Oops, no. You're live. Hey, good morning, everyone. Give us a minute to tee up the intro. 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. Hey, good morning. Hi, good morning again. We just said hello. Because I still need an assistant. She pushed the wrong button. We were live before the intro. So all good. Welcome, everybody. Happy Friday. Just... Wanted to do a quick sort of a recap episode of all the things that we have been hearing and observing and participating in. So just kind of an opportunity to kind of pulse report, as we called it, a good sense of what's happening in the industry. Absolutely. You got any kind of updates? I can't. It's your mom's birthday today. Tomorrow. oh it's tomorrow okay sorry tomorrow so yeah a lot of people yeah happily a lot of people watching know that my mother passed me to the funeral last uh Saturday and so yeah tomorrow's her uh she would have been that she made it to this birthday but anyway we had a lot of really wonderful um you know remarks from our our circle of people in the industry and so we appreciate that I don't think that we have anything else. Um, you know, we, we were chatting about what we should talk about today. And, and usually after Jim's done with a V eight meeting, there are some really rich topics, but there are topics that we'd like to have guests for from the meeting from yesterday. And, um, so we've got a few people lined up next week though. We are going to have Chad Martin on next Friday and his partner and his partner, um, JT Brown, JP, JP Brown, Brian, Brian, sorry. Um, and sorry, JP. Uh, and, um, Yeah, there are a few things we're going to talk about about the lending in this space. Yeah, as long as you're talking about that, I can share that. Chad put a post up, a follow-up. He did one about six months ago, and now he's just putting a follow-up in there. And it's not important so much what it says. It's just you can find the post from earlier in the week in the BHPH Success Group where Chad talks about the – the idea that, you know, dealers, it's a good time for dealers. It's always a good time, but it's especially a good time now for dealers to be looking at backup lending options because the market is shifting. And so, because the footing is not real solid, it's one of the things that I'm seeing, like we've had a couple of meetings in the last week with our dealer groups, especially the larger groups that are, you know, portfolios of five hundred to two thousand accounts. And those dealers are, the conversation has been really rich. I mean, we talked about some really important stuff, kind of business model, deal structure kind of conversations that are really important. We've talked about lending, we've talked about people looking for you know loot new or replacement lending we've talked about software has been a big topic this week and just technology in general but but certainly uh people uh you know looking to move to a new dms and so it's a it's a time where you know you just look at this industry and and of course we have people in there we had a dealer in the meeting last night it's been in business since yeah and one of our new members yeah yeah and so you're talking about people who have decades of experience they have seen this kind of thing happen and one of the things that we're seeing is we kind of filtered news across the public domain just kind of news agencies and what what's happening out there in subprime auto financing there were some articles uh referring to uh delinquencies you know auto subprime auto delinquencies hit a record high they've been tracking uh delinquencies in auto financing since ninety four at least and in that period you're talking about you know I mean this is just like the the how many accounts or how late it was a percentage of accounts over sixty days was the number they were referring to there and so that particular marker So, again, is that what you guys are saying? Yeah, I can tell you that's what they're seeing. We don't spend a lot of time in VA looking at delinquency. We're going to start to add a layer of delinquency measurement because, as one of our members pointed out, it is going to be one of the better ways to. identify collections approach. Like this is one of the things, you know, with my clients, we've been talking lately about philosophy of business. And especially we've got one dealer hiring a new manager and we're kind of working through this eleven piece checklist that we introduced some weeks ago. But bottom line is that was, those conversations around philosophy is like, it's hard to, you can look at a spreadsheet and say, okay, this particular dealer is doing a certain deal structure. And then you can see their actual portfolio performance. But you can put two dealers side by side who are underwriting in a very similar way. but their portfolio performance may be different, which obviously goes to philosophy, how to handle collections. And one of our members referred to Chuck Banana, who I've known a long time, worked with him twenty years ago. They said, you know, Chuck, Chuck brought the idea that Success in buy here payers, eighty percent collections and twenty percent underwriting, you know, in portfolio success. And I think it's you know, we feel similarly. It's like the we find that there's that's the piece that I'm trying to identify here. And the reason I bring this up about the philosophy is because we're. We're finding right now that that whole thing about philosophy, how flexible are you with your customers? Right. And if they're experiencing challenges, financial challenges, regardless of where that pressure might be coming from, how do we work through that? And so some of these dealers that have been in business for decades and have been through these kinds of things, it's a good opportunity for us to hear from them about what is their approach and how does it affect, you know, their own business. So dealers are being the, the, the environment is more challenging. Yeah. Right. And so we're, we're, we're looking to see who's, who's going to be the winners and losers. Yeah. And when there's delinquencies up, then you have choices to make. I, I want to, attribute this to Darla, uh, about if you can double your charge offs and still keep your head above water, then you've got a good, um, a good ratio for your own business. So hopefully, I mean, we've been talking about that for a while. Hopefully