From 2009 through about early 2011, you could buy a good 8 to 12 year old car for anywhere between $1000 and $2500 at a wholesale auto auction. Unpopular brands and unpopular models were stacked as far as the wholesale heaven of repo lots and auto auctions could hold them. Millions of them, with no buyers in sight.
That was the good news. The bad news was that the economy made what had been a series of quick cash deals for me not too long ago, into a bumpy finance driven ride to destinations unknown.
I would become the bank and, in time, I would also become everything else my customers needed of me.
Before the cars went on the front line, the cheaper vehicles always needed paint jobs and a variety of cosmetics. While the more expensive models would have garage kept exteriors and a nice stack of dealer records.
Paint jobs were still $200 for a basic decent one. Parts were inexpensive, for now. Cars were cheaper than they would ever become. The world of 2009 may have been the pits for new car dealerships. But an organized entrepreneur who didn’t have to worry about channel stuffing or the stigma of selling older cars was in an excellent position to build a following.
To do that, you had to protect your customers even before you handed them the keys. Repair checklists. Carfax histories. Detail work. Craigslist. Autotrader. Cars.com. Se habla Espanol. Heck, se habla whatever was needed to get the car on the road and keep it there.
Before I knew it, I was covering every possible angle for my customers. Oil changes at a $10 cost. All repairs done at cost during the duration of their financing, all of which were put on the back of the loan at no interest. Free towing. Free rentals. Even free coffee for the three times in 2009 that I needed to use those other two services.
Within a matter of three months, I was financing over 40 customers and sold just as many for cash money. To make payments easier for my customers I set up an account at a bank (Flagstar Bank) that was even open on Sundays so that my customers could make their payments even if I wasn’t at the lot… which was quite often. I needed to get cars.
(Welcome to Flagstar Bank. How may we help you?!)
The ‘face’ of my business had to be sustained by arms that would help keep track of it all. The bank would make a duplicate receipt so I could keep track of all the deposits. Late fees were usually waived if the customer called me ahead of the time. If not, then the situation would quicken based on their conduct.
My policy was simple when it came to payment issues. If you can’t pay, at least tell me the truth. If you can’t tell me the truth, at least return my call.
If you don’t return my call, the clock would start ticking. My decision to get back the property would rest solely on the customer’s prior conduct and personal character.
The truth is I didn’t want the car back. I wanted to be paid and have everyone live happily ever after. Before I entered the world of financing, I had tried my best to avoid the headache of it all.
I hated debt with a vengeance due to seeing so many repos come to the auctions over the years. I wanted to have customers who were owners and keepers instead of perpetual debtors. But like all ideals, the aspirations of virtue sometimes had to give way to the economics of pragmatism.
The ‘keeper’ ideal wasn’t always possible. There were the families who thought they could use my car for 1000+ miles and have unusual herbal essences inside my property. They got all of 0.1 hours past the payment deadline along with those who committed fraud or used the vehicle for felonious criminal activities.
There was one time where I went to a local bulletin board and saw one of my customers on the front page for stealing radios and GPS units out of other vehicles. Another time I recovered a Lexus and saw a phony bill of sale in the glovebox that showed the car was destined for the Bahamas. A fluke, in a blown brake light that kept the car in park, was the only thing that saved me from a $3000+ loss.
The sad fact is that some folks simply decide to augment their income by using their automotive freedom as a tool for abusing greater society. I quickly began to recognize the sores, scars, and unusual skinniness of meth addicts. Along with the dangers of dealing with people who were unusually friendly, and had identities that were as phony as their smiles. GPS units soon became standard equipment on some of my more expensive finance vehicles. Credit checks, criminal background checks, a top notch repo operation, and a watchful eye became my shields in a business where a few of the natives had knives in their pockets and spears of meanness in their minds.
I would gradually build an information system that stood on the shoulders of giants of friends of mine who had been in the business for decades. One of my best friends in the business had befriended me back when I was working in the auctioneering staff at five different auctions. He, along with a long line of older experienced dealers (none of them were younger than 50), shared with me hundreds of stories and thousands of insights that turned out to be far more valuable than any degree I could get at an Ivy League university.
How to read customers. How to assess risk. How to figure out what a customer is capable of financing given that nearly all of them didn’t keep a positive bank account balance on a regular basis. What surprised me is that so many people lived in a cash driven economy these days. And that this phantom economy, if you looked at it with the right lines of questions and observations, could be quantified.
Maybe not in a perfect way 100% of the time. But the implicit body language and those recent pay stubs, bills, and personal references could offer a far more complete picture than a black and white credit report.
For a guy who had spent 1000+ hours a year reading faces at the auctions as a ringman and auctioneer, this type of real-time auditing was one I could easily understand. My work at Capital One Auto Finance liquidating 10,000+ vehicles a year also let me in on some of the more financial tools of the trade which were still relevant in a world where credit data was limited.
The fear of the unknown in late 2008 became an opportunity to mold a business that would challenge and reward me on multiple levels. There would be pains and stresses that came from bad customers and unusual repairs. However so long as I looked out for the good people in my life, it all seemed to be well worth it.
2009 turned out to be a success, albeit one that required far more discipline than the easy cash sales of times past. It would also be a grounding in a finance driven business that would require more money and more education. I would learn a lot, and I would most certainly be paying the bills for all that education.
The economics of financing turned out to be more favorable than what I expected by the time all the numbers were tabulated on a Google Docs spreadsheet. But even as my business grew, I began to wonder about the debt within it all.
