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 friends, good morning. Happy Friday. Welcome to another episode of the Buy Here, Pay Here Morning Show. Glad to have you here. Michelle is on the board here with me in the room. So if I need to pass along any messages, I can do that. She's just not being on screen. Most of you have heard me say that we have kind of shifted a little bit in the way we're doing some of our podcasting and because Michelle is shifting into some new work of her own, then it's just kind of changing the way that we handle this particular podcast. And we'll be talking to some others about potentially co-hosting with us as we move forward. But today... It's going to be kind of interesting. We've got a big subject around delinquency. But before we move into that, I'm going to kind of hijack my own topic a little bit. I've got something on the front end of this that, you know, is on my mind this morning as there have been some new announcements in our industry that are, you know, very favorable developments. And it just, because I have sort of unique position in the industry, I think it's important to kind of take a pause and talk about kind of where we're at with some things. And especially as it relates to my own work with data over the years and you know, our recent work in the last two years with V-Eight dealer groups and, you know, how we've managed data and what we've learned from, you know, pulling data together. So, you know, I wanted to share that, you know, there was an announcement. And I think for today, I'm going to not talk about names and people, even companies, just because it's really a much larger conversation than that. And I think today's the opportunity for me to really break down some things about where we are here in early twenty twenty six. And in order for this to mean anything, you know, to to dealers out there and really folks across our industry, it may help to back up. And I've told a story about my my own career path and the But I'll be back up to two thousand. When I started doing consulting, I quit being a buy here, pay your manager and started consulting and coaching with a company that was a DMS software company. Keep in mind, in two thousand, they're in the process of switching from a DOS based system to a Windows based system. And so they were primarily a software company. I went to work in the consulting division, but we worked very closely with the software people back in those days. So much of what I'll talk about here really spans those twenty five plus years now of being around the software side of this business and the data management. And I think it's important that we just think about where we're at in terms of data and kind of the opportunities that exist, the challenges that remain in terms of what we have in terms of data management. And so, you know, the big announcement this morning was there's a provider in our space who has created a sort of a, we'll call it a digital composite solution. And that's very exciting. And I have no reason to do anything but cheer for their success in that rollout. That is a really big development for the industry and potentially a very positive one. And I think it just caused me to start thinking about kind of especially in light of what we've kind of wrestled with in the last two years. And listen, it's nothing new. Twenty groups have been around for decades. And, you know, Brent Carmichael over at NIADA has been wrestling with this thing for, you know, I think he was five. years or something with NCM and all of that really with the buyer-payer side. So this is not a new thing. It's just one of the challenges that we have around data in our industry is just the way that it is processed and managed. And, you know, what we see in our sector is that You know, what's happening now in this kind of new software rollout is that the provider has created some API connections that allow the provider to pull data in directly from DMS systems, which is wonderful. That's really a nice positive development. And so now dealers are going to have the opportunity in the coming months to be able to have their own Data measured against other dealers in the industry. And so that's great. The more data you can get in that pool, the better. I think what I want to speak to this morning is that one of the challenges that remains and I'm. I'm open to continue to play a role. White Hat Way is certainly going to continue to be champions for dealers and better information and wherever we can help to solve some of these problems in the industry. I think one of the things we see is an API connection is good. It takes out the human element, which is going to reduce a lot of errors. We know from working with dealers, you know, and as former dealer myself, dealers are busy. So, you know, you're going to have trouble getting them to submit. We've certainly had to run down dealers. And again, Twenty Group's been doing it forever, is running down dealers to pull in the information that is needed to have a good composite and a good meeting. But one of the things that's really on my mind this morning is the inconsistency of the data that comes across. And so even if we have DMS data, one of the things we run into is just the way dealers manage that information and the way that they process data. uh, you know, various steps in, in the thing. I'll give you a couple of quick examples. We have seen, you know, what one dealer reports as an acquired cost of a car. Okay. So forget the total reconditioned costs, but just what they paid to acquire the call. You know, some dealers would have in that number, uh, they may include in that cost before they go to the computer and put in a paid sixty three hundred dollars for the car as an example some may have in that number their transportation costs and their buy fees at the auction some may include in that the cost of their warranty and i've seen warranties you know they're