Buy-Here,Pay-Here May Grow

Arlena Sawyers - asawyers@crain.com Automotive News 3/31/08

Home foreclosures. Vanishing jobs. Even good credit histories are at risk. As the economy worsens, people who once had good credit may be unable to get car loans through traditional sources. But one consumer's loss might be a gain to a buy-here, pay-here dealer, industry experts say.

"This is going to be a pretty good growth year for any dealer that's in the buy-here, pay-here business,” predicts Mike Unn, president of the National Independent Automobile Dealers Association. About 1,000 of the association's 20,000 members are franchise dealers who operate standalone used-car lots. Some people, he says, "can't get credit anywhere else."

Buy-here, pay-here dealerships sell older, higher-mileage vehicles to people with bad credit. The dealerships hold the loans and assume the entire risk. They charge interest rates of 25 percent or more, depending on state usury laws. 50 far, there's scant evidence that dealers are having problems obtaining credit for their customers. That could change.

Ken Shilson is president of the National Alliance of Buy-Here, Pay-Here Dealers, an organization representing 10,000 dealers in the United States. He says buy-here, pay-here business may pick up, but not until about a year to 18 months from now.

Last year in Florida, some buy-here, pay-here stores suffered as many of their traditional customers - construction workers in the housing industry-lost their jobs, Shilson says. Now, those same stores are seeing an increase in business from consumers who lost their homes and good credit standing in the home mortgage mess.

Shilson predicts that as other parts of the country are hit by the deep downturn in real estate that has plagued Florida for more than a year, buy-here, pay-here dealers will see their business grow.

"People who are losing their homes are not our customers now," Shilson says. 'The traditional buy-here, pay-here customer rents. He doesn't own a home. All those losing their homes are new customers.”