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. Betty, good morning. Good morning. Let's get an audio check. Yeah. So if you're listening, just in comments, would you just let us know? The last time that we got together with y'all on Friday, we had to we was Wednesday, we had to rerecord. wasn't it I don't remember last week um we had to re-record because the audio was again the board and we're still so we did re-record and we have not yet posted it I've had people reaching out asking about it which is so yes please please let us know if you can we'll get that publicized so yeah get it shared yeah email it to the people if you can hear us just send a thumbs up let us know the audio is good and Okay, Wednesday, we had a huge weekend. And, you know, one of the things that was brought up by one of our participants, I'm getting... oh hello shane rhodes brent newman and shane rhodes and you can hear us just fine excellent thank you um uh we had our this last weekend our first class in becoming white highway certified and an all day course and um and uh so we you know got to people that we have known um either at a conference or just virtually we invited in our homes um and uh uh it was really fun because there was especially one of the dealers that that was like Oh, I thought when you guys were talking about coffee time, that was like, just prior to the morning show. But it's like, Oh, no, no, no, no. Because we introduced them to our patio where we have coffee time and, and now you've lost sound. George, can you still hear us. I'm hoping so. We may have some soundboard issues. Yeah. Okay. Can you hear us? And just let us know if it changes and you can hear us again. So this is if we need to just unplug everything and just go straight on on our sound, then we will do that. So let us know. Yeah, let's verify once more if I can get another sound update. Yes, no problem, George says. Okay, so we're just going to continue forward. So great, great, great weekend. Yeah. Great people. You'll hear more. You'll see more. Take them through the course. coaches and vendors and a couple vendors yeah and so uh we didn't have that many dealers because we had a few that canceled last night one side yeah yeah yeah one siding um sickness so uh we missed on a few of those attendees but yeah we got the curriculum recorded that'll be big for the next time around and we're looking to uh june for the next uh uh certification course so yeah that was a big deal so that was pretty cool shall we get into our subject yes um so Yeah. Do you want to give some background about why the subject even came around? Yeah, of course. So I think the, and you can take that banner down if you like, but I just, we can roll that periodically to remind folks that we're on a white hat conversation. So this kind of came around as a result of kind of playing through this whole white hat thing and the white hat thing really, and the biggest part of a white hat approach is going to be helping dealers be successful and part of that is through helping their customers be successful so naturally we're if we're thinking in terms of you know what is what is going to make the difference in customer success what can we do to strike a balance between our profitability and the success of the customer and obviously there's more than just profitability things yeah cash flow and and all these things but but that's really was the premise of the question and I posed the question and I think I said it on one of our v-eight meetings a while back that I was going to be asking the folks in the reassurance space because I've kept feeling like there's something I'm missing about why we would put markup in a vehicle service contract. Yeah. And and, you know, this is a white hat way topic because it's I mean, the question and the whole yeah, the the the main crux of the question is about customer success. Right. And so we were just trying to, or Jim asked the question, just try to understand the why that some, that we choose to do. Yeah. And listen, I think people only heard part of a conversation. Sometimes they might think, gee, Jim and Michelle with White Hat, well, you seem like you're more interested in the success of the customer than the dealer. No, it's both. Don't misunderstand. It is both. It's both. We think when the customer is successful, the dealer is successful. And so this is part of why we, In this case, today is a question. Like, I honestly did not know the answer. I kept thinking there's going to be some information. Because let me put it on the screen, Michelle, and start to show what the question actually was for those people who didn't see it. I asked the question. Let me get over here where I can manage this thing differently. The question is there at the top. understanding that financing an optional reinsured vehicle service contract to a buyer pay your consumer means one extending the term right and or the payment so let's just talk that part for just a minute if we add to the financed amount uh-huh then we're either going to increase the payment amount to keep the term the same or we're gonna extend the term or some combination yeah that's gonna be the outcome of adding something additional on the contract Now we know that it also means earning interest on the financed amount. So the more we finance the price of a service contract, the more interest we would earn, right? We know those pieces. So, and then I said, besides additional markup in a competitive market. So I get that part, right? If we, If we're really competitive and we're trying to advertise on price and we're trying to not scare off customers based on that part, it makes sense to me that you would have a lower price to be competitive and then you would work to upsell the customer on the service contract. So that all makes sense. And I ask folks to just put that part aside because we understand that that would be a situation that people would have to deal with. So I asked them, would you be advising a dealer to set the price above the required remittance amount? So let's clarify that part. And by the way, I'm gonna pause for just a minute, Michelle, to make sure. One of the things we talked about in this