car would be worth at 24 months at wholesale. And so I picked, I picked 5,500 at 24 months. I'm just, you know, anybody could guess it and I could use some, we could use some methodology in the future to arrive at better numbers. But what it does now, it says, okay, in that 24 months, here's the interest that I would have earned. So again, that kind of illustrates why it's kind of problematic in terms of where we're at. We've collected $5,500 of profit. I mean, there's just no other way to look at interest collected. It's profit to you. And it's the right kind of profit because we only experience that income as we collect it, unlike the gross profit markup on the car, where we're gonna get taxed income wise, we're gonna experience tax on that. I would also say, even though it's a much smaller number, every dollar that we increase our gross profit and our selling price also moves our sales tax. So, you know, while that's a pretty negligible number. Most states it's upfront. Yeah. So you're paying more income tax because I'm charging more gross profit on the car and I'm paying more sales tax on the front end. And so we didn't go into a lot of detail there, but I'm just simply saying at this point, we've collected $5,500 of interest income from the customer. And I think it's worth noting back to what I said. That I'm not going to experience a charge off with this customer if I trade them today. And so that interest that I earned that I had anticipated setting aside for future losses with this customer, I don't experience it. So I need to kind of factor that in, I think, in my thinking. Now, the customer's payoff is seventy nine hundred. So if I give them a trade allowance of the same number, just to kind of keep the math simple and say I give them a trade for the same amount. and what happens with the write-off I deal with that in terms of what how it affects our our balance sheet and p l so now the impacted cash flow what it means is I now have to go replace my 8 000 car to put another 8 000 car on the front line right and I liquidate the trade I just run it to an auction or sell it to a wholesaler and it's worth 5 500 so I bring in a positive 5 500 I bring in a new down payment. This assumes a new down payment from the customer. I've got a $1,500 number in there. And I do think there are a couple of things I didn't, I just barely made some last minute notes over here. I want to jump and say other considerations here is that in this scenario, I would say the customer needs to bear responsibility. So think of it like a lease. Obviously, if in a lease scenario, it's written in a language that customer would bear, if it's missing a fender and it needs $800 worth of body work customer, that's on the customer. Customer is responsible for the depreciation. Okay. So this assumes the car's in good shape. It doesn't require any additional work. And now we traded in like that. So now we get a down payment and now the dealer's got the funding of the TTNL. So to trade with that customer today from a pure cash perspective, does that leave anything out? Can you think of something else that's going to be impacted? So from a pure cash perspective, after I replaced the car, I'm negative a thousand dollars. It's taken me a thousand dollars cash to do the deal today is another way to think about it. Okay. Okay. Now the impact of the profit and loss. I have profit on the new sale, $5,900. I have an internal write-off of the trade. So I'm double checking that number. I've got a trade allowance of 7,900. That account balance is still there. So I've got to write that gross account balance off after the customer leaves. The acquiring the trade and the interest that I've earned in the deal is like there's no impact to the P&L that day. So the change of inventory doesn't impact the P&L. Those things do impact the balance sheet, which says, okay, what happens to the balance sheet? My receivables go up by 13%. new sale, right? New receivables. My, my receivables go down from the trade right off. I write off the $7,900 account balance. And then I've got a plus cash or plus, um, impact to the balance sheet of the, um, cash account from selling the trade. Okay. So it's either represented on the balance sheet as inventory, or if I just sell it immediately, then it's cash. And now I've got the negative $8,000 to replace, um, the, the new, um, the other car which impacts my cash account which affects my balance sheet so now I'm at 2721 gain on my balance sheet so I think that's important I didn't really get into the equity piece I mean I think that's another element we could look at but I'm just saying I went negative a thousand dollars. My balance sheet went up 2,700. Okay. And now my projected income, the last piece that I have in here, and there are other pieces I would invite feedback from anybody listening. If you think of other things that you would like to see in these calculations that you feel like are consideration, please let me know. But I just said, if I don't trade with this customer and their account balance stays where it is, then the anticipated interest income from that customer over the next- Two years or- It's 12 months, actually, is all I calculated. It's just, if I just let that customer keep paying and they move toward the end of the note, I would collect another $1,800 of interest. But if I trade them in, then I'm resetting the clock, so to speak. I'm resetting their account balance. And they're still paying the same payment. We didn't dig too deep into that. But this assumes they basically just trade and keep the $1,500 down and keep the same payment. So now I would have $3,100 almost of interest income if I do the trade. So I think it's just, you