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. morning everybody happy wednesday good morning back in the podcast studio for the first time in a bit so since friday since friday yeah I'm gonna turn you so that because you're like way off on the side I just kind of scooted over oh okay it was me okay camera not the camera yeah all good So, yeah, just a couple quick updates. Saw that the poll results are coming in on people who attended the dealer forum. Yeah, a lot of our friends and colleagues and all of that. It sounds like it was a real great conference. I'm going to reach out to some of them and ask them to be guests on Friday so we can talk about what their experience was. And a lot of people, including a handful of our V-Eight dealers, were there. And so I'm interested in hearing from them. Some of them are... attended an event like that for the first time oh right I thought it was highly valuable so good yeah good good there's one now Rudy so Rudy was one of the ones who attended so good morning Rudy so I'll uh I'll be in touch Rudy I want to see about having you come and be a guest on Friday so you can kind of share your perspective on the event what you got out of it because uh we do Want to make sure that folks know so the next time that comes around, they can be aware of what it is and what kind of benefit dealers enjoy from that. So, you know, it's roundtable discussions on hot topics and good stuff. Anytime you can put dealers together in the room to talk about the challenges that they're dealing with. Yeah. I know one of our, um, uh, friends, Tyler Simmons was there. I think that he moderated one of the tables and I'm looking forward to hearing from him. Yeah. Um, you know how that conversation went. Sure. Yeah. I want to hear from some dealers on the takeaway. So, so let's just, uh, we'll gather some up and bring them back here on Friday. Okay. Awesome. Yep. Um, but otherwise no announcements, a couple of personal announcements had the, you know, at one of our dealers or client had, they won their softball tournament last night. You didn't know that that was even happening. I congratulations. Their daughter, more specifically. He was coaching the nine-year-old daughter. Congratulations to your daughter for coaching. I mean, that's a big deal. Way to go, Rachel. Yeah. He said her name in the text message this morning. Oh, that's sweet. That's very, very sweet. But anyway, we had a couple of our dealers had new baby boys in the family. Yeah. Yeah. Yeah. And it's, I mean, we're heading into the holidays. There's, I think that we're officially done with conference season. Yeah. or for the year. There's nothing else that's going to be going on. And usually the next conference, big one, I think is Buyer Payer United. In April, usually. Yeah. Early May, late April. Yeah. So y'all get a break for a little bit and, you know, get ready for the next round. After you're done with the holidays, start budgeting. Yeah. For the conference season this year. Yep. Absolutely. Well, I think we should dive into our topic right on. And this topic today is around profitability, which is such a such a wide topic. And so I really want to kind of dig into this thinking about folks who are new to the industry. and uh we're gonna end up sharing some things that for our experience folks would be you know old information or or something they've long known but I think we'll also share a few things that might be new way to look at some of this stuff okay so we just gotta first be careful even just about the terminology you know I I profitability in a CPA's terms would be there's exactly one way to calculate your profitability. And here's what it looks like at the bottom of your income statement or your profit loss report. And that's true as it relates to reporting to the IRS, the method that that the IRS uses to arrive at our income. So they know what kind of income tax we have. Right. Yeah. But in our buy here, pay here business, it's just the the income statements And the bank statements don't always go hand in hand. So there's cash flow, right? Most dealers that I work with, they really think day to day in terms of cash flow and cash position. Yeah, we've talked an awful lot about when we put a dealer in when they're wanting to start. And one of the first questions is, what's your overall financial model? And so there's equity and there's cash flow. That's kind of my own terminology. There's models that are focused on growth and profits and equity and delayed cash return. Yeah, because you're just investing everything back in to build it to a certain size and strength. yeah so it's just as simple as putting cash in with the expectation the cash is not coming back for a while right and I've talked about a lot of times you go to these conferences and I'm sure some of them were in attendance in new orleans like folks are are established and they're still negative on cash And so they're still seeking capital. They're still seeking additional funding and growth money and some of that kind. And we're seeing that even in our vehicles. Yeah, I was, I was, yes. I mean, we, that, that seems to be a really big conversation. I was just, I'm on the Neo users group and that's something that they're, they're kind of investigating too is capital options. So it's just, yeah. Oh, really? Huh. Yeah, it was interesting. I was like, huh, that's a new one to add to there. But I have no idea if it's something. But the point is, is that even in that group, too, that capital is a big question. Yeah, it is. This is a capital-intensive industry. Capital is always going to be in pursuit. People are always going to be in pursuit of money and capital and just growing. And everybody's trying to build their business and increase their income. their, uh, volume and their portfolio size. And that just takes