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 good morning welcome friends to another friday friday episode of the morning show talking all things buy here pay here covering some news today yeah yeah we um uh some really interesting uh aspects or or perspectives on some of the things that are Um, big news that we, that dealers should be paying attention to. And we recognize that, you know, there's, uh, there are a lot of, um, places for people to go for information. Um, and, uh, we really. appreciate you listening to us and that we also have people that listen that aren't members of certain groups and social media or things like that. So it's just really important that these things that we're going to talk about today are understood and forefront for all buyer payer dealers because these things don't just affect people that are part of NIADA, it affects everybody. And I can also say that, you know, this news is selected by supercomputers, if you will, because I went to Claude and asked for the top happenings, you know, that would affect buy here, pay here dealers or the buy here, pay here segment. And it came up with several. We identified four, some of which you're going to, there are things we've covered before. People are well familiar, but we're just kind of offering the latest developments in some of these fronts. And, uh, And then some other news. One thing I don't want to forget to mention is we're now just about three weeks out from the NIDA convention. That's going to be in Denver starting on Sunday evening, the twenty first, I believe, is that date. So if you haven't bought those tickets, you're going to want to grab those and hop on a plane. And I'm not sure if they're sold out on the hotel yet. There are a lot of hotels in kind of the area. You don't have the ones there, but. it's always a good idea to stay where the conference is being held because in between things you you know can head to your room and it's after they're done yeah it's a really good idea to be close by because the conversations that happen in hallways yeah or in restaurants and bars and all of that at a venue are priceless the men's room i wouldn't know Yeah, you wouldn't. Those are all private men conversations. Which is funny because last night Jim had a meeting with VH and forgot that his lapel mic, that's what he was using, was on and he had the meeting started. You're not going to tell him what was said. No, I'm not. But I mean, you know, it's kind of one of those things that... Actually he came out and he left it was live there was only one person there They were waiting for one to join the person had gotten up to do something too But Jim's mic was live and he comes in and he's like how are you doing, honey? And I said great we're having pork chops for dinner, and I'm doing it a little different Yeah, so I had the presence of mind to turn off my camera, but You know you see those so they make the news I Part of the mystery that can happen with VA, what will Jim and Michelle talk about in the kitchen, right? Yeah, exactly. So quick note on that. We're talking about news today, and I wanted to make sure I mentioned, Michelle, this thing about this grading that we're doing the business model index. We had all of our V eight meetings. Now we've now gotten all of those. And I was able to introduce that grading to all of our members. And as I shared with some of them before they started seeing the letter grades, some of you are, it's going to be a little jarring for what you're going to see, but of course the measurements are all the same. And yeah, it's so, and I've got some meetings to follow up meetings with some dealers next week. because this is really, it's impactful. It's an AI sweep of all the data that we have, and it's being able to analyze and compare letter grades. So that's a pretty big development. And, you know, when the AI that we use has access to all of this data and all of, like, all of the things that we've taught it from, like, everything we've done in the business that we, cause it has access to everything. So it's, it's really, really, it's a, it's a very good perspective and it's a, um, uh, it's because there's just a long. a long thread of data that it's so it's, it's really rich. And I've been working with AI to kind of identify. Yeah. Looking forward to the, the, the day that we, that it's, that it's not available only to V eight members, but that there's a light that's available to the general public. But I mean, just that, and then the, the resources that come with, All right, I want to improve on this. So where do I go? So it's pretty cool. Yeah, for sure. Should we get started on our... Why not? I think that's a great idea. I'm going to add this to the stage. I don't know if it's going to immediately... Start playing. That's the wrong one. So we got a little audio teed up. Is the name Tricolor Holdings yet? You need to. Last September, one of the largest BHPH dealer operations in the country, sixty-five retail locations across six states, collapsed virtually overnight. The company filed for Chapter Seven bankruptcy amid allegations of