#109 - Is BHPH Dead with Ken Shilson

All right, ladies and gents, today on the Independent Dealer Podcast, we've got a true hall of famer in the buy here, pay here industry. Ken Shilson with Sudprime analytics and also founded nabd, and I think he's still the president of nabd. He goes over so much today, you've got to get your notepad out. I probably wouldn't listen to this on the ride to work. Well, if I did, I'd probably go back and listen again. But he just. Just goes over everything we need to look at after the pandemic.

Right.

And what we should be doing now. We should be looking at our analytics, we should be looking at our roi, we should be looking at our defaults, the portfolio, health. It's just so much that you just need to take notes. And, Ken, we're so happy to have you here today. What do you tell all of us dealers to do right now?

Well, it's just a pleasure to be on this podcast, and everything I'm going to say in the next few minutes is intended to help you and to help the industry. So if they'll just listen and understand some of the points that we're making, I think it's going to pay great dividends for them in the future, for sure.

Let's go.

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.

All right, Ken, again, thank you so much for joining us. We really, really appreciate you taking your time out of your schedule as Buy here pay here dealers. Luke and I both, this is some crazy times. You know, we're dealing with kind of an unprecedented hiccup, hurdle, whatever you want to call this thing for Buy here, Pay here Dealers for good and for bad. Luke and I have covered in previous episodes that it's great being a Buy here, pay here dealer because you've got some cash flow to weather the storm. But from your standpoint, what does this look like, Ken, coming out of this thing?

Sure. Well, first of all, pleasure to join you today. Thanks for having me on. And the first thing I'd like to say is I hope everyone that hears this podcast is safe and healthy. I think one of the most important things is we take our health for granted. But these are unprecedented times. So I wish everyone the best and hope that everyone will be safe in terms of looking ahead, and I'm certain everyone is. Things are. It's unlikely that things are going to return to the way they were before the pandemic occurred. Obviously this has had a tremendous effect on our economy, a tremendous effect on the automotive industry. And so I'd like to discuss some of the things that I think you can expect as we come through the pandemic and hopefully start to resume business more normally than it has been during the stay at home orders. The first thing that I think everyone should be aware of is that the capital that's going to be flowing into the marketplace is going to be constrained. After talking with numerous capital providers and I work with 32 of them, they have indicated to me that they are going to be very cautious about deploying capital as things recover because they don't know the duration of how long the effects of the pandemic are going to occur. And so therefore they're going to be very cautious in extending new credit or even renewing old lines of credit. So I think as an operator, you need to be aware that capital is likely to be constrained to you, which is going to inhibit your ability to regrow your portfolio. So you have to take the steps to provide more internal capital so that you can survive and prosper in the days ahead. So capital is going to be king in this whole thing and you need to be aware that it's going to be a little bit tighter in the future.

What's the steps there? If for some reason we got a bank call today and said that our our portfolio, they were tighten up the loan they have on our portfolio, what do we do? I mean, if they call a note, I mean, what are the steps that dealers can take?

Sure, great question. I think the first thing to understand is that a financial institution is going to look very carefully at how you're managing your business financially and how you're managing your cash flow. And if you're asking them to provide capital, they want to make sure that you're utilizing it efficiently, effectively and prudently. So I know that one of the challenges is going to be the dealers are going to say, boy, we've lost sales here over the last few months. Let's jump in and really ramp up the sales process. Well, I understand that sales are important, but from a lender's perspective, you have to convince them that you're not just thinking about the next sale, that you're also looking at your business from a financial perspective and that you're trying to maximize capital, the internal cash flow that you have available, that you're spending your money wisely, that you're a good financial partner, and that you're making decisions that are long term and not short term. And their concern of course, is that it's that cash flow internally that's going to pay them back. And so they understand that the key is not just selling a vehicle, but keeping it sold. So your underwriting, your collections, your systems and processes are all going to come under the microscope as we go forward. It's not just about selling the next vehicle, it's about taking a longer term approach and, and looking at your business from a financial perspective.