often in the range of six hundred dollars or something for a twelve month or whatever but i've seen as high as fifteen hundred dollars that dealers are remitting to the re the reinsurance company on a twenty four hundred on a twenty four month warranty well Some dealers will put that in their cost of the car. And if they don't put it in their cost, they may put it in the reconditioning side. And so I think what I was trying to illustrate this morning is that while we're taking some really big steps forward and that's important, I think it's important for us to pause and recognize that until we solve that problem of inconsistency of reporting, we just are gonna have a limit to what meaning we can pull uh from this and you know here we're doing small groups in v-eight we meet with dealers we pull in the data and we validate to an extent to calculate the uh the receivables balances and make sure that our receivables are coming in within a reasonable amount of deviation And I'm thinking back to a meeting. We just had a December, I guess it was January meeting that one of our members said that, you know, they're a data nerd kind of like me. And they said they actually teased me in that meeting about being a mad scientist when it comes to data. And I accepted it as a compliment. You know, I do dig into the data and the data means a lot to me. And I think having it be presented in a way that is relevant to dealers is significant. barely a couple of minutes in and already having to hydrate. So bear with me. But I think this is going to be, you know, that same dealer also said that, you know, when you look at a spreadsheet and you discover that there's a problem with one number, it causes you to lose confidence in the whole thing. And it causes and that's fair. Like, I feel the same. And I think, you know, in the way that this dealer said is kind of like I just would quit listening. And I think this has been one of the challenges. And I get that frustration because that's that's a frustration I've been living in, you know, throughout most of my career and working with data. And I think that what you see is that we. We still have a problem to solve at the data level. And, you know, we're very fragmented is the word that people use. You have a lot of DMS systems and they process differently. One example I didn't give is we've had dealers in our V-A system that they don't assign a value to a repo at all. There's no ACV coming back in or fair market value attached to their their repos. So when that charge off number for them looks very different than the other members of the group. And so this is, and we've had dealers who, um, you know, when they first joined V eight had a very different repo processing method and they, they conformed, they didn't know better. It, Excuse me. So they conform to what we suggested and now their numbers align with the rest of the group. I think it's just it's an opportunity for me to say that, again, I'm I'm all about progress and I want to see dealers have new and better information and be able to make good decisions. I'm also cautious about the idea that we until we solve this thing with the way we manage data and some of this is best solved at the DMS level. I mean, I'll just say it. I'm having worked with DMSs and received very little cooperation across twenty years that you you still you until you get DMSs to get some sort of continuity in the way that they process data. and that they are able to filter data coming in from their members. Look, dealers, part of the reason dealers are attracted to buy here, pay here is because of the independence of it all and the ability to be kind of a renegade and do business the way they want to do business. And that's fine. It's a beautiful thing. And when you start to move toward talking about data, it makes it easier. challenging and so i think there's still work to be done in that regard and i just am i'm just uh kind of a word of caution to all the all the parties this is this is for dealers this is for vendors in the space this is for you know all the providers and and the the data management people including some of the partners that we're currently working with on some initiatives that would have a chance to solve some of what we're talking about here. I just think that to me, it was worth taking a few minutes to share that we've still got work to do in that regard in terms of solving some of this stuff. And API integrations and connections data and the flow of data is good. Now, it's just a question of how clean and how reliable is that data that's gonna be moving across these API connections. And so I say that, I would say, let's work together to continue to figure that out. And let's make sure that we can help dealers get better, more reliable information so they can make better decisions. which takes me into our conversation about delinquency. You know, we're coming off of years in twenty, twenty four and twenty five when everybody knows repo rates have been higher, charge off rates have been higher. We've measured all kinds of those numbers. We've we've brought those conversations to the podcast before. And I think this is This is a time to really stop and think about delinquency and what it really means for us now. So obviously, by the end of our conversation here around delinquency, I want to send dealers home with some takeaways that will be. Hopefully it's actionable things that you can take to work in your dealership now that can have some impact on, on these things that we're, we're going to discuss because I think that, you know, our topic today are, are, are, title of the podcast rather was Thirty Days is a Lifetime, which I'll talk about that. You know, that comes from Ken Shilson. Some of our listeners are new enough to the industry that they may not be familiar with Ken Shilson. But those of us who have been around since the nineties and two thousands, you know, we saw Ken as a CPA by trade, build