#192 - Lease Here Pay Here w/ Tim Lawrence

Hello and welcome to the Independent Dealer Podcast brought to you by Buckeye Dealership Consulting. Today we are talking leasing. Luke, Lease Here, Pay Here. We have Tim Lawrence with us. What did we get into?

So, yeah, lease here, Pay here. It's one of your. One of your babies there, Jeff. You want to learn more about it? And actually, today I learned more than we've learned before. And Tim's the reason you're so insightful when it comes to the differences between lease here, pay here and Buy here, Pay here. Yeah, it's a good one, Jeff.

It's huge. So we talk about all the advantages, you're going to learn the disadvantage, you're going to learn some of the technical issues, the do's and don'ts in leasing. So this is a great episode packed with a ton of knowledge from Tim Lawrence. He's the COO of Lease Here, Pay Here Capital. So these guys are like one of the big, if not the largest, pioneers in the space, leading the way, helping dealers get into leasing. So stay tuned.

Here we go.

Welcome to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson, a podcast by Dealers for Dealers. Here we go.

Yeah, I never would have thought in a million years that I'd end up in auto finance. My first career ended up in marriage and family therapy. I got a graduate degree in that, and that's pretty similar.

I'd say that makes a lot of sense.

Yeah, actually it does. Well, looking back, I can see how all these things are connected. And when my wife and I were early married, it was just a real challenge to be able to have steady income doing that. And so I made a pivot to medical device sales and operations, which is totally. Seems unrelated, but navigating an operating room and the. The different conflicts and issues and ability to talk about challenging, complicated medical issues in a simplified way just became really a good path from taking all the different knowledge that I learned in conflict management in marriage and family therapy into the operating room and then eventually led me into management and leadership in the medical device field. And what I ended up doing was managing the whole western US Of A sales and operations channel of independent distributors of medical device products. And managing these independent distributors. I was talking a lot with my mentor and friend, Terry Bowdler, who was the owner of Lease Here, Pay Here or LHPH LLC at the time. And we found this interesting overlap of, okay, these distributors that you're managing are very similar to independent auto dealers. And because I was hiring and developing these distributors and their sales channels, we saw that there was okay, there's some synergy here. And what Terry needed as he was turning the LHPH company into a capital provider was I need somebody who can help identify the right dealers that we can work with in a way that we can underwrite and believe in and then invest our capital into. And so he invited me over to join his team as he was starting it from a consulting company into a capital provider in 2017. And that was when I joined lease here, pay here capital and just in business development. And my objective was to take the three customers that they had and grow it into a thriving lease here, pay your capital company.

That's a long way to get to where you were, Tim. So can you just break down? Exactly. Because there's people out there. I'm a buy here, pay dealer. Jeff's a buy here, pay here dealer. Then we have a retail dealer, then we have a subprime dealer, then we have a franchise dealer. What is a lease here, pay here dealer?

It's essentially the same as a buy here, pay your dealer. They're offering an in house financing product that has distinctly unique features and benefits. It's a little bit different than buy here, pay here, but in the sense it's the same customer profile that you're targeting and you're doing the servicing and collecting, it's a little bit different because you're the actual owner of the vehicle. And that has its own advantages and disadvantages. But one of the main advantages is that because you are the owner of the vehicle, it gives you a lot more collateral control. So when you need to go repossess that vehicle, there's not a big to do list of what you need to do because you're actually on the title as the owner of the vehicle. And so there's less hurdles. You can collect the vehicle, retrieve it easier, and then you can recycle it back into your inventory and put it back out on the street in an easier way.

So, Tim, let me. We're going to both drill you with some questions here because like Luke said, we don't know, but let's start at the beginning of the, of the sales cycle. Right. So if I'm going to say, hey, I'm going to convert from a buy here, pay here or say I'm doing some subprime or I'm doing some whatever and I want to start doing some leasing, what are the main differences and why is it attractive and probably need to set up this whole conversation with the caveat that it is state specific. Right. Some of these rules Are very specific to certain states. And some states are very friendly to leasing, and it's good for the business to do leasing in that state. And some states, it doesn't make a difference whether you're leasing or full on, buy here, pay here. Right?

