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, everybody. Hi, welcome to another episode of the Buy Here, Pay Here Morning show from the studio in North Ogden, Utah. Glad to have you folks here. I'm just like listening to see if make sure I'm hearing you and not you in the room and hearing you through the thing. Yeah. So just, have we got a good audio check? If folks are listening, just give us a quick sound check. It is the last day of February. Right. Yeah. Which means it's the last day of February, which means refunds are slow. Yeah, yeah, yeah, yeah. You found a little bit of stuff on refund kind of timing. And of course, we've seen... you know bill from tax max has shared kind of the anticipated schedules and the others have been tracking up on that and so I went back today and looked at history of volume on um you know february of last year versus march just as a way to kind of help dealers anticipate the um the the amount of volume they might be able to look at for March as we kind of wind down February here. So I pulled together some of that. We can get to that. I thought we might cover this matter of lending first. Can I, I mean, you know, we always like the morning stuff. So today is, we were talking this morning that it is for those of you who do astronomy and It is a pretty monumental day today. It is it's a new moon, which means that the that the there's no moon light because it's where it's completely black. But it's also this planetary alignment thing that we only see like this happens every three hundred or so years. And so a lot of astronomers are like, this is pretty cool. So those of you who are listening, if you've got clear skies tonight, go somewhere where you're going to have less light pollution from the city and just you know take a look at the brightness of the stars and some of the alignment because we were outside last night um and uh you know it just it the stars were so much brighter and part of that is because we were almost into the the new moon But the stars were so much brighter, and it's like, holy tamole. I mean, just big, huge, the planets. Yeah, Venus has been particularly bright lately. So I have an app. There are a handful of them. You can download an app called Skyview, which will help you identify the different stars. and you can even see space junk. Well, and there's a lot of people I've been in my social media that... And a lot of you may have experienced this. Part of some of the stuff that's happening is there's been just a lot of... flares and energy stuff and so there's was a lot and there are pieces in the news about the last couple of days that that things around um like mapping and um that kind of stuff were really glitchy yesterday and the day before um and that people that were communicating via ham radios and all of that it was just there was a lot of of uh stuff coming But that looking at the stars through this app, you know, some people that I follow, it's like, for them, it was like, it doesn't know anything in the sky today. So I don't know if it was related to some of the solar flares or whatever, but there's an awful lot that's happening. Yeah. You know, there that that's just kind of it's just really, really interesting. I actually saw one just real quick Schumann resonance. It's something that's that's scientific and it's basically tells you the heartbeat of the planet with energy. And it went from, like, if it was our heartbeat, to, um, seventy to seven hundred just in the last couple of days of, of beats. It was just really, really, really, really active the last couple of days. I don't understand what you're talking about. Yeah. Well, those of you who are interested, come here. Yeah. Um, so, so we can, uh, get into the subject at hand. I think, um, The big thing was, and I didn't get it teed up here, but our friend from the industry, Chad Martin, put a post out on social media. I think it was in the BHP Success Group several days ago, five or six days ago. I'm not good with timing and chronology on some of that, but I can say that he... He put a post out there that basically was a word of caution, you know, without being an alarmist. He basically said, you know, we all need to be looking at our covenants. Yeah. And basically just kind of I'll try to find a thread and share it for those who, you know, tune in here because it's. it was an appropriate you know kind of let's all pay attention it seems to be some and I I'm paraphrasing here so please go find the actual post but uh essentially it was a good read and I actually I saw it and was like jim have you seen this and read through it it was like that was a really good read yeah I have I found it commented on it I mean I added that I was kind of sharing the same perspective and since then I can say that you know, we've we've worked with a number of dealers in recent months that are where we're, we're hearing conversations that are occurring between them and their lenders that we weren't hearing before. And so it's an indication to me about There's a couple of things. So I'm going to offer my own possible theories on what we could be experiencing here. But we're seeing lenders kind of tighten up. We've seen renewals be a little more stringent. Yeah, like our client base is seeing some of that. You mean the customer base? Our client base. You mean the dealer base? the dealer base yeah our our um yeah we're seeing that within people that we we work with we've seen people have um you know more challenges in in getting their renewal after many years of business and many years with the same lender we've seen we've seen a dealer foreclosure uh we've seen you know a couple things of that nature that suggest that you know things are pivoting and it's an interesting time I mean obviously now that we've got uh trump in the white house you would expect a very favorable business or pro-business administration yeah which has been really interesting to watch that um that there's there's uh internally