Wake up, Buy Here, Pay Here people. It's a beautiful day. Go grab yourself another cup of joe and say hello to Jim and Michelle Rhodes on the Buy Here, Pay Here morning show. Take it away, you two. Hey friends, welcome to the studio on a Friday here in Oklahoma. Happy to have you join us. Got some really interesting education yesterday and just passing along some of that, especially as it relates to the work that we're currently doing. And also, forgive me, I'm having a little sinus and allergy stuff, so my voice is going to be a little messed up today. and probably be clearing my throat some, but just wanted to have a chance to bring this topic today, given that it's really been timely. First of all, I received a link just out of the blue from somebody I haven't talked to in probably three or four years, somebody that I knew from my professional network back in Utah. And of course, he knew I was in the buy here, pay here, finance sector and subprime. And he came across an article from someone he follows or YouTube link. In fact, I'm going to go ahead and share this link now so you folks will have it. And I don't forget, I got it teed up to be able to include in the threads out there. But this is a video that came to me yesterday and I was able to watched that a couple of times and Michelle watched it with me the second time and we kind of broke that down, which by the way, Michelle's here in studio with me today. She's just off camera and kind of helping out with the soundboard, et cetera, today. But that video was really... rich in perspective the the guy who um we watched as an educator he's got over two hundred thousand followers that that particular video had about sixty thousand views in in twenty four hours so point is it's a respected well-known educator with a good following and so i'm not trying to be the educator here today as much as i'm trying to connect what we learned from that video and that kind of short education to what we're seeing in our own sector of buy here, pay here. And I think, you know, as a former dealer myself, I'm seeing a lot of things that are reminiscent of what we went through in And keep in mind, I was a dealer myself in two thousand eight, opened my dealership in five. And so thankfully, we had a pretty successful run of five through seven. And so we didn't we didn't get hit as hard. But I remember very specifically, oh, eight and nine looking to restructure my own business and recapitalize for reasons we don't have to go into here today. But I just remember the challenge of finding money, you know, and so the access to money has shifted. So the big thing I want to talk about today is that this is not, there's by no means any kind of attempt to do any fear mongering or put a scare in anyone. It's just to make you aware of what it is we're seeing and make dealers, to give dealers access to the information they can go and absorb to get a better feel for what The outlook is for capital based on what we currently know. All right. So let me kind of first start with some stories from the actual trenches like this week alone. In fact, in the last twenty four hours, I've had conversations with dealers that One, I talked to a dealer who said they were definitely getting some pressure from their lender, a lender that they've had for probably two decades. So they're feeling some pressure there. Generally speaking, when a situation like that, when a dealer is feeling pressure, that generally means that the lender themselves are feeling some pressure from elsewhere. So this is at least one indication. Then I have another dealer that we're working with that has seen a couple of term sheets. They're actively shopping financing, they're established, they have equity, they have cash flow, and they are, they're now actively shopping a traditional asset back to line of credit. And In recent days, they've had a term sheet withdrawn. They had an offer that was pending. And, of course, term sheets are non-binding, but they're a representation of our intent to do business at these terms. And this dealer had one of those term sheets withdrawn by the provider that was exploring a line of credit with them. Then they received another term sheet, and I'm advising the dealer on that one. different than what I'm used to seeing in this sector. There were quite a few levers spelled out in the term sheet, quite a few variables, you could say, and it just is an indication of how things are changing and how The lenders that are in the space are probably gonna be in a better position to dictate terms and pricing because we all know, it's been very public about the situation with Primal Lend that surfaced last year and of course, The situation with tricolor, which tricolor, by the way, is referenced in this video that I shared. I think that video runs twenty, twenty five minutes. I would recommend watching it. You're like me. It's not the world you live in. You have to watch it a couple of times. There's there's quite a bit of talk about. um shadow banks and sort of big money where the big money moves there are references in that video to you know what what's might call the ai bubble um to some the ai investment shift is reminiscent of what we saw in the dot-com shift um and a lot of heavy investment in dot com and tech companies when the internet was um you know first ramping up in in the two thousands late nineties i think and into the early two thousands and a lot of people are saying that this ai bubble is similar there's a flood of investment into ai it's um there's there's that's a conversation for another day whether that's a legitimate investment whether it's appropriate there's all different kinds of