Yeah. No, I think you nailed it. There's about 30 states that are more friendly to leasing, and it's more so because they're pay as you go sales tax states. And what that means is that the sales tax is only on the monies that are collected. So that means the down payment or the payments. And that can be a big cash flow difference between in your operation, rather than giving up that 600, $700 per transaction right at the inception, it's only on the monies that are collected. And that actually can turn around your whole business model because it gives you a lot more operational cash flow right from the get go.

Yeah. So say you sold 20 cars a month. Your tax rate is whatever your regular retail sale of 10 grand, you've got somewhere around a 6% tax rate. You're around 5 to $600 a month times 20 cars. That's $10,000 for the month in sales tax. I have to pay upfront. I have to pay that by the end of every month. Every month. And that's money that I'm fronting for the customer. You know, I mean, maybe you got it in your down payments, but of course you didn't. And then you Times that by 12 months, that's $120,000 for the year that I have fronted to the state. And now in my state, if I repo a car and I resell that car, I can claim a sales tax credit credit if I pay sales tax. Again, a lot of states, you can't do that. Once that sales tax is paid, it's paid, it's gone forever. So if you repo that thing at month two, that money is gone, gone. You don't ever get it back. So that's a huge advantage. Sales tax, pay as you go. What are some other advantages that you get with leasing?

There are a lot of advantages. So from a customer standpoint, I think it gives you the ability to offer a better car for either the same payment or the same car as your competitor for a lesser payment, because you're only paying the difference or the customer's only paying the difference from the agreed upon sales price down to that residual value. And so just because of that, the nature of that transaction, the payment is going to be less. And what that really means is that you can have a competitive advantage in your area against Dan's Auto down the street, who you've been trying to get customers from for the past 10 years. And now you can offer the same cars that he has for a better price to the customer. And I think that also creates a lot of continuity in your organization of what your objectives are with treating or working in your. Really taking care of each stakeholder who's in your organization. And that's that end customer, I think, at the end of the chain, which is, hey, how can we best care for our customer, best provide for them and really stand out in our market.

Yeah. When we say residual value of the car, it's not $1. Right. People need to get that out of their brain. They cannot set up a lease that says you have a $1 buyout at the end. I'm pretty sure. I mean, I'm now a legal scholar, but I think that's illegal. So what you're saying is, now I can go sell that $15,000 car because it's going to have a residual of five grand at the end. I only have to amortize their payments over that 10 grand difference. So not only am I able to get a nicer car for the customer, but ultimately I have a captive customer. Right. Because at the end of that two years, three years, that car is coming back to me. No if ands. But like, they have a buyout option. Right. And they can either buy it out or. Or you can flip them into a traditional loan and they can pay off the rest of it. Or ideally, you move them into another lease.

Correct. How.

How do you. Well, one second. How do we figure the residual? Is that DMS specific? I mean, how. Because that's an interesting thought, Jeff. It can't be a dollar, because that would. That defeats the purpose of the actual lease. So how do you figure that, Tim? How do dealers go about making sure they're, I guess, doing it legal?

Residual?

Yeah, yeah, yeah. No, it's a. It's a great, great question. So, in general, the residual should be about 20% or higher if you want it to be an operating lease. And not to get too much into the weeds, but there's an operating lease or a capital lease. An operating lease is where you get the benefit of the depreciation, which is one of the main reasons why dealers get into this. They want to be able to have that high depreciation expense. And because of the 2018 tax cuts and Jobs act, they added bonus depreciation where you can expense 100% of the cost of that vehicle during that period. So if you spend $1 million in 2021 on your inventory that you're able to put out on the street, you can expense that full million dollars while you're also amortizing that with your capital provider. And so it creates a very strong federal tax benefit offset.

So not only did you save a ton on state sales tax, now you saved a ton on federal income tax at the end of the year.

Right. So, and sorry, I digress a little bit from the main question on setting a residual. So an operating lease, 20% or higher. But how do you actually get there? Well, it depends on, on the ACV of the vehicle that you're working with. I think a good rule of thumb is about 40% of the ACV is a good residual and that's thinking about a five year life of the vehicle at 20% per year. And if it's a 36 month lease, then 40% would make sense. So if it's a $10,000 ACV, $4,000 is a pretty good residual. And if the residual percent is of the agreed upon sales price, so let's say that's 14,000 and then it's a $4,000 ACV, that's closer to 25% or 24%, something like that.