it's it's uh high or like opening up of business and yet we're still seeing some constriction And, and so we were talking about that this morning, is it because we don't know what's going to happen in regards to outside of our country and how that's going to affect a lot of business, a lot of, you know, imports, exports, all of that. Yeah. And, you know, through my career, I have steered clear of anything that might, you know, sound like prognostication. I mean, I'm not in the business of forecasting. I don't monitor, you know, global capital markets or, you know, national capital markets like I don't really follow forecasts. wall street or any of the happenings there and over my career I've generally said and and this is kind of back to what I call farm boy logic it's like you look at the kind of the broad industry across my twenty plus years being around it you see cycles you see money kind of ebb and flow uh in particular access to capital for dealers. So we've seen that kind of come and go and we've seen the money come and go in the indirect side of subprime. And so I think my general perspective is that we may be now just kind of getting to the place where we have to kind of pay the piper or whatever the expression is about In a post-COVID period, you know, we saw obviously in COVID, twenty and twenty one, we saw car costs go up sharply. Dealers struggled to adjust. You know, they they either extended term or they raised prices or some combination. Right. But the cost for them went up sharply. uh I think you know we're we're three years out you know at a minimum from that but terms you know pushed a lot of dealers pushed to three and four years for the first so from what you've seen has you know the cost of car way way high cost of car has come down not to what it was pre-covered but it has it's come down and it's stabilized Is it? Yeah, but I think this is and we didn't come to really have this discussion in a in a really heavy financial sense or actual around any numbers. Just if we keep it broad, I would say that What we've seen is LTV, that being loan to value, the dealer's financing against the value of the contract or the face value amount financed of the note. Obviously, that has become pressurized. We've seen that relationship between the amount of the dealer's borrowing on their line of credit, their borrowing base or advance limit against their value of their paper. We've seen that change. If you're living against a borrowing base, and we've got a number of dealers that talk about in our V-Eight meetings, they talk about borrowing base and kind of the stresses and trying to gain some ground on their leverage. And it's a struggle because if that gets compounded by poor collections, And so what do I mean by poor collections? Because, you know, our dealer or our friend, you know, Brent Carmichael pushed back when I use the word performance, like performance, you know, what, like, and it's rare, like, that's the, that's true. I'm really talking about you could look at loss to liquidation ratios, you could look at charge off ratios, I'm just, we look at a number of different things in portfolio performance. But in watching that number more recently, We're seeing dealers who manage their business well, who've had a stable team in their collection department, have a stability of management. Their portfolios are performing very consistently. We've seen some improvement with some of the dealers who are put in that category. So I think this is part of where we've seen some dealers have really erratic portfolio performance across that same range. That was a topic of discussion in one of our groups last night. So it's just an indication that I think this is why... And by the way, Michelle, we have next week in our VEA Plus track, we have a conversation around absenteeism. And so this ties together to me with this is... I say on the subject of enterprise value and absenteeism, we're probably never in the buy here, pay here space. Most dealers won't get to a place where you're on any kind of autopilot. If you want to think about that as my business over there, my buy here, pay here business kind of runs itself and I don't even have to pay any attention to it. I don't really think that's the way buy here, pay here business is going to work. I think you're always going to have to monitor certain elements. And we just have very few dealers that we know that are actually in any kind of anything close to that. So then there's enterprise value, there's absenteeism. And then that begs the question about management of the largest asset in the business, which is the portfolio. And if we're managing that portfolio well, if we're really tending to that, we have good systems in place, we're very consistent in that, and we've been consistent in our underwriting across the last four years, then we could expect our portfolio would be stable. And as I said to folks, like I've said this in articles in the past, that I feel like the buy here, pay your business, lease your payer segment of self-financing is just going to kind of stay the same. Like if you ask me to make a projection, if you put me on Fox Business and ask me what's going to happen with buy here, pay here, I said over a ten year period, it's probably going to stay the same. Now, car costs with COVID was an anomaly, right? That was unexpected. Well, and we've seen other things like that since you've been in the industry that there's, you know, based on economic things that are happening, the the but it's interesting. I was just thinking about, you know, as a dealer and a dealership that the lending stuff changes, the cost of car changes. And it's like these massive factors that we're trying to fit into the circumstances of our customers because our customers haven't changed really. Except during COVID, they made their payments on time because they had extra money coming in from the government. And so the circumstances for our customers, they still need