#101 - Collections During Uncertain Times

You are listening to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson. Thank you so much for tuning in. Let's do this.

Hey, guys and girls, how are you doing? Welcome to this episode of the Independent Dealer Podcast. Today, Luke and I are going to discuss collections, buy here, pay here, collections, best practices, some tips, advice, and go through a PowerPoint here that Luke's put together for us all that hopefully will help educate us and build a better collections process. Luke, why is it so important right now?

So right now, for those of us who are buy here, pay here, and there's gonna be a lot of people, Jeff, looking to get into the buy here, pay here after this because they saw what the availability of the cash coming in does to your business. If you were strictly retail, you know, over the last, let's say, month or you were in Pennsylvania or you were in California, that your. Your revenue stream turned off, right?

Yeah, you're completely crippled. You're, you're. I mean, I don't want to say paycheck to paycheck, but yeah, I mean, it's.

It was tough. And so, you know, being buy here, pay here, you have a fallback position. You have a position where you still got payments coming in. A lot of my customers still had jobs. I bet less than 20% of my. My people lost jobs and might even be less than 10%. So, yeah, we still have a steady revenue source that has kept us afloat and honestly kept us, you know, cash positive. So I'm just. Just really, you know, we. And we've been buy here pay here for 35 years. So we've had the luxury of building a successful collections process over the years. And really, since 01, when I came in and started running things, it's really been defined. And honestly, it's what makes our business successful. Yeah.

And a lot of people are going to see that banks and lenders are already tightening. You know, we're seeing our callbacks get tighter on some of our outside subprime lenders. We see some of them just not getting back to us at all. So a lot of dealers will look at that as an opportunity to say, all right, well, for me to keep the doors open and keep moving in my subprime market, I've got to do the deals. Also, I'm going to be getting a better qualified customer. In theory, good credit, good people that just have damaged credit because of this whole thing. Right. Like in 2010 for sure.

Because some people's jobs are going to go away in this recession or pandemic or whatever you want to call what's going to happen. It's going to take, I mean, my, my theory is it's going to take six to 12 months to get this, get everything straightened back out. But people are going to lose jobs, good jobs during this time, and their credit is going to suffer because of it. So you got to be in a good position. And honestly, with being buy here, pay here, you can, you know, you can write the book on how you want to collect those accounts. So that gives us a lot of flexibility.

Okay, well, let's go. Let's do it. Give us, give us some ideas and tips and how we are going to help build our collections process.

So hopefully people can see the screen here. And so we're going to just walk through it. These slides are available. I can send them out if, you know, if need be. But so here we go. We're going to look at five focus points. Number one is underwriting. Now, if you've already sold the car, it's gonna be hard to underwrite it at this point. But underwriting is so important to building your collection system. Consistency, Consistency from your underwriting, consistency from your collectors staff training. You and I speak about this so much that training is so important, whether it's sales, whether it's collections, whether it's technicians or the management of your store. You've got to train up people. Customer relationships, these are huge. Customers want to pay people that they like, right. And they don't want to pay people they don't like. So keep that in mind. And car reliability, in my opinion, is probably the number one thing when it comes to collecting money. If you're selling a, an old car that has a lot of miles on it and you're not helping that customer keep that car on the road, or the car just breaks down all the time, customers not gonna pay for it, and you really can't blame them.

So awesome. Great. Five points. Let's get into it. What's, what's number one? Underwriting.

So underwriting. Underwriting is who we decide we're gonna finance, right? And this is going to be, this is going to be up to you, really. There's a lot of things that you really have to think about here. Number one, who you're going to finance, right? And that's not a. We're not being discriminatory here. We're going to decide whether it makes sense for us to finance people in our town or outside of our town, or people who, who have 400 credit scores or people have 600 credit scores. So these are the things we need to worry about. And what criteria should they meet? So do they have a 600 credit score? Do they have a year on the job? Do they have a year at residency? These type of things. And what documents can we require? That's another based on where, where they live, their pay stubs, all these things you can incorporate in. And we'll dig deeper into this. And are you using a scoring based model? And Jeff, you know, a lot of times we talk about this in our 20 group about scoring based models. There's a lot of good ones out there you can pay for or you can build your own. We've built our own. And so these are things. And these companies can build one for you. So these are things we need to look at. And also who is the ultimate decision maker in your company when it comes to the underwriting. Now, if you're a small buy here, pay here store, you're probably looking at every deal, right? But if you're selling 100, 200, 300, buy here, pay here is a month. You're gonna need a finance manager, someone who can look at those all the time. So make sure we know who that is.