investment there's actually all these data centers that are going up. There's a ton of stuff there. But this person, this specialist in this video, the educator, he makes a clear distinction between what might be described as the AI bubble and all the shift of money toward AI and a separate thing about this credit cycle. He makes a very compelling case. for this idea that credit is tightening and not just in the u.s he cited a very specific example of a company in europe or an investment group i should say in europe that put a three-year freeze on uh on assets and and certain allocations i think again watch the video get the information from there but it's an it's an indication of The idea that money is shifting, there's a degree of discomfort at the top of the capital sector. And I think one of the things we expect to do, one of the things, one of the reasons I brought this subject today is I just wanted to reopen this idea of you know making capital markets part of our conversation going forward i want to make sure that we bring the folks to the conversation so part of my um my reason for bringing the subject today is i ask those of you who see this video especially dealers uh can be vendors in the industry if you know someone that you think can speak very specifically to the link between the buy here, pay here dealer and their access to line of credit, the capital markets, the traditional capital providers, and especially the layer of capital above that. That's the part that I want to make sure that we can break down and understand where that capital is, who is the most likely provider to capital in the subprime auto finance sector. and uh so i think it's just interesting you know my own observations around things like people talk a lot about family offices uh you know for investment i think for a single dealer or single dealership group a family office may make sense you know family office for those not familiar is is a large investment firm you could say that has a Focus on investment for either a single family with high net worth. Sometimes it may be multiple families in a single pool and they have a fund and it might be a hundred million dollar fund. I think it's kind of typical of what a family office might do in terms of assets under management. But for them to bring capital to a primal end is unlikely, as an example, an entity like a primal end, because that's not their wheelhouse. They typically don't make investments of that size. And so this is why I think it's important for us to break down and understand who are the parties that would have interest in investing in that level? And what's their footprint currently? Where are they invested now? And what's the outlook for money coming into the sector? I think we can expect to see a lot more private money and buy here, pay here in the coming years and just say, you know, I'm a business coach. My work is in operations primarily. Of course, we work a lot with RFCs and on the finance side. And of course, you're hearing me talk about working with dealers on the capitalization of their enterprise. So we have exposure to different elements of all of this, but I'm not somebody who follows the financial sector or the capital markets. I think we're going to want to bring experts to these conversations and get a feel from them about what's going on. In the meantime, I think it's just important that we think about for you as dealers out there, what are you feeling? I'd love to hear from you. If you're not comfortable saying what's going on with you and your lender relationships or private partners, By all means, message me directly. Michelle, if you don't mind putting my phone number on the screen, those folks out there who hear that can text me. I'm happy to hop on a conversation and find out kind of what's happening with you on the capital side because I think this is the part we need to really make sure we can help dealers understand is what is going on with capital for you as a dealer? What are you personally feeling? Are you feeling this silent squeeze that we're talking about? when it comes to renewing a line of credit or any of that kind of thing. I would just say for today, just know that this is not your imagination. If you're feeling like there's some squeeze or some tightening with your lender or potential lenders, it would seem to be true. And there seems to be some basis for it nationally and globally for why that might be the case. So it's just, we're all going to watch and we're all going to benefit from making sure our operations are efficient, healthy, attractive for investment. There's still a demand, obviously, for what we do. And that means there's going to be a demand for capital. So I would say, you know, when you watch this video, you're going to hear at the end of the the video he really kind of breaks down you know what's going on and i would say that i i don't want to create any kind of scare tactics here or any kind of fear as much as i'm i'm saying that we have to differentiate between the kind of what you would call this squeeze versus a natural credit cycle versus a full-on crisis you know at the end of this video he does use the word crisis and and i think it's more in the form of a question are we headed for an actual crisis so i think this is the part that i would really like to break down to make sure that we uh we have that information i see we got a comment coming in somebody says after tricolor i think banks are starting to ask their lenders hey so what kind of underwriting did you do for the dealers to lend to so you're right underwriting would certainly be a factor i think um one of the things too that's been prevalent on my mind