a car. They're still making about the same amount. They're still under, you know, a lot of them just poverty level or whatever. And so that circumstance hasn't changed, but the circumstances for the dealer just fluctuate drastically based on banking markets and those kinds of things. And so it's, I mean, it's a real juggle. Dealers are that like bridge in between what's happening in the financial world And the customers who don't, you know, their circumstance just hasn't changed. Yeah. And obviously you and I have seen, if we just talk about the COVID period through now, we've seen gas prices, you know, kind of could be up and down. They've had ebbs and flows there. We've seen grocery prices, you know, get high. Do you remember not so long ago gas? Well, it's in my lifetime, ninety nine cents a gallon. Do you remember that? That's like, yeah. I remember lower than that. Yeah. Or like a gallon of milk was a buck. But I wasn't buying it then. So yeah, we're going back a ways. But I'm just saying that generally speaking, the customer is feeling some pressure. They're feeling some pinch because of rising costs, you know, in their world. And I think, you know, when this stuff and this is just really big picture stuff, folks, we're not we're not beginning to try to predict what's going on or we're just kind of offering wide view based on, you know, people that are plugged into the the buy here, pay here industry every week, you know, for for the last several years, decades for me. Yeah. so I think broadly what I see is that we know that capital when I say capital I'm talking about capital markets like big money like your your your big dollars behind the primary capital providers in our space right so when you look at money at that level we know that they don't have much appetite for delinquency right they tend to withdraw and they get skittish and they tend to withdraw whenever delinquencies rise. So how much delinquency, you know, it just begs the question because what happens, especially if you got a line of credit, conventional line of credit in our sector, then you probably have borrowing-based calculations where delinquent accounts at a certain stage of delinquency become ineligible. So that means the dealer now, this is where LTVs become pressurized. It's not just necessarily a charge-off. It can be a stage of delinquency. So this is challenging. I've always said this is problematic in our space because You know, in our training, we would encourage dealers to be cooperative, flexible, especially in times when costs are high. And we ask dealers to take a ten year approach. Now we've started talking about a thirty year approach is like when we think about having this customer with us for a long time, then we can expect that there may be periods that we're going to have to stomach some delinquency and work with them and give them time to kind of get past whatever the challenge of the day is. And that just goes against kind of the covenants with a lot of the traditional lines of credit. And, you know, that's their business. They have to do what they have to do to protect their assets and and potentially investors and capital people behind them. For us as independent, like self-financing dealers and buy here, pay here. I would say, you know, we can ride that storm, but we have to be financially prepared for it, right? If we're gonna stomach some delinquency and work with people, because think about the, let's just play that out. And this wasn't really where I expected to go today, but I think it's important for dealers to think about this piece. When you're in a line of credit, then what happens is you feel the financial pressure along with the customer. When the customer's feeling the pressure and they're falling behind, Now, let's say it's a thirty day delinquency covenant. That means when the account has thirty one days, it has to come out of the borrowing base, which hurts the dealer financially, which makes it more difficult for the dealer to handle financially cooperating with the customer. so it creates it creates a pressurized sort of situation and I think it feels like to me part of what we're experiencing without being able to see the numbers and see what causes some of these defaults and challenges I know that with one of the dealers we were working with with their line of credit profitability was a challenge and that's typically going to be more related to overhead so that's not necessarily related to what we're talking about here But I'm just saying when you look at the covenants and you understand the pressures that are applied, then it makes sense to me that when customers are struggling financially, then there's going to probably be a rise in delinquency. And so now you're going to have a problem in borrowing basis for those who are on a traditional line of credit. And I think the reason this kind of ties to absenteeism for me is like, having systems in place is part of what helps your business be more sustainable have more value and I think if I'm looking ahead to next year and I'm going to apply or later this year I'm going to apply for a line of credit I think dealers would be well served to really get their internal systems in order get their processes in order um I just feel like that's something that you know a lender would be looking at and in the meantime If they don't do a line of credit or whatever, those internal processes and systems are going to serve them as they move toward absenteeism and have a chance to turn their business into growing enterprise. True. And we know from working with dealers that most capital providers require some kind of what is your process for collections, so that there has to be some documentation. But as I'm listening to this, I'm thinking one of the things that since day one, since I joined, that you've been a proponent of a couple of things. One is if you can do it without debt, you know, do it without debt, because when you don't have a lot of debt