That's sage advice right there.

Yeah. What else are you seeing as well as capital constraints?

Sure. Well, I think some operators will say, well, if I'm constrained in borrowing, what if I just go out and sell my contracts to a third party? And certainly while that's an option, you need to be aware that it's going to be very competitive in doing that and that when you sell your contracts that you're going to initially actually be reducing your cash flow because you're going to be pulling your best contracts out of your portfolio and transferring them to a third party. And so therefore it's going to have an intermediate term adverse effect on your cash flow. So it's not a solution, it's a bridge. And there's nothing wrong with selling contracts from time to time. I'm not saying that, but you need to again look at the impact of selling contracts and whether or not it's going to hurt you in the long term. I think the other thing is that we know that it may not be possible due to market conditions and the competition for best customers to replace those contracts immediately. It may take time to get that business back. In fact, it likely will. So think about that before you, you make a decision one way or the other. Again, use a financial perspective, a little longer term perspective on the business.

Is there some issues with the company's buying accounts right now or have you heard anything where they're going to be backing off or making lower offers? What do you hear there?

Sure, in talking with them, they're not going to be backing off buying contracts. But what they have indicated to me is that they're going to be more careful in the due diligence and onboarding of those transactions, meaning that they're going to be more diligent in vetting the customers, in looking at the underwriting that was done to create the portfolio, taking a little deeper dive and looking at the collateral. And what it consists of again, being more cautious in entering into the transaction and looking at it from a little longer term perspective. So I would expect that they're going to be more detailed in their due.

Diligence work, just like we are or we should be. They're going to be wanting the cream of the crop, right? You sell your contract, they're still going to be looking at the best of your best, which again hurts you as a buy here pay here.

Well, it can and again it is an option for raising capital and certainly dealers have sold in the past and will continue to in the future and there's a time and place for it. But it's important that you understand the impact of it on your cash flow and on your business.

What else should we be watching out for?

Well, I think the next thing is that the success in buy your pay here has to be measured over a longer period of time. Anyone can have one good year by selling a bunch of making a higher level of sales, but it's keeping those vehicles sold and those customers paying which really results in long term success. So my advice is that in rebuilding your market share from business that you may have lost during the pandemic or during the last few years due to the competition, take a long term perspective to this thing. Look at building your portfolio over time, not overnight. I think the key here is that you're trying to build an annuity, a solid base of contracts that's going to have a consistent cash flow and going to pay you back. Well, that requires building a good bond with your customer and looking at it not just as another sale, but looking at it as a longer term relationship with your customers. So keep that in mind as you come out with underwriting that you want to keep those accounts on the books, not just have a short term sale.

I really like what you said there Kim, when you're talking about rebuild your market share because so many buy here pay your stores have been been hit hard by subprime companies over the last few years. Rebuilding that market share is something we've got to got to do here and I think we have an opportunity to. Do you believe that's the case right now?

I absolutely do. And look, I understand that your business as a buyer pay year operator is dependent on selling vehicles and financing. So I certainly understand that that's an important step. But again, using a longer term perspective is the key to this because if you sell a vehicle and it comes back in a month all torn up, you're actually in worse shape than you were if you'd have just kept it. So let's take a little longer term approach to the underwriting and the sales process. And in general, I think One of the most important things that I've learn from great operators around the nation, they all have the same thing in common. They treat other people, they treat their customers like they'd like to be treated themselves. No, that doesn't mean being a pushover and letting them do whatever they want and not honoring their contract. But it does mean that you need to treat them courteously, with respect and be consistent in the way you're approaching transactions with them. I think that's also important from a regulatory standpoint, that consistency and doing the right thing is very important today. And I'm going to talk about that a little bit later in the podcast. So again, treating your customers fairly, doing the right thing, having decent vehicles that will run the term of the contract, and making sure that you handle your side of the contract and that they do the same on their side, I think is the important thing to building a long term relationship.