Yeah. And it's, and it's. So we're digging these a little bit more.

We're gonna dig into these. Yeah.

Okay, great.

So when we talk about who we're gonna finance, know your potential clientele, know your market.

Right.

Know what you're gonna do. Do not discriminate. I can't say that enough. You cannot discriminate from job, from race, from religion, from any of that. Don't just get that out of your mind. Okay. What is your target credit score? You may be pulling credit on every person or you may not. We don't pull credit unless the customer wants us to. They want a lower interest rate and then we'll talk about it. So know what it is. Are you. If you've got like you do outside lenders and you know outside lenders are going to take, you know, let's say 575 and above, then your buy here, pay your stuff, you should probably look at, you know, 500 range or whatever that number is. And does their credit matter? We just talked about that. I don't look at people's credit. You know, my trademark slogan is we finance you, not your credit. So we don't care about your credit.

Right.

Do we have a single area of focus? This matters because buy here, pay here can get a little dicey if you decide that you're going to finance all over your state or all over three states or whatever it is. If you're just starting, I would focus on, you know, your area. Probably if you're in a metro area, maybe 10 miles outside or 15 miles outside. If you're in an urban area, you may have to know, say, 50 to 100 miles out.

Yeah.

That also comes into play because of servicing your buy here, pay here cars. We all have to service them. If you're selling cars to someone 150 miles away, it's kind of hard for them to get back to you to get that car repaired. So it's going to cost you more money in the long run.

Yeah.

And then what criteria should they meet? This is job time. You know, we use at least a year on the job, residence time. We want at least a year at your residence. Income. We have a pretty, pretty defined amount of income someone's got to have. And that's going to matter by the amount, by the price car you sell as well. If you want a $400 a month payment, then you got to say, okay, well what makes sense for that customer? If the customer is making $1,600 net a month? Well, that's 25% of their income. Is that too high or too low? That's on that. That's on the top of our scale. So we're gonna say 25% is probably a little too much of their income. 20% is right on it. So we're gonna say, okay, customer needs to make $1,800 net. I'm talking net. I'm not talking gross net income.

Yeah.

And then the last thing is time and area. And to me, this is one of the, the most important criteria.

Yeah, absolutely.

Do they have ties to your community that matters? Have they been here all their life? Because if that's the case, they're not going anywhere. Does their mama live here? Does their daddy live here? These are all the type of things you want to know.

And the most important thing about keeping someone who is got ties to the area is servicing the car. Collecting repossession becomes exponentially more expensive and more difficult the farther away people get from you. When, when they think they're out of arm's reach, all of a sudden they're not communicating. They're not doing these things. And if you have to repo a car from three states over, it becomes much, much more expensive to get that car and get it back for sure.

And that's, you know, if they leave, they probably not going to come back and if they do come back, your car is not going to be in very good shape.

Right?

Yeah. One of the tips for income I like to do is obviously we all try to push the payments as high as is comfortable. Right. That's kind of a couple of different theories. Right. We want to be able to try to recover that money just as quick as possible so we can keep our terms shorter. So we want those payments to be as high as the customer can possibly handle. But secondly, it also leaves us room to come in after the fact and refi, you know, so they may have been able to handle that $400 a month payment for the last two years and all of a sudden their hours got cut back or they lost their second job. Now you have the opportunity to go in and drop their payment down to 300amonth because they've been paying 400 this whole time. Had they been paying 300 the whole time, you got no room to lower that payment any lower than where it is. So be sure to try to always make sure you're pushing those payments just as high as is comfortable for the customer.

And one quick thing on that is that your salespeople are not going to want to do that. Right. They're going to come in with what that customer told them.

200 got to be 150amonth.

You've got to be prepared to tell them that's not going to work. Right. So make sure, make sure you have a defined answer for them. We always start at 20% of income. We think that's, we think that's a good number. Then we start selling F and I products on top of that 20%. And that goes, you know, if you're selling F and I products then you've got, it reduces their long term costs. So just remember that when you start, when you start selling F and I and not a lot of buy your pay, your stores do that, but that's something we do next. So what documents are we going to require? You know, this matters. There's a reason why subprime finance companies require documents. And that's, you know, a customer can tell you anything but you got to have verification. We do last, last two pay stubs and up until half of the year. We require the W2 from the last year or also the last pay stuff from last year. So just make sure I've got on here the first four months. But we've actually extended that the first six months. We require utility bill from your address. That way we can also see a lot of Times, they'll show a year's uses on usage on a utility bill. So we can say, hey, they've been there a year, right? Yep, yep. Written job verification. And right now, this is. This is very interesting right now.