course over the weekend was with dealers, I said, I I asked them after the course in our our post um course survey did you hear jim or michelle say anything that you would not want your team to hear was there anything discussed that would not be okay right yeah right so so that's part of the premise of what we're doing with our white hat training is we're getting to a place where we can say, and part of the reason customer success equals dealer success is it allows us to speak to dealers in a way that the customer could hear it. If I were talking to a sales manager and customer at the same desk, how could I have that conversation? And knowing that this conversation is part of a syndicated podcast. So it's like anyone who has Spotify, whatever, this is a conversation that it's like, let's be really transparent. Transparency is a buzzword right now. But let's be really transparent about the whys, what these things look like. And we just, by the way, I'll stop and say then that we picked examples. These are absolute example numbers. It's based on just general observation of the industry, but Term of service contract would vary. You know, there's obviously third party service contracts. We're focused mostly on a reinsured service contract. And just so you all know, I was peppering Jim with questions. I, you know, married into buy here, pay here. And it's just like, I really wanted to understand because, you know, one person came up with, you know, you should do a warranty. And it's like, okay. We're not talking about that today, but I really wanted to understand the difference that, you know, the benefits of both. And so, you know, we're doing a, a, um, vehicle service contract and, um, and you know, just like I it's, there were a lot of questions I was asking about like taxes, about all the different things. And, um, so that I felt like I could ask questions that dealers would appreciate. Yeah. And I put together a table that will address some of those things, but I try to stay laser focused on this idea of we're not talking about warranty today. So let me just quickly clarify for those listening who aren't familiar, a dealer, a used car dealer could offer a warranty in which case the customer doesn't pay extra. It's included. it's it's kind of baked in a little bit but it's it's just everybody gets one and it's included everybody gets one hundred percent of customers get one so now the the service contract is optional the customer has to opt in which is part of the reason I'm asking the question of you know how could I make it more attractive and so the last part of my question I didn't read yet is Why add profit on this product if a dealer's main objective is to have the customer shoulder some of the responsibility for any associated covered repairs? Because that is what would happen in the case of a service contract. Customer's paying it, there's gonna be some coverage, right? And so we don't wanna get into the minutiae today about what's covered, what's not covered. That's not the purpose of the conversation. It's really about whichever coverage plan we offered the customer and they chose, you know the profit that we might choose to mark up the the service contract and put some profit in there I'm just trying to understand if there are some strategic reasons like for the reinsurance companies there's some reason to do that besides putting profit yeah and and george uh piped in and this is just something to keep in mind is that third-party vscs can also be reinsured so this this this is uh Been doing this a long time, but I didn't really realize that. So I think, you know, mostly what we see is people with a reinsurance company that are doing their own. They're working through some agent, you know, as George would be. Can you make that any bigger on your site? Yeah, I can try. Awesome, because we're full screen. so those of you who are listening again um please go to our youtube channel uh which is jim and michelle rhodes at the octane group and you'll be able to see the charts but we're gonna kind of talk you through them so um again so that and while you're there you might as well like and subscribe you might as well might as well so can you see that yes a little bit better but I mean it can go larger if you want to uh okay let me try one step larger and see if that's any better um all right so much better just examples just example numbers here so I just said okay let's set a price on a twenty four month contract and I said our cost is a thousand and our markup is nineteen hundred I made it nineteen so nine hundred dollars in addition to the thousand that's right okay so it's marked up uh price is nineteen hundred so that just says and again our term is the same um in some cases with some companies I think they can remit the payment on a reinsured product like a reinsured vehicle service contract at least they can send in the payment to the reinsurance company monthly rather than having to pony it all up front if they choose that I think so you know depending on cash flow and funding But that should be the same because the remittance is going to be based on the cost. So it should be the same on either side. And somebody speak up if there's something I'm missing there. And so on the gross profit side, there would be none if we sold it at cost and there would be nine hundred if we marked it up. Right. In this example, the financed amount, assuming the customer pays no additional down payment, which would be uncommon. then the amount financed in that first example would be a thousand, and the amount financed would be nineteen hundred. So the customer's payment would be whatever is negotiated, right? Without the markup, yeah. Well, in either scenario, you would negotiate the payment with the customer and so back we're back to the thing about I can increase the customer's payment a small amount I can put it all at the end of the loan yeah not increase it at all but then they increase the length of the loan whatever I negotiate with the customer but I think the if we the idea if we just exaggerated if we said the idea was all of it goes at the end of the note then I think that would amplify some of the things we're going to