And you get to charge interest on that piece of.

Exactly. It's not interest.

Right. What's the word for it?

Well, it's called rent is the interest and depreciation is the principal. It's a little bit of the nuanced language when you're talking about leasing.

Okay.

And you're exactly right. So you're, they're paying rent or interest on the entire 14,000, but they're only paying the principal down from that 14,000 down to the 4,000 over the 36 months.

And as a federal tax law, you just pay, you pay on the, the rent collected, just like interest collected is at the same taxable income on that deal.

Well, it's not the same. So you, because it's an operating lease, the payment, the full payment that comes in is recognized as income. And then you have the depreciation expense that offsets that. And it's a little bit different because you have your books and then you have your taxes and on your books it's coming in as full income and then offset by depreciation, which is usually straight line 20% per year. And on your taxes, that's where you want to access that bonus depreciation and hit that 100% of expense into your taxes.

So from an effective interest rate standpoint, are you making the same. Because it's not an interest rate, but it's a money factor or something, whatever they call that term. Or are we still charging the same 24.9% kind of rent factor, or is it.

Yeah, so you, you would, it would be called the implicit rate in the lease. And yeah, you're, you're exactly right. About 25% is right. And it depends on what you add into your lease contract. So there's a lot more flexibility in a lease contract where you can put together your, your program to have, let's say, reinsurance products in there as part of the rent charge. And this isn't a, hey, I'm, I'm trying to get the customer to buy into this product. This is, this is part of my program. We do this for 100% of every vehicle that we put out. We have a warranty or a service contract and cpi, and it's just part of it or a damage waiver. And that's just the part of our program. And that, that helps me and that helps my customer.

Yeah, I think that makes a lot of sense. Because when you think about leasing, what dealers have to wrap their brain around is they have an asset pool, right? You have a pool of cars, assets that you need to go out there and make money. And so they're your cars. You're just going to be borrowing them or renting them out, almost like an Avis or a Hertz to these people. So you do have to protect them. You've got. And maybe that's my opinion, and that's been my biggest hurdle, and we can talk about that. But you've got to protect those cars because they're your assets. So whereas maybe the typical customer would drive it like they stole it or just run it into the ground, I think that's maybe one of those key factors in leasing is you provide the three the free warranty, the free oil changes, the free service inspection, so that you're continually getting your eyes on your asset to make sure that it's being taken care of and maintained. And, and, you know, it's not just being driven until it blows up. Right?

Yeah, and you're exactly right. It's a different mindset. As the dealer, you're looking at it as, this is my asset. I want to create an annuity or a stream of cash that's coming in for the longest amount of time, and you likely want to recycle that lease. So if you start at A little bit higher ACV, you do your first turn of 36 months, you get it back and the customer elects not to purchase it. Then you put it out again for another 24 months and then maybe again for another 12 months. And that, that really provides you a wide offering for your customer base. When they come in and they say, hey, my, my payment to income is, you know, 350amonth. And so you already know, okay, they're not going to fit in this bracket of the higher ACV car. They might fit into the middle tier and we'll do a 24 month lease for them.

In general, do payments run about the same average as a used car payment in the buy here, pay your space?

Yeah, they do. It's about 100 a week. And you can have a pretty good car and still have that 100 a week payment. Oh yeah, yeah. So a 10,000 ACV car, you can have it at $100 a week and that's a pretty good car or even higher.

So let's talk a little bit about the liability situation. You know, I think a lot of dealers get scared. They're like, wait a minute, these are my assets and this car's in my name. So I'm getting all the parking tickets, I'm getting all the toll violations, I'm getting the tickets. Am I gonna get sued when this guy, you know, wipes out a school bus full of nuns or something? Like what, what happens? Did these guys, do they keep full coverage? Do they have just liability? Do I have to insure the car? How does that work? Hey everybody, sorry to interrupt the podcast. We need to talk to you about some of our great sponsors. Obviously you guys know Buckeye Dealership Consulting. They are the go to for your reinsurance products and a great resource for all dealership consulting education knowledge.