money typically. So we've got some slow growth people out there who are kind of doing, you know, a snail's pace kind of growth model and, and reinvesting what they get in. And that, that, that works for them. That's more dealers are doing, uh, you know, the kind of approach where they have to source external capital. Yeah. You know, in order to really find the growth. Well, it is because the capital needed has changed. Yeah. A lot. Yeah. Since you first got into buyer payer. It jumped a lot in COVID. You know, when car costs jumped up like they did, then that would definitely change the model for a lot of people or shift to the numbers. So when you're talking about this profitability question that we're talking about today, has that changed in the last, you know, it's been five years, four years? Yes and no. I don't see. We're only recently starting to see more operating expenses coming in. It's just been the nature of my work as a coach. We don't really get into the financial side. We're more on operations and front end. Well, and I was asking you this morning, can you... like, take back or, like, go back. And we've been collecting data through V-AID for the last year. But there are other clients that we've been, we were collecting data when we were doing their monthly reports. And, and I was like, do you, can you, like, extrapolate, extrapolate? um from these and he's like jim's like we've really uh until now unless it's a very specific thing for a client we're going into operational costs too because that becomes part of the question that's something that we've started to do that with coaching clients um to collect their expense side so that we can advise them and some of those aspects really as it relates to cash flow like operational cash flow are we cash positive yes or no yeah and then So we're here to talk about profitability, but naturally you and I spend more time here talking about cashflow because it's like the, the, that's where we, that's how we think about this. And I think when I'm thinking about somebody who's brand new to the business and they're being introduced to the first time to this idea around phantom profit, or maybe it's somebody listening, who's not been in the buy here, pay your business. And they don't recognize that, you know, when a buy here, pay your dealer buys a car for, you know, And they get a thousand dollars down. Well, they've, they've got, you know, in that case, four thousand dollars of risk. They're still negative on cash, but they've got four thousand dollars of gross profit that they just generated from that sale that the IRS views as income. And so this is why this is what we mean by phantom profit, sometimes called paper profit. it's money that we earned according to the irs or we certainly owe taxes on it but we haven't yet put in the bank we can't spend it it's not like I can um it's not like I can go to my tax in the shop on a friday and say hey I'm a little short on cash but the good news is we sold four cars so that we'll be collecting that on that over the next three years so I can pay you over the next three years if those customers pay me yeah right that's just not how our business works and by your payer so so we have this problem where we have cash demands up front if we didn't have strategies around um the irs element then we would have additional cash demands associated with income tax and so again For those folks who are new, that when we talk about phantom profit or paper profit, we're talking about paper. And that's really mostly even still what we're talking about today. It's just ways to measure it, ways to really look at the numbers and think about. And keep in mind, I was first a member of an NCM twenty group back in two thousand seven, six or seven. Maybe maybe when I started my dealership to five. But anyway, back in those days when I was a twenty group member. your composite captured some of this kind of information that we're going to talk about today. And so this is where I was kind of first introduced to this method of looking at profitability. And then there've been some others, um, you know, coaches, the Ken Shilsons and some of these folks that you hear, you know, kind of their approach. And of course, Ken himself is the CPA by education and by, by career. And so, um, That's mostly, you know, how he sees it is from an accounting standpoint. Mostly I talks about it, whereas I'm more operational day to day kind of, you know, in the weeds and in the cash flows. So I'm I'm trying to bring to this morning from a white hat perspective. I'm just trying to say here's if I'm a white hat dealer. here's what we want to think about in terms of we need to make sure we're profitable because in order for us to be a successful white hat dealer, we got to stay in business. We got to stay afloat in order to support our customers and build the kind of business that's going to be an asset to the community and be around and really be a resource in the community. then we got to first take care of ourselves. We got to make sure that we get to a place where we're successful. So let's talk about it. But it's, it's, it's, yes. And I would, I, the kind of cash that these businesses generate can be kind of intoxicating. And, you know, you're thinking, well, I've got this much coming in and this much going out. And this is a lot, a lot. What you're talking about profitability is not cash in, cash out as much as it is overall. What does, am I correct in that? It's like, yeah. it's easy to to get into this um uh idea of you know I've got cash I can just throw it at the things that I need to throw it out I remember I I've worked as a as a server um before and and you take home a lot of cash for tips and all of that. And that cash, it starts to burn a hole in your pocket. And so this is kind of a different way of, from our