talk about here uh interest earnings so interest earnings would be based on that thousand dollar note uh in the in the no markup situation it would be based on nineteen hundred dollar notes so obviously read more interest income sales tax well sales tax is my understanding would be that's a sale that occurs and so I believe you'll have sales tax and and most dealers pay that up front correct yeah there's I think Texas is the only one that I'm aware of that they pay it based as payments come in sure okay so what do we got seventy percent of a thousand or seven percent of a thousand be seventy bucks so you're talking about almost double that if you do nineteen hundred okay so So just be aware. That's one of the things that would happen is our sales tax would go up a little bit. And this was one of the questions I asked. I was like, what are tax implications? And Jim's like, this next part about the income tax, if it's no markup, there's nothing. You don't experience any income tax on that. Yeah, and granted, we don't need to get into the minutia about, you know, discounting to the related finance company, you're going to have a discount over on this that side. And so this is one of the things that also came up that I didn't get on the table as people were mentioning, and we'll go through the comments here, we can actually, you know, get inside the comments, because I asked everybody to let us know if they didn't want their their comments shared. But the other piece that came up was the idea of advance rates, like, you know, how this would affect Oh, yeah, yeah, yeah. With a lender. yeah so you know that's that's also problematic because at the same time that advanced rates were coming up the question was coming up about pro rata refunds because remember this is an optional product and the customer can cancel at any time so that most commonly occurs as some of them affirmed is it most commonly occurs in the case of a repo customer repos after eight months and obviously the the balance of their service contract is not gonna be paid so that gets um you know pro rata kind of refund into the deal now we don't again yeah details we don't need to I have a question kind of on that um is is an extra thousand dollars enough to push you out of covenants with a lot of with a lot of your your um No, I don't think that's the question. Okay. Because, I mean, if you're baking it all into the price, how much leeway is there usually with a capital provider? I think we better leave that to each individual lender and their particular covenants. But I think most, everything I've seen is that... Okay. Lenders would advance on the service contract balance. They understand the value of having it in there. So now, you know, if I'm a fifty percent advance, then it's a difference between taking a fifty percent advance on a thousand dollars and taking a fifty percent advance on nineteen hundred, of which some is profit. Does the lender want to be profitable? Yes. Now begs the question, though, customer acceptance. would customer acceptance be slightly higher or would it make any difference would it make any difference we don't know we can't know that for sure I think that there's a lot of assumptions out there about whether or not it would um you just want to you want to have some real data yeah what we know is you know they call that a penetration rate which obviously a lot of factors in there how including how well does the sales team sell you know upsell the customer to a service contract right which kind of like like weaves in that thing about difference between and doing a warranty but so um because it is a hundred percent penetration but this is but let's stop here and let me be a dealer for a minute okay let me just sit with you michelle as though you're my customer and I'm going to talk to you and say You know, this car that you've got has a short-term warranty, as an example. It's what a lot of people recommend, especially when there's a reinsurance company. It's common for us. We have a three-month warranty. But of course, you can see that this contract that you're on the car that you're buying today runs about thirty-six months. So let me ask you. we need to talk now about a vehicle service contract. We have a service contract option for you, and I want to make sure you're apprised of that. And let's just talk about like, what would be your expectation if in the fourth month you have a repair that comes up, because these are used cars, they're machines, they break, right? They do fail sometimes. And so when that happens, what would be your thoughts about your plan about repairs on that? because we can talk about a service contract and I can finance that in. And we can talk about it could be a slight bump to your payment. Like we can look at that. I mean, how we finance it, we can be kind of creative about how we do that. But would you be interested in a service contract with, for example, a hundred fifty dollar deductible, which means if you had an expensive transmission or engine related repair and your whatever the hundred fifty dollars and you had protection on the rest, is that something you'd be interested in? Yeah. Right. And so that's how I present it. And now for me, It's really just a question of how, because as a dealer, I'm in the tote-to-note business anyway. I'm already in the business of financing and structuring notes. And so how creative I get to get the customer to agree to accept the service contract is really up to my techniques and my own presentation of the thing, and then how creative I can get on the financial structure. But I can take, in both examples, I could take... I could not increase the customer's payment at all and just put it all at the end of the note. Okay. Okay. That's one option. Software will certainly accommodate that. Now, the next question would be, you know, how's that different if I do that on on thousand versus nineteen hundred? Obviously, I'm extending the note farther when I do that. And it begs the question about the collectability part, which I have listed last is You know, we don't know the collectability on a thousand. If I do it just strictly at cost, I don't know how much the customer's gonna