Huge.

Yeah. They can produce a pay stub because a lot of people are two weeks in the hole.

I had a job two weeks ago.

That's right. So you need to verify this stuff right now. So just remember that.

And it's getting harder and harder to do from our side of it. Right. I can't just call up Walmart and get someone there to verify their employment. It's getting harder and harder to do. There are services that can do that for you if you want to look into those other ways of getting creative. Just making sure that the person has a job and hopefully has the continued promise of employment.

Yeah, and it is hard right now, but it's been hard for a long time, Jeff. You know, most places won't verify employment unless you have written consent from an employee, from their employees. So just make sure you're doing it by the book. I mean, that's all I can tell you there. Go ahead, Jeff.

You want to take all this stuff and dump it into whatever your scoring model is right now. I know, Luke. You've built your own. You've shared it with me. It's great. I've taken it and modified it a little bit for myself, and I've tried to implement it with my salesman and my finance guys, and I kind of go back and forth with how Adam and I end. But I know it's super important to have a scoring model because a, it's showing that you're unbiased, you're consistent, you know, across everybody. But also it gives a level of automation. You know, if you have a scoring model and you say anything above X score is an automatic approval, just roll them. Don't call me, just roll the car. It's going to give a lot of automation in the process. And you can start to fine tune what those numbers are to the point where, you know, they don't need to be calling you anymore. You know, you can look at the turndowns on Monday morning or try to turn these things into good deals or maybe a little gray area will get run past you. But, I mean, how great would it be to not get called on every single app?

Yeah, you know, we did that for a while and we just rolled them. If they were over an 80 on my scoring model, what we found out is that the way I grade a Sheet and the way you grade a sheet might be two different things.

Okay. So your scoring model has some biases in it.

Maybe it does.

Whereas if you had a program like an auto zoom that's, I mean, you can still fudge the numbers a little bit because it's still only taking your input data.

But let's, let's remember this. Garbage in, garbage out. Okay.

Yeah.

And so that is a huge issue. If you've got someone who looks at pay stub and they go, oh, this customer has been here this long, or I'm gonna give this person a grade for that. You really got to be careful. You really got to train on it, you know? Exactly.

They make 3,000 net income, but that's because you're only using a two month period where they got year end bonuses, you know, or, you know, you're, you're saying they've got a five year job history, but what you don't know is they've bounced around to.

Yeah.

Three different, you know, companies or there. Yeah. So there is, there is a lot, a lot of gray area in this, which for me comes down to the verification. I, my collections girl, my finance guy does all the underwriting, but my collections girl is the one that verifies everything after the sale. So she is a second eye that says, hey, you were accurate on these things. This checks out. This checks out. This score was accurate. And it can be caught very quickly to keep everybody honest.

Yeah. And you've got to follow up. No matter if you've got salespeople doing this input or you've got finance managers doing this input, just remember their salary depends on how many cars they sell and how many cars they finance. So you really need to go behind these people and just verify it. Pull 10 deals a month and you score them yourself and see where you are. I think that's the way around it. And this next sheet is, this next sheet is just a, you know, just a, an idea of what we do. And you know, it's a colorful rainbow.

It's part of it.

Yeah. Colorful. I like color.

Hopefully you guys are seeing this on YouTube. If you're not, sorry, jump over to YouTube. Check it out. But that was Luke's scoring model. A large Excel spreadsheet with a lot of colorful cells in it.

You know, and we just talked about this. Who was the ultimate decision maker? You can be the owner and be the ultimate decision maker. That's not a problem. Just the score model helps you not be that all the time. So just remember that. Also, you can have finance manager. The salesperson's not a great idea, so just remember to stay away from that.

Not at all. Yep. Yeah. The salesman can collect all the steps and put everything together, but when it comes down to analyzing it and interpreting it, it needs to be someone whose pay is not necessarily determined on the number of sales. It would be great to have your collector or your account rep be the one that's, you know, interpreting, because they're going to be the one that's collecting on it for the term of the loan. Right?

Yep. And so you need to just make sure you're. Just make sure you follow up. That's it.

Okay.

Anything else from the underwriting standpoint?