conversation this morning, of looking at profitability in a bigger scale, ten thousand foot kind of um, uh, a way of looking at it. I mean, you can drill it down to the, the, the contracts per contract, but it's a way of looking at it so that you're hedging, um, what happens normally in a contract and in a business and, and all of those kinds of things. Yeah. And that's why this, these topics can be challenging because when you can't map it out on paper and you know, I'm very visual, so I like to draw the stuff, but even with that, you've got, You just got these different elements to our business. And I think, you know, what you're talking about is when you refer to being a service, like that's assuming you're taking home cash and you're talking about it like I've got cash and I'm going to put it in certain envelopes because that's for rent and that's for this and that or I've got to allocate the funds. Well, a lot of our dealers that are brand new, they're not in that situation. They're shelling out lots of cash more than they're bringing in by far. And so that's why the negative cash and there's, so there's the cash component. But what I'm saying is if you think about the typical dealer that kind of grows to a place where they've got a hundred accounts and maybe, maybe in a hundred accounts are cash positive, probably not, you know, it takes a certain amount of overhead to run a business. But again, Um, but when you look at that, you just want to look at, let me, let me break it up in two ways. Let me share on the screen first, this thing about, um, make sure I got the right. I wanted to, uh, um, Rudy also said, I think that we need departments of efficiency. Yeah. And that's a, yeah. Is Trump nominating a, is he? Well, I heard something around Elon Musk being on a task force for governmental efficiency. Oh, cool. And like super transparent. If you're not already a member of X, you know, that's probably where a lot of it's going to go. Well, that's great. I think we'll get more efficient. They'll get it to where we just take rockets to work. That'll get us to work much more quickly. I want to put the money into a transporter. Right, right, right. Yeah. Be there, right? Yeah. So, yeah, I think, Rudy, I get your point. I think we definitely have to look at, you know, efficiencies in our business. I think for today, I would challenge people to think about this in two ways. And this is kind of part that has taken shape for me as an advisor. Somebody's been around it for a long time. I only in recent years, last five years or so, have I started to separate the way to think about this stuff in terms of, think about your you're a finance company right as a buy here pay here even if you don't have a separate related finance company you have a finance arm to your business so you have a sales company inventory management sell the car replace the car sell another car but in the meantime there's this portfolio over here that's running that's a finance arm okay so if you think about let's separate their profitability into the those different divisions so let's look first what I have on the slide on the screen here first and this is one of those things where you're going to want to find it on youtube yeah I see the numbers but let me just kind of explain this is an east coast dealer yeah this is an east coast dealer there's actual numbers from a dealer that we're working with and is one of our v-eight members and they just happen to have expenses reported so I just jumped in and used theirs as an illustration so these are again actual numbers from a dealer And what you see on the first line there is interest collected. So, you know, if we think about a simple interest contract, then we contracts can accrue interest until the customer makes a payment. Right. But based on the balance of the customer's account, but we don't really experience the income until we collect interest. the interest okay so this is on actual interest collected and deposited okay so that's that's cash to us right yeah and that's being generated by the portfolio based on whatever interest rate we've charged you know all customers across the portfolio collectively and then that's so that's line item that's line one then line two is net charge-offs so we just take the gross charge-off and for some of our listeners on some softwares I won't mention names but You got to be careful. You think you're looking at gross charge-offs, but you're really looking at net. You got to add back in your repo recovery proceeds because some of them handle it differently. But bottom line is what we want to end up with is net charge-offs. We got to get the gross amount, which would be the gross principal balance on the account at the time that the account charged off. That's a gross charge-off. Then we adjust for the repo recovery if there is any. And that would give us a net charge off. So you could look at this number on any period of time. You could look at a single month. You could look at a quarter, a year, whatever. But what you're looking for, and this is what lenders often look for, you know, your Primal Lends and Spartans are going to look pretty carefully at interest coverage, is the interest that we're collecting on the portfolio covering the net losses. So that's what interest is really charged for. That's why we charge a higher interest rate because we anticipate higher losses. And so we see that number in our V eight groups that people are a little bit all over the place with that. Some are quite high. They're, they're generating quite a lot of interest in excess of their net charge offs and others are underwater, you know? So I know, my first question, because I'm looking at the numbers and I'm going, that's, you know, a substantial increase. I've, I've, we've worked with dealers that are, they hold on to contracts