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.
Hello.
Good morning, everyone.
Happy Monday.
Yeah, it's our, our, we have this really, really cool soundboard that has like everything connected with the mics and the
and the um the ear earphones and stuff and it might be time for a new one yeah so let's get an audio check if anybody's listening in this morning just audio sound okay on your end it's really awful over here but that's i think it's inside our headphones i know so well and we did have a we had a client meeting when this started happening and they're like yeah we're getting we're getting absolutely fine anna maria is listening live does the audio sound okay anna maria does it sound it's yes okay good all right excellent thank you we can put up with it over here yeah we can
uh uh monday what do we got uh we have announcements for uh this coming wednesday which is yeah in two days the two days what is wednesday we have we have something scheduled already for wednesday um and then monday we have oh it's it's we're gonna have um uh
Maggie.
Oh, yeah, yeah.
We were on her podcast talking about leads and how it was mostly about...
some of the really atrocious ways that people express customer service.
And so, but we, we were going to take a different spin on it and then, and then go a little bit further in some of the things that we talked about.
So we're looking forward.
It was a really great podcast that we, and that should be coming out, I think Tuesday.
So tomorrow that podcast.
So we'll have her on the air with that.
And then next Monday is Brent Carmichael.
So those of you who don't know him, he's someone you probably want to,
You want to listen in because he's pretty fantastic.
Yeah, for sure.
In fact, there's a chance we'll have a follow on to today's conversation.
You know, when we get to Brent in the, the broadcast because on next Monday, because there's kind of a, there's a bigger subject tied to this one and we have limited amount of data for the conversation we want to have today that the subject was or is.
The price we pay for higher prices.
Yeah.
The price we pay.
So, so it's basically just kind of,
taking, there's two things that we're breaking down here.
One is going to be the cash impact that we pay for setting a higher price.
Like I'm going to show you today, there's a very direct price that we pay for, you know, having that, that higher price.
So we'll talk about that.
We talked about this on an episode with Hugo Sanchez a few months ago and he
I just made time this weekend to dig into it a little deeper and be able to break down kind of what the difference really is.
And then we've got a couple of video clips.
In fact, we might talk about that part first, Michelle.
Back in March, let's kind of set these up.
Back in March, we did a virtual live stream event, an all-day event.
And I got to tell you, the information that came out of that was so good.
You can find that, I think, in our available –
page or the available products if you will at bhph institute but that um that session and this particular session that we're going to take some clips from was the one on capital and i've grabbed two clips from steve burke because i remember the day that we had this conversation on the on the broadcast on this live stream that it was it was really pivotal i mean let's just make sure everybody understands steve burke is a guy at agora who's had a long career in
He said, and the broadcast is how many years, but he's been at it a good long, I mean, I want to say 40 plus years he's been in finance.
And he's owned finance companies and has really high level analytics.
And so when you hear him talk about what you're going to hear from this little one minute video, just understand you're talking about somebody who's got deep access to numbers.
And so this is kind of, this is the first side of what we're getting, not so much the cash impact near term, but just the impact of charging a higher price.
So go ahead.
Let's go ahead.
$7,000 cars that I've got to put in the same customer's hands that two years ago, I would have probably barely put in a five grand ride.
So help me out.
Lower your, lower your LTV and look for a higher advance.
I mean, you know, if you're putting a consumer in a high LTV vehicle, it's monopoly money, right?
You just said it.
You're not going to collect.
It's not going to last.
The customer is not going to last the term and the car is not going to last the term.
Why pump up a high LTV?
Why make it more difficult for that customer to make payments and actually default?
Put them in a lower LTV.
It's not monopoly money anymore.
Consumer can now trade out of the vehicle, whether with you or somewhere else, is more likely to be able to trade out of a vehicle because it's a lower LTV and look for a higher advance by putting better paper on the road.
And better paper may not necessarily just be the consumer, but the deal structure is vital for that consumer to be able to make payments.
Bro, I've got to buy $7,000 cars that I've got to put in the sand.
That two years ago, I would have probably barely put in the five grand.
There we go.
I'm just going to shut that.
I'm going to shut that puppy down.
Shutting it down.