Would my customers become owners? Or debt addicts? Was I the solution? The problem? Or an amoral force in a free market? In time the economics of a well-run debt driven business would do battle with the conscience of a maturing man who saw the opportunities and traps that came with signing an indentured dotted line.
This is 100% the truth. Son #1 has been an independent garage for 10+ years and as I have transitioned from a career in the OE side of the business to a something of a career in the repair side of the business, you learn a lot about people on a basic level. Especially if you are in an urban area and cater to a wide variety of people including those from all walks of life. You name it, they exist. Not all are bad, but they are not always easy to spot. Some of the slimiest looking characters can be quite straight forward to deal with and well-heeled customers can be just as nasty. Sometimes it takes a thick skin as well as a sharp mind. And check the s*it at the door when you go home. No reason your life has to be as miserable as anyone else’s.
So for a guy that spent the majority of his adult life making new cars, it has been interesting seeing what has happened to them once they leave the nest.
This is why I try to support local businesses whenever possible. Can you imagine (for example) GE Capital wondering if it was “the solution? The problem? Or an amoral force in a free market?”?
Thanks Steve!
Steve, great article and I enjoyed hearing about your unique business model. I started out in the Indirect Dealer Lending Dept of a major bank that survivied the depression but never made it past the late 80’s Savings & Loan mess. Part of their failure was due to a large amount of defaulted loans and a parking lot full of repo’s. I too learned the ropes from a seasonal veteran who taught me to use your gut instincts when dealing with people and money. I always gave them the straight talk so there were no surprises for those who tested me and lost their cars. The best customer I had paid me in person, cash, the same day each month. She worked nights as a dancer to support herself and her two kids. Thanks to the double standard of life people would snicker when she walked into the bank to ask for me..but she stood their proud while I wrote out her receipt. The best compliment I ever got was when she paid the car off and came in for the title..she thanked me for treating her with respect because many people did not because of her “profession”. Please keep sharing your stories.
“Was I the solution? The problem? Or an amoral force in a free market?”
Bless you for wrestling with these questions, Mr. Lang. It sounds like you have tried to do the right thing in a difficult market for both buyers and sellers.
Great information. Glad you survived.
Great article, very insightful and I always enjoy learning things I didn’t know before. One thing I did already know was that no one really wants to repo a vehicle. Several lifetimes ago (ca 1973) I worked for 8-9 months as the outside collector for a third rate loan company, the type of place you went to for credit after your grandmother turned you down for a loan. The last thing we wanted to do was repop a car, I remember being instructed to take any amount of money the customer was willing to pay rather than return to the office with the car. That’s not to say that I never repossessed cars because I did; it was jlust always the last resort. Incidentally, this was in Kentucky and the law then wouldn’t allow the lien holder to just show up and leave with a car. If the owner wouldn’t surrender the keys voluntarily you would have to go before a judge or a magistrate, get a court order and then have the order served by a deputy sheriff. The fee for this would then be rolled into the delinquent loan.
Great stuff Steve, keep it coming. So fascinating to see how others live, and what you have to do to survive. Frankly I’m impressed at the depths of your services. Sounds exhausting.
Yours really is similar to the apartment biz. If you don’t do your due diligence on the tenant screening it can cost you big time in evictions (repos) and lost rent (payments). Of course you can’t discriminate and reject someone just because of that tick in their eye but you sure as heck can consider their finances and criminal history.
Higher rent usually means more profit and, perhaps more important, better tenants. You get that by buying a better building to begin with and keeping it in top shape. I’m guessing same is true in the world of used lease vehicles.
A very interesting read Steve. I am another one of the folks that used to read your articles at the other site. Welcome to CC, hope you stay and continue to share your insights.
Being a former mechanic and car lover, I have flipped a few cars (on the side – it’s not my full time career) when the opportunity presented itself. I simply acquired them cheap or free, and usually broken or otherwise worthless. I would then repair what was wrong over time, and turn it around from a car that was destined for the scrapyard into a perfectly usable car for someone that needs a cheap set of wheels. Ideally, with a small profit for myself. After successfully turning around a couple, I had thought about making a business out of it, but articles like yours usually talk me out of it.
For one, it seems like the only way to truly make money in this business, is to be a crook, and that is not something I have any interest in doing (observation from a couple of local buy here pay here lots). And two (and this may come off sounding stereotypical or hypocritical), but those people I imagine myself wanting to help, are the same people that I wouldn’t want to have to deal with on a daily basis. Your story illustrates the point that this generalization, isn’t necessarily true, but it’s a big part of why I pretty much gave that hobby up.
From reading your articles, it sure sounds like you have the right outlook for what you do, and are upfront about it with your customers. That is truly everything I hope for in a dealer, and should allow you to sleep well at night.
These are terrific articles. Thanks for them, Steven.
Thank you all for coming by!
Glad to see you over here at CC. Welcome.
What an interesting look inside a world I have never worked in myself. I admit that when I drive by buy here pay here lots automatically assume that they are predatory businesses, which I realize is just my own stereotype. Obviously the better ones must have some business morals or they would burn all of their bridges with customers and ruin their reputation.
Keep these coming, they are very interesting.
Another change in past decade is more people are using internet to find cheaper used cars, instead of going to BHPH’s.
Craigslist has lots of cars for anywhere between $1000 and $2500, for the cash payers.
I really liked this article, thanks for typing it up. Now I know I am in the minority, but I do not like it when a vehicle is repainted then the seller raises the price. I rather have the original paint even if it is peeling worse than a mid-90s Detroit vehicle than expect to trust or even like the color of the new paint job. Same goes with rims, some people put fancy rims on their vehicle and jack the price up when all I want is something inexpensive and reliable.