for a long time before they finally charge them off for a lot of different reasons. And so You know, we teach that it's better to keep your portfolio as clean as possible. And we've actually, one of our clients that you had for years in his twenty group, he would get chastised by the other members. It's like you're charging off too soon. But he had a very clean portfolio, and he came from banking. I mean, like an exec banking level. And so this is the way that he, in understanding money and being able to keep things as... It's really having things flow nicely. You know, he did a pretty quick charge off. And I believe we've been working with this dealer for East Coast dealer for a while. So I imagine that he's not been holding on to charge offs. No, this is clean. But I think I don't want to run the risk of confusing people because I think in that scenario that you're describing, that would contribute to efficiency and a lot of other things. I'm glad you brought it up because. One of the things that we are working to create in our curriculum for some of the upcoming education around White Highway is what I would call financial and operational discipline. Okay. So what I mean by that is having the internal policies and having the discipline to adhere to those policies and to charge off routinely. Why? Because If I'm lending to you and you're the dealer and you're not taking your charge off, your profitability looks better. You know, you kid yourself into thinking that you're doing better. And so you need to take those charge off. We would be recommending and writing a policy that says we're going to take charge off that meet a certain criteria. You could have an occasional exception to keep one. And we've seen with charge offs a couple of other things. Ways that it's been taken care of. One, you know, when we've witnessed and we've gone deep into dealerships' numbers that the general manager or whoever is not charging things off because it affects their bonus. Mm-hmm. And so, you know, it's, and, and that when we've worked with new dealers that have been in business for a long time, we're like, there is all this dead weight on your, your portfolio. Let's get it charged off that it scares dealers to death to see that happen in, in a chunk. But this is this here. I mean, cause it, it's, it, it looks really awful on their numbers, but that's about external. forces yeah that's an external pressures right line of credit whatever we got covenants whatever so that's great so the point is is that it's better to do it in a very timely and and um rhythmically kind of way write a policy write a policy and follow it because then you know when you when you are streaming stringing numbers together and overlaying them year over year, over year, over year, you have cleaner data to look at than holding on. So, you know, I think with this too, it's one of the first things is make sure you get a good policy and then stick with it. But let's, let's go into this. So I think the bottom line here is that, you know, again, our two line items, line one is interest collected. The next line is net charge offs. And we're just subtracting that charge offs from interest. Just say, are we, Are we in the black or are we in the red here? Are we collecting more interest than our equivalent net charge-offs for the same period? So again, it could be across any period that you want to measure. But you can see that this particular dealer, this is based, I don't know if it says it on the headers, but this is based on three-month rolling averages. So it's not going to spike up and down a whole lot because the dealer had some extra charge-offs one month, right? So this is going to be across a three-month average is what we're using here. And you can see that the dealer's been above water, above water, And this last month in October was the first time their three-month average dipped below. Okay, so that's not necessarily an alarm button. It is something to watch and be aware of. But I think for our conversation here, we're really just suggesting that think about your portfolio. Is your portfolio supporting itself? Because if our interest coverage, if our interest collected is covering our net charge-offs, then we don't have to adjust that. You know, that's not really reflected or it would be neutral adjustments in our profit and loss report, right? If we're a sales company and a finance company, a buy here, pay here dealership without an RFC and it's all on the same, financial statement then those the finance losses are kind of being taken care of by themselves okay so this is this is something that's the part that I'm saying is new for me in the last five years to really think about the portfolio separately like that I'm used to kind of just lumping it all together and looking at the thing especially with related finance companies in the picture but now if I go to the next slide I'm just taking that same information that we have at the top of the of the report and adding some of the numbers around operating expenses. So this is where only in the last three months or so have we started to collect from dealers operating expenses. And we're doing it differently. We only ask them to turn it in quarterly, turn in the most recent quarter. And so all the numbers that we work from are just whatever the average month is from the most recent quarter. And now we just load that information there. So that's what we're looking at here. In this particular case, we're working off of the second quarter. This dealer has not, they don't have all three months from quarter number three in. So I'm just using the numbers off of, and that's why those numbers are in bold down there. You can see the average. I can't quite read it, but let me expand my screen so I Operating expense unit per sold? Is that the one you're? Yeah, I'm