an eight hundred million dollar fraud scheme. And by December, the FBI and federal prosecutors had issued criminal indictments against the CEO and COO. This one has ripple effects for every independent BHPH dealer in America. And here's why it matters to you. All right. Perfect. Um, you know, we've talked about tricolor color tricolor is how they say it in Spanish, but yeah. And, uh, uh, you know, for some people, this is like old news, but there are a few things that, um, ripples, you know, it's interesting. It's one thing can happen and you, you pay attention to the first couple of ripples. but there are ripples that have grown from this whole thing. Yeah, and there's not a whole lot new there except that with enough history, they're able to piece together all the news including the public records that come out of the court stuff. I think the stuff that was new to me is that apparently, Both Chase and Fifth Third Bank have reported nearly two hundred million dollars a piece. They've each seen about two hundred million in losses. Now, that's those are huge. That's almost half a billion dollars. Yeah. And the other pieces, I don't I don't have it here in front of me, but I don't know if it has it in your material or that it said how many kind of the impact of that, like what was left in the in the wake of that, it's it said twenty five thousand creditors. Yeah. Over a hundred thousand loan accounts ten thousand vehicles right and over twenty five thousand creditors Yeah, you know and and one of the things that they are saying is that it's the tricolor was focused on Deep subprime borrowers many of them Hispanic immigrants with little to no credit history so, you know with everything excuse me, happening with deporting, that was likely. It was prior. That all kind of set in motion prior. Of course, that was fraud related with them. But also one of the things I saw was that the kind of the larger markets recognized that when Fifth Third came out and kind of disclosed that they were dealing with a fraud situation of about two hundred million, they didn't say who it was, but the industry quickly figured out that it was double pledging. I guess we're using your same loan portfolios for multiple lines of credit. So, yeah, they with with different banks. But they as of They allege that as of August, twenty twenty five, they approximately one point four billion in real collateral, but the pledge two point two billion to lenders. So they had one point four billion in collateral and two point two billion to lenders. And that's almost a billion dollar gap. Yeah. So I think this is important. Let's pause and talk about this, what this means for Main Street dealers. OK, so if you're a dealer in Midtown, Texas or whatever, and you're going to be looking for a line of credit, This has always been true, but now it's more public. It's more visible about what the impact is. So the thing about the value of paper as an asset, it happens. There are big banks right now on Wall Street that hold lots of paper as collateral, right? But it's important to understand why banks... are uncomfortable with paper alone as their collateral, especially because it's not like it has a serial number, right? That they can, or that it has a title that they can hold. So it makes for uncomfortable collateral and that affects us in this business of pledging. Significantly more cautious, even, you know, big banks and little banks that they're paying any attention to this. And so things like, Clean businesses, transparent operations, those kind of things are going to be, it's going to be scrutinized more. So, you know, that in itself, we teach that all the time, white hat way. transparency, you know, it's just, you just don't want to, don't, and then we're going to be talking about another thing around transparency in just a few minutes, but you know, it's, it, it mentions that the, this collapses the single business, biggest reason the federal reserve Senate banking committee, and multiple agencies are now training their eyes on our space. Right. So, you know, we, and we're going to talk about, uh, CFPB and all of that, but it's like this, there, there is, um, there is a, uh, an eye on it. And, and besides that as just the reputational effect of this, um, you know, when we have this kind of big fraud, The entire industry gets painted with a wide brushstroke. It doesn't matter if you're a small dealer who's just really doing well in their community. Unless you're known in your community, you are one of them. kind of thing. It's a broad brushstroke. If you're known in your community and your customers is like these, you know, you are, which is another, again, another white highway thing is how are you known in your community? That makes a big difference. And how are you perceived, you know, as being trustworthy before we get into the CFPB part, let's cover this delinquency part. So I'm going to talk about the subprime that's kind of next in our little audio. So let's play that. And yeah. Yep. The delinquency numbers in subprime auto right now are not a blip. They are a thirty two year record. According