Yeah, I think all of us get as buy here, pay here dealers. We get tax time goggles on, right. And we just think, man, but boss, he's got three grand down. And you're like, yeah, but his address is a hotel. And we just. And so when this stimulus money comes out and these people show up and we're so starved for sales and all of a sudden this guy's got three grand in his pocket and wants the car. Yeah, we can get kind of stupid and start doing loans that don't make sense long term. So that's what you're saying. Be cautious that we're not so anxious to get out of the gate that it's causing long term issues down the road. Anything else, Ken, you can tell us about coming out?

Well, I just want to comment. I think your comment about being blinded by a tax refund, it certainly has been the case as We've analyzed over $24 billion worth of these contracts in the industry over the last 15 years. What we've seen is that if you just rely on the tax refund, that may be the last payment that you receive. So my message to dealers is use the tax refund money to make a deal. Better not to make a deal. So use that refund to give the customer an incentive from an equity standpoint to pay over the remaining term of the contract.

And Ken, can I ask you kind of a side question there?

Sure.

Can you put to bed the notion that more down payment equals a better loan? Is there any correlation to the amount that someone puts down to the possibility of that loan paying out or being profitable for the dealer?

Sure. Well, that's another great question and from our studies is that the amount, just the absolute amount of a down payment does not assure that the customer is going to pay you. And the primary reason for that is that if the money came from an earned income credit or from some kind of tax credit or stimulus check, that may be the last money that they have. So I think what we have seen, that when a operator puts down at least $800 in the front end of the transaction, that seems to be the cut point for whether or not they have enough equity in the deal to create an incentive. Now, just because they put down 800, I'm not saying that assures they're going to pay you, but it increases the likelihood that they have some skin in the game and are going to stay with the transaction over a longer period of time. What we have seen is when you do zero down payments, when you do small down payments less than 800, they oftentimes look upon the deal as a cheap rental, as a cheap rental car. And so then you end up getting it back. Your vehicle's all torn out, torn up, and you have a huge loss, which you know is very adverse. So things to think about make, make the tax refund work for you, not just for them.

Interesting.

Makes really good sense.

So you're saying $800 is the tipping point of skin. That is the skin in the game. $800 right now.

That's right. 800 in cash, not, not trades or other credits. I think the other, the other situation we see is, well, Ken, you know, we're in a market where our customers may not be able to come up with $800 in cash. So try, should you use a deferred down payment or not? And the answer is that if the deferred down payment is structured properly, it seems to work just fine. And what I mean by that is structure the deferred down payment exactly like the repayment interval will be. So for example, let's say that the repayments are gonna be $400 in semi monthly payments. So there'd be two payments of $200 each. Well, if you did a deferred down payment for the first 30 days of two $200. Deferred down payments. Yes. You can't charge interest on that because it's accruing on the unpaid finance balance. So you'd be double dipping. If you did that additional 400, gives you a look at whether the customer really intends and can pay you on the, on the normal amortization. So it's, it's it's kind of like getting a free look at their hand and seeing what they're going to be like before you enter into the, you know, into the formal transaction. So again, deferred down payments do work if they're structured properly. If you strike, if you stretch them out longer than 45 days or you stretch them out, it can turn into a regulatory problem and it also can turn into a repo as well. So you have to operate prudently in using deferred down payments.

Hi Jeff here. Thanks for letting me interrupt the interview to tell you about the independentdealer.com it's our website. You can find our YouTube channel, all of our past episodes and information on where you can find Luke and I speaking as the conventions start to open up again and we are traveling to see you guys and do some education sessions. So check out the website, leave us a review either on YouTube or Google Play or the itunes store. Wherever you get your podcast, we love the reviews. It really helps us get the word out. Share this with your dealer buddies, dealers helping dealers and and now back to the podcast.

What have we got next on that on that list there, Ken?