the NABD organization, had very successful conferences over the years. And I would say Ken did as much for standardizing this industry as anybody and he worked very closely obviously as a cpa he worked um a lot on the financial side and and um and and a lot of his work was with lenders and kind of uh you know high volume dealers we'll say and there was a lot that was learned in that period one of the things that um ken used to talk about was this thirty days is a lifetime thing and i'm gonna back up i wanna go my my first kind of point of reference here would be You're kind of a one day delinquency. You know, when I got in the buy here, pay here business, one of the things that you learn is that others in other industries, you go out there and read articles about other financing, auto financing, sometimes even in what people would call a subprime sector. The measuring stick is thirty day delinquency. And while, you know, twenty groups may measure thirty day delinquency, they that that number is pretty low across our industry that dealers don't have a high percentage of customers that are past due. for thirty days. Now, for today, I'm not going to dig into recency. So for our listeners, recency would just be irrespective of how far the past due the customer may be. How long has it been since they paid? So they might be thirty days past due, but they made a payment ten days ago. So dealers will sometimes refer to their recency as a better indicator of just exactly how the portfolio is, in fact, producing. But I think for today, when we just talk about delinquency, the reason if we just put aside recency for a minute, we talk about our delinquency, then, you know, you look at one, eight and fifteen day delinquency. So why those numbers? Well, because a high percentage of our dealers are doing biweekly payments. I mean, if I had to guess just based on the data that I see, I would say probably north of sixty percent of payments in our buy here payers sector are bi-weekly okay so so when we say that that's why i start to lean on a fifteen day delinquency when you've got a customer who's fifteen days past due and you know a lot of these payments of course land on a friday so let's just talk about that scenario if you've got a customer who's um now fifteen full days past due That means they have fallen behind on two payments. And so we're getting into what I would call the danger zone. And so this is why, you know, Shilson talked about this. Thirty days is a lifetime because in our line of work, if you let a customer get to be thirty days past due, you're getting into the place where it's going to be very difficult for the customer to catch up. And, you know, kind of goes back to the thing about, you know, when we look at delinquency numbers and some dealers have extraordinarily high or or let's say low delinquency, high success in delinquency. then the question becomes, can we know for sure that they're not modifying contracts or doing, you know, this is another thing. DMS systems call them different things. Some DMS might call it a due date change or, you know, others, it would be a full-on modification or payment deferrals, whatever. It's like you delinquency can be manipulated friends. And so it depends on software. It depends on policies. And, and so delinquency can be manipulated. And so I think this is why, you know, we've talked about over the years that delinquency doesn't tell the whole story. Our V eight members here is talk about there's reason that in portfolio performance, we must look at. five to ten different numbers regularly on portfolio performance. Why? Because no one data point really tells the whole story about what's going on. But when you combine all of them and get a sense of kind of what's happening in the math, then it gives you a better sense of what's really going on. Because At the end of the day, delinquency matters to dealers. I talk to a lot of dealers who that's their go-to number for one of the first things they want to look at when they hit the dealership in the morning is their delinquency number. And I get that. It also matters with lenders. If you've got a lender in the picture with a traditional line of credit, they're going to be interested in delinquency. They're going to be monitoring delinquency and they're typically going to regulate the number of due date deferrals. Like when I say regulate by covenant, they would stipulate that you're only allowed to do a certain number of modifications, a certain number of due date changes, et cetera. Why? Because when you manipulate that, otherwise you're, You're delaying cash flow. OK, and we're we're showing a good delinquency number, but we're kind of kidding ourselves because the customer didn't really make the payment. And so when we when we talk about delinquency, I think, you know, I would ask that this is let's talk about true delinquency. Let's talk about if we don't modify payments and the customer is really contractually behind. then what does that look like for us? What does that mean for us? So in my belief, if thirty days is a lifetime, then that just means the customer has fallen so far behind that they have So they're going to have difficulty catching up, and I would say that's even more true now than it was a few years ago. Let me show you a quick graph. Let's look at insurance first. So here's a chart of how much insurance has changed. This is an annual insurance premium price. So it was about fifteen hundred dollars back in twenty eighteen. It's now above twenty five hundred dollars, which translates into about ninety dollars per month for your customer across ten years. So just one number. But that's that's a number. And by the way, I don't have the data here today, but our car payments and buy here, pay here have come up across the covid period. So the so now we see that the insurance has come up. The car payment we know has come up. Let's look at groceries. Okay, so I should