to Fitch Ratings, in January of twenty twenty six, more than six point nine percent of subprime borrowers were sixty or more days past due on their auto loans. That's the highest level since January of nineteen ninety four. But here's the part that really matters. The headline economy looks fine. Unemployment is stable. GDP is positive. So why are your customers struggling? The answer is something economists call the K-shaped economy. And once you understand it, you'll never look at your portfolio the same way. Yeah, so that's, oops, I didn't quite get the pause there. Yeah, that. And I was like, okay, what's a K-shaped economy? And so- I've seen mention of this, and it's really, it has to do with how affluent, how the affluent manage a crisis or how they're affected in a scenario like this. So you think about the middle part of the economy. So go ahead, Michelle, you've got- Well, it says a K-shape is one arm goes up, one arm goes down. And our customers have to be on the down instead of the up. And so, you know, dealers, All of us out there that are you know, we we felt the pinch of different things. But if we're not one of the people in this country or our customers, we're like, oh, everything's better. Everything feels better. Everything, you know, it's it's better, but it's not better for them. It's it's it's on a downward. We have talked about this many times and it just continues to trend. Right. Yeah, I got some graphs to show you. Let me put those on the screen. I don't know if you need to take us off the table. I thought it was, it's like January, twenty twenty six, six point nine percent of subprime borrowers were sixty plus days past due. That is a three hundred and eighty five month. Record, right? Yeah. Yeah. It's like, if you take it down to the month, it's it's, we haven't seen that kind of, and that's just in subprime and eighty-five months that prime or subprime or does it say subprime borrowers? And this is from her wrench rate or Finch rate Fitch. Yeah. So, uh, yeah. So I don't know how well people could see that on the screen, but we've got a graph that we created. So I think I can a little bit different. Um, so you can see it a little bit differently. This is really interesting and, and, I, you know, I have been beating this drum for a few years that that dip, those of you who are watching on YouTube, if you are not, I'm going to take us out of this picture so that people can see it better. There's a dip and now your your banners is OK. Thank you. That dip. was the free money during COVID. So now, again, people, the dip was because people had extra money in their pocketbook and they were being responsible with the extra money in their pocketbook. They were being irresponsible because it would have maintained itself and they would have been like, I don't care about my car payment. I'm going to go blow it on whatever. But they paid their bills when they had more money in their bank account. So Claude also called it, quote, free money. So not just Michelle is pointing this out. Claude recognizes that that dip is attributed to the stimulus money that came out in the COVID period. That's why that dips so low. And you can see this graph is just, are you seeing when I hover over those things, Michelle, do you see the- I can barely. Barely, yeah. but it's an interactive map that Claude generated based on, and this goes back to January of nineteen. I don't know that our viewers will be able to see that very well, but you can see that it has been running high since twenty twenty-four. Our dealers really feel some of that in their charge-offs, right? They've been charging off the non-performing. But I think what this shows, when you talk about a thirty-two year high, what that tells you is that at least let me just speak for myself and what I see from the Claude analysis in addition to what we see across the news is that this says that the customer that we serve in subprime is feeling the pinch obviously their costs are up um you know we can talk about some of those things as well we'll talk about tariffs in a minute but um but that's that's really what this suggests is that um and then some of these others let me see if I can show another graph this one right here that shows the orange bar on top and then the green below. The green is prime. So you can see that while there's been an inching up, this is since May of twenty twenty one. It was at six point one four for prime and now it's inched up to point four three. Actually, I'm looking at the wrong thing. It's point it's point one four not six and then point um four three so while that's triple you can see graphically that's a minor um correction or increase Six fifty plus credit. That's what they're they can afford the eggs. The red one is what the subprime is experiencing. Right. Yeah. Which is really just a really great single graph that shows the impact of how those who have less income are feeling less. the pinch much more and dealers are going to be suffering the charge offs. And they have been. Our dealers, and I was spoken in Houston a week before last, and I was asked about whether