That's it. Well, just be consistent. Consistent is better than rare moments of greatness. Just always remember that.

I think that's the biggest thing, Luke. I mean, my biggest headache here is I'll get to the point where I'm like, man, we need some sales. And I'll just start dropping my standard and saying, approve this guy. Or if I'm in a good mood or a bad mood or if I like the person or if I'm the one that, you know, maybe I'm the only one here. So I'm the one to talk to the guy, got his application, or met him on the lot. Unfortunately, those ones, I think, have a higher percentage of getting approved because I get emotionally invested in the people.

You're so right, Jeff.

So right.

And I'm not saying you can't do some of those if you get behind the eight ball and you need to sell cars. Sometimes you need to sell cars and you go away from your model. You can look at those and compare them to what you've been doing, and it might give you an idea that, hey, I've been too tight. My scoring model doesn't work. So I'm not saying don't do those, but do those with justification and as an experiment.

And that's what's funny, is everyone thinks that the goal is to have zero repossessions or zero bad debt. Not always the case. Right. I mean, those are going to happen. I could be so strict with my underwriting to try to get to zero repossessions or zero. One day, $1 late. But I would lose a lot of opportunities, and that's something we need to remember.

Let's talk about 20 group real quick. When I first got into our current 20 group, Chuck said, luke, you're too tight. You're not financing enough people. You're not selling enough cars, and you know he was pushing me. This has been two and a half years ago and you can see my sales have gone up, my net income has gone up, my collections have gone up, and my repo rate really hasn't changed much. So there's always reason to look at that.

Hey, everybody, Jeff here. Sorry to interrupt the interview, but I wanted to make sure everyone knew about the new and improved theindependentdealer.com website. It is the place to find out what is going on with the podcast. Check out all of our episodes on itunes, our social links. You can also give us your email and we will add you to our mailing list. So you are the first one to know know about what is coming up new and exciting here at the podcast. Also check out our video library. You can also ask us questions, find out more about myself and Luke and see our calendar of events, places we'll be speaking, where you can catch up with us and meet us in person. So theindependentdealer.com and now back to the interview. All right, where do we go from here?

We go to consistency in general and be consistent with your collection process. Be consistent on days and frequency of calls. We define collection days as Monday, Wednesday, Friday. Our insurance days are Tuesday, Thursday. If we're open Saturday, we do broken promises to pay. I've got in here start reminders at one day. I used to believe that I'm kind of away from that. Now I do. We're set up on monthly payments, so if you're weekly, this may be a good idea for one day late. We do five days now, so and these are reminders. They're easy, easy calls. Collection calls have to as soon as they're to their late fee, they need to be a little harder call and you got to call them and text them and email them until you get an arrangement and they got to understand that. So make sure you're doing that.

Yeah, I think a lot can be said on that slide as far as how the art of getting a hold of them, the art of communication, the art of getting that customer on the line, what a promise to pay looks like, how, when, why that could be a whole podcast in itself. Because I do think that it's. You don't want to be just another customer collector pounding the phones and threatening the customer.

Yeah, let's just speak that real quick. There is a way to do it. And so since all this happened, we let someone go that was doing very early promises pay. And I looked at their queue when I first Started it and I started getting into their queue, working it. And I can tell you this throughout the day, I'll go randomly between three different word tracks. I can figure out which word track works the best for that day. So that's very. Your word tracks need to be consistent and they need to be three to four different types. So just consistency, consistency, consistency. And that's what we're talking about in this next little. Be consistent on what you're requesting. You're requesting a pay date, right? That's what you're doing now. Further, deeper, past due, you've got to request a payment. So just remember that if someone's working a queue that's 25 days past due and to more than that, they're requesting a payment right then now they're gonna probably get a payment arrangement. Sometimes you get a payment, but these are things to be consistent about. Update customers contact information. Always when you're talking to a customer, it takes a little longer, but it's something you really need to do. If you're not getting communication, make sure you're locating that GPS and see where they are. You don't want somebody to not communicate and be four states away. So that's a big deal. Now we've gotten to some discussions on the Facebook page about this one, but it's something that I do. Be consistent on the amount of money you'll take from a customer. I'm not a fan of partial payments. Now some people with lower amount financed, they may be okay with that, but in my experience, and I've got got 20 years of this guys and gals, if you take partial payments, you are training that customer to pay a partial payment. If you request a full payment with late fee, nine times out of ten they're gonna always know they've got to pay that full payment plus late fee. So this is something we do. Have it written down and follow it.

