Latest OnLine Editon  Read Here

Opportunities Appear for Buy-Here, Pay-Here, But Challenges Remain

Opportunities Appear for Buy-Here, Pay-Here, But Challenges Remain Featured

Many industry observers look at the conditions likely in 2017 and see opportunities for buy-here, pay-here dealers.

They expect a lessening of the two biggest challenges faced by the segment – high wholesale prices and competition from finance companies.

A combination of surging off-lease volumes and trade-ins from nearly 17 million new-car sales are forcing down wholesale prices already, said Anil Goyal, senior vice president of operations for Black Book.

These lower wholesale prices, along with an increase in delinquencies, have led to some finance companies cutting back on originations for the lowest credit tiers.

All this appears on the surface to favor buy-here, pay-here dealers.

“Now they have an opportunity because they know their customers and they won’t be competing on price,” Goyal said.

But a deeper look shows these moves aren’t big enough to really help, said Brent Carmichael, a buy-here, pay-here consultant with NCM Associates.

“Nobody is looking for a stellar 2017,” Carmichael said.

First, there is the matter of those wholesale prices. They are coming down, but from historically high levels.

“That’s not enough to make a dramatic difference,” Carmichael said.

Competition from subprime finance companies remains strong as well, even as some creditors tighten. There remain plenty of options for consumers, Carmichael said.

This creates a consumer who is apathetic about whether or not he makes payments on his vehicle purchase. He knows he can get financed somewhere else.

A third major challenge that buy-here, pay-here dealers have faced in recent years is increase regulatory scrutiny.

Some are holding out hope for a more relaxed approach to regulation with the changes taking place in D.C. this year. But attorney Michael Benoit cautions that those hopes are premature.

“The message I would send to dealers is: Don’t get too excited,” Benoit said.

The dealers’ least favorite regulator, the Consumer Financial Protection Bureau, does face challenges to its authority from both the incoming administration and the courts. But the CFPB remains fully operational.

And even if the CFPB somehow suspends its operations, Benoit said attorneys-general and private attorneys are ready to step in and fill the void.

“Just because you won’t be getting attention from one area doesn’t mean you won’t be getting attention from another,” Benoit said.

One matter is clear for buy-here, pay-here dealers in 2017, and that’s a later tax season.

The Internal Revenue Service recently reminded taxpayers that a new law requires the IRS to hold refunds until mid-February for people claiming the Earned Income Tax Credit or the Additional Child Tax Credit.

The IRS must hold the entire refund – even the portion not associated with the EITC and ACTC.


In addition, new identity theft and refund fraud safeguards put in place by the IRS and the states may mean some tax returns and refunds face additional review.



Last modified on Wednesday, 04 January 2017 19:21
Rate this item
(0 votes)

Related items

  • Black Book Introduces Used Vehicle Retention Index

    Black Book has unveiled the Black Book Used Vehicle Retention Index.
    The index is designed to offer an unbiased, accurate view of the strength of used wholesale market values.
    The Black Book Used Vehicle Retention Index is calculated using Black Book’s published wholesale average value on two- to six-year-old used vehicles, as a percent of the original typically equipped MSRP.
    The index is weighted based on used vehicle registration volume and adjusted for seasonality, vehicle age, mileage, condition, segment mix and inflation.
    Aggregated from daily vehicle value updates, and captured throughout hundreds of wholesale physical and online auto auctions across the country, the Black Book Used Vehicle Retention Index represents data across all regions of the U.S. The index is based on a list of vehicles included in the Black Book wholesale database, and includes no bias toward any brand, auction or region, ensuring a more accurate reporting of the used vehicle market.

  • Vehicle Depreciation Accelerates in 2017, Black Book Says

    Vehicle depreciation is forecasted to reach 17.8 percent in 2017, slightly up from the 17.3 percent mark recorded in 2016, according to a recent report from Black Book. Average pre-recession annual depreciation trended between 16 percent and 18 percent.
    Between 2011-2015, average annual depreciation fell between 8.3 percent and 13.2 percent. Black Book believes much of the pent-up demand fueling both new and used vehicle sales has been spent, resulting in a rising level of vehicle depreciation expected in 2017.
    What’s more, a continued increase in lease activity along with higher incentives that began in 2016 spell more pressure on residual values, which are also expected to continue falling in 2017.
    The Black Book Used Vehicle Retention Index is calculated using Black Book’s published Wholesale Average value on 2- to 6-year-old used vehicles, as percent of original typically equipped MSRP. The index is weighted based on registration volume and adjusted for seasonality, vehicle age, mileage, condition, segment mix and inflation (MSRP).
    The index lost 6 percent in 2016. The index is expected to continue its slow decline in 2017.

  • Black Book Sees Depreciation Rate Accelerate

    The average price of a used vehicle for model years 2011-15 depreciated by 2.3 percent in November, according to Black Book.

    This is in line with the guide’s expectations at this time of the year. In comparison, the depreciation rate in October was 2.9 percent and, in November 2015, was 2.8 percent.

    Cars overall saw lower retention in November, ending the month down 2.6 percent compared with 3.2 percent in October. All vehicles are currently averaging a 12-month depreciation change of 16.6 percent.

    In November, subcompact luxury CUVs saw the biggest drop in value at 3.8 percent. Vehicles in the compact car segment finished October averaging $18,349, a 22.8 percent decline from a year ago ($23,783).

    Full-size luxury CUV/SUVs and full-size pickups saw the strongest retention in value, dropping only 1.5 percent from the previous month. In another sign of accelerated depreciation, the 12-month average depreciation for all car segments a year ago was 16.6 percent, compared with 19.1 percent for this year entering December. However, the real story is trucks, which showed depreciation of 14.7 percent this year, compared with 8 percent a year ago.