know. You mean not from the new car, but from the old car? In total? No, I'm just saying because there's a new account, the account balance goes up instead of having an account balance customer. If I didn't trade, the customer would leave the building today with a $7,900 account balance, which is only going to drive so much income in the next 12 months. But if I trade them, their account balance goes back up to 13 grand. And so now my interest income goes up because of the account balance. So that's kind of the part I was trying to break down. And so I think now when we put this information in front of dealers, I just want them to be aware And think about the impact because you touched on some of the intangibles. And I think for me, another question that I asked Brent Carmichael, which by the way, I'm grateful to Steve Burke at Agora is going to be with me on Monday. And we're going to ask basically the same questions of Steve that I asked of Brent. And, you know, Steve's a guy who's had a long career and especially as a finance company, he's more, and we'll talk about it, but I think his career has been more in the finance company side, acquiring paper and running portfolios than it has been in the dealership side. I mean, he's done both, but certainly he would understand the mathematics here because it's all part of what we're doing. But one of the things that I talked about with Brent that I look forward to asking Steve as well is I asked him, look, if you were opening a dealership tomorrow that was a lease here, pay here dealership, Where would you be setting your term? So I would ask the same thing of you. You've heard me talk about some of this kind of stuff, and we've obviously had conversations with LHPH Capital. I love some of my past conversations with Trevor, and I look forward to many more. But I wonder if you can guess what Brent's answer was. 24 months. yeah he said 24 months so I think um and this was that without any I didn't feed him anything right I just that that was just from what he understands about the industry lease your pay here the data that he's been collecting for a long time it's like that's where you set the the thing yeah I don't remember I think he gave multiple reasons and I i don't remember exactly but I followed up with with why like why why 24 months you know for him it was really between 36 and 24 months and and he I remember that one of the things he said was the same thing I was sitting there thinking, because I would be doing the same and I've said the same to others. And I probably said it to the folks at LHPH. It's like, um, I, if I'm the dealer and I'm, and I did this by the way, with the dealership in Tennessee, I managed the dealership in Tennessee, um, lived in Texas and back and forth to Tennessee a lot with the dealership that was, we were doing about 40 a month and lease your pay here. And so it was a good education for me. The, I think we've covered that story in the past, but it was, it was a total restructure of the thing. And it was really successful to kind of turn around with them, but they were doing pretty good volume of, of, of lease your pay here. And we did a 24 month lease with a 24 month warranty. And so what it does is it allows the customer to, you think about it for, from the pure dealership standpoint, let me just be the dealer for me. What I love about that scenario is it, In 24 months, I get to have a conversation with the customer. We start to mail them. We start to reach out to them and say, hey, your residual is coming due. It's time for us to meet and talk about what you want to do. And so if I get to sit with that customer, I say, and I'm proactive about it. It's my idea, not the customer's idea to trade. And so I get to meet with them and say, hey, what's your situation like? I mean, are you happy with the car? Do you want to keep it? What do you feel like you want to do? And I know I'm sitting over here in the back of my mind. I don't ever find it necessary to say this to a customer, but in the back of my mind, I'm saying to them, I'm saying to myself and trying to, you know, lead it feed it into the conversation where I can is that you probably don't want to own this car it's going to be worth less in two years this asset is going to be worth less in two years than it is now and so you decide what you want to do but I know that for them they're going to put ownership into an asset if something's going to be worth a lot less it's going to depreciate now it's up to them to make the judgment but I'm simply saying not sure you really want to own this car I mean, that's like a whole other topic, but a lot of very smart business people, it's like rent what depreciates, own what appreciates. That's a smart money management way of looking at what you're putting big chunks of money into. And forgive me, I always get emotional when we talk about leasing. Yeah. I have just a weepy eye. It leaks. That's enough ugliness for today. But anyway, I think it's an important element to consider. So when I'm approaching the customer... I'm simply saying, and this is all math I can run through in my head, but it's almost like the account balance would be similar and the ratios would be similar in terms of where the customer account started, where it is today, and what is the anticipated future value of that car that they're driving. And is the customer the asset or the car? Do we really want that car as the asset? I mean, it's going to be worth less in a year or two years than it is now. Well, and like I said, paradigm shift. Because we hear from and have... uh dealers that it's they they look at a car as I can put three different seats three different butts in that seat right and so I'll