Well, I think that everyone right now should be looking at what is the health of their portfolio, what is their portfolio like today because that's what your lender is going to judge you by. And, and that is also what you have to work with going forward. So what should you do to look and understand whether your portfolio is really healthy or not? Well, the first thing to do is to look at your collections really back since the beginning of the year and take a look at it. Are they increasing or decreasing obviously in the short term due to the pandemic? Maybe you had a bad April, let's say, maybe not because I've seen statistics and talked with operators who said March actually was a very good month because the customers were receiving stimulus checks. So that actually helped them with their cash flow. The question is what will the impact of that be and what will the duration of this thing be to the customer? As time goes on, it's going to be harder for them to make payments unless they get re employed or get cash flow going again. So the point I'm making here is keep a close eye on your collections. How much should you be collecting and how much are you collecting? And if you start to see a drop off, make sure you're in touch with your customers. Make sure that you understand what their plans are to get caught back up and you're going to have to Work with them. And if you do work with them, historically we've seen that pay off if they're good customers. But if they don't intend to pay you, then you have no choice but to get the vehicle back and protect your collateral interest. So take a hard look at your collections right now is the first thing that I would say.

Yeah, that would be my argument is I don't think that it was the initial. It's not the initial earthquake that's really gonna knock buy here, pay here, dealers out. It wasn't March. I think it's gonna be the aftershocks. Like you said, a lot of our people, they got money, they got stimulus money, they're on good unemployment. But what's the long term as these people start to not get employed in the region and they go to further out, or they move states or they can't get re employed, or they just decide to ride this unemployment until the very, very end, you know. So I think from our standpoint, we got to look at like, what does this look like in three months, six months, maybe even 12 months as we continue to kind of get our portfolio healthy again.

That's exactly right. Exactly right. I mean, I haven't talked to anybody yet who's sure what the duration of this thing is going to be. So given that uncertainty, you need to be monitoring it very closely. And if collections do drop off, you need to act responsively both with your customers and with regard to the way you're running your business and your expenditures. So again, going back to what we talked about earlier is managing that cash flow intelligently and looking at your portfolio and your business from a, from a financial perspective, I think the other thing, the other thing is that we understand in looking at your bad debt losses that you can learn more from a default that you can from a success. Meaning that if, if you, if you look under the hood of your portfolio and you look at your bad debt losses and how those losses may have differed from what the loans are moving successfully. Oftentimes you find things that you did that resulted in the customer not being able to pay you. Maybe you were too aggressive on the front end, maybe you didn't get enough down payment, maybe the repayment wasn't structured properly, maybe the deal wasn't structured properly, maybe the collateral wasn't the right fit for the customer. The. These are things that you learn when you study your bad debt losses. No one likes to look at their mistakes, but that's what you learn from. And there's an old saying that those who don't learn from the past are destined to repeat it. And so I'd urge you to take a hard look at your bad debt loss trends and take a deeper dive into what's going on.

Is this something we should do every time we repossess a car, Ken?

No, I think that what I would recommend is to take a look at it on a quarterly basis because depending on when you charge off accounts, or depending on the economic conditions that we're in right now, you may need a little longer period of time to judge what's really going on. Anybody can have a great month and anybody can have a bad month. So one month doesn't make or break you. But if you look at it in, in a, in a three month interval, that should give you some idea of how it's trending. And, and I've always believed in, in using subprime analytics that the most efficient way to do it is electronically. Because even if you have one person approving all the deals, and I hear this all the time, all that means is he's going to be, he or she is going to be consistent. It doesn't mean they're going to be right. So the reality is you need to take a look at all of the deals, both the good deals and the bad deals. If you look at it electronically, that's the most efficient way to do it. You can get a data extract from your, from your capital provider and then put it under the microscope.

That makes sense.

Yeah. I think another thing to think about is, and we touched on this a little earlier, is replacing your contracts. One of the things you have to look at in monitoring your portfolio is are you replacing contracts as rapidly as they're being paid off or charged off? And that's important because if you're not, you're a company in liquidation, your portfolio is liquidating and eventually that's going to create cash flow problems and staying in business, continuity problems. So your goal ought to be to try to replace charged off and paid off contracts with new good contracts. Not just new business, but new good contracts. So understanding where you are in replacing those contracts is a starting point to determine whether you're a company or a portfolio in liquidation or not. And that's an important first step in understanding maybe what the next step should be in underwriting.