have taken this one back to twenty eighteen as well, but I started in twenty twenty and you can see that there was a huge jump. The reason twenty twenty shows zeros, this is all built as a reference, a percentage increase versus twenty twenty. And you can see that twenty twenty two was the big jump. Most of us felt that at the grocery store. We saw, you know, heck, everything from tomatoes to all of it. Just the prices went up dramatically and they haven't recovered because what this bar shows is that that's continual increase since the since the big spike in twenty twenty two grocery prices have continued to come up. So what I'm generally making the case for here is that our customer in the buy here, pay here segment is feeling a crunch. And when we don't react to it and respond to it and provide solutions and have ways to work through that stuff, Our customer is going to give up. Our customer is going to fall behind. They're going to get frustrated and they're going to throw their hands up. Because why? I have said since my earliest days of coaching, and I still believe this is true and I believe it'll be true. Ten, twenty years from now. Our customer is a survivor, as others have said. And the part that I would add is that when push comes to shove, they're going to make sure they feed their family. They're going to make sure they keep a roof over their head. And a car is very essential, we understand. But I would say it comes third. And so we just established that groceries, feeding the family, that number is way up. They can't drive the car without insurance. I mean, they can, but you won't let them do that for very long. So this is the point that I would say that, you know, we've got to look at all these things. And when we look at delinquency, we've got to ask ourselves, what is the story that – That is being told. I mean, what can we conclude? How can we solve it? So we're going to get to the parts that are more actionable about what can be done. How can I move that needle? Let's talk for a minute about how these higher delinquencies hurt us as dealers. Well, first of all, we have manpower involved. When the delinquency list is longer, it takes more people. Obviously, AI is coming on the scene. A lot of people are going to be working to use AI and incorporate that, and maybe that'll solve some of that. But we definitely have higher labor time involved. Hard thing to measure. It's a soft cost. It's real, but it's hard for us to measure because we're paying somebody for forty five hours a week and we don't know how many of those hours are spent working past due accounts. We don't have good math on that, right? The next part would be the actual loss. Because I would say that these numbers, this eight and fifteen day delinquency, those are indicators of tomorrow's charge-offs. When you see that number coming up, if we don't have solutions, if we don't have ways to get in there and help the customer right the ship, so to speak, then those will become tomorrow's charge-offs. And so this is why it becomes important that we find ways to do that. And then the last one that, again, is hard to measure is morale. When we have customers that are past due all the time and we're having to work a past due list all the time, it becomes very frustrating for collectors. You don't need me to tell you that. And we lose collectors. There's a lot of turnover in our collection departments already. And now when delinquencies are high and costs are high for the customer, then it becomes very difficult, the job of collecting and getting a customer to make that payment. And so you might hear me saying that and saying, gosh, Jim, you make it sound like it's over for us. No, I'm saying we got to have solutions. It's not unexpected that we would have high delinquencies in this time. Cost of cars have come up. Payments have come up with that. And there's also just quickly, if I think about one thing that I think we talked about in the podcast a few weeks ago, is kind of this light at the end of the tunnel equation, which nobody's got good math on that. But I think anybody who's worked in a buy here, pay here store, cashier, collector, dealer, When you have a customer who, as can see the light at the end of the tunnel, they can say, oh, I make their payment and they say, oh, that took my balance under three thousand dollars. That's great. I hope to have that thing paid off next year. Right. And so this there's there's a very real thing that happens there. Can the customer see any light at the end of the tunnel where we well, we know that in our buyer payer sector right now, our. Negative equity is as high as it's been in a very long time, which suggests our balances are high. Our customers aren't seeing light at the end of the tunnel as early. And so this is why it becomes especially important that we have solutions ready when the customer is falling behind and that we want to look at it. And so I talk about a lot of zero to three day delinquency. I think this is something that we want to look at. What's the zero day? That means the customers that are coming due today. When we can work our list on a due today basis to up to three days late. Why three? Well, if again, customers are coming due on Friday, then Saturday's one day, Sunday is two days, Monday is day three. Well, at high grocery prices, if that customer didn't make the payment on Friday and they hit the grocery store on Saturday or Sunday, your ability to collect that full payment on Monday is much lower. And so this is why, you know, Ken Chilson talked about thirty days being a lifetime. In our world right now, we almost need to think about three days as being a lifetime. We need to accelerate. I'm always helping dealers work to shorten that cycle. Do what you can to get in contact with the customer. It should be full court press on one to three days late to talk to that customer, really zero to three days late. And why zero matters is