repo it resell it again repo it and so that asset the car is worth x amount of dollars but they're burning through customers I so want to get off into the repo conversation around that, but I think for today we're better off to keep away from that one and just think about the trade scenario because there is some elements to the repo side that factors into what we're talking about here. But I think what we really have to ask ourselves, is the customer the asset? And if the customer is the asset, then what does it work to keep them and make them happy and keep them under warranty? Why do we do a warranty? Is it to help us or help the customer? Well, and we've had a conversation about that yesterday and days before where it's like, you know, you have your warranty and you have your service contract. And to get someone to that 24 months and having... The customer is the asset, but having something that can trade in and keep this whole machine going, you have a higher probability of having something that can trade in that has... it's in better condition, you know, that's that all of that, if you support and, and you're have a better chance of, of keeping a happy customer because they know they're supported in all of the stuff, because I, you know, most, most people. Yeah. And I know this is true for us because when we've bought cars, we've, we buy the, the, the service contract and why because we've had transmissions replaced we've and without us having to come up with an exorbitant amount of of dollars and and I don't care if you are buying something off of a franchise lot or if you're buying something at a buy here pay here everyone knows that cars break down so I think what the reinsurance folks would say and it's it's absolutely true um I I'm either going to offer the customer a service contract which is going to bump their payment a little bit they're going to have the payment responsibility obviously I could choose not to and put it all at the end that's my discretion as a dealer but but most dealers are going to charge the customer a payment for a service contract or I'm going to provide a warranty which is included in my price the customer doesn't pay any extra So those are two ways that I can support the customer. They can buy that or I can include it. Obviously, if I'm including it, my price is going to reflect that. I have to allow for that in my financial structure. Or I can loan the customer money. Okay, so in that case, it's coming out of my cash or I can do goodwill repairs. And that was actually stuff that we were talking about is because we were discussing one of our clients that they do a lot of goodwill repairs. They don't have the service contract thing. And it's like, you know, that it just it financially makes sense to do. do the service contract get them to understand the importance of that and it's you know a minimal amount every month that they're going to be paying but then that supports them that money is going into an account and that's there's no more goodwill um there's no more goodwill repairs right so that's a whole different conversation I want to save for later because I think the piece that uh that we're touching on I think is significant like Again, focusing on 24 months. If I protect a customer or I support the customer over 24 months, I could do a warranty. I could do a service contract. I could do side loans for them. I could do goodwill repairs and pay for it out of my pocket. Or I could do nothing and pay for it in terms of degraded collateral. Or just a repo because they stopped paying. That's what I'm saying. They stopped paying, so I pay for it now. Because what? I didn't support the collateral, so now I get the collateral back at a much degraded value. I'm writing off a large balance on the customer's account because I did nothing to support the customer. So there's obviously a goodwill customer service element to the reinsurance side. And we're not... You know, we're certainly advocates for reinsurance. We see dealers build a lot of wealth. And I think I mentioned in my last episode, after I recently extended with one of our clients, the cash flow projections from five to 10 years, the wealth creation and reinsurance is substantial. So it's certainly something we're advocates of. We believe dealers should have a hard look. Well, it's not just for the wealth side, but it's because it is supporting investors. your customer I mean it's the wealth is a straight line reason why but the reinsurance is it supports the customer so customer success can equate to long-term customers repeat customers and you know people that that feel like this is where you want to go because they you know you really that That I had a problem and it got solved. I had another problem and it got solved. So another thing that happened in our V8 meeting last night, and this is where I think reinsurance people would pay a lot of money to have this information because we had dealers on a screen in a virtual meeting and you had some saying, here's why I chose to do reinsurance. Here's why I chose not to do reinsurance. Like these are established dealers, right? And they, and, and so we don't have to go into the reasons, but it's like, it was really fascinating to watch them talk through. Here's why I like it. Here's why I don't do it, you know, and so on. We tried it and it went, we only do CPI or whatever. So it's like, you know, everybody's got their different business models. That's one of the things you and I are going to, if we do this business for 20 years, we're going to still see dealers being all different kinds of business models and business approaches. That's just the reality of buy here, pay here. You'll never have