Ken, can we get on that for a second? Because in the last couple months I've noticed a leveling off, which is not typical for this time of the year. But we've seen a lot of payoffs here in the last two months, I guess because people are getting so much money that they're really wanting to pay their accounts off from unemployment or from government. And we've had an issue adding enough quality accounts during that time. What, you know, how does a buy here pay your store? Get over that payoff and repossession hurdle with quality accounts? I mean, is there a secret sauce there that we're missing?

Sure. Well, that's a great question, and I wish there was a magic answer, but the truth is, you. You cannot rebuild your portfolio overnight. You have to do it over time because the business is so competitive that you just can't go out and add all the best customers at any one time. What we find is the best way to rebuild your portfolio is using social media to interact with the customers and build a positive image, making them aware that you have good inventory, you treat them fairly, and getting them to come onto your lot and giving you a chance to make another good sale. I think if they don't come on your lot, you can't just expect that they're going to come back to you without being proactive. So the guys that we see, the operators we see doing the best are being very proactive using social media, using, you know, Facebook, Twitter, also helpful to collect. But also now we're seeing them use texting. And getting your customers, you know, to opt into a texting platform is a good way to connect with them. And I think one of the dangers that we have, the technology today in this industry is the best that it's ever been, and that's great. You know, that helps you operate more efficiently, and I encourage you to use it. But don't lose touch with your customer. Don't substitute a technological bond with your customer for a personal bond with your customer. So you've got to stay in touch with him. Your collection department has to stay in touch with them. You've got to encourage him to get back in. You do use that doing, you know, you can do that using social media and personal interaction. But I think those are keys to getting good customers back in. In a highly competitive environment. They're not going to come in by themselves. You've got to work at. You really have to work at it.

I mean, that's so important. And I think that's a big reason. Maybe, in my opinion, I don't like to sell accounts is because we lose that personal touch with these customers and get them back in. I think selling accounts can end up breaking that bond and putting you down the wrong path real quickly.

Well, that can happen. There's no question. Some of the contract purchasers are willing to work with you that when they buy an account and the account gets down to, you know, to a lower balance, they'll let you know so that hopefully you can resell them. But I think it's a two way street that if you're a person that is selling your contracts, build a relationship with the third party so that you have that kind of information flowing back into you so that it's not just a one time transaction or your customer doesn't feel like you sold them out of the account. You know, keep that relationship and keep, keep the relationship with the third party that you're selling to and keep the relationship with the customer whose contract has been sold. I think both of those are important.

Yeah. And Ken, can I ask you a little bit about third party. If, if we're a buy here, pay here dealer, but we also have a relationship with the subprime lenders and we kind of do a little bit of both. We do some in house, we do some credit acceptance, we do some Westlake, some Lobel, some whatever it is, sure is that, I mean, how do we keep that from really wrecking our portfolio and losing all of the best customers with the gross profits to credit acceptance? You know, do you see that as just kind of a horrible road to go down or is there a way that those can be balanced?

Well, this might, my answer might surprise you, but I think today because of the capital limitations that integrating the retail side of your business with Buy here, Pay Here is a very prudent strategy. At one time, at one time I felt that it was not that for some of the reasons that you just said that it's really a conflict. But in reality what I found is it involves training your sales staff to get the customer in, see what the customer's credit really looks like, what he qualifies for, and then put him in the best suited transaction for him. And so, you know, you're going to have some customers who just prefer to do a deal with a third party than doing an in house transaction. And you can't, you can't force the issue. But what we found with all of these third parties, credit acceptance or Westlake or whatever, they all have a model that they want, they want the contracts to fit in. So when you need to understand that model and then you need to fit the transactions accordingly, obviously you want to keep the best customers, but you know, you have capital limitations. Not Everybody can borrow $10 million. Not everybody can borrow $15 million. Not everybody can borrow dollars. So the reality is you have to be, again, looking at it from a financial perspective, how much debt do you want to have? How much risk do you want to take? And combining that with integration of retail sales.

