Buy Here Pay Here

1
Buy Here Pay Here Benchmarks / Trends
Presentation to NABD Wednesday, May 7, 2008 Las
Vegas, Nevada
Ken Shilson, CPA, Founder National Alliance of
BHPH Dealers (NABD) 2180 North Loop West Ste 260
? Houston, TX 77018 Phone [phone] ? Fax
713-290-8183 www.bhphinfo.com
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Buy Here, Pay Here Industry Benchmarks2007

• Contributors

bhphinfo.com
Subanalytics.com
NCM20.com
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Notes to TheseBenchmarks

• Compiled from our best performing dealers in SGC
  database of more than 500 dealers nationwide.
  Operating information represents a composite of
  all NCM BHPH Twenty Group participants.
• All results have been verified for accuracy and
  comparability.
• Results are combined (dealer finance
  affiliate).
• Intercompany activity has been eliminated.

(Continued)
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Notes to TheseBenchmarks (Cont.)

• Financial information compiled by Shilson,
  Goldberg, Cheung Associates, LLP, Certified
  Public Accountants, Houston, Texas, and verified
  for accuracy and comparability.
• Loss statistics were determined by Subprime
  Analytics, who performed electronic portfolio
  analysis of approximately 480,000 subprime loans
  aggregating approximately 4.0 billion to
  identify loss rates and patterns.

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What you should dowith this information

• Learn how the most profitable BHPH dealers do it!
  (Not what they made but how they earned it!)
• Identify ways to make your own operations more
  profitable.
• Discover important industry trends.

(Continued)
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What you should dowith this information (Cont.)

• Evaluate the performance of
• your own portfolio.
• Develop comparable financial information and
  management reports.
• Use this information to help you
• raise capital.

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BHPH Financial Trends 2001 2007 Costs /
Expenses
70
64
64
63
63
63
62
59
60
50
40
30
20
22
21
21
21
19
18
18
10
0
2001
2002
2003
2004
2005
2006
2007
Expressed as a percentage of revenues.
Cost of Vehicles
Operating Expenses
Source Shilson, Goldberg, Cheung Associates,
LLP
8
NABD Benchmarks 2004 2007 Cost of Sales -
Detail
2007 2006 2005 Cost of Vehicle
Sales 54.34 55.26 55.10 Reconditioning
Costs 4.97 5.38 5.42 Other 3.28 2.86 3.15 To
tal Cost of Vehicle Sales 62.59 63.50 63.67
Expressed as a percentage of revenues.
Source Shilson, Goldberg, Cheung Associates,
LLP
9
BHPH Operating Practices 2004 2007 Average
Total ACV Per Vehicle Sold (Including Recon)
5,500
5,111
4,949
4,906
5,000
4,385
4,500
4,000
2004
2005
2006
2007
Source NABD / NCM
10
BHPH Financial Trends 2001 2007 Bad Debts
25
20
19
19
20
17
17
17
16
15
10
5
0
2001
2002
2003
2004
2005
2006
2007
Expressed as a percentage of revenues.
Source Shilson, Goldberg, Cheung Associates,
LLP
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BHPH Financial Trends 2005 2007 Gross Profit
Comparison
2007 2006 2005
Revenues 100 100 100 Cost of Vehicle
Sales (63) (64) (64) Subtotal 37 36 36 Finan
cing Income 16 18 18 Bad Debts (19) (20) (19)
Gross Profit 34 34 35
Source Shilson, Goldberg, Cheung Associates,
LLP
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BHPH Operating Practices 2003 2007 Average
Cash in Deal
4,563
4,480
4,645
5,000
3,825
4,000
3,128
3,000
2,000
1,000
0
2003
2004
2005
2006
2007
Source NABD / NCM
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BHPH Operating Practices 2003 2007 Average
Customer Down Payment
1,500
1,018
1,066
1,025
900
837
1,000
500
0
2003
2004
2005
2006
2007
Source Subprime Analytics
14
BHPH Operating Practices 2003 2007 Average
Weekly Payment Amount
90
85
85
79
78
80
76
72
75
70
65
Source Subprime Analytics
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Learn From Your Losses
Subprime Analytics
by Analyzing Portfolio Performance Underwriting
16
Loss StatisticsProvided by
Subprime Analytics Computerized Portfolio Analysis
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What Portfolios HaveBeen Analyzed?

• Loans
• Analyzed - Approx. 480,000
• Dollars
• Analyzed - Approx. 4.0 Billion

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Our FindingsLoss Rates
2006
2005
2007

• Average Gross Loss 6,753 6,025 6,432
• (Before recoveries)
• Average Net Loss 4,693 4,370 4,952
• (After recoveries)
• Average Default Rate 27.7 26.2 25.6
• (Percentage of Loans
• Written Off)

(Continued)
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Our FindingsLoss Rates (Cont.)
2006
2005
2007

• Average Gross Dollar Loss
• Rate ( of Principal) 37.32 36.72 32.97
• Worst - 52.6
• Average Net Loss Rate
• ( of Principal) 24.83 26.63 25.15
• Worst - 35.7
• Average Recovery ( of
• Principal Charged-Off) 30.60 25.70 23.30
• (Excl. Repo Expenses)

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Our FindingsLoss Frequency
2007 2006 2005 Highest Cumulative Default
Month After Origination 17th Month 17th
Month 15th Month Highest Frequency Of Default 4th
Month 5th Month 5th Month Highest Loss
Month January February February
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Putting the Customerin the Right Vehicles

• If you sell them a vehicle, make sure they can
  afford the one they
• are buying!

Good Underwriting NOT Undertaking!
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Our Latest Finding
Over 50 of All BHPH Installment Contracts Dont
Pay Out!
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Whats Ahead?
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How will theEconomic Stimulus PaymentsImpact
the BHPH Industry?
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A Look Back at the Economic Growth and Tax Relief
Act of 2001

• Loans Analyzed Approximately 73 Million
• Average Gross Static Pool
• Loss Rates on Originations
• 1/1 3/31/02
• Average Gross Static Pool
• Loss Rates on
• All Originations

Did They Confuse Downpayment With Repayment??
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BHPH 2008 Whats Ahead?(Major Challenges)
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• Consumer liquidity will be low because
• Inflationary cost of staples
• Gasoline
• Mounting debt levels
• Lack of financial capacity
• Electricity and heating costs
• Finding the right inventory at
• a reasonable cost
• Subprime Mortgage meltdowns impact
• on the financial markets!
• BHPH is only for the well capitalized!
• Consolidation is likely!

(Continued)
28

• (Cont.)
• Impact of immigration reform?
• More credit impaired consumers will enter the
  market!
• Unscored consumers will become more important
  customers!
• More competition as franchise dealers enter the
  market!
• Legal and regulatory issues will increase!

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What You Should Learn From This Industry Data
Its Not About Buying Selling Vehicles
Success In The Buy Here, Pay Here Industry
Is About Managing Risk!