we almost brought this as a topic is is technology stack and underwriting would be part of that technology stack potentially um that i don't want to confuse the subject but i would just say that underwriting that's a legitimate question from from the standpoint of the tricolor thing i think what the mention of tricolor in this video from the educator was in the context of fraud we know that there were fraud charges brought in that case so in in that range you know underwriting may or may not have been a factor it probably was a factor but we've seen we've seen we've seen portfolios take a skid and buy here pay here outside of tricolor so in other words We don't know that Tricolor could have underwritten any differently or any better had a different outcome we i don't know all the particulars about that but i do know that when a company as large as tricolor falters then that makes you know even wall street is is aware of the tricolor impact and even if they're not directly invested in that sector they're aware of what that signals okay so this is why we we have to be watchful about that and of course the primal land story adds to that and there are other players that have been sort of embroiled in that set of circumstances. So it can slow access to capital. It can delay access. It can even prevent access to capital altogether. Depending on your size, your state of business, the stage that you're in of growth, all those kind of things can certainly be a factor. So I think this is just part of what we want to be aware of and be watchful about. And so I just think it's important to keep an eye on it. We're in the middle of a credit cycle. And I think if you watch that video, he makes a very good case and shows graphically some of the things that are happening across the landscape that would affect many of these things. So I would say, I'll leave it to others to say whether we're in any kind of a crisis. I would say we certainly seem to be in some sort of a shifting cycle. And so if we're aware of that, you know, as dealers, we pay attention to that and we are able to operate our business accordingly, then just be aware. But I would say on the positive side, we had a dealer receive a term sheet just yesterday. And so there's money still there. And so you have to ask yourself, do I qualify? Would I also receive a term sheet? you know, as a proposed financing based on my current structure. So these are things to actually consider. Then otherwise, I would say I would downplay the AI aspect. We've been hearing about this AI thing. And again, the video does a pretty good job of breaking down or differentiating between what is happening in the investment side of AI versus this whole credit thing. So I would urge you to watch that and kind of listen for that part. AI is not to blame for what we're talking about in terms of a credit shift. In fact, there's quite a bit of evidence to support the idea that this concept that AI is coming on the scene and taking away jobs, that doesn't seem to be what the driver of any of these kind of things are. I just think it's really important to understand. to absorb this information and differentiate between you know these these different elements and i'll leave it to you to do your research on what a shadow bank is there's let's just say there's a lot of big money out there that moves um you know across the planet and it shifts based on a variety of factors but i would just say um we can be watchful about that i think the really largest money while it can indirectly affect our subprime sector the bigger um point that this guy makes in the video is really what they call um buy buy now pay later sort of structure which is different than buy here pay here buy here or buy now pay later would be your companies like a firm that provide financing on furniture or financing at your transmission at your local repair shop. You know, those kind of finance companies that provide more like micro lending or short term, you know, buy the furniture now and make payments. There's an indication of a crunch in that sector. And so these are indications of things that would affect our sector and potentially affect you as a buy here, pay here dealer. So again, just it's best to be educated, be informed about what's happening there so that you can kind of form your own strategy around that. And then we just don't want to see dealers get caught off guard with any of this. If you've been kind of entrenched in a strategy in the last twelve months or something, just be aware of these things and go do your own homework. This video will be a good starting point to lead you to some information that I think will kind of open your eyes in the way that it did mine yesterday. and uh so shout out to my friend denny back in utah who shared that i'm grateful to have that that set of eyes looking out for that and to kind of give me that perspective because again i don't really pay attention to those sectors but we we think it's appropriate to start to invite experts to these conversations so that we can get more and better information in front of all of you as dealers and others across this industry who are affected by any contraction of capital. And so let's work through that together and let's just have those conversations openly and make sure we help one another to get educated and get access. So I think that's it for today. Again, find your way to the video. If you, if you're having trouble finding the link and we share it, it should go across all channels, but if you don't find the link to the video, reach out to me and we'll make sure you have it. Have a good Friday. We'll see you next week. Have a great Easter weekend.