Yeah, I don't. I tell my guys, I say, if it fits our box, we keep it. I don't even care what the callback is from anyone else. If it's a good customer that fits all of my things, we keep it in house. My third parties are for the ones that don't fit my box. I just don't want to lose out on a sale because they want something that's too nice or outside of my lending, you know, region of where I like to stay, or I think they're a little bit on the shady side. So let's, you know, just the way they rub me wrong or whatever the situation might be, you know.

Sure.

So probably some opportunities there. Ken, moving along here, anything else we need to look at from the health of our portfolio?

Absolutely. There's a couple things that are really important today is take a hard look at your business model and determine if it's cash efficient and it's generating an appropriate return on investment. If anyone asks you to make an investment in anything, be it the stock market, real estate, or whatever it might be, one of the first questions that you would ask is, okay, if I make the investment, what kind of return can I expect? That's a. That's a typical question. Yet in the buy here, pay here business, very few operators seem to be asking that question about their own portfolio and their own business model is, I.

Had this argument the other day. Why do we not talk about roi?

That's right. That's exactly right. And because that requires you to know what your losses are through using metrics. And it also requires a very simple answer to this question. How much of your contracts are you really collecting? So in other words, some operators say, well, I don't care if I have a repo. You know, I get the car back and I just resell it again. Oh, really? Well, how much did you lose off the first transaction? I mean, how much money didn't you collect? And each transaction needs to stand on its own. So. So you need to analyze, when you do have defaults, how far into the life of the contract did you actually collect? How much money did you collect? Did you even get your money back from, you know, from what you put in the vehicle in terms of the acquisition cost and the reconditioning cost. If not is your business model wrong. And those that have felt that by moving up the food chain and buying a 10,000 or $15,000 vehicle and selling that to buy here, pay here, customer with a low credit score makes you more competitive. What we found is it just creates higher losses because when that customer doesn't pay, you just have a bigger charge off. And when you're trying to compete with franchise dealers who may be selling them a new vehicle or a cpo, which I don't recommend, by the way, but if they are and they're in your market or a credit union, that's, that's been very aggressive, you don't want to match that stupidity. You just don't. So, you know, if you have a business model, make sure it's cash efficient. Make sure you understand what kind of return on investment it's generating and make sure you understand where in the life of your contracts they're defaulting to see if you're really, really collecting your money. So use metrics to determine what your forecast, your losses, because it's the best way to do it. And also with the challenges that we're faced with today, you can't make trial and error mistakes. The margin for error is less than it's ever been. So look under the hood of your portfolio and figure out what's working and what isn't working at all. I know many of the operators are members of 20 groups. That's great. That's a good way to, to share your information. A new benchmark report is going to be coming out. We'll talk about that later. Compare your results against there. See, See how you stack up. Understand where you are in relation to your competition, what your business model is and what's working inside your underwriting and what isn't working, and obviously be diligent on your collection. So those are the things that I would say to building a good portfolio.

What's the ROI we're looking for, Ken?

Well, that's a great question. And again, it varies significantly by business model. But our, and we've created a kind of some benchmarks for this. And we believe that before collection costs, before overhead, and before interest expense, which is going to be different for every operator. So that's why we're saying before all those things that you need to be getting a 30% annual, 30% or more annual return just to be average. Now that may sound awfully high to you, but when you start deducting your operating expenses, when you start to deduct your collection costs, and when you Start to deduct your interest expense. That translates into a 15. Between a 15 and a 20% return, which you'd say, well, that's great. In the current environment it is. Which vindicates being in the buy your pay your business. But it's a risky business too. You're dealing with customers that are going to default no matter what you do because they lack financial capacity. You need to be fairly compensated for that risk and have that kind of return. It's not like buying a certificate of deposit or it's not like buying a Treasury bond. Obviously you're taking a lot of risk, so you have to get a return just to justify that and to keep you in business. Very good.