that you're trying to meet covenants around, then you're able to be much more flexible. And, you know, because we all know, I mean, it does, it comes out in the wash. And when I think about like Christian Acosta, I don't think that they have debt, do they? I don't think so. Yeah, and so maybe that is part of why they have such great numbers and the collections and all of that. Because they're not trying to come up against a covenant, and so they're able to be more flexible. But the other part to besides the not debt is how you structure your debt. And and from as you know, as long as I've been in is it's like, if you can keep your draw to fifty percent or less, you're going to be in a much better position to to weather some of the the ebbs and flows of what happens. That's true. Then then when you when you take a higher advance. yeah and there's two elements to that I mean when you stay at a lower draw then obviously there's two things you you hope you're staying below the market value of the paper so the worst case if there's an exit you need to liquidate paper and cover your debt you would have you've made a better ratio to do that but also just the incoming cash flows against that debt would better support that debt ratio and so yeah there's not to mention the cost of the money right cost of money is expensive so that also applies an extra level of pressure to the dealers now and we haven't seen that come down it'll be interesting to see you know during the trump administration whether we see rates um move enough to see that number start to turn downward for dealers in terms of what they're paying for a line of credit in the buy here payer space so the actual interest rate associated with those lines of credit right So I think this is all part of what, you know, when you're just looking at big picture. And I would say generally the theme we had in one of our big groups, the V eight groups that has the larger dealers, more established five hundred to two thousand accounts. We had a conversation around this and the room was a little bit mixed on that, I would say generally. People were optimistic, expect a boom. They're positioning to be able to do a lot of business. And so I think generally the attitude amongst dealers, again, small groups here, but private groups where people can speak freely. And the attitude was that it's going to be fine. We just got to ride this stuff out. But I think... When you say fine, it's like when we're not dealing with the pressures of borrowing basis and those kind of challenges, because that's where that when we, it's often around managing delinquency and how that ties back to portfolio performance and whatever other metrics we might be using to determine is the portfolio performing well, right? So this is all part of what would affect the relationship with the lender. uh so I think it's just something to be watchful about we'll continue to monitor it and I I appreciate again chad martin's post I think it was uh appropriate and I think it's it's um sensible to kind of give dealers as much information as they can they can make a decision about how they want to manage their business going forward but you know this morning again we're not we're not predicting you know a boom we're not predicting a skid we're just saying generally speaking the other thing that I have always said is if you have employment if your customers are employed they have income you probably can ride out the storm yeah if you're in a small market and you lose two or three your major employers then then that really starts to hurt a dealer and hurt the buyer payer sector Yeah, and I haven't heard very much around unemployment rates going, you know, spiking. So yeah, who knows what with the current administration, you're seeing more and more where it's there's, there's a an appetite for for businesses to bring things back on shore. which actually creates more employment opportunities. Actually, the only ones that I'm seeing that there's massive layoffs is it has to do with government. It's been really an interesting thing for both of us to sit back and just be aware of what's happening and how that potentially affects dealers. you know the other part of of our conversation we want to talk about was this uh february and march volume yeah and let me kind of cover the one piece first we won't be able to cover today because unfortunately since I put the podcast post out I wasn't able to pull together much data not enough to be meaningful on the actual february volume today so unfortunately if anybody like for this year but this for this current month that we're wrapping up today so I think you know we'd hope to get in there and look just anecdotally we're hearing dealers started doing a lot of business this week just this week yeah tax refunds and we just had a quick look it looks like we had some dealers that were up on volume slightly versus February of last year but we'll pull together more data and we'll try to get something more meaningful in next week as we wrap up February but then the thing that we did look at was it went back and pulled together data on sixteen dealers I can share that slide but the um the thing that we did pull together was this idea that um we have I pulled from those v-eight dealers where we had this is from last year from for those dealers who reported um both february and march last year so obviously so these numbers are about how march compared to february correct yeah so when you see this graph I don't know how well people can see well and I just just yeah if we go like to the bar on the very far right that's the average yeah and I can't quite read that number is it eighty six something so it's last year the average was lower volume in March than February and I think that's generally gonna be true but it has a lot to do with timing of the refunds and see that's the thing is it was I was looking at calendars is that refunds are delayed this year it seems like overall sure to