pay, when they're gonna cancel. I don't know how much of the thousand even, my risk, my cost, I'm gonna collect. Now, that's back to the remittance of monthly. If I'm remitting monthly, then I've really only remitted that amount, and then the whole thing gets washed out and adjusted if the thing gets canceled. But if I'm, you know, putting it up front or whatever, however much I've remitted, how much will I collect? You know, remember, Brent Carmichael appeared on our podcast once upon a time, and he shared with us that in their studies and, you know, we don't have the data on their studies. I don't know how many were in the pool, but fairly large study with multiple twenty groups. Their numbers came back to saying that only about fifteen percent of the customers were making it all the way to the final payment okay so if we just so they were either they either were repoed or traded up traded could have been traded okay as far as the one of the two paid and they they studied in a way that they actually looked at the amount of the final to make sure the customer actually was making payments and and so that said that about fifteen percent of the customers made it all the way and made a final payment Now, that's only one piece of information. There would be other things to look at, but it really, and any of these kind of things with buyer and payer, it begs the question, the profit that we put on the contract, how much will we collect? And what is our motivation here? So when I put that at extra nine hundred dollars of gross profit in this deal, it makes me look more profitable on paper but it's just that it's phantom profit is future potential collected profit right so and I can draw against it I can draw against that nine hundred dollars you know if I have a fifty percent credit line and my lender advances I can draw you know some cash against that profit yeah question becomes will I collect that profit and if not what's going to be the outcome For me and I'm really just asking the question in the context of white hat way and if I'm thinking about the success of the customer and my particular motivation as a coach and as a former dealer is. I want to see the customer except financial responsibility for at least a portion of the repairs. Yeah, and we had quite a conversation about that this morning, too, is it's like, so there's multiple things here about doing, you know, whether it be a warranty, whether it be a VS, that there is a financial responsibility for the consumer. Now, fifteen percent don't make it to the end of the note. It's a much higher percent. Fifteen percent make it to the end of the note. It's a much higher percentage that have problems with their cars that that a vehicle service contract or a warranty would cover. And so and we can get to some of the comments here. We may run a little long today, folks, but I think the comments I want to make sure and give folks credit for the things that they contributed to that thread. And and if you're not a member of the BHP success group, that's the only place I put this thread. So I did on most of my social media posts. I put a place where you can go. Yeah. apply to be a member of that private group. And there are about six thousand members in that group these days, so it's still growing. But it's a place where we have these kind of conversations. But again, this one we're taking kind of outside, you know, to really answer the things that are specific to and for us, it's a white hat context. It's like and again, these are just example numbers. But my my question really is one of. You know, if if my main motivation and that was what my question in the social media post was, if my main motivation is just to have the customer shoulder some of the cost of the repairs, then I was just asking. And really, I didn't know the answer. Like, are there some things I'm missing about why? Because in my my understanding, let me just be a dealer for a minute. If I got a reinsurance provider comes to me and says on a twenty four month contract, we would advise you remit a thousand dollars. my assumption in that number is that that should more than cover any anticipated claims against that kind of product okay so I'm anticipating that the claims that you know will be my financial responsibility will be within that number yeah so now the additional is really just profit to me which I understand that the thousand in this example is going into the reinsurance company we remit that and it goes over to this other company The nine hundred in this example stays inside the finance entity, the dealership and the finance arm, as does the interest income that we collect. Yeah. So it's profit to us. The question that we can't know, and that's why today is really just a start. I call this part one. This is an ongoing conversation. The thing that we can't know today is. what is and look I hope we can pull together people who have actual data that can be confirmed and we're happy to to you know bring that to our listeners but I think what we're trying to really analyze here today is are we because everybody knows we say this thing all the time you hear others dealers say it in the social media threads none of us want to set up our customer to fail because we could be hurting ourselves in the process, you know, not just having customer fail and end up in repo, but we could be hurting ourselves in the process. Why? Because we paid sales tax and potentially paid some income tax on money that we didn't collect. Yeah. Right. And that was actually a question I asked this morning. It's like, do we have data on if you do have a vehicle service contract, how much more successful? Yeah. um than just the general pool that those customers are in reaching the point where they can trade it in or they've paid the vehicle you know they've they've completed the contract because I I think that's a pretty I think that's a pretty powerful thing if we can quantify that I mean I'm there's we're in by here everyone has an opinion um and you know and some of them are just like Just a gut or whatever. But I mean, some really hard, solid data about the percentages of people that are successful to make it to that point versus