Yeah. And today, big deal with leads here, pay here, is reinsurance coming. So I think CPI Tim just talked about and all these things that you could really use in a lease here pay here portfolio. That's different than buy here pay here portfolio.

Yeah. And maybe you need to talk to Tim about this and give him a call to ask the questions of the legality. But it almost seems like you can require or add into the lease a 3 year, 36 month, bumper to bumper, as extensive as you can type product to make sure that your asset is protected and then reinsure for it. So it's a win win.

It sounds like. It sounds like lease here, pay here and Buckeye Dealership consultant really go together well. So all you lease Here, pay your customers out there should give Buckeye call.

Yeah, I mean, you, you don't have to insure the car. There's a. I mean, in general, the customer should follow the, the state laws just like as if they're a buy here. Pay your customer and the. I think what you're really getting at is the Graves amendment that was passed in 2005 under the Bush administration on vicarious liability, which states that you, as the owner of the vehicle aren't responsible for the actions of that lessee or driver. If they run into a bus full of nuns, that liability doesn't transfer from them to you. And so far it's really held up well across state and at a state and federal level. And you know, it's going to because. Or you can have a high confidence because 30% of all new car transactions are leases. And these lease finance companies are relying on that, along with all the rental car companies, for sure.

GMAC and Lexus Financial or whoever. These big guys are like, they're not, they're not getting sued daily for all the people that are smashing their leases into buses, nor would they ever allow that to happen. And I know new cars, you know, we follow the new car sales guys quite a bit and they're pushing leases, leases. I mean, that'll be a larger, larger portion of new car sales going forward, I think, because that's kind of the MO for new car stores is not to sell them the car. They don't want to do it cash. They don't want to even do it. Financed through a bank, they want to lease you that brand new BMW so they can see you every two to three years. And the trade cycle gets faster and faster. Which, you know, maybe is a, is a tip off for us used car guys. Like, hey, you know, new car is going that direction. Maybe that's the way, you know, buy here, pay here. Used car needs to go is a leasing. My biggest issue, and you touched on a little bit, is creating ownership in the car. And that what scares me the most is that I've got a whole bunch of cars out there that they're wrecking it. They're running into things, they're having breakdowns and they're just handling it. I'm not hearing about it right, because it's their car and they have some ownership and they're like, oh, my alternator, my battery, my tires, I need to get them replaced. If my customer really looks at their vehicle as a rental or as a lease, they're like, dude, I've got 12 months left on this thing. I just need to throw a band aid on that and get it through another 12 months. I'm going to drive it with bald tires because I'm not putting tires on it ever, because I'm just going to turn it in. It's not mine, or I'm not really going to maintain it, or I don't really care if, you know, I tear it up or smoke in it or do something because it's not my car. Is there a way to. Is that just me being scared of the public and is that the reality or no?

No, it's not the reality. I think that's a. It's a valid fear because I think any dealer who is considering converting would consider that. But what we've seen with our current dealers is that it's. It's really not an issue. Happens with certain personality types. It just does where they're going to wreck the car. And it doesn't matter if it's a. Because they're the potential owner someday once they can pay off the vehicle or if they're leasing it. And there's just. It's just not something that we see that frequently now. You can put in as. As incentive in the lease. Hey. Or a motivating factor. Hey, by the way, if you beat the crap out of this vehicle, you're going to be responsible for it. And one of the ways to also get around that is by. I was talking about the flexibility of a lease contract before you can add in a deposit as part of the upfront money. So when the thousand dollars that you collect, you take 500 and that goes to the actual down payment and 500 goes to a deposit. You're just holding that just like as if you're a landlord of an apartment. In the event that there's any wear and tear, you need new tires, whatever it is, you're holding it. And then when the vehicle's turned in or when you have to go pick it up on repossession, then you apply that deposit and that helps you again on the cash flow side. But then it also helps you to offset that income when you need to use it on the vehicle later on.