So you're saying, Luke, if someone's got a $400 monthly payment and they come in with 350, you're turning them away?

Turn them away immediately.

And you take cash at your dealership?

We do, we take cash money order. And we do a lot of over the over the phone payments. Well, yes, over the phone and web web payments.

Mm.

So just be consistent with that.

Yeah, that's a hard concept for a lot of buy here payers to wrap their head around that they would send a customer away that comes up the $50 short of their full monthly payment and not just take a promise to pay for the remainder 50. Yeah, but that's a concept to wrap your brain around. But like Luke said, it's part of the bigger picture. You're trying to train them. This is that your dealership is not the person they can short pay.

Yep, that's the biggest deal. Due date changes and deferments. I don't recommend due date changes because what I've seen happen in the past is someone moves their due date from the 1st to the 15th, well, next thing you know, they're paying on the 1st again. So what they did was they snuck a deferment out of you.

Yep. So what happens if they change jobs? So for me, my policy is if you've switched jobs and you have new paydays, I will restructure you to match your paydays.

Well, that's not a bad idea because you're. You're trying to get the customer back to paying consistently. So I'm not.

I just want to get paid when they get paid.

Sure.

It's my thing is I have someone on a bi weekly schedule and they suddenly get changed to a semi monthly payday. I got to switch my payment schedule to semi monthly so that their card note is due on the day they get a paycheck. I want to be that first one in line the day they get a paycheck.

We'll do those. I think payment arrangements are better for that. And if you see that a customer consistently is paid on a certain point, then you may want to talk about due date change or deferment to just get them back current. And again, Chuck has taught me this, and I'm more apt to give someone a deferment than a due date change because deferments save repos a lot. So just remember that, but have a written policy and make sure you guys follow.

Yeah, definitely. A deferment's an opportunity, especially right now. We've talked about that before, and I don't know if this is the time to push this in here, but for me, I had three criteria right now that I'm letting people do deferments. Right. It's that you've lost your job, you have filed for unemployment, and you brought me proof of unemployment. You've brought me proof of a current oil change that you're servicing the vehicle, and I know your insurance is current. So if those three things hit you filed your uninsurance claim and unemployment claim, and I know you're getting unemployment, I'm gonna defer that payment. Whether it's the week or the month or whatever I have to do.

They'Re.

Never gonna get caught up if you just try to tack that thing on to next month and next week and the week after that. Just give them a deferment, start fresh. Let them know that they're not digging out of some hole. I mean, you're upside down.

You know, what's important is that you're making the customer do something to get what they want. And if they're willing to do that, Jeff, that shows their willingness to keep the car. So just keep that in mind. And you're very good with that. I really like what you're asking customers to do because that's really important for the long term health of that loan, in my opinion. Alright, so next is be consistent on repo policy. I know this may sound weird, but y' all are going to repossess cars. Just remember that if you're not repossessing cars, not selling off cars. So make this the last option. Make sure it is the last option. You need to have a written policy. You need to say if a customer is this many days past due with no contact, the car needs to be repossessed. And think about this. If you're using starter interrupt, use it if you have it and it's okay in your state. Sometimes that's a lot better than a repo. So use your starter interrupter instead of repossessing the car because you'll see that the customers, as soon as you turn it off, they'll start communicating most of the time. But have a 24 hour policy. If you turn the car off, it's not. They don't contact you within 24 hours. You're gonna need to go get the car because you don't want your car sitting around.

Yeah. Luke, do you do door knocks?

I do not. And I don't necessarily recommend that anymore. We've done them in the past. This is probably 10 years ago. And I think you could get into a sticky situation. First of all. Yeah, you're contacting someone you don't know. If it's the customer, you know who, who knows who will shoot you. There's some bad neighborhoods. I'm not crazy about them.

You're not gonna leave a big sign across their car that says this customer's delinquent on their car.

Now you can't do that because it allows other people to see that they're delinquent. Yeah, it's a sticky situation. I wouldn't recommend doing it. Staff training. We talk about this so much and it's so vital to our industry. It's so vital to anybody's business. But here we go. Let's talk about five things here. Do it weekly. To be compliant, compliance is huge. In collections, you gotta make sure your collectors are saying the right thing. You need to have a recording system in place that you can go back, listen to your collection agents, talk to customers. If they said something that they shouldn't be saying, you need to call them on it and you need to train on that. So make sure you're doing that. Role play.

Same with texting, right?