just trying to make sure. So the operating, yeah, per unit sold for this dealer in the second quarter came out to be sixty five hundred thirty seven. It looks like you've had that strung all the way across. I did. I just used it and I kind of italicized it saying I'm using the same number because I don't have any updated numbers for this particular dealer. Right. So I'm just using that as the most recent data available. But on the first row, for those not seeing the screen, the first line in this little kind of subsection is average gross profit. So this is, again, a three-month rolling average. So it's not spiking because we sold some different kind of cars. I mean, it looks like it's pretty consistent within about four hundred dollars. Yeah. So that's our gross profit per sale. So why do we separate that? Well, because if we don't have... if we don't have to adjust from our profit from the sale, anything related to the charge-offs. So this is kind of a different way to think about it. And most industries, you know, if you're a taco stand or a shoe store, you don't have to think this way, right? But in our business, we have both components. We have sales and collections and so on, sales and finance. So So now we have an average gross profit from add-ons. So in this case, this number could be a lot higher with some if they're doing reinsurance and they're going to have additional profit that they generate from sale of a gap policy or sale of a service contract. There could be additional line item there for additional profits besides just the markup on the car. And now we have, and that equals an average gross profit per deal with, in this case, I only have two ninety nine on the add ons because this dealer doesn't do aftermarket. They only have a dock fee. So that's a number that's not reflected in the in the sale. So I have it in there. So now we're at an average gross profit of about seventy six, seventy seven hundred dollars. with the dock fee. And now we just look at that minus our operating expenses of sixty five hundred dollars per unit sold. So the same thing you could do. You could do this across a quarter. I would recommend doing it on a quarter because you can have weird months where you had extra expenses or whatever. So I would say look at on a quarterly basis at least. and use that average. And so we're just saying our average operating expense per vehicle sold in that quarter was X. So we just subtract that from the gross profit that we're enjoying on the average per car. And that is some reflection of your profitability. So this dealer in this example, their rolling average back in April was a thousand and eighty four. So the dealer would say, that's my my profit. per car sold. And now they would just multiply that times what I sell, fifteen cars, twenty cars. That's going to be roughly my profit for the month. But let's just remember that's not in the bank. That's just that's paper profit again. But it is an indication of, you know, that is the profit that I can expect to put in the bank over X number of months. Mm hmm. And so this is why we just urge dealers to think of it this way, break it down this way, because it is my belief based on what I see in all these numbers is that When we're able to run in the black on those, we're in a pretty healthy position. You know, those operating expenses, often we create a different line item for cost of external debt. Like if we've got a line of credit or the cost of money that we're sourcing, or maybe it's a partner that we're paying, you know, ten percent on their money or whatever, then we would have a separate line item for those. Because I think it's important to have operating expenses and then have kind of external expenses associated with debt and financing as a, as just a different line. And so dealers can kind of separate that and see what that looks like. But I would say generally speaking, if you are in the black with these numbers, then you're in a pretty healthy position. And you can monitor it and watch and see if anything needs to be adjusted there. But these are nice just because you've got three-month rolling average strung together month over month. And so you're not going to see big spikes. You're going to be able to kind of chart a trend pretty well. And in this case, this dealer, obviously the glaring thing when you look at that is, wow, our profitability on the portfolio is declining because you can see that it was running twenty five grand back in June, twenty four grand August, eleven grand in September and now thirteen under in the month of October again across a three month period. So could they have just taken some extra charge offs? Maybe. But this still begs the question is, if you didn't have this, would you what method would you have to know that your profitability in your portfolio is declining. You're experiencing higher losses. Your interest is pretty much the same because your portfolio is remaining about the same in terms of number of accounts. You can see that top line is running pretty consistently about sixty eight grand of interest income for this particular dealer. I forget how many accounts they have, two fifty or something. But the But that's the idea here is that when you have that information, now you can begin to say, oh, my portfolio is underperforming. So how long would it take for a declining portfolio before, I mean, for someone that's not tracking, someone that's just, you know, it's like just watching cash in, cash out. How long would it take with a declining portfolio before they felt a pinch? It would depend on a lot of operational answers because it depends on what their cost of operating is, whether they would really feel it because these profits like that net charge off number, that's just paper to them. That's a write off of an account. Yes, it quits