because the customer, we know what happens when the customer falls behind. What happens? They get afraid. What happens past that? They eventually start ghosting us and not talking to us. And now suddenly we've got a repo and we don't know why. We don't know why the customer quit talking to us. But I would say that when we can talk to them in the one to three day range, the customer is less likely to be afraid. They're less likely to to ignore the calls and they're going to be available to talk to us. And now we can kick in as problem solvers, which is what I've always believed collectors should be on our team as part of the skills that they would bring. would be creative problem solvers. But for us to solve a problem, we have to know what the problem is, which means we have to talk to the customer. So this is about just making sure that we really accelerate the timetable, make a push to talk to the customer early. And, you know, the other thing I would say in that is it's not just reaching them. It's the tone. I'll say it again. It's the tone that we bring when we pick up the phone and talk to the customer at one day, at due today, on Monday. Are we applying a lot of pressure? Because they've got other pressures. And if we're going to add to that pressure and we're not going to bring solutions and our solution is just to demand the payment, then I think we can expect a lot more repos and charge-offs. And so this is the part that I think we want to work through and continue to try to solve that. I would also say that, you know, when it comes to capital, you know, dealers are still there's there's no indication that cost a car is is going to go back to where we were pre-COVID. So this just means the demand for capital is going to be there. And the access to capital has reduced. There are fewer providers today in twenty twenty six than there were just a few years ago. And what that means is that we have to be prepared in the buy here, pay here space to make sure that our operations are tight and that we make sense. for a would-be lender and so this is another reason that delinquency is going to matter recency is going to matter all these different portfolio performance indicators are going to be significant you know thinking past delinquency for a minute I've worked with dealers who run very high collection efficiency but consistently run high delinquency as well. Well, how can that be, Jim? Well, if you're running high delinquency but you're consistent about it, you have the same kind of customers that are running past due or you're working with people and you allow them to become ten, fourteen, twenty days late, but you're working with them and you put them on a payment arrangement and they catch up, then you would have high delinquency. but you're getting the money in the bank and you're not losing that account so when we talk about collection efficiency we're measuring how much money did the portfolio generate relative to what it was supposed to generate based on the number of accounts we have in the portfolio okay it's a little more complex than that but for for this morning i would say that so if i'm a lender i want to know that the cash flow is there to support repayment of the loan that i would be making to the dealer which means we got to go beyond delinquency. We got to know how we're actually yielding in the portfolio and what is the kind of the ultimate turn. Like how quickly do we turn around these payments and what kind of charge off rates are we experiencing? So these things are ways to begin to solve that. And then I already mentioned this idea of winning at the zero to three day mark. If there were one takeaway I could offer you today, I would say for you to experience less charge-offs in March and in April, it's gonna be this part right here, is we gotta make sure that we have the personnel available And if we have to bring people out of the shop, I would say there's no one job in your dealership that's more important than this right here. And when you position your staffing and when you think about personnel and you look at your organizational chart, you have to ask yourself, do we have the personnel? Do we have the processes in place to allow us to make sure that the zero to three day delinquency is a priority every day of the week? Every morning of every day of the week, this has got to be priority one. And so when we're so busy selling cars or we're so busy taking calls about reconditioning from a shop across town, when we're so busy with that and we look up and it's four thirty and we haven't worked the zero days, we haven't worked a one day late. This is where we're having leakage. And this is where we lose our attraction or how attractive we become to a lender. Will we ultimately get the line of credit? Maybe, but we're probably going to pay more for the money if we get qualified. We may have a lower advance rate because of our portfolio performance. So I would say that, look, I love my car dealer friends and clients. The industry has been good to me. I've been at this twenty five years and it's been good to me. I would also say that I love my dealer friends. We got to take and even in tax refund season, friends, we got to remember we love sales and we love cranking out sales and moving metal. And we pay a price for that when we don't have the personnel in place for making sure that priority one is zero to three day delinquency. And when we solve that, we begin to reduce our repos. We'll see fewer charge off. You're going to see fatter bank deposits. And so this is part of what I think we got to make sure that we have the personnel to do that part. And now you'll start to see your delinquency rates and your charge off rates improve. hope that helps i'm glad you tuned in today thanks for making us part of your friday stay here and we're going to continue to bring guests who can add to the conversation thanks again have a great weekend we'll see you next week