Yeah, same with texting. You need to be seeing what they're texting. I have my weave account up and I monitor text all day long. And sometimes it's me saying the wrong thing on text. So it's not necessarily always the same person. Role play the difficult phone calls. Role playing is so key to sales, so key to collections. If a customer comes, customer feels like they're being disrespected, they may just hand you the key. So make sure you're going over the hard phone calls that your collectors are having to make. Make sure that your staff knows all the things that your DMS will do. This is really important because there are things that I've learned about IDMs over the last year that have made me a better collector and definitely made our staff better. The use of queues, the use of template emails, the use of mass emails. There's all these things that can really make their life easier. And I would make sure that you know how to do it and make sure they're collecting what's important. We'll go over this here in a minute, but make sure they're looking at recency and these type things. Because there's some things that are important when it comes to collection and some things that aren't. Then audit their performance. Always have goals in mind. Bonus on those, because that's how you're gonna make people do what they're supposed to do. Not only bonus, you can, you know, if someone's not doing their job, you can, you can get rid of them or train them up. If you're already in the. Auditing their performance.

Yes. That's so important that they make sure your customer. One thing I try to always train my collector is you're on the customer side. The bank is the bad guy. And whether that's me is the bank or you want to create the imaginary bank, the bank is the bad guy. And that's what collectors have got to continue to remember that they're not the ones trying to demand this money. Hey, if you don't, if you don't pay me today, I'm going to come pick up that car or I'm going to do this or that. No, no, no. Hey, the bank. Hey, man, I'm going to go fight the bank for you. I'm going to try to get this thing done, but I need some proof so I can show the bank. Oh, the bank's coming down on me. They're trying to pick up your car. I need you to call me. You know, you gotta be on the customer side. And if they can flip that switch in their brain, they become a better collector. They become, like you said Luke earlier, they're the advocate for the customer to fight against the big bad bank.

For sure they are. And that's very important. That's where that relationship comes in. If you can be as a collector, if you can build relationship with the customers you're collecting, you don't even have to call them. You know when they're gonna pay. You can reach out with a simple text, hey, I know you used to pay around the 30th. Is that good again this month? And just put that promise to pay in there. And I'm just gonna touch right on that. What's collecting? What's important? Recency is so important. Your customers need to be paying every. If they're based on weekly payments, they need to be paying every seven to eight days. If they're monthly, they need to be paying every 30 to 35 days. If you let them start going 30 days one month, 45 days the next month, you know, 42 days next month, next thing you know, they're gonna be way behind. So be consistent. Look at your recency, look at your promise to pay, look at all these things and make sure that they know which accounts they need to be collecting and not just calling everybody, because sometimes that's just useless. Right?

Yeah. And that's, that's probably the biggest argument for a weekly or bi weekly payment schedule. Right? I know you do monthly. I do a combination of everything. But when you do weekly or bi weekly, they're going to come up in your queue as being, you know, late. You're not going to wait till they get to a full payment, past due. Oh, I just missed one payment. I'll make a double payment next month.

You know, that don't. Yeah, that don't happen. And we didn't happen.

But a lot of things can happen even in 30 days. So they paid you on the 20th. You don't see them again for 30 days. Maybe even 40 days or 45 days before they're actually late. I mean, that's a, that's a month and a half. That's a lot can happen in that time frame.

Sure can. It sure can. I mean, you just gotta be consistent with what you do. Of course. Yeah. Customer relationship. You really need to audit this in your dealership. We're talking about auditing. Do you have a culture inside your collections department that is, that is bad. Maybe you hired a collector and you thought they were great in the interview and they got in there and they just, they had a foul attitude and they are, they've poisoned the water. They're nasty to customers on the phone. You need to make sure you're looking at that. And you cannot, and I'm going to say this, and this is very important, you as a owner cannot think of your customers as second class citizens just because they have bad credit. If you do that, that will flow to your employees. People make mistakes and people do things they shouldn't and they sometimes get bad credit. They could have had a medical issue where they ended up, you know, having bad credit. That don't mean they're bad people. So make sure you don't talk about people with bad credit as being bad people, because they're not. They pay our bills and that's a great thing.

We've talked about that before, Luke. Right? That we, we live the life we get to live right now because of our customers. They made the choice between making their car payment or buying groceries, making their car payment or going on a vacation making their car payment or getting their kids, you know, soccer lessons. We are the ones that get to benefit from that. And we need to remind our customers that every day, look, you don't have a problem, you know, picking between your vacation spot or your car payment because of our customers who are paying our bills, keeping our lights on. Luke's got like three homes and two yachts because of it.