Okay.
So that was important.
I think we can go ahead and play the other one.
So yeah, if you're ready for that, I think it's on that tab, isn't it?
Oh, it's this one right here.
Okay.
I think so.
Go ahead and do that.
And we're going to present our screen and this one here.
That's going to be it.
Okay.
And
Yeah, this will be it.
Make sure that we're going to get it into the stage and then let's go for it.
Okay.
And this is the second one.
And this is a question that Jeff Watson, who we all know from the Independent Dealer podcast.
Are you proposing to me as a dealer that a lower gross could actually make me more money?
A lower gross will make you more money because the gross is monopoly money because you're not collecting it because you're charging off.
whatever that excess is after you repossess the car.
Why have a repo only to charge it off?
Why not try to mirror more the near prime paper where people actually do pay?
Make more of a gross, and you'll make it over time, and you're not writing off your monopoly money.
It's fake money.
I mean, you put a car out at 200% LTV, you're not collecting 200%.
Are you proposing
so okay yeah so this is the part that you know it's we look forward to the day that we've got more data ourselves to be able to um explain the you know in in greater depth what steve is talking about there when he refers to ltv he's talking about loan to value so you're really talking about you know your loan balance with the consumer
relative to the value of the collateral, the car itself, right?
So, so you're, so what, what Steve is suggesting there is that when we reduce our price, reduce our gross, that customer's going to have a higher chance of success.
And I remember I've had this conversation with a handful of dealers over the years where, you know, people will say, well, I can't collect the money if I don't charge for it, right?
That's sort of the mentality.
I can't get it if I don't
ask for it, right?
I can't collect it.
And what Steve is really suggesting based on their many years of, you know, tracking loan performance is that the, those loans with the higher gross, the high LTV don't perform as well.
And, you know, this also kind of fits with a strategy that you hear me talk about a lot, which is, I really want to have a strategy where the customer and the car performs well, and then we trade them out of
the car before they ever reached the end of the contract anyway, that we trade them out into something else.
Now, I think we all understand that we need to have, you know, ample markup in there to justify the risk that we're taking.
We charge APR, right?
That's part of what's supposed to offset our losses on the other side.
But I think Steve couldn't be more clear there.
He's basically saying you, you will have more
charge-offs you know at the higher ltv which is you can be translated as higher gross profit higher selling price and so this is um you know the alternative to that your ltv could still be low at a high price if you had a massive down payment right but but that's not what most of us enjoy so this is a part that we
You know, we look forward to continue to flesh out.
We're going to continue to work with the data people.
And I'll tell you, this is part of what I see White Hat Way being able to do is because White Hat Way doesn't have a dog in this fight.
White Hat Way is interested in the success of dealers.
And so when we speak up.
And the success of the customer.
Yeah.
And ultimately the consumer, of course.
Yeah.
But I just think we have that good fortune to be able to say we just want the information in front of dealers.
And so that's what today is really about is just kind of breaking down
Something that is, it's just, today I'm going to show you hard numbers.
Yeah, we actually, we're going to jump to a spreadsheet that Jim, we mentioned it before on a different podcast a while ago.
And it was something that was surprising to Jim.
And those of you who know what it is that Jim loves, this is like his happy place, is spreadsheets.
Loves them, loves them, loves them.
He's got spreadsheets that we use for cash flow modeling that he's been using for over a decade.
And it's just it continues to evolve.
We just we recently had did a cash flow modeling for a colleague of ours.
And and one of the comments was is like, oh, my goodness, you really understand your stuff.
So and hopefully one of these days we'll get them on the show and kind of talk about some of the things that should be dived into when you're doing cash flow modeling.
But this is, let me go ahead and pull that up.
We're going to add that to the stage.
And I'm going to actually do this.
So if you can make it a little bit bigger.
And yeah.
OK, so those of you who've watched before have seen part of this.
This is part of the cash flow modeling spreadsheet that Jim works from.
And what he's going to do is kind of give you a little bit of insight on, based on all of the modeling for, you know, we go typically five years, what having, doing some of these things that Steve mentions is,
actually does in the long term.
And again, we're always talking about, you know, we can think, oh, this is going to work better.