consistency in terms of, you know, a business approach and that's okay. I'm fine with it. I think, But what I want to do is continue to do this and bring information dealers because I think it's a missed opportunity is kind of what I would say is that when we aren't familiar enough with the numbers and we don't really look at the whole picture, then I think we're missing an opportunity to be proactive. And I think we're helping ourselves too, just like this scenario. If I can... If I can trade that customer at 24 months, dealers are sitting over there thinking, well, no, the negative equity, the write-off, I got the write-off, I don't want to deal with the negative equity. Well, you're missing the idea that you're also going to be acquiring a trade that's in good condition. You've got a car that's now, you know, they put some miles on it and I didn't say, but the dealer, the consumer really also needs to, you know, suffer the miles. And they would in this scenario because the car would be depreciated more. And so it would be reduced. And so they would be, they would be, you know, dealing with that. So, so there's another element to this that we can cover in the future, which is the, the rolling the balance, you know, dealers talk about, should I roll the balance into the next deal? And I think what we're really suggesting here is what you ran here is yeah, no, you're not writing. They're rolling the balance in. I'm absorbing it. And part of what I'm saying is I think dealers are in a much better position to to remarket that trade and absorb the negative equity because they're gonna they're gonna keep the customer and they're gonna keep the cash flow and they're gonna you know they're gonna have they're gonna financial motivations and they've got and so a lot of times they may benefit from getting that trade-in it's just think about the difference in that trade-in value because what what mileage range are our dealers financing and you know they're 120,000 miles or something and so now what's that what's that car worth in two years what's that car worth in three years and wouldn't we rather have it back at a time that it's, it's, it doesn't require any work. It just needs a cleanup and maybe some fresh spark plugs or whatever. And do they even use spark plugs in cars anymore? I don't even know, but like, I'm so out of touch on the mechanical side, but it's like that. But the point is that I'm getting the car back and I'm, I'm recovering some strong collateral and something that I can liquidate and, and, and I can remarket wholesale or retail and, So I just think it's it's something that for today it was about just starting the conversation, laying out some numbers to think about. And I look forward to bringing back more of this information about, you know, when we start to think about that interest income as going against losses. And now we don't have those losses with this particular customer. Then then we can say there's negative equity. Yeah, but we we've already enjoyed a lot of income. over here that we don't have to use toward our our loss bucket and so we we just got to start to think about the whole picture and so this is all I'm trying to introduce to dealers and we're we're talking about some of those things obviously through our v8 groups and oh yeah I want to have a chance to just you know start the dialogue and we're just talking about numbers over here and throwing in a couple of intangibles to think about and um I'll get on my I'm going to get on my soapbox for just a second. If the collateral or the the collateral car or the the customer? If the customer is your collateral or your asset or your asset, sorry, if your customer is your asset, not the car is your asset? How are you marketing? Good point. Yeah. We're out there selling cars a lot. So Michelle's stepping up. You want to sell human solutions. It's like, because everyone needs a car and everyone has problems with their car and we can help you. We can support you through the entire process. And, you know, just so what, what is it? What is what's your focus on marketing? Is it the car as because that's the asset? Or is it the customer? Because that's the asset? Yeah. And did we do that poll? I can't remember where we did that poll. But I asked that question, basically, and dealers were pretty much coming back and saying that they they promote the program. Oh, I know it was in our survey that we did, which by the way, that's due to be updated. I need to get that out to some more dealers because we, it's Monday that we're gonna announce the, bring the results from that survey that we did. So there was a 10 question survey on marketing. And so that was one of the questions. So we'll be able to bring back the results and talk about that. What else? I don't know that I've got anything else. So I don't want to make everybody a happy weekend. It is Friday! Yeah, I think we're gonna try to do a hike again. She's gonna drag me on another hike. I am, but you know, maybe we won't do something that has like a 1200 elevation that we climb. I'm gonna start preloading ibuprofen now. I'm trying to keep his heart healthy so he can be around. So that, you know, you can be around for me and all of you. So, I'm not selfish. I was just trying to get to the top of the mountain last night. So, it'd be a good spot for them to medevac. Yeah, well, and it was. It was flat. So, yeah, we should just try to do the top of something. Thanks so much for joining us, everybody. Again, if you want to take a peek at some of the things that we shared on the screen, go to our YouTube channel and like and subscribe. And we hope you guys have a great weekend and we will see you on Monday. Thanks so much again.