you, that's been a, uh, KPI. Mm-hmm. and people are always asking for KPIs. I think that's a really good KPI about the health of your portfolio. But right now we have, because there's so many people delinquent, there are a lot of dealers out there that don't have that wiggle room. And so, you know, it's like, what are you going to do? Do you have the ability to be more flexible? Do you have the, do you need to, to, to cut your loss repo, the repo, the car and, and, and move forward that way but if it's up that means more repos that means um more charge offs that means um more that you need to get through recon and more that you need to get sold in order to take the place of those contracts. Yeah. And I can say that one of the things that we're seeing, we just did yesterday a session with our VA plus subscribers on KPIs. And one of the numbers that I talked about was interest coverage. And interest coverage, just in simplest form, is going to be the interest collected across a period compared to the net charge-off. So is the interest covering the net charge off because that's generally why we're charging another way right yeah right so that's one metric that we can look at and I didn't bring hard numbers this morning as much as I can just tell you in my experience of working with that number now and v-aid alone for approaching um in a year and a half now we're seeing that the there are more dealers in our VH circle that are underwater in terms of their interest coverage. So it's an indication that portfolios are struggling. Now, a lot of, when we talk about the delinquency numbers, I want to go back to that thing about, you know, the articles that we were finding suggested that, and this was based on, I don't want to say it wrong, but we can share the information about where the study was linked. But bottom line is it was suggesting that delinquency of sixty plus was as high as it's been since ninety four. I think that data is primarily coming from the segment that you might say is just above buy here pay here because those people wouldn't have a ton of access to data that is true buy here pay here for dealers that are self servicing on paper. So that data is more likely coming from the credit acceptance segment, those people that are, you know, public data. So I think you're talking about some of that, but it's still the best indication of how that's going to flow down to buy here pay here. and so I think you know for today we're just kind of sharing what we're seeing nobody's here is trying to be alarmist or to say you know the sky is falling by any means but it is a time that we think it's appropriate for dealers to focus on efficiencies. You know, we've heard people say it's a good time to get, make sure our overhead's in check, right? Make sure that we're managing our overhead and that, to your point about Darla, and I know that originally came from Ken Shilson about this idea of doubling your charge-offs and would you still be in business if your charge-off rate doubled? We're not seeing double charge off rates, but we are seeing a pretty substantial increase. And so it is testing. You know, it's kind of I've been using the phrase stress test and a lot of our work with VA is like when we apply certain calculations to these portfolios, how well does it hold up to the stress test? And so these are examples of where we say dealers, we recommend dealers are going to be One, aware, right? Be attentive to your numbers. Make sure you know kind of what your performance is looking like and how it might be shifting. We think dealers who are going to be successful are going to be adaptable. Certainly, they're going to be looking at technology. I think this is a really great time to make sure that we're you know, properly invested in technology, because obviously that is a shifting environment. The other thing that we would certainly emphasize again, as we've been doing for ever since we started at Wednesday, really in twenty twenty two is customer engagement. I mean, I can't think of a more important time to make sure that we're in regular communication with our customers, even those customers who are not past. Yeah, that it's that it's become something that your customers are it's not a, it's not a, it's not something that strikes fear when they get a phone call from the dealership. So it's, we start that customer engagement and you're more likely to get an answer to a call if there's something that's up. So yes. And, and we we've had guests on that talk about how they've shifted into quarterly If there's some way, whether it be on the phone or a newsletter or something that you're communicating with them even more often than that, but that it's the actual having a conversation with your customers really, really important during these kind of financial moments. yeah for sure and I would say it starts with just you know if you're not sure what to do with that sort of engagement I would say if I were going to be a short survey like if I were reaching out to customers it would be a three question survey and mostly I'm just there to listen get a feel for what's happening with them how's everything going how's it going with the car how's it going with the you know, your, your work or your same hour, same everything, you know, any real changes in your world and just listen, just find out from them kind of what their sensitivities are, you know, what they're, what they're kind of experiencing, what they're thinking so that we can be proactive and be prepared to work through whatever, you know, is, is coming down the pike. And so this is something that I think we just want to make sure that we're, we're, aware super engaged with our customers and that we have a chance to solve problems and it's what I always talk about with collectors like if I were hiring collectors um I one of the top skills I'm looking for is is problem solving yeah like it's just being creative and and to solve problems you have to be able to first listen you have to understand what the problem is good listening skills then actually is yeah it's way up on the list yeah yeah And so I think this is part of where, you know, we we we have an opportunity and certainly in our own research here, you know, we suggest that the research suggests that those those who are going to have a chance to be most successful are the ones that are efficient there. They are taking advantage of. technological