Oh, this is going to work better.
Oh, this is going to work better.
Because from our experience, but if you're not really measuring and you're not really like running the data and you're not
We've had people on the show before.
It's like, I didn't realize.
I always assumed.
And it's like, once you measure.
So this is about really looking at how things play out.
And there are things in the spreadsheet that it's like, what is the typical repo rate?
What is the typical this?
So it's still accounting for that.
This is where we get in trouble when you and I don't get a chance to compare notes enough before the broadcast starts.
Because I'm actually not talking about the part that Steve talked about.
What I'm talking about here.
is really the near-term cash impact of us moving the selling price.
So I'm just talking about the direct cash.
It relates, but not the same.
In the end, it does.
It's really about longer-term performance.
But what this is meant to calculate is the very real cash impact
impact to us as dealers when we do nothing but we leave the APR the same, the customer's payment is the same, the down payment is the same, you know, it's all this stuff is the same, except we increase the price, which means more gross profit to us, which means what?
It means, one, more income tax.
We now have more gross profits.
Because that's all in here, too, as well.
It's like, what's the income tax impact?
Yeah, and income tax is in here.
I think for today, rather than make things too complex, I chose not to include the RFC element.
I'm just looking at just a buy here, pay here deal.
If we just did 30 buy here, pay here deals a month, and especially if you think about this as a dealer's first year in business, and we're working with some dealers who are about to start in business in the month of December.
you know, this will certainly be a particularly relevant for them, but the truth would be, this would be the same impact for a dealer.
Doesn't matter if you're 10 years in business, if you sell 30 cars a month, you know, every month next year and you increase the price, then this is the impact of, of changing that price.
So again, everything else across the model is the same.
All I did was move the price and, and I could have chosen to have more, um,
know disparity in there more difference between the numbers but i i just moved i experimented between i i just made a cost of six thousand dollars which doesn't change anything here except our gross profit which affects our our taxes right and i've got a 35 tax rate in there across the board obviously and again for today i'm just looking at the first year
I'm just saying, what is it to originate these deals, 30 deals a month, every month for 12 months?
What does that mean to us and the difference in price?
Does it have something in here for what the average down payment is or any of that?
Yeah, that's down here, $1,500.
And so again, that doesn't affect...
That doesn't affect our gross profit, the amount of down payment.
That affects our financing amount, which affects our income that we enjoy from the financing, of course.
But it doesn't affect the gross profit, which is the bigger piece of the factor here.
So, you know, we can really break this down.
And again, I would invite all of you who are looking at this, you know, come back and join us again next Monday when Brent Carmichael will be here.
And I'm sure we'll
we'll talk about plenty of other things because we've invited him.
And I'm just going to put a little plug in here is go to our YouTube channel and like, and subscribe because all of the video content is there and it's a lot easier to search it.
So if you're enjoying this kind of stuff, that's right now, that's the best place to go like, and subscribe.
And then you get that content and you can search it there.
So, because this is, this is one of those episodes that if you're hearing it across to all of the podcast stations, it's audio only go to the YouTube channel,
and um and yeah look at it there's some video and some screen stuff over here and today i'll do the best i can to kind of explain what what's being um what's on the screen so that those of you who listen audibly can uh you know have a be able to follow along but at the end this is quite simple what i've done and and again your numbers could be different but i think you can go back and do this math yourself i mean it's not a it's not a very complex thing i think what i shared with hugo
You know, when we had him on the broadcast, Hugo Sanchez from Butler Sanchez CPAs.
And so when we were talking through some of this, I said, you know, all the years I've worked with this modeling, I was quite surprised to see that I was working with another client.
We had all the numbers locked down.
And when I moved the selling price up, the cash required went up.
So let's think about that.
I mean, you're financing the car, so you're still getting the same amount of down payment from the customer.
Good morning, Hugo.
Hey, Mr. Sanchez in the house.
So yeah, so Hugo, this will follow on to the conversation we kind of touched on before.
And I simply am, again, I kept it super simple.
I said, let's not pollute it with the RFC element.
I've got the RFC discount set at zero over here.
And again, down payment.
is I'm keeping all those things static, cost of car static.