those that don't have a vehicle service contract and being able to get to that point too. And we've challenged folks in the past, and we're trying to live by that same standard, we're trying not to talk about numbers that aren't specific, because we just want people to, you know, we want to move past opinion. And that means getting some real data. And so one of the things we're just doing is going to work and collecting data and, and trying to help, you know, people make better, more informed decision. And it's better done when it's not, you know, doesn't have a sales angle behind it, right? Yes. I'm not trying to sell you something through my dad. Yeah. So this is from Taylor Bird. The synopsis of Taylor, yeah. Early married. Yeah, congratulations, Taylor. Congratulations, Taylor Bird, if and when you're listening. So I saw that you, he got married in... Hawaii, yeah. Congratulations again. We digress. He said, marking up the service contract is really about maximizing profit, both margin and interest, which we've covered, right? Yes. But it's back to the thing about increasing profit. And then he asked the question, why sell something at cost if you could mark it up a thousand dollars? And I'm trying to answer that question here. I don't have the answer, but I'm saying why sell something at cost? And my reason is, I have other sources of income and profit. I can choose not to mark up this service contract. And as a result, my note, my payment could be less, my note could be shorter. I'm trying to get to the bottom of whether or not it benefits me or potentially hurts me to have that extra markup in there. I don't know the answer today. Yeah, yeah. And and you know, does it does it necessarily benefit the customer? Right? Either way? I mean, does it is it is it six is for them? Well, I could say it pretty clearly disadvantage the customer if they have to pay a thousand dollars more for it. You know, they're one of those customers goes all the way to the end, they pay. Or if you want to try to a dealer's is marking up a thousand dollars, but still trying to fit it in with a thirty six month contract. Yeah, there's all these things to consider. So anyway, yeah, Taylor, that's what I'm really trying to answer here is why would we not mark it up? And Brett Buick, most folks know him, especially in the success group. Brett is a rep with Buckeye Dealership Consulting, and they are certainly a prominent provider for reinsurance products in the space and he he gave you know good information he touched on cash flow advance rate an average term or all things that would play a factor and I agree he also said ultimately whether you're selling a service contract or reserving for a warranty or both in buy here pay here the principal loan amount is the same and I'm not sure I understand that part my thinking would be that if I sell a service contract you're wrapping it in the loan Because if I have a twenty four month warranty or twenty four month service contract, I'm thinking that my remittance would be the same. But if I mark up the service contract, then the the the principal loan amount to the customer would be different. So you might not have understood the... So this is a future question. This is something we can dig into later because it's really a question of if that same dealer is providing a warranty, and that warranty for twenty four months is going to take a reinsurance remittance of a thousand dollars then the same question is how much how much is the dealer adjusting the price of the car which to accommodate the warranty yeah so you could add a thousand or you could add nineteen hundred as a rough example I don't think it works exactly that way in the warranty situation but this is something to really kind of uh dig into for later And then, so how profitable you are. So this makes sense to me. If you're suffering on profitability, then certainly you would want to look at marking up your service contract as a way to put some extra, we'll call it back end profit, right? in the deal, so that makes sense. And then Brent Newman, who has returned to the, and Brent, we know, has a wealth of experience in the business. He's been a dealer. I forget if he's J.D. Byright or what his background was there, but then he also was a purchaser of bulk notes when we really got to spend some time with Brent. He was working with a bulk buyer, and so they bought a lot of notes, and obviously, you know, service contracts would have been a part of those notes, so these kind of conversations would have come up with them for sure. And he said, competitive market conditions, which is obviously something I was saying, I want to put that aside. In other words, if we're competitive and we need to reduce our price, I think we recognize that. And he also mentions advance rates and some of the comments that were before that. So it's like you're just kind of highlighting what's new information. It's something to bring into this conversation. So I read through all these, and I kind of focused on the ones that were kind of relevant to this particular subject. Because some of them talked about the warranty versus VSC, and that's fine and interesting for the people reading the thread, but that's not our subject today. So then what is the breaking point? What are their breaking points? Which is really the thing that I'm touching on is if I'm if I'm bumping up against their PTI already. Right. And now I'm. So you can make the case, OK, I'm at twenty five percent PTI, but if they don't buy a service contract, are they going to be able to afford repairs, which will be, you know, money out of their pocket above the car payment? Yeah. So there's there's so many factors here we have to figure out. But but I think he's he's right to point out the breaking point, because that's definitely part of what we're bumping up against. And then this last sentence, this is true of the customer can just pay. that results in income versus a higher market model with no VSC that has if come. So that's the first time I've heard that. Some of the other dealers said I like that phrase. I hadn't heard that. Well, and that's, yeah, that's that whole fifteen percent. And that's the