Yeah, that's probably a, that's a rabbit hole I'd love to go down someday. Because the ROI and how you calculate it from a buy here, pay here standpoint just seems so different than, you know, when I think about, you know, a rental property. If I buy a rental property, I know my cash inlay, I know what I can borrow from the bank, and I know what my rent is going to be minus expenses. It's very easy to get my actual ROI for the cash I have to put into it. But where I'm a self funded buy here, pay here operation, I'm not able to leverage my cash at 80 cents on the dollar like I am with a rental property. So what's my real roi? When I'm putting a full, you know, I'm putting full cash into that $10,000 loan that's, you know, going on the road. So anyways, you're exactly right today to calculate all that.

But yeah, and when we analyze a portfolio for a financial institution or of an operator, hire subprime analytics to do it, we actually calculate their return on investment and we loss adjust their cash flow based on their historical loss rates. And that's where these metrics come in. People say, well, I don't have time for all that analysis or metrics. Well, you must take the time to understand what your cash flow is really, really looks like. And to do that, you have to loss adjust it.

Okay. All right, Ken, to kind of bring this whole conversation full circle, what, what are you seeing on the horizon or what's really on your radar right now? Things that you are sure passionate about in the buy here, pay here space that we need to be aware of.

Sure. Well, there's, there's a few things and I'd like to just kind of summarize those and then we can talk about any Ones that you want to go a little deeper dive. I think the first thing is that I think we'll all agree that this is a very challenging environment so that training and education has never been more important. I just encourage everybody to be a member of their state association, be a member of niada, and to get the specialized training that they need for whatever segment of the automotive business they're in. If they're doing retail or they're doing buy year pay year, there's never been a more important time to learn and get the training and education not only for the owners, but for the employees as well. So I think that's a key to future success. So get active in your state and national association, get the training and education that you need to be competitive and to be successful going forward.

Absolutely.

The next thing I would say is that we have to all learn to make more from less. With capital constraints, with competition, it's time to look at your systems and processes and make sure that they're operating effectively, that your employees are doing what they should be doing, that you have the right overhead structure. So it's time to take an introspective look at your business from a, from an efficiency and systems and processes standpoint. And when you do, when you do, you should embrace technology, not shy away from it. Oh, I know you can't afford to make that next expenditure to get the technology you need that's going to make you more efficient. Well, my answer is you can't afford not to. The technology today, in pay portals, in finding inventory, in collections, the collection technology that's out there in just about every facet of your business is not a luxury. It's essential to compete today. So embracing technology is part of becoming more efficient and more successful going forward. Any outlay that you make today is going to pay dividends in the future and be a key to your success. So look at it from a longer term perspective. I can't emphasize this next point enough and that is don't let your compliance guard down. The CFPB has changed, no question, but the enforcement actions have been transferred to the state Attorney generals and you're not, you're not going to be able to operate without being under the radar. So clearly you need to be aware that your state AG is going to be looking closely at your operation, particularly if there's customer complaints. So keep your compliance systems up, make sure you have a chief compliance officer, make sure they're doing the right things and making sure that you're handling transactions fairly when you have A complaint, try to put it out before it escalates. Because compliance is going to rear its head as we come out of the pandemic. I think right now everybody's focused on just getting through this thing and rightfully so. But don't let your compliance guard down. Yeah, the other thing, I wish a.

Lot of dealers that take it on the chin through this, whether they did right or wrong, both from a, you know, a stay at home order, from the things I've seen, some dealers are getting cracked down on for selling cars when they weren't supposed to. And like you said, just from an overall CFPB standpoint, dot your I's, cross your T's, guys, don't get sloppy.