producing a five hundred dollar car payment, but it's kind of hard to feel in that way. In fact, they probably from a cash perspective, when they charge off these accounts, they're They recover the repos, they hope, we hope. And so they actually feel some cash gain, a little cash bump from recovering those repos. So they may not feel it in their bank accounts as much. But what it's saying here is, hey, friend, the portfolio is no longer supporting itself. Yeah. Yeah. Rudy is quite active this morning with the show, which I love. Wow. I'd love to see those expenses break down. And then the second thing was that business model could be shocked by an even small interest rate change. And so, you know, which is true because there's... You mean a cost of money for a line of credit probably as well. Rudy, if you're still listening, you can go ahead and clarify. But I think that it just... to me, the first thing that, that, that question said, and I, it's so true is, you know, whenever we like, how do you do this thing? And you post it online or someone posts this thing and how do you do it online? It's like, depends. And that there are so many moving pieces in a business model that one small tweak can change an awful lot, which is one of the reasons why, um, Rudy said, uh, yes. Cost of capital. Um, uh, yes. Absolutely. So I think that's looking at the cost side. Go ahead. Do you have something else? Yeah. Rudy's. Thanks, Rudy. Yeah. My menopause brain just kicked in. Yeah. It's something fun. I love trying to finish out or guess what the rest of the thought was going to be. Yeah. It's fun. And sometimes he's right. Sometimes. And sometimes he's so far off. Sometimes. Anyway, so I think the other thing I would think about, Rudy, and I'm glad this came up. I remembered what it was. Let me quickly illustrate the thought around. So I could have read Rudy's question around adjusting the interest. Would Let's say, for example, I'm a dealer in my portfolio and I got a hundred accounts. And because I see that I'm a little bit underwater in my interest coverage, I could jump my interest rate from twenty percent to twenty four percent. Well, isn't that interesting? Because the customer's payment is probably still going to be the same. Let's use an example of five hundred dollars a month. All this means is that more of what we collect from the customer is now reflected in interest. But from a cash perspective, we don't feel it, right? It's the same five hundred dollar payment from the customer. So it's an important thing for folks who are new to this industry to really you know differentiate because we we do find that dealers who are coming from retail you know or franchise space and they're not used to this finance arm that it takes a while to adjust mentally to this kind of big paradigm shift that we talk about and so now I'm taking them even further into a paradigm shift let's let's let's think about because like in this example with october getting negative Now we could think, okay, so now that is going to start to hit our sales company profit loss because we, we were, we were, kind of quarantined over there and we had everything performing and the interest was supporting our losses. Now that's not true, which means our losses are going to have to hit, you know, there are expenses in the IRS's eyes. They're going to hit our, our, you know, income statement on the global operation regardless of whether there's a finance company or whatever. But I just think this is part of what the challenge is and part of why I wanted to talk about it. But I think in a, in a white hat context, I'm really saying, why ad dealers are going to, they're going to be playing this long game. We can't play a long game unless you're in business next year. Right. You know? And so you got to really think about how do I support my customers, help my customers be successful and take care of myself and my team, my family in the process. Business has to be. You can't help people unless you, it's kind of like that whole oxygen mask thing. thing on an airplane you got to make sure that you're you're being taken care of too and that your business is being taken care of and then get out there and help people and then add to the fact that these dealers are are busy they just have a hard time getting it to their desk enough to run these kind of numbers so this is obviously part of what happens in v-aid is we we compile this stuff and they're able to see it month over month in comparison to other dealers and have conversations around hey what's what's broke what what works for you We're always talking about you can't, you can't, until you measure something, then it's just speculation about how, why, all of that. I would, I would also, I remembered the thing. I wrote it down so that I could remember it too. You know, when a, when a dealer buys, We've, we've, we've worked with like lots of dealers and sometimes I see a dealer. I want to either it's a goal or it's a problem that they that they want to accomplish or solve. And, you know, one thing we really, really encourage, strongly, strongly, strongly advise is that you track your numbers, you track the things. And if you're going to make an adjustment, that you not make five adjustments at once. Because, I mean, we've watched that with dealers where it's like they're throwing anything and everything at the problem and And then you honestly can't definitively say what worked. Was it a combination? Was it a single thing? Were some things taking it down, but others taking it up, but it leveled itself out to an improvement. So, you know, this, the tracking. and following numbers and then making tweaks and giving it a few months, you know, to, to you start to see things, um, that shift that's happening and you know, if it's, it's positive. And so I would, I, from, from how you