08
July
2025

Why Create In-House Financing

Unlock new revenue streams by embracing Buy Here, Pay Here (BHPH) or Lease Here, Pay Here (LHPH) operations. Capitalize on bad credit customers, improve cash flow, and create a valuable portfolio, all while enhancing your dealership's overall profitability and growth potential.

Why Create In-House Financing

Over the last three decades, I have set up Buy Here, Pay Here (BHPH) or Lease Here, Pay Here (LHPH) dealership operations for franchise groups and independent dealers in different states. Decisions include which building, what branding, inventory, setting up a shop, hiring and training the team, acquiring the software, creating the procedures, and starting the selling. Then, I would build a finance company to maintain the portfolio and get the money rolling in.

So, why would a successful franchise group want to get into BHPH or LHPH? Usually, it is because they have plenty of bad credit customers coming in, and if they do find a lender for those customers, the dealer doesn't make a lot of money; the finance company does. Often, dealers are looking for investments to make more money. BHPH/LHPH can do that while generating revenues for other dealership businesses, such as towing, body shop, parts, service departments, and even sales.

BHPH and LHPH done right can generate good cash flow, create business for your shops (service and body) along with other parts of your operations, help you increase the bids on your trade-ins, give you an outlet to refer customers turned down in your retail operations and from the other direction create new customers for your franchise stores as the BHPH/LHPH customers build credit (if you report to the bureaus). Having a BHPH or LHPH lot also gives you another set of companies that can pay for real estate (the lot(s) you create paid for by the operations); they can help build a "farm team" of sales and manager personnel that can grow into your other operations, oh and did I mention cash flow?

You will experience all of the above, and the bigger bonus is your portfolio. You see, as you sell more and more vehicles in your BHPH or LHPH business, which generates revenues and added business, you are also creating a multi-million-dollar portfolio that is grinding out the cash flow while growing in size. If you sell 25 vehicles a month (average $7,000 acv) on terms of 36 months, you will be bringing in around $500,000 a month in revenues as you mature (plus reinsurance $$), have a loan portfolio of approx. 600-650 units in the street and a principal balance of about $7M.

Yes, you have 600 to 650 customers driving your cars and having to make payments to you. They will wreck those cars, blow an engine or transmission, get them impounded, occasionally argue with your people about owing money or insurance, and occasionally, one will "skip" town. All of this and more is part of the business. If the procedures are in place, with correct compliance practices built in, along with training and solid policies, then you mitigate the issues.

Most franchise dealers understand repossession is part of the business, and it is definitely something you contend with, but it is not to be feared. Many dealers with good buying habits, correct underwriting, and the right team management will profit from repossessions. Repos, recovery, payoffs, and extra fees are part of the cash flow as you grow. If done right, you can recycle many repos into a new sale. If you are doing things correctly and understand Cash in Deal (CID), you can see where your investment in any given vehicle can be recouped in a few months of payments, though the customer owes you many more months beyond your CID. If the customer falters, you grab the vehicle and resell or wholesale it. Often, those dollars are all profit. The loan shows a loss on your books, but you still made an actual profit above your vehicle cost.

The loans that pay out, whether from a customer making all the payments or you receive a payoff from insurance or another dealer (one of your own maybe), or you trade them out at the BHPH lot, can make $9,000 to $12,000 depending on the interest rate, number of payments made before a payoff and any fees involved. If you establish a reinsurance company, you can offer a service contract or warranty, Collateral Protection or Debt Cancellation, and other products that build reserves and help mitigate the costs that come from customers having vehicle problems, accidents, and no money to take care of them.

I have worked with franchise dealers who eventually sold the franchise stores to focus on their BHPH. I have dealt with BHPH dealers that eventually bought franchise stores as well. I have worked with dealers who built a portfolio and then occasionally sold portions of the portfolio to invest in real estate. They ended up with more property holdings than the size of their portfolio. I have also seen dealers crash and shut down the business. If there is no risk, there usually isn't any gain; most of y'all know that.

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Categories: Dealer News Stories

Gene Daughtry

Gene Daughtry

I do on site training for Auto Master Systems. I provide consulting for BHPH and LHPH operations. I provide Service Operations training. I do procedure writing for Independent Auto Dealerships.

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