That's right, that's right. Do the right things and it'll reward you in the long term. I think it's clear that, you know, your people and your customers are both being affected in the current environment. But remember that your people are your biggest asset. So show them that you care. Make sure that you continue to train them, that you continue to treat them fairly, that you continue to realize that they're the key to implementing your business model, your business plan. So don't overlook your people. As we come through this thing. As you're looking at cost cutting, don't take everything away from them. Keep identify your key people and make sure that they're being fairly treated so that you retain them. It's the most expensive thing you can have is massive turnover of key people. That is really, really a killer and it'll keep you from being successful long term. So treat your people fairly and treat your customers like you'd like to be treated to yourself. We talked about that earlier. I think another important thing to remember is the pandemic. Although we'd all like it to be, and no one would like it to be over more than you or I, but it's not going to be over tomorrow. It's a long distance run, so you have to stay the course. You can't fix business lost overnight. You can't make short term decisions that are gonna benefit you long term. So look at this thing as being something unfortunately that we're going to have to live with the effects of for some time to come and put that into your business. Thinking about how you run your business, I think the last thing I would say is that for the last 20 years I've done all the benchmarks for the industry and we publish those annually. The lenders are using them and the, the capital markets use them. Operators use them to evaluate the performance. We've just come out with the most comprehensive report that we've ever done and that is that I've drawn on other industry experts who have talked about the tax season, the capital markets collection technology, the tax refund business and different aspects of the business that I feel we needed additional perspectives on. We have 20 group information in it, we have loss metrics in it, we have financial information in it. So this is a comprehensive report. My understanding is that Niada is publishing and releasing that they just started yesterday, so you should be getting something in the mail. And we plan to discuss this at the NIADA convention in September. We also plan to do a mid year look so that we can see what's changed since the report was issued. So all of this is important information to helping you dial into what's successful and avoiding past mistakes. So those would be the recommendations and things that I wanted to make sure I mentioned before we finish today.

That's great. I do look forward to those, those analytics when they come out. It's a lot of, I mean they shed a lot of light most of the time. So I think this year's will be even better.

Well, they're there to help, they're there to help you. And the best news of all, they're absolutely free. If you're exactly, you know, if you're a member or even if, if you're not, you can get a copy of them. So again, I think it's, it's, it's great information with no cost.

And same with this. Ken, this podcast, the last 45 minutes we've had with you for me has been great information. I've got pages of notes here for my own operation and it's just so again, it just comes back to enlightening me to be like when you think you have it, you don't really have it. You've always got to be getting educated. You've always got to be talking to someone. Obviously if you're not signed up to get the report, get the report, visit Ken at Subprime Analytics. How else can can people get ahold of you if they want to learn more about what you can do or offer to their Buy Here Pay Here operation?

Sure. Well understand that I'm here to help the industry and to help them and I really mean that. I mean I love Buy Here Pay Here. I think it's one of the most important things in the automotive business because it's providing transportation to millions of Americans who otherwise wouldn't, wouldn't be able to get that transportation. So I respect and understand the importance of buy here pay here. And I will tell you that some of the best business people I've ever had the pleasure of working with are in the buy here, pay your industry. And it takes that expertise to be successful today. So if you have a question or if you need something and I can help you with, my email address is ken kenshilson.com K E N S H I L s o n.com you're welcome to email me and I'll get back to you if I don't know the answer. I'll get you in touch with somebody that is. I just want to be a resource for you and for this industry because I want us all to be successful. And I understand, I understand fully that working together makes us all better.

Well, thank you, Ken. You've done that. You've been such an asset to our industry over the years and I'm not sure that our industry would be as successful and be as important if you weren't in it.

Well, it's nice of you to say, and I have tremendous confidence in the leadership of NIADA and many of the leaders in the industry. So it's been a personal pleasure for me to be able to work with them.

Thank you, Ken.

Thanks, Ken.

Sure. Thank you. Thank you for joining us today. Hope this episode inspired you to take positive action. Remember to subscribe so you get each episode the day it comes out and we would love your help spreading the word. Leave us a review and share this podcast with your dealer friends. Dealers helping dealers learn and grow together.