You know, I don't have that. But anyway, so we're gonna go over these in a second. But. So let's just go right in that. What does it look like in your dealership? It's pretty simple. Check your reviews. If you've got less than a four star Google average, you probably got a problem. You're gonna get, you're gonna get bad reviews every once in a while. Okay, that's gonna happen. But if it's consistent, if you're getting one daily, if you're getting one weekly, you got a real problem. And if you're Getting them from people you've repossessed, you probably have a problem with collections. If you're getting them from current customers, complain about your collectors. You got a problem. So make sure you look at those. Do you have a high repo rate? You know, there you go. If you've got a collector saying, if you don't pay by Friday, I'm gonna repossess your car, and they tell you, collector, I can't pay Friday because I don't get paid to the next Friday, you probably got a problem there.

So, yeah, can't do anything about that.

Can't do anything about that. So look at your repo rate again. We talked about bad collection culture a second ago, and are you constantly dealing with heat customers if you're doing that? If you've got customers that are on the books that are been paying and you're constantly having to talk to them because something a collector said or something a salesperson said or something the service department has said, you got a bad culture. You need to fix it.

Mm.

How can we improve it? We talked about this a minute ago. Train on recorded calls. You identify a customer. If you just walked by and heard something, go back and listen to that phone call. Okay? If you hear your collector raise their voice, you need to listen to that phone call and you need to train on it. If you got bad apples, you should have got rid of them about three weeks ago because you had an opportunity to get rid of people and not worry about it. So these are things you need to look at. If you got a bad apple, just get rid of them. Have scripts for collectors, for texting, for emails, for phone calls. You need to have scripts because you need to know what's being said. And don't let collectors turn a car off or repossess a car without a second look. Okay? This is really important. If you've got, you know, if you've got one collector that likes to repo a lot, you need to have them backed up by someone else. If you've got your manager who likes to repossess cars, you may need to back up that manager. So just make sure that everybody's looking at it. Because sometimes I get an email. I get an email daily on troubled accounts. Essentially, if I look at the account and said, well, this customer hadn't responded. I said, well, they pay on the 27th of every month. It's the 21st. Have you asked them if they're gonna pay on the 27th yet? Well, no, I hadn't done that yet. Well, why don't you do that? Because most of the time they're gonna be paying on the 27th. So make sure you look at things or you have a manager that are looking at things before a collector does something rash. Yeah.

You don't want them pulling the trigger because they got offended by the text that the customer sent them or they got with them. So now they've taken a personal and they're getting emotion in it. Think about it. Every time I repo a car, I lose three to five grand, Right? I mean, that's real money off the books that I'm not going to collect. I've got to now recondition the car or sell it at auction and then resell it again. And I've got all the expense that goes in with that. So if I can save one to two repos a month because my collectors are better trained or I have a second look at it, or the communication, you know, all these things go into it. I mean, I'm saving some real money. And so if your collectors are running too thin or they're not bonused on the right things because you think you can't afford it, look at what you're actually losing out on by having bad collectors or not being staffed enough, you know, not bonusing them on the right things.

We worry a lot of times, Jeff, about selling more cars because that's how we make money. That's how we proceed in our business, that we make money. And it's not necessarily that. You got to remember that we're in the finance business. And saving a repo is just as important as selling a car. Because if you can save a repo, you don't have to sell that other car.

Yeah, well, you got to sell two cars to replace the repo, right?

That's right.

So you gotta sell two to get back to grow. You got to replace the one you repoed, plus you got to sell another one to get back to where you would have been.

Repo's the last option. Just always remember that. So we talked about how we measure it. We talked about that just a second ago. Facebook, Google reviews, repo rate, amount of heat, customers, and listening to the staff and the recorded phone calls. You've got to do that last thing. Yeah, I think the last thing.

Yeah.