We've got our add-ons in there, which is going to be sales tax, okay?
So that means that obviously that's another thing.
When we increase the selling price right there,
what's that going to do?
That's going to increase our sales tax obligation, right?
So now this is the two things really.
I mean, you can see right away and these numbers are kind of small over here on the right in gray, but the bottom line without an RFC at an $11,000 selling price, the, the,
Cash required to fund the operation.
Oh, I should explain, too.
I stripped out all startup costs and all overhead.
So I just want to see just the kind of operational impact, if you will, before we start to pollute it with those kind of things.
So so you can see that.
in that first year for that dealer selling 30 a month and charging two grand more for the the car while they've they've enjoyed more gross profit they have the markup on the car so they're get they're showing more gross profit unfortunately that relates that translates to them between that and the increased sales tax there's about 73 grand more that's required of them than what
in sales tax and income tax that's it i mean no but it's compared to what oh compared to the different selling price so just changing the selling price from on the 30 sales a month just changing the selling price from eleven thousand dollars to thirteen thousand dollars made the dealer have to come up with seventy three thousand dollars more
in a typical month selling across that 12 month period across that 12 month.
But, um, okay.
So it's still, it's cash that like, how's that money benefiting us?
Income tax and sales tax.
I mean,
We don't really get that back.
I suppose in some states you get a credit back on a repo.
That's like a collections manager.
Yeah.
Right?
Isn't that, I mean, you know, when you're looking at, if you're able to bring in that much more money, that's paying another person potentially on payroll, isn't it?
Right.
So it's, yeah.
So it's like, it's just a number that I think it's important for us to consider that one of the things that happens, if you just break this down, like I'm a brand new dealer, I put my cars out there.
and i price them higher it's going to require more cash of me it's just that simple like that's the part that i think we want to make sure that we don't overlook and sometimes in these conversations we we assume that dealers know that and see that and and you know many who are listening today say yeah jim i figured out years ago you know what i mean it's like
But there's a lot of new dealers out there that it's like, you know, you, you see, we see all the time on social that people are throwing out questions, like throwing a whole thing of spaghetti to the wall and see what sticks and you know, what's, what is the thing without really looking at numbers?
Just what, what is other people, what are other people doing?
And, and there's, you know, we, those of you who, who, uh, I've been around for a long time.
Sometimes you see advice that you just want to throw your palm to your forehead and go,
yeah for sure ouch yeah i think you know we'll just continue to bring experts to the conversation like i think as we step into 2024 this is among the things that i look forward to analyzing more uh carefully and and thoroughly so that we can help dealers because i know that as a dealer myself you know from before
These are the kind of things that were challenging to get to.
I mean, how can I know if I price my car higher, you know, what is that going to mean to me in terms of charge off rates?
Yeah.
You know, success, you know, all the way to the end.
That really is.
That's almost a hundred grand.
Yeah.
And so, and, and, and part of the, uh,
Conversation I listened to.
And again, you know, I went back and listened this weekend to the entire session that Brent Carmichael and Jeff Watson moderated with these, you know, you're talking about this was from again, this was from our all day broadcast we did last March.
um and uh that was one of the topics about uh capital payment and the day the session was really around yeah enterprise value how to make my business more valuable and i don't know if you guys noticed all the people that were there um uh jeff watson was one of the moderators so was brent carmichael but there was jimmy rambo and um
yeah paxton wright there was stanton brown first horizon and those of you who don't know who stanton brown is he's he's deals with big dealers yeah i think you know yeah finance companies in his case need to be they really only deal with finance companies more than dealers and they really need to be around 40 million or or larger but
But, you know, there would be a stair step.
And also Steve Burke from Agora.
Steve Burke from Agora and Tim Lawrence from LHP.
And Tim Lawrence from, oh my gosh.
Super rich conversation.
And these gentlemen really, and our moderators did a great job of asking the right questions.
And it was just really, really important stuff.
And I just clipped a couple of these things because I remember Steve in that session talking about
this matter of ltv and how you know he was unequivocal when he said less gross will mean more profit for in the long run be more success for the loan and so i think you know most of us want a scenario where the customer is going to be successful they're going to be happy with their car they're going to be referring friends and family and then we're going to happily trade them into another car you know you know at some point and so you know brent carmichael mentioned in that session that
Their history, their data says that only 15% of the consumers make it to the end of the note.