phantom profit. It's the phantom profit. Yeah. And it's also, you know, the customers, is the customer going to have the income? And then will we collect? I mean, I could read if come a couple of different ways, but it's like If it's phantom profit, then it's kind of problematic for us potentially in that it's potential income, but we're paying sales tax and income tax on that profit. So anyway, so Congressional responded last evening and then I've had a follow-up question for him. He says, if you do opt to sell a VSC, we do not advise adding markup to the cost so that's uh who's connor uh connor's with um preferred dealer solutions out of michigan I believe and um so he he chimed in there and uh so I said I I misread his answer first so I edited that and I said can you expand on the part about why if vsc you do not advise the markup I think that will answer core part of the question And he said, one, increase payment to customer when you do increase the cost of the VSC. Only so much room to add additional costs. We know this. This is one of the pain points for all buy-your-pay-your dealers. Right. It's like every penny counts. Right. And this is why this became such a, you know, once we kind of drilled in on this and I just sort of posed the question, if I'm a white hat dealer and my main motivation is to support the customer and I choose a VSC over a warranty. then one, I need to be able to be effective at selling it. And two, what are the pain points for the customer? And am I hurting them and process hurting myself is a really a broad way to think about this. And so now number two says, with dealerships running lean staff, does your staff have the time and capability to process pro-rata refunds? And I think that's a subject we can tackle later. Like the pro rata refunds, what he's really suggesting is that can be a heavy administrative thing. Well, and that was part of the question I was asking this morning is it's like with that money that we're marking it up that's going directly in the dealership, are there costs associated with that markup that we're covering that you wouldn't have had you not done a vehicle service contract? At all. Is the dealer incurring costs in their dealership, like, you know, their operating costs, are they incurring higher operating costs by having a vehicle service contract than if they didn't, or if they didn't mark it up at all? Okay, I don't, I'm not aware of it. Okay. Okay, so I think the, and a lot of the administrative costs are handled by the reinsurance company. Okay, so most of what he's talking about is handled through a dealer, a dealery, a Buckeye, you know. so and I think connor's touching on something here that is relevant it's not exactly um you know in the realm of what we're talking about here it's like when you do have more markup and longer you know longer time to pay then it does make sense to me that you know you're more likely to experience a pro rata refund situation and as some said already that's most likely going to happen in trades and repos but I I'm fairly sure we're not trying to go into compliance at all but I'm fairly sure I read an article about um an organization that was heavily penalized for not managing this part well they charge for service contracts but they didn't process the yeah I have a recollection of that being a thing and so there was a third part of that did you not want to cover that there were three reasons with oh I think the same thing is basically have you set aside the markup okay the pro rata so it's really about managing the money associated with that and kind of the whole compliance piece So Justin Browning is a dealer, I believe. I don't know Justin personally or Bill Bolton who responded. But they both said they do not mark up for basically the same reasons I was asking the question. And we'll give them a chance to expand on this. And maybe we can invite them to the podcast and take us through that. Yeah, absolutely. Absolutely. But yeah, this is part of what we had in mind to do. And I think that that covers the parts, Michelle, that I really wanted to get to today. It's like we can we can continue this conversation. But I think for us, it's about just being transparent, getting out there and being open about the thing and figuring out, you know, what is the. And it's like many of them said, it's dealer dependent. And it is true that that's going to vary a little bit. I'm just simply trying to get to the point of is there something. is there some other benefit that I'm missing besides the additional profit in the company additional profit so yeah I understand is there something actually reinsurance specific yeah that is I think that there's a lot of operational pieces that you could just kind of be batting around like this idea of it shifting the advance rate which we're not huge fans of higher advance rates um because that's that's where you see so many dealers sure fold and I have to I have to ask this question because this is part of what white hat way does is have tough conversations and ask questions on behalf of dealers right we're we're we have dealers are our primary listeners some of them are new I have to ask the question and I feel like most of us will know the answer if we sell the product for more does the reinsurance company make more reinsurance agent reinsurance company the I'm talking about the the actual agents and the Commission's and the earnings of the reinsurance provider not the dealership so okay so fees yeah dude so if if the if you've got a company that's handling all your reinsurance and you're charging two thousand or nineteen hundred where the cost is a thousand yeah is there more commission going there too I don't know because the commission may only be associated with that remit I'm sure that we'll get like boom boom boom boom boom somewhere it's like it's a fair question and I think the answer from everything I can tell the cost based on what I've seen about seating fees or where the administrative fees are it's probably only related to the cost and the money that flows over to the reinsurance company okay so in that case that additional markup again stays in the dealership and probably doesn't affect