gains, right? And that are obviously healthy from a debt ratio perspective. One of the things that came up in some of our research, you know, we're using ChatGPT and we're sweeping this stuff because it can obviously go out and pull together research from all kinds of sources in an instant. and it it also brought up the the subject of ltv with lenders yeah right it talks about lenders and we can talk more about that with chad and jp next friday but what we're seeing we're seeing it ourselves we're seeing dealers struggle to get their lines of credit renewed because they had LTV ratio issues. And for those not familiar with LTV, it's going to be loan to value. It's going to be the loan amount with the customer relative to the book value of the car. So this is why, you know, we had some really great conversations yesterday in our V eight plus session with KPIs because we had both highly experienced dealers and dealers that are new in that same conversation. And it really highlighted the, you know how business models shift and what dealers who have been in business for decades, what have they learned to allow them to be successful? And so these kinds of things around deal structure and all these kinds of loan structure questions are things that we need to be aware of. I think in our, you know michelle knows I don't I don't like using the word when I'm talking to dealers I don't like to use the word need like you need to do this you need to do that I mean dealers are pretty independent I would say we're we're in a time now where the the word need is is um more relevant it's like there are going to be some things that we we certainly are going to benefit from in our operation when we will make sure to get ourselves healthy in certain areas so that's again going to be for me the top indicators are going to be You know, limiting charge-offs, which we're always looking to do, but I think it's going to be especially important now. The overhead element, obviously optimizing deal structure and technology, leveraging technology is going to be, you know, an essential part of, you know, how dealers prove to be successful. Communication with the lender, making sure we know what the lender is looking for and that we're, you know, making sure we're familiar with our covenants frontwards and backwards and that we're being proactive to manage our way into, you know, hitting those marks. when you you know we talk about ltv an awful lot and I um I when we're falling out of covenant because the loan to value is too high that's a real um that's a real question about pricing too so are we you know we've we've heard for so long double it and add a thousand dollars yeah that came up in our conversation yesterday and and you know it was discussed that that that That phrasing has been around for decades. I've heard it. I've heard it many times recently. You don't have to hear it from Jim. Our very experienced dealer says that works at a low ACV. You know, if you've got a fourteen thousand dollar cost car, you're not going to double that and add a thousand dollars. That's just not so. So I think, you know, if you're new and you're in a low ACV, then maybe that kind of strategy can work. But I think really that what I was suggesting to our newcomer dealer who was part of that conversation yesterday is, start tracking even if you don't have a lender in the picture start tracking the actual book value of the car that you at least at the time that you book that or that the deal is contracted you don't necessarily have to keep a running uh track of its value It depends on integration. Most of them have to integrate with a black book or some sort of third party valuation system. But I would say dealers can just quickly run an MMR or whatever valuation tool they choose to use. But I would suggest that everybody have their valuation number at the time of contracting so they can have a point of reference of where their LTV started and at least have that as a data point. You know, ideally it would be in the DMS. You would have it booked and have it in the system. And I would imagine that that would be wise to have, you know, the LTV and know that from the gate, if anything happens that you needed to sell that car, that you would be able to, to, um, to, to cover that, cover them. Yeah. Yeah. I think it's always a good idea to have. In fact, I heard from a dealer yesterday who discovered that his local bank was not going to be able to do business in the way that he had expected. And so he was, he went to a new lender, but right away they were asking for valuation. What's the value of the paper. Right. So, so they'll use their own metrics to figure out. And really what I guess this dealer was asking, who are the buyers. Right. And so that they can have as a, as a backdrop what is if we had to liquidate the paper who would be the buyer so I gave him three names and but the idea here is what is the value of the paper in those situations and I think a lot of our dealers are in a healthy position they may not be using debt I asked a question about ltv in one of our large group meetings a while back and virtually none of them were tracking ltv why because it's not really relevant to their strategy it's not currently a factor. Well, I can't say, I mean, these dealers are established and successful. I can just say that to me, it's, it's a point of reference that even if it doesn't dictate the way you structure deals, it's still a relevant data point in terms of today's market position, in terms of making sure you know where your contracts are priced relative to the book value of the car. So that if circumstances should change, and we're liquidating paper or we're shopping for a new lender that we know where we're at in terms of LTV and that we're not surprised by our own LTV ratio issues. So yeah, I think it's a relevant thing to be aware of and it doesn't have to change necessarily for a dealer the way they price. Because again, if they're operating on their own cash and it's their business and they're doing deals the way they decided they want to do it, then we We're not going to try to dictate to anybody that they change their business model. It's just that I think it's a point of awareness. And with all of our dealers, we ask them to be aware of because of the absenteeism and because of the idea of having enterprise value in your business. I think it's important to understand kind of position