though that well maybe they were delayed from the year before um but it's but that it seems like a lot of this was delayed and it's delayed by a couple of weeks I just remember having conversations on the podcast with dealers last year where they're saying well february is a little slower than we hoped but it looks like march may still be strong yeah and what we have again very limited sample and you can see it's all over the place there are quite a few dealers that were under a hundred percent um and then the few dealers that were well above but the average came out to be about eighty six percent so again what we mean by that is those if if dealers did a hundred cars in february they they did about eighty six in the month of march so it's just rough numbers to try to give people a feel for how what to really expect and obviously when you're looking at sample sizes this small I mean inventory availability could be a big factor there, you know, in terms of, you know, what do we actually have sitting on the ground and available to sell, you know, once we've sold through February would be a big factor. So it's not an exact science here, but we just wanted to give people a feel for, you know, what kind of volume they could expect and everything that we're seeing so far is like there, there were, there were some early money, some, you know, maybe, I don't know if they still do refund anticipation kind of advances. I gather there are some refund advances. So people were doing business. last week a little bit second half of the week mostly but then monday it really started to take off with refunds hitting and people were doing a lot of business and yeah you know a lot of dealers that you know typically do uh fifteen a month we're now selling five and six cars in a day yeah so you know this is kind of what happens with refund season so so we'll see let's get February closed and then next week we can pull together yeah some data and come back and give people a better look at what this is kind of like the cars the car dealership the car buy here pay here world of Black Friday yeah it's right now and this is this is when when people are coming out to buy yeah and the thing that always makes me nervous about that and we had dealers talk about this and some of our meetings like Some of them say, I would rather be steady than have that crazy rush. And so it's kind of a problem because also things get pressurized. Like we rush, we shortcut, we shortcut underwriting. And so it's like- Well, and we've talked to enough capital providers and just like, just frank conversations about all is that a lot of times the paper that is originated during this period of time have the highest charge off rates of any other time in the year because there are shortcuts and they, you know, it's like there's this frantic energy Yeah, with most buy here, pay here dealers have like, get it done, get it done, get it done this, this is our Black Friday, this is where, like, you know, when you think about Thanksgiving, and this is where everybody goes in the black, and you know, all the retailers, that there's that same kind of energy around, around buy here, pay here and tax return time. And, you know, in twenty twenty five, we have more information. We're learning more all the time. Like there are a lot of dealers who lean on their cash and deal numbers. So they're looking at their costs in the car and the minus the down payment. And so if that number falls in line for them, they're inclined to do business. And what we generally know now is that just the down payment doesn't always translate into a higher success rate on the loan. And that was the big thing with capital providers. From some of their aggregate, like lots and lots and lots of loans, they said the higher that you get a down payment during tax season, from what they were looking at, and it might be biased, is the higher your... your chance of charging off. It's like you're going to get this massive thing. Yeah, good in the mid. Yeah, it was good in the mid range. But once you crash into Yeah, this, it's like, that's the only money you're gonna see. So, you know, so I it'd be interesting to talk to the dealers not the capital providers about what whether or not they're experiencing that themselves as well sure but yeah we just continue with the analysis I think it's so many moving parts this time of the year it's just there's a lot there's always just lots of pieces and lots of things to consider in terms of inventory sales underwriting collections management like it's just it's always well and it's easy to consider yeah and dealers are preparing for this for months prior to so it's there's there's an awful lot this the way that a lot of dealers approach it there's an awful lot writing on what happens in tax season and you know and and it's just fun to just kind of sit back and watch what people are talking about on social media it's like oh I haven't seen anybody. Should I be scared?" And other people are just like, I've had more customers than I've ever... And it's just kind of all over the place. And the one thing that we are consistently coming back to is the customers are the same. The customers are the same. The customers are the same. And so why is there a disparity? And that's something to look internally, not so much the customer base, but what is it that we're doing that we could maybe shift something. For sure. Anything else? I don't think so, from my side. All right. Well, everybody, thank you so much for... Hey, I didn't mean to have our pictures completely go away. Thanks so much for joining us today. Happy Friday. I'm sure that a lot of you are busy. because everything that we've been seeing from our clients, things have really started jacking up in volume. So I hope you guys have a great weekend. Go get it. Go get it. Yeah, and we will be back on Wednesday with another White Hat Wednesday episode of The Morning Show. Thanks again, son. Thank you for tuning in, folks.