Think about that.
Only 15%.
To the very, very, very end.
Because there's a lot of dealers that are pretty smart about, I'm going to trade them in to something different and all of that.
So they don't do that.
So he didn't specify how many of them default.
And they didn't get to the end because they defaulted.
That's correct.
So we have him here next Monday.
Oh yeah, we can ask him that.
Y'all can listen and add your comments and ask questions of Brent.
But I think this is the kind of stuff like I just know, like I'm a bit of an analyst over here.
Right.
And I've been around this business a long time and I still find that it's difficult.
And look, technology is just slow to our industry.
That's just a reality.
But we're meeting some people who are, you know, prepared to take us deep into analytics.
And and so we want to, you know, harness a combination of all the data pools, excuse me, that are out there.
And I feel like we have enough experience to ask the right questions on behalf of dealers and try to drill down to the stuff that is gonna be most impactful.
And I just think for today,
That was just a simple thing to try to illustrate to say, look, when we raise that price, and again, I picked a $2,000 spread here.
You can go back and test your own numbers.
But when you raise that price, and this is a time for us to be looking at that.
At a time that my cost is up, my customers are already struggling payment-wise, and their living expenses are up.
is this a time that I should be charging less gross, looking at a longer term deal and having the customer, now I get a better LTV.
And so one of the things Steve Burke talked about is now you go to your lender and you ask for a higher advance.
You've got a healthier LTV by whatever measure the lenders would be using.
And so you would be looking for a little higher advance.
And so now you've got a way to have a chance for that customer to be successful.
Again, for today, we didn't necessarily try to come prove the long-term success of the portfolio performance.
It was more about just there's some hard math there that says even when everything else is the same,
It cost us more cash just by having a higher selling price.
So I think we've covered that.
I think we can jump on.
Okay.
So if any of you guys have any questions about this, please feel free to reach out to 903-816-0216.
Also, the entire all day long broadcast is in the Institute.
So it's bhphinstitute.com.
If you reach out to us, again, bhphinstitute.com.
If you reach out to us at this number, send Jim a text, we can get you a coupon code to be able to get into it for less than what the listed price is on the Institute.
I have coupon codes.
I'm going to make you one.
Cool.
And, and we had a Facebook user asking if we share that spreadsheet.
No, it's, um, that is, it's very proprietary.
It's something that Jim has been working on for more than a decade.
Um, and so anyone who wants to go through cashflow modeling as well, that's something that we do just reach out to us here and we can get that, get that set up.
Um,
Yeah, I don't mind saying we've been charging $400 for three virtual sessions to do cash flow modeling for people.
And it's not just for people that are new.
The dealer that I was talking about, one of our colleagues that we just did that for, it's because they want to do some increase and change a little bit of their model.
And so they wanted to see where the numbers went.
Looking at the possibilities of financing.
So they're just trying to look at their entire cash flow modeling.
And more recently, we've always been able to, or for many years, I've been able to do a related finance company.
And more recently, we've been able to add the reinsurance element, too.
So, yeah, it gets pretty in-depth.
And the reason, frankly, by the way, that we don't share it is because it just was never designed to be user-friendly.
There are way too many pieces in there that a dealer wouldn't know how to change and know where to change the settings.
And so it just never was built to be user-friendly.
So again, those clips came from an all-day-long broadcast we did last March, and it was about enterprise value of a dealership.
Thanks again to all those panelists who, and of course, Steve Burke, we shared his comments there this morning.
uh yeah thanks to the panelists who participated in that and thank you for tuning in today look uh we'll look for you back here on wednesday with maggie we'll be doing a white hat wednesday conversation she's always fun yeah and so that's why that thing is going to be about collections how to how to better handle collection calls in a white hat sort of exactly
All right, everybody, have yourself a great Monday.
Thank you so much for joining.
And again, if you need any help, call or text 903-816-0216.
Have a great day, guys.
Merry Christmas.
Merry Christmas.