there was any indication that charge offs are improving. I asked the group, I said, let me answer that in July, because I think it would be better to get Yeah, I think we get the second quarter close will be a better indication. The first quarter, we have some data, but, you know, first quarter is when tax refunds are flowing. And so it's maybe not the best indicator. So we get a quarter close. We hope we'll be able to see some improvement in those numbers. We talked a little bit about the tax money is what? Yeah, that we're going to be covering that. I wanted to just bring a couple of things out in this. This is When the pandemic ended and the recovery began, this is where that K thing, right? Lower income households never really recovered. And they've been on a slow grinding down climb ever since. So it says the cruel irony is that macro data looks healthy. So the things when you're watching your national news, Um, you know, and people are like, they're lying, they're lying. Cause I hear this from different camps. It's like, they're lying. That's not true. That's fake news. It's not fake news. So there's, yeah, it's because there's, there's no alarm being sounded at the policy level about, about this because the macro level looks, looks healthy. The customer's experiencing a totally, completely different economy. Um, Their rents are higher. Their grocery bills are higher. Their utilities are higher. And they have elevated credit card balances like we've never seen before. All simultaneously. The car payment is often the last thing they can afford. And the first thing they will sacrifice when something breaks. And they don't, you know, they may be employed. I mean, the employment rates are fine. GDP looks fine. You know, on the larger scale, you might look at that and say, everything's fine, but it's like, just because I have a job doesn't mean that I'm not at least at some prime level that I'm not feeling that, that crunch. So it acts, it says, you know, what does this mean for an operation for a buyer payer operation? It gave a couple of really great points. And these are things we talk about underwriting. You can't evaluate a deal in isolation anymore. And so it is, you have to think about their total burden, um, what else they're carrying, uh, because, uh, uh, customer who will qualify on paper has four other high important obligations and it makes them a different risk profile than the numbers are suggesting. So, you know, for a dealer to take a little extra time and talk to someone about what their, you know, what their, has their rent gone up and understanding their grocery bill and understanding higher utilities. And credit card balance, that those things, if we want to try to mitigate our repo losses, charge off losses, then right now it's more important than ever to have these kinds of conversations to make sure you're putting someone in a loan that's not going to strap them. And then your, your, the car is the first thing to go, especially if something breaks down because they don't have, they don't even have money for groceries, let alone fixing the car. Right. So you raised something. Are you still seeing the screen? Are we still sharing the, okay. So let me show this last R because I think it ties to what you were just saying. When we talk about what, what does this mean to a main street dealer? Like if I'm a buy here, pay here dealer, And, you know, I've got two to three hundred accounts and I'm trying to sell twenty, twenty five cars a month, whatever it looks like. What does that mean for them? I would say the single biggest thing is underwriting. This this graph shows what Claude refers to as lax underwriting, scar and subprime. These red bars are vintages of contracts that were originated in twenty, twenty two. Here's twenty twenty three. Those two are the worst bars. Why? Because they theorize that in a post-COVID period, especially when money was flowing post-COVID, whatever, that dealers or underwriters, lenders, a little lax in a subprime sector. And now they're paying for it in terms of these vintages, as they call it, in twenty twenty two and twenty twenty three. So how a dealer would solve that is what it's really suggesting here is that. when we do our underwriting we don't just look at the pti i'm somebody who came from a background of i i used to be able to say in training that you know it didn't pay a lot of attention to debt to income and we did put in Pieces like pie charts and part of our analysis was in the customer's overall obligations. That was primarily roof over your head. How many kids do we feed in the family or how many in the household? Right. So that's really looking at that more than debt. But I think we want to we want to look beyond a simple payment to income ratio. We want to make sure we understand the customer's. quote, global financial circumstances so that we have a chance to make sure it's a good fit. And what I used to be able to say is that we can expect the customer to make their car payment a top priority because they needed to get back and forth to work. And while those things are generally