It does seem like you would have to have a very robust service department because you would want to get your hands on these things quarterly to do the oil changes and see them if at all possible, unless they're outside your area.

And.

And some of those things. But you're right, holding a deposit, even holding the entire down payment as a deposit seems like A really interesting way around that.

Yeah. And we see both. We see a very robust Service center with 17 bays, and then we see it being outsourced.

Are there mileage restrictions? Do you try to enforce mileage restrictions?

I. In general, what we see is that you put the mileage restrictions in the lease and then 5% of the time you try to hold people accountable when they're egregious about it.

For Uber doordash or something or.

Yeah. And I. I get mixed messages from our dealers on whether they are okay with the Uber or grubhub support because it is paying for the payment that's keeping the vehicle on the street. So. So there's that on the one hand, I think it's if it's really abused, if they're full on, hey, this is my only gig is doing Uber and I'm going to drive 15, 20,000 miles a month. Yeah.

Seems like you just have to accelerate that lease somehow and say, hey, you know, commercial. Commercial use means your payment's twice as much as it would have been, you know, or I'm going to shrink this thing down.

Tim, I know that we've had other dealers talk about lease here, pay here, and one of the big issues going back was that lease here pay here didn't have a great stream of capital. And I know your company's lease here, pay here capital, but there's like 20 different banks that will lend to buy here pay here portfolios. And all I know is the one on the lease here, pay here side. What's the different mindset? How can y' all do lease here, pay here and these other buy here, pay here lenders don't get involved. What's the difference here?

Yeah, I think there's a few reasons why it's a challenge for other lenders to get involved. The first is that it's. They really just don't understand the financial statements that come from it. So a dealer who has an operating lease portfolio, their balance sheet looks a little less inflated than it does on the buy here pay your side because your receivables are offset by contra receivables. And so it's really. You're following that asset down as it's depreciating. And so then they can't talk to their heads and say, oh, this dealer is going to be great for us because they're in the 4 to 1 leverage. It might be like 6 to 1 or 7 to 1 at the beginning as their portfolio's building. And banks just get scared away by things like that, I think on the next side is it's the secondary market. So if you're responsible for the lease by the time it gets to the end of the transaction, if your dealer defaults and you're the lender and you had to take over the portfolio, then you know, what am I supposed to do with that? What if they want to buy becomes a, hey, what am I supposed to do? Right, what am I supposed to do now? And it's, that's really a non issue and I don't want to scare a bunch of lenders into coming or take away that fear and upset our market at the same time. I think that'd be really good for this space in general, that it's really not a big concern because lenders do this all the time anyway when the vehicle has to get repossessed and it goes to auction, it's really just signing over some paperwork if the, if the customer wants to buy the lease at the end.

So when you go into a dealer, do you look at, I mean, you would have to, you'd have to look at the amount of, I guess, inventory they have and do you have to value all those? Because I think that would be a different, you know, that also would be different compared to the buy here. Pay your side.

Yeah, well, I mean, we don't. So we, the way that we lend is that we lend on the cost of the vehicle and we amortize that down at the same term as the lease. So that way we're in a good position the whole way through the amortization cycle while the dealer is getting their payment stream down to the residual. And then there's always going to be that cushion in between. So that, that makes it really safe for us and it makes it a good deal for the dealer because it's not just this borrowing base that they're, that they're borrowing against every time. And so that, that makes it a little bit easier, I think, to, to wrap your heads around it. And I think that's another reason why other lenders have a difficult time getting in because they're used to working with a standard ABL borrowing base of hey, this is what we're lending on. It's this pool. You can borrow from it at any time because it's based off of just this pool of residual or receivables.

Is there, is there certain DMSs that are more friendly to leasing? I mean, do you know that much or do you deal with that kind of the DMS side? Certain ones that have the Contracts that handle it, certain ones that don't. Any recommendations there?

Yeah, I think that's a real hurdle because there are. There are several DMS systems that are adequate at calculating a lease and then allowing you to collect it out because it's a balloon payment. So the DMS system has to be set up that way. And so dealpac, ams, AFS dealers, those are probably the top three. And then there's another handful after that that's probably good for a smaller dealer who's either starting out or has, I don't know, 200 accounts or less.