that you're in with your portfolio. What is this liquid value? What is its leverage value, so to speak, and be aware of those kinds of things as you operate so that you can, you know, be proactive and plan ahead to, you know, what, I think a twenty four month plan right now is a good idea. I think the world will look a lot different in twenty four months. And so I think in terms of managing your way there and anticipating if losses continue at this track for a while, then what does that look like for dealers? And so there's there's a lot of factors. And as I keep saying, the reason these conversations become so important and the reason we want to make sure in our VA and other formats that we continue to to talk about this stuff is because the buy here, pay your business is simply more challenging than some other businesses it's just got more layers to it it's got and as I said you know it's got a a three-year tail or you know you you create a contract today and that's pay-per-profit but how well you convert that to cash will be decided over the next twelve twenty four thirty six months a lot of businesses don't have that element to what they do right and so and certainly not in a subprime sector so So I just think it's important for us to be mindful of all these different elements and to be watchful about certain pieces. So, again, I look forward to having Chad Martin and J.P. Bryan with us next Friday. We can dig into this a little bit more as it relates to the actual lending picture, because, you know, capital is. essential. One of the things we heard in our meetings this week is that dealers are seeing more success with higher ACV model, which is one of the things we're going to have an opportunity to continue to examine and we'll bring information back to the larger community as we learn more and more about some of these things. But certainly the higher ACV model is proving with some to be it'd be a winning combination in which case we want to make sure we understand that. And if, if dealers are going to start to pivot toward that, then obviously they're going to need to source capital. Many of them cannot afford to move from a six thousand, eight thousand dollar ACV to a fourteen thousand, fourteen thousand dollar ACV without some injection of capital or some, some capital financial support. So this is why I just, all these conversations become especially important. And we think, you know, The podcast, we just want to keep out there what we're hearing, what we're learning, what we're observing and let you guys make decisions for yourself about where you want to go with your business. But I would just say there's every reason to have optimism and there's tons of positive things to consider, you know, as you as you look forward to, you know, where you go next in your business. I would just say among the things to be aware of, you know, I've got an elbow whacked with a shelf over here. So you want to read that? Closing remarks. This is from ChatGP. This is ChatGP because we talk with our chat agent that are sage. And it has access to all of us. It has access to all of our content too. And so we were asking it to to kind of summarize what it is that we wanted to talk about today and it so it says um if you've been around the business long enough you know the cycles hit hardest when you're unprepared but they also hand out the biggest rewards for those who show up with the discipline with discipline and a long view the truth is we're in a market where pressure is revealing character And for those of you running clean operations, staying close to your customers and embracing smarter systems, you're not just surviving, you're gaining ground. Dealers who are investing in better underwriting, stronger reconditioning, and digital agility are in a position to capitalize. Why? Because when customers are scared, they look for confidence. And when lenders get tight, the dealers who say yes with integrity become the go to for the whole community. So, yeah, there's plenty of noise out there. But if you're running your store like the customer will be with you for ten years, if you're making That's the one I said, it's got a crushing mark at the end. Or are you making trust deposits every day? If you do these things, then the market is yours to win. Keep your head clear, keep your tech sharp, and your heart in the game. Yeah, very good. So just to me, we couldn't have said it any better. That's why we want to just refer to those remarks. Again, it's summarizing everything. It's sort of trying to encapsulate everything that we talk about and that we document. And so it seemed appropriate as well. And again, there's a lot of positivity. There's a lot of opportunity for dealers. And so I think this is a time where, you know, let's keep plugged into our peer groups and find mentors and let's, you know, let's navigate through, you know, what's proven to be a pretty challenging period, at least with losses. Oh, yeah. So we want to keep... Keep working through those things. And we just want to support you and bring experts. And we'll do that again next Friday. We'll bring Chad and JP to talk about Chad's most recent post, which you can find those in the BHB Success Group. If you just find the search bar and hit Chad, you can find his one from six months ago and now his follow up to the same thread about, you know, backup lenders. So anyway, also, if if there's anything that we can help with, please feel free to reach out. You know, Jim does a lot of portfolio analysis and those kind of things. So if that's something that that we can be helpful and please feel free to reach out jim at wyattway.com one quick reminder on monday night we'll have our va discovery meeting it's open to dealers who are interested in va for vendors who want to understand a little bit more about what we do there So we can get the invitation. If you're interested in attending one of those, just shoot me a note at the text or an email and we'll get you an invitation to that. And you can sit in and just kind of observe what we talk about and kind of the KPIs that we review and just kind of get a sense for the format. Yeah. And so other than Jim at White Hat Way, you can call or text. Hey, everybody. Thanks so much for joining us. We really appreciate it. It's a happy Friday. And yeah, we hope you guys have a great week and we will see you on Wednesday. All right, everybody. Have a great day.