Car reliability. And I started this with this buy here, pay here business is relationship driven. And it's the relationship between you and your customer and also between that customer in their car. If they can't depend on that car, they're going to go get another Car because their credit's already wrecked most of the time. So what does it matter if they turn a car in? They get a, you know, they get a stimulus money or they get a stimulus check or they get a tax, you know, payment. They're going to, they're going to probably go get another car. So make sure you're putting the correct inventory in your lot. Mm. Don't go out and buy a bunch of hundred thousand mile BMWs and Mercedes. Now, they may look nice, but they're not gonna be paid for, I can guarantee you that. Because if they break, the customer can't afford to fix them, number one. And it's just not the right thing to do. Don't go putting a bunch of 180,000 mile cars on your lot that are just pretty. They're not gonna last. What you need to do is look at how many miles your typical customer drives and you need to say, okay, my customers dry. Let's just use 20,000 miles a year. Okay. And I know that my typical loan is 36 months. So in that 36 months, they're gonna put 60,000 miles on, on the car that I sell them at least. Right. So what is going to last 60,000 miles? Is a hundred thousand mile, you know, Toyota Camry going to last 160? I'm going to argue, yeah, it will. Okay, now, will 170,000 mile Mazda 3 last another 60,000 miles? No, I don't think it will. So this is how you have to look at it. You've got to look at what it's going to cost to maintain that car for that amount of time. What's gonna break on that car in the amount of time and back into what you're doing.

Yeah, I know you sell a lot of trucks, right? I mean, we could argue what type of car makes a good buy here pay here car because there's one side of it that says, yeah, I don't care how many Ford Taurus you have on the lot. When anything, when someone's financial situation even blinks, that Ford Taurus is coming back to you, they paying that over top of any other bill. But if they're driving the Charger, the Challenger with the 20 inch rims on it, they're paying for that thing because that's their identity's wrapped up in that same situation with trucks. I know you sell a lot of trucks. I think you sell a lot of trucks, Luke. Yeah. And a lot of buy here pay heres would say stay away from four wheel drive trucks. You don't need four wheel drive trucks. For me there's two different kinds of customers. I have the kind that will hold onto their truck like their suitcase and and I got the other kind where I repo it and that thing is just beat to tar like beyond recognition. Same with my minivans. Two different types of buyers. It's either the family vehicle that they have to keep no matter what. Well it is the fam that's pretty much the only type of buyer. The only question is how bad are.

They going to beat it up.

So those ones that I do get back are destroyed. So we could argue, you know, those types of things. Two doors, convertibles, second car is not a good idea if it's there. If it's their weekend driver, guaranteed that's the first one to go to repo when they slow down.

But you know, I sell a different car than most buy here payers and so you can't necessarily look at what I'm doing. Family cars are great because typically they're going to pay for them as long as it's the right family car is what I always say. Our repo rate on our trucks is non existent. Our repo rate on our Suburbans and Tahoes are essentially non existent. Our repo rates on our Camaros and Challengers are almost non existent as well. My repo rates are highest on my sedans. On your Buick, yeah, but I don't.

See your Grand Marquise.

I have to have a Buick Lacrosse CXL for fully loaded if I'm going to sell it. So you know, but that's just, that's just what I sell. But you know, you can't. Well this leads us into this. You can't let the customer determine what car they buy just because you have a Dodge Charger sitting out there with 60,000 miles sitting on 20 inch chrome wheels. That's not the right customer. That's not the right car for everybody. And if you sell it to the young person who's been employed for six months and doesn't have any credit experience there, it's gonna probably a repossession if you sell it.

Yeah, but I'll tell you what, it's the easiest one to sell. Right? Your salesman knows when that thing rolls up from the back line and it's put out front, you can sell that thing by Saturday.

You know, that salesperson has to be trained to move that customer from that car that came in into a Toyota Corolla on a shorter term. Get them to learn how to pay, then you trade them out into that Dodge Charger, and that's what you have to train your staff on. These are the things you have to do. So at this point, we would typically take questions from the audience. And I know that this is going to generate some questions, Jeff. So what you got?

Absolutely. So if you have any questions, guys, post it here. Obviously, this thing will be on the podcast. We'll try to link the YouTube video on our Facebook page. So if there are questions or things that Luke didn't cover or questions you have, leave some comments, let us know you're out there. You can send us an email to our email address. Any of those things. If you just have basic questions about, you know, the buy here, pay here industry and you want to ask Luke Riot a question, send us a message.

Actually, Jeff, we got to get back to someone that that sent us a message the other night, so I think we'll set up a zoom call and go over that, and I think it'd be fun to do that with some folks. Please, if y' all have any questions during this time, we'd be more than happy to talk with you.

Awesome. Luke. This has been great. Hugely educational. Gives me a lot of things I know I need to do in my buy here, pay here to kind of tighten up the reins right now. Things that have slid by. So I'm going to get to work, man.

Sounds good, buddy.

Okay, take care.

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