yeah So I know that we've a lot of the CBFP stuff is the cars rule tabled, you know, the Consumer Protection Bureau that and George is like, the answer is no. The admin agency, et cetera, makes their fee just on the dealer cost, not on anything that's beyond. But so the next part of this is and I do realize that it's there's a lot of dealers that are a reason it's a shoe that we're not having to deal with this right now. We don't know for how long the cars rule, you know, all of those kind of things. But is it would it be considered? If the cars were in full effect and you saw the same teeth in the CBFB as we have right now, would the markup of a VSC be considered predatory? That's interpretation. I'm just wondering if that would be. You know, it's hard for me to think of that as predatory. And here's why. Just being the voice. If you called me in as an expert witness on one of these kind of subjects, I would say the customer should have been presented the product. It's like anything else. You walk into, you know, a store and buy eggs and they charge you twelve dollars for eggs. Somebody else charge an eight. you knew the price you knew you could shop elsewhere here's the price you agreed to sign the thing you bought the thing so I'm just saying I I don't think I see anything predatory there there's a price that's as long as the price is disclosed customer understands what they're buying and they agreed that it was a value for them I don't see anything predatory I I because I I see for me I see some blurry lines around some of the cases or the the reasons why this came into effect it's like you know these anomalous charges these you know things that are that become profit centers for a dealer that are masked as something different sure so it's yeah so I get it I think um generally speaking customers don't fight us on apr yeah right and they're just really not in a position to unfortunately they're not in a position to resist now they can go elsewhere if they go to dealer one and they can go across the street maybe get a different interest rate with somebody else they can certainly do that but as far as getting a dealer to negotiate some of them offer tiered pricing but not very many so they're not going to probably fight us on interest rate so I think my question would be if if I'm if I and again we're still questions but I think we it begs the question if I could if I had a profitability problem and I could move my APR up a little bit, I don't think the customer is going to fight me on that. Right. Yeah, I can. I can make the case and really have to even explain it. But but the APR is the APR, and I could probably increase my profitability that way. We don't advise, in my way, we don't advise going to max rate. You know, we think that's avoidable. But we have, you know, it's like a reasonable, what's a reasonable rate? Right. And so if I'm just looking purely at a profitability thing, you know, again, I get it. If we do have a profitability problem, I'd rather see us look at expenses than, you know, adding more on the customer. Yeah. In this case. So if we can cut expenses rather than adding to the price, then I'd rather see us be operationally efficient and go that route. Yeah. I think I don't I don't expect anything here that we're talking about is really and we're not attorneys. So there's nothing over here that we're offering legal advice or telling you what the regulators are going to say. We're just simply saying from a pure operational standpoint, I don't hear anything there. And so for me, it's more question of portfolio success. Yeah, George piped in and he says, predatory question comes in when something is sold as a hundred percent penetration. Yeah, good point. And I think it's also, we understand that, yeah, that's a good point. When you sell it and basically all the customers are choosing it, when it's an optional product, that starts to beg some questions about how it's being sold. Karen piped in here and I'm I don't know if I wasn't listening at the right point. But he said something about payment and down payment. And I'm not sure where that I'm not sure what she Yeah, so Karen, yeah, customer is going to change a little bit of context. And we're, we're negotiating with customer and dealers are always negotiating with the customer for as much down payment as they can. Yes. So I don't I haven't heard dealers going back to the customer and asking for additional down payment when the customer hops for a service contract. But there's typically a payment bump and we would be recommending a payment bump too. Why? Because we know these are high mile cars and we know that success rate, you know, decreases, you know, over time, whatever. So I'm always of the opinion, try to... I'm financing a customer has questionable credit I would like to get the money in the bank as soon as possible without penalizing them on payment I don't want to push their ratio to yeah I'm too high yeah I do want to get the payment and also you know my motivation is to finance it short term as possible and then treat them great and finance them another yeah yeah yeah yeah So in that case, you know, same thing here. If I did that strategy, if I financed for thirty six months and then traded them in twenty four, I never really banked that that profit on the service contract probably anyway. Yeah, it's this is other math. And that's and so it's that phantom profit thing where people is like, I did it. It's like, did you really did you do? Did you really? The scary part of that is you can say, OK, so I I've extended my term. And I got nine hundred dollars of paper profit in the deal. My lender advanced me fifty percent of that money. But if I never collected that money, I still owe the fifty percent. Exactly. Right. Yeah. And it's like more that you have to pay back than you. Yeah, it is. It is. Businesses kind of goes back to Chad Martin's thing. Yeah. you know where are our stress points especially around lending yeah and so I didn't really expect to end up there today but I think you start to see the the how it becomes problematic and the whole thing um you know and so this is why we're just simply asking the question asking dealers and some