Is there any. Have you ever seen dealers do it in a hybrid model where they do some leasing and some traditional buy here, pay here?

Yeah, no, absolutely. And what's fascinating about that is that most dealers who start out doing both or add in lease here pay here, it quickly becomes their bread and butter. And the buy here, pay here portion quickly becomes, oh, this is how I'm going to finance the residual if they want to buy it later. And that's one of the other. The other things with the lease is you're really not leasing the car only to a customer. You're giving them a different path to ownership if they want it. So they're test driving the vehicle for the term of the lease, 36 months, and then, then they have the option, hey, do I really like this car or do I want to upgrade to something else? Did my circumstances change? Oh, I do want to buy it, but I can't pay it outright. Can I finance it with you? Sure, let's do the same payment you've been paying for another 10 months and then you own it.

What's the percentage of the dealers you work with that see people purchasing the.

Car for the residual at the end, it's maybe 10%. I think there's. Yeah, there's a high amount of customer retention. And a lot of our dealers put in an early termination based off of good payment so that they could upgrade into another vehicle. So after 24 months, they've been a good customer. Hey, let's get you into another vehicle. And then from a dealer perspective, you get that vehicle back, you can recondition it. And because this has been already a good paying customer, you want that customer to stick around again and again and again, and that helps you with your inventory recycling.

So if we see 10% buy in at the end, what percent do we see turning in and walking away at the end?

Probably another 5 or 10%. It's really low.

That's low. Okay, so majority of It. A majority of it is. Is releasing.

Yeah, absolutely.

That's. I mean, that's a really, that's a good reason to be in that business because I promise you, my, my return rate's not that high because my cars are probably lasting too long.

They just pay it off for sure. Your cars are going to last six years and you've got them on a three year note. They got two to three more good years in that car with no payment. They're great to pay that thing off, get the title, and it's like, see you later.

Hey, everybody, just one more break in here. Jeff, it's Tax Max time. It's fourth quarter, baby.

It is. Hopefully. You guys listen to the episode last week that we had with Bill. Tax season is going to happen. There's going to be a lot of money out there, and with our cars being more expensive, we need to get our hands on it. So whether you're doing buy here, pay here, or lease here, pay here, the down payment is crucial in making these cars affordable for the other 11 months of the year. So I'm getting signed up with Tax Max right now. I know Luke's getting signed up with them. Now is the time to start training your staff and getting them educated on how they're going to be filing people's taxes. You can start talking to some of your customers that maybe want to trade in or upgrade their vehicles. Don't do it now when they only have two or $300 to pitch into the deal. Tell them to hold off for another month or two when you can get two to three thousand dollars for them to pitch into the deal to upgrade or buy a second vehicle from you. So now is the time to kind of start priming the pump, getting your sales guys educated and getting your customer base ready to start bringing you their pay stubs come November, December, to take advantage of that fourth quarter program and.

Something Tim brought up, train your people to do things the right way. So just don't throw Tax Max out there and tell them to do it. Train them and Tax Max will help you do that. Right, Jeff?

Yep. Yeah, they've got all the modules there. They've got a ton of online zoom conferences and helps they can do.

So.

So now is the time. Start gearing up, get your program, get your guidelines put together for your staff. Back to the episode. I find that kind of interesting. Can you charge like a lease initiation fee? Is that a thing or was that illegal?

No, it's. It's an acquisition fee, actually. And every lease that I'VE every new lease that I've leased has an acquisition fee. And as long as you have a set acquisition fee for every vehicle and it's not discriminatory on the customer, then. And you can legitimately support that.

Like your dealer dock fee. Yeah, exactly.

But having a thousand dollar or $700 acquisition fee for every vehicle is, is pretty standard because it costs you money as a dealer to put that vehicle out onto your lot.

And that's what. And that's what the reason I ask that is I go down the line of having a car subscription service. You know, it seems like leasing you could advertise as like, hey guys, for $500 a month, you get to pick any of my gold level cars, whatever. And at any point, if you want to trade in and you decide you don't like the Equinox and you want to traverse, or you don't like the Suburban and you want the truck, you can come trade it in. It's 500 bucks to swap to another car. And that can happen at any point. Because I own all the cars, the paperwork is minimal. I don't have to go relicense and tag it and do all that stuff. I simply just print out a couple of new documents and you pay for that and you pay to have your car detailed and get put back on the lot and, and you pay my salesman to do all the paperwork. But literally at any time you bring me 500 bucks or 600 or 800 or whatever it is, and you can get into a different car.