do your numbers, when you go three months rolling average, give it two or three months, um, and then start the next thing and then start the next thing, um, and, and see what you can do to, to shift and change. And, Because that, that big red thing, is that insurmountable? No. So what would you with, I mean, I know that you understand the, the, the inner workings of this business, because you've been working with them for a while. What, what would you tell them is a higher well you know the business so I was gonna say a solution I mean what what do you do first thing you do is to your point about measuring we go back and start doing postmortems on the charge-offs because my first thought there's we're probably you're not gonna Even if you adjusted APR, like you bumped up your interest rate, that's not going to be felt for a while, right? So you're going to, because you're collecting interest on the portfolios out there already. So you're not going to move the needle much on that number. So it's really about just net charge-offs. We either got to start finding solutions and sparing, you know, not have the repo in charge-off. And the other component of that would be to improve our repo proceeds and the recovery on our repo proceeds. But that's usually following a book value. So, you know, that is what it is when we recover the car. But we first got to make sure we recover our collateral when we can't save the account. But it really just begs the question, what's going on? Like it's forensic analysis. It's that postmortem thing. Well, and that was something that I was going to, I didn't hear postmortem in my career until I went into a corporate setting. And that's unfortunate because once I learned what that was, that I was like, oh, that's so beneficial. And I'd like to do a show in the next little bit on what a post-mortem is and why they're helpful. Because a post-mortem, just so you all know, it's like when someone dies and you take a look at all of the factors and you like... This is the cause of death. Autopsy, yeah. It's kind of the same thing, but it can be used for positive and negative. And it's like that, and this is another thing that I will go into it, but that there is some kind of policy and procedure around doing a postmortem so that you can start to track your trends even in that because that is a really if if you've never done a postmortem before on a charge off um or you know well charge off is usually repo or or whatever Um, it's, uh, this, this is going to be a really good one, a good show when we, I, maybe we'll do it next week, um, for you to kind of, to get an idea and wrap your head around about what, what it is, what components should be in it and how, um, how it can help you. Um, and, and like I've even in corporate, we did postmortems after a conference. And that's not a loss. It's just like, let's do, let's look at this. And it's a really an important, it's a really an important part of running a business. Yeah. Well, especially in our business, we're in buy, hear, pay, or where we have underwriting and collection. So you would want to examine those. And I hear a lot of dealers do it as a team. They'll sit down at the close of a month. run through their list of charge-offs and analyze them one at a time and get the team together and say, why do we feel like we lost this one? You know, what were the circumstances? And identifying that reason lets you now measure that, identify that. Is there something more we could be doing? You know, should we talk about extending our warranty? You know, what would be the solutions for some of this? So, yeah, just analyzing. Yeah, and I would say that Steve Levine would say, and take your policy book with you because if this is something that needs to have a shift in policy so that, you know, from then going forward, because this is a trend. This is something that... Steve would be so proud of you. Steve would be so proud of me. I know, Steve. No, it's right. It's really from a compliance standpoint. It does make sense. We do have new layers of obligations in our underwriting. But I think it's, you know, you think about just losses. Your question was, you know, what would I be doing if I were you know, coaching that dealer, which we are, we're just basically going to say, let's, let's look at our losses. Let's figure out why our losses are up. What, what are we doing differently, if anything? And, and did anything change with, with those? And, and, and again, it's like you charged off. Well, how old were the accounts? What did anything happen during that? I mean, are they all from the same batch? Are they all, There's so much to look at that can be super helpful. What are the characteristics? So when we get to that podcast, we'll look at deal structure. We'll look at customer kind of qualifications and so on, but underwriting. Yeah. But yeah, that's part of what I'd be looking at. So, so again, just, you know, with our profitability things, just kind of know the way to measure it. Yeah. And measure, measure, measure, measure, measure, measure. And these numbers we shared today are pretty easy for most dealers to get to. Yeah, absolutely. Absolutely. Alrighty, everybody. Thank you so much for joining us. It's Wednesday and we have another show on Friday and we're going to be pulling some people together that were at the Buy Here, Pay Here Dealer Forum to kind of talk about the highlights and all of that. So I'll be calling you. You'll be calling. Don't be bashful. All right, everybody. Have such a great rest of your day. We will see you on Friday. And if there's ever anything that we can do to help, please don't hesitate to reach out. You can find us on YouTube. You can find us on social media. And Jim just loves helping solve problems. Yep. Yeah. All right. Thanks again so much. We will see you on Friday.