dealers have already chimed in and said you know we just do it at cost and and that cost should be enough to allow dealers to meet their claims yeah and probably still have some money left over in in the the reinsurance company for all the reasons that dealers want to hold money in their reinsurance yeah which we didn't need to go into that so you know I'm obviously married by here by here um married in and so I haven't run a dealership but just from all of the things we've been talking about I don't see a solid reason why you would mark up. This is just me. I don't hear a solid reason why you would mark it up. Because to me, it's like it's either money that you will never collect or it's an extra burden on the consumer. okay I I see one that you're not seeing okay and that is if I'm in a competitive market and and even if I'm not putting prices online when my customers come in I I if they're really price sensitive which most markets are not price sensitive in buyer yeah so I think we're talking about the exception rather than the rule okay so in most cases that wouldn't be like an just a regular independent dealer they they also have reinsurance and so you know it's it does make a difference but in our case we're toting the note on these service contracts ourselves so I'm talking today has been about reinsured you know, a sort of self-insured reinsurance product as a vehicle service contract. So in that case, I say that there would be benefit if I'm in a market where they're super competitive on price and I need to compete on both payment and down payment or whatever else I need to be able to be in here to be competitive, then I would enjoy the markup, you know, of a back end product as long as it doesn't defeat my term strategy and everything else then I you know but I if I could make up profit over there you know with some customers or more than half the customers then it helps my profitability in that regard but otherwise because that's why I put that question aside we recognize that that's a strategy it could be beneficial to those but most markets aren't competitive in that way Yeah. And so, you know, for me, the white hat way element thread into this is, you know, we really do believe that doing good for the customer and making it easier for the customer is actually good for the dealer because the easier you can make it for the customer to be successful in their loan, that just means more money in the bank, not phantom profit, real money and, you know, real cash. And so I, you know, and I don't know if there's something I am completely missing. But you know, when you from my perspective, you look at this ten thousand foot view, it doesn't make any sense. Okay. It just yeah, I don't I wasn't trying to sell you. I know. I know. But I mean, I'm just like, you know, it's it's unless I'm just looking at it as just solely a profit center. But then again, that's probably profit. You will not see if if it eighty five percent of our our contracts don't meet the end of the contract. And usually if you're adding, you know, lengthening the length of the contract, those two or three, four months of what that, you know, you're tacking that on the end, you're not going to see anyway. So it's like the idea that it's a profit center is, is that really true? Or is it just a good on paper? Yeah, that's a good question. I mean, it's a fair question. I think it's a part of what we can dig into on behalf of dealers. Yeah, and just real quick, Karen was like, her question about payment and down payment was, in negotiations not APR sensitive, like you said, even a small pick pay can reduce the payment enough to make a customer more comfortable with the payment. Yeah. and um one last comment from george uh since warranties are not cancelable cancelable refundable the dealer cost set up for the re for the reinsurance would be less um in your example the hundred or a thousand dollar vsc cost would equate to about seven hundred dollars in warranty cost and that's that's um valid it just wasn't our subject it wasn't our focus today And Jim was like, let's not bring in warranties. Because I kept peppering him. I was like, I don't understand why that wouldn't be the thing. And he's like, this is not the conversation, Michelle. This business can be a difficult enough game of whack-a-mole. Let's just keep it narrow. Squirrel. Yeah, so we're just talking about that. And I want to circle back to one thing, which makes me a little bit unpopular, but I want to make sure and clarify. Earlier I said that in most markets, prices are not... competitive we're not price sensitive we don't have price sensitive consumers some will say that's not necessarily true and I would just ask the question is the customer making it about price or is that us unless unless it's it's not necessarily about price but about payment and financing and yeah so it's like in terms of down payment yeah so really saying you know and it happens the customer says that price is too high but I also know what happens is that we as dealers and members of the team sales team whatever we tend to be the ones who make it about price In most markets. Yeah. Most buy here, pay here customers. I'm sorry. Fundamentalist to me says the customer is still interested in how much payment and how much down payment. Yeah. So maybe kind of where Karen was going. If I could put a customer in a nice car and make a fit on down payment payment, they're probably not going to fight me on price and APR. I agree. Right. All right, everybody, thank you so much for joining us today. We really appreciate you making us part of your day. Again, go to YouTube, which is Jim and Michelle Rhodes Octane Group. Like and subscribe while you're there if you want to take a look at the actual chart that we were talking about and all the other ones that we talk about, too. Enjoy. Everyone's knee deep in tax time. Those those checks are coming in. And so people are seeing an up. It's this season. I hope you guys have a great rest of your week. We will see you on Friday. I don't think we have a topic yet. Got some stuff that's, you know, in there. But, yeah, thanks again so much for joining us. And we will see you guys on Friday.