Is that. Yeah.

That work with leasing or is that crazy?

No, it. It absolutely works with leasing. And I think the one thing that you need to make sure from a dealer perspective is what's my break even point? So is it five months into the lease where I'm then profitable? Is it seven months in or three months in? And you don't you want to go a little bit further past your break even point to where it's profitable before you have them recycle or turn it in and pick out a new vehicle so that you're not creating a negative profit in the transaction, at least on a individual basis. You want every single vehicle to be profitable. And so once you set that, it's nine months. Okay, after nine months, you can come in and turn it in.

Yeah, I think the issue there, Jeff, is that a standard lease payment is not high enough to work in the model you're talking about so.

Well, that's what I'm saying is like you're blending, you're blurring the lines between rental and a lease, right? And so, like, I know those. I was down in Las Vegas the other day and there was a lady there paying to Avis her weekly payment because she's an Uber driver, and she comes in and she rents a car from them for the week or the two weeks, and she drives Uber. And then she comes back in and she's like, okay, hey, I need a different one. You know? And that was the conversation this lady was having with the desk lady is whether she was going to stay in the car she had or give it back to them so they could service it so she could take something else. And anyways, that's just kind of. I'm sure those guys are paying way more. Oh, yeah, eight, nine hundred dollars a month or something. But maybe that's a model that works for you and you find out how to make that work. Because again, if you look at it like all I have is I've got 500 vehicles, I've got 500 assets, and I just need them on the road and I need them all paying me four to $500 a month or six to eight. And that's going to cover all of my depreciation, all my wear and tear, all my service, all my recon, all my tires, whatever it is. And now I don't care who's driving it, I don't care what you're driving, as long as they're all out there. And you're making me that payment every month. I don't know.

No, I think you're right. There's definitely room for it. And maybe that's just a part of your program. It's not your entire lease here pay here program. You know, I reserve this because Jeff's right. You do have to elevate that payment because there's going to be more wear and tear and then it's going to cost you more to recondition the vehicle. Even if it's just, hey, I need to pass it through, get it looking brand new again. It just costs money to do, right?

Yeah. Yeah. Your lease initiation fee would have to be pretty substantial to allow a swap. And again, maybe it's just your gold tier type people that, that make that work. But anyways, are there any other, like, we didn't talk about any, Any downsides? Is there any disadvantages to leasing that we need to address?

So I think there's probably a few things that you would want to consider if you're. If you're looking into converting from buy here, pay here to Lease here, pay here. It's can I find a good capital provider? And we've seen, I know that there's not a lot of capital providers that say, hey, we do lease here, pay here. But you might be surprised that your lender might do it for you. And we've seen that happen before. We've seen it a lot with local banks. If you're a smaller dealer and your portfolio's 2 million or less, then your local bank, who you've been banking with for a long time, might be a good provider for you. The other thing is the DMS possible conversion. If you're not on DealPak or AMS or AFS dealers, then you'll either have to use a loan management system like another DMS provider or autopal or something like that as you're ramping up and trialing out, hey, is this, is this really going to work for me and my company? So you're, then you're, you're ramping up one while you're winding down the other. And that can be a little bit burdensome if you're doing it that way. And I think then just that last part that we touched on is the secondary market. Hey, what do I do with my portfolio at the end of this? Am I going to wind it down? Am I going to try to sell it to another dealer or am I going to try to sell it to like Car Financial or Alamo Financial or even. I haven't seen this, but even Westlake said, hey, yeah, we'll buy, lease your pay here, or we'll service down. Lease your pay here. That's no problem. So I think maybe the biggest disadvantages are. Yeah, I gotta think through these elements and then I need to make sure that I get buy in from my staff on this, that this is the right direction for us.

Let's touch on that real quick because I think that's huge. But I had one more question before that. You would have a separate llc, right? I mean, you would. All these cars would be. You'd own them, but you wouldn't own them in your dealership's name. Right? You would own them in like a separate llc.

You can do it either way. I mean, you don't need a related finance company when you're doing lease your pay here. You can have it all go through your dealership. And really, because you want the tax benefits, no matter what, you want it to go up either through your holding company or into your personal return, tax return, so that the tax benefits of lease your pay here. Are offsetting all of your other income, active income. So.

So I think the key to all this is, like you said, buy in from your team, right? If your sales team doesn't have a firm buy in on the advantages of leasing for your customers, it's going to fall flat on its face, I imagine, because it is a little bit different if, if they don't see it or if they don't sell it right to the customer of like, oh, this is a rental, or, oh, this is a, you know, whatever. It can be sold in kind of a negative light instead of a like, hey, you're just paying for what you use. You know, like, you're just paying this car for what you use. And then at the end, if you want to buy it, you can, you know. So how do you get that buy in from your team or any tips for that?

Yeah, I mean, I think what you're touching on is probably one of the biggest fears is, hey, if I try to convert over from doing buy here pay here to lease here pay here, I'm going to lose my whole staff. You know, Margie, who does the accounting or the DMS stuff, they're going to just get up and quit. Because I know that they're already upset about some of the changes I tried to implement. And you know, it's funny, we, we do an annual summit for our dealers or prospective dealers or whoever wants to learn about lease your pay here. And one of our sessions last month was I was interviewing one of our dealers who did a really big conversion from buy here to lease here Pay here, like 15 million portfolio. And one of the things that I asked him was, hey, did you lose any staff when you converted over? He said, I didn't lose a single person. Everybody was nervous. They thought that they were, that maybe this wasn't going to work. And instead sales boomed. Once the salespeople realized, oh, this is actually better for the customer, then everybody else got on board because it was really good for the entire company. And so I think it's making sure from the top down, hey, I need to sell this to my team with authenticity. There's a reason we're doing this. Here are the reasons why it's going to make sense for us. It's going to make sense for the customer. And then once you have that buy in, then you, you rip the band aid and say, it's going to suck for a little while because it's new and change oftentimes just sucks, but it's going to be better in the long run. And then after we get there, we're going to look back and say, hey, was it really as bad as we thought? And most of the time it's no, it really wasn't.

Yeah, that's interesting. You know, it's all the things that you bring up that I wouldn't even think about if you ever made the change. I wouldn't do it in South Carolina. I don't think the laws, the laws aren't good there.

But.

No matter what you do in business, there's always buy in. And if we as dealers don't, as owner operators don't get that buy in change is not going to happen properly and you're going to lose people and you're going to lose customers. So prepare for what you're going to do. Then do it properly, I guess is.

The thing to take away. So, Tim, to wrap this up, if dealers want to know if it's going to work for them, whether they're in a state that it's advantageous or whether they have the right DMS or whether they have the right CRM or documents or legal structures, how do they get ahold of you? How do they start that conversation to get that information for themselves?

Yeah, I mean, first thing is go to our website, which is lhph.com we have tons of resources on there where you don't even have to interact with us. You can download our ebook, we have tons of videos and blogs that you can read to see, hey, is this the right fit for me? And then if you want to reach out with any questions, we are happy to talk to you. There's a contact us or you can email me at tlawrencehph.com or Trevor Watson, our VP of business development. We're happy to get in touch with you and gauge whether it's the right fit or not. And at the very least, we're happy to send you on the path towards lease your pay here, even if it's not to work with us as a capital provider because we really believe in the space.

That's awesome.

Are you guys going to be at the NABD conference?

We are not this time. It was so close to the last one. And then we had our second summit just last month and we have some other travel things going on that it's just not going to happen. This is the first one that we're going to miss, so I'm sad to miss it. And I was invited to be on a panel so I was even sadder that I couldn't join. But Yeah, I don't think Luke's not.

Going to be there either, so it's going to be lacking anyways. Tim hey, thank you so much for your time. We appreciate all your knowledge and I think hopefully we help some folks out and guided them in the right direction for sure.

Thanks guys.

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