true, groceries, you need a roof over their head and they need to feed their family before the car. Exactly. Can you go back to that first one that we looked at where there was the dip? So there's a point here made that I'm like, this just makes sense. This data, you look at this, is telling you that your customers are not irresponsible. They're stretched. Right. The collections process built on relationship and communication will dramatically outperform one built on pressure tactics in this environment. Amen. These people want to pay. Our customers want to pay. They just need a conversation. This is Claude saying, this is not Michelle. This is you're reading what Claude. Right. So a conversation, which, you know, this is something that like the white hat way AI, right. You know, we, we are, we are in beta right now for an AI that will reach out for nothing, but Communication and engagement. It's not about collections. It's not about sales. It's about keeping the communication, the lines open. That's right. Because we know, and I hear it all the time from dealers, it's so frustrating when you see someone who's there on time and they pay, and then something happens, they ghost you, and all of a sudden you're having to repo a car. Yeah. But they don't because they are paying and they're on time. There is no, no, no communication with them. Right. So, yeah, I just, yeah. Well, communication's good. They still have to have the income to make the payment, right? But we don't know that that's the problem unless we're talking to them. Or if they're dealing with both high grocery prices and a water problem, we might not know that unless we're in communication with them because customers are frustrated and stressed. i don't know about you but i've had times in my life where i'm like okay i'm down to the last three hundred dollars in my account it's you know i've had things come up maybe maybe it's been christmas you know because christmas is or maybe it's been um you know you you for for those of us that are are have a lot more bandwidth. I hate to use the word privilege, but it really is. We might have just been on our vacation, and we just don't. And you go to the store, and you're like, on the way to the store, it's like your engine light's blinking. And you know you got three hundred dollars left, and you're heading to the grocery store, and it's like, what do I do? I've I'm going to get my next influx of money in two weeks, but my car may not last two weeks and I need groceries. What do we do? We've all been in a watered down situation like that. Our customers live that stress every single day. And yeah, I just it's it's so important that we we you can't help who you won't who won't talk to you right help someone that won't talk to you and they won't talk to you sometimes unless they have a relationship at some level of trust so this is where the trust deposits come in the ongoing communication we need to show that we care and that we have and that we have solutions right that's another thing is it doesn't serve much to talk to somebody when there are no answers there's nothing that can be done turn in the car right then that's that's not going to get us it's not going to cut down on this percentage for us so they're getting creative and you know recognizing that it's not about them being irresponsible right it's about them being stretched yeah and i was tommy brandis says i've never known we've got a black screen babe we could um i've never known a customer who uh who um like that that have the ability to stretch a dollar like our customers do so you know um all right should we go to the next yeah let's let's talk about regulatory developments it's not much new news but it is it is rich and you know we've been hearing different things about the fdc let's play the thing this may play at the end of the last one before it starts here whoops gotta share it stand it you'll never look at your portfolio the same way Here's the regulatory situation in plain English. The CFPB, the federal agency that historically oversaw auto lending consumer protections, is being dramatically scaled back under the Trump administration. Some dealers might hear that and think, great news. But here's the catch. The FTC just sent warning letters to ninety seven dealer groups in March of this year. The Senate Banking Committee has launched a formal investigation into BHPH repossession practices and state level enforcement is accelerating to fill the federal void. Less CFPB doesn't mean less scrutiny. It means different scrutiny. And some of it is coming from directions dealers aren't used to watching. Yeah. the Senate banking committee is now on this. Yeah, that's, that's important. I mean, you don't know what the teeth they've got, but they, the FTC has the last teeth. And so, you know, I think what that says is we don't want to be letter number, you know, this is not new news again, it was March, but I think it's relevant in that, you know, this stuff is still, um, it's going to affect us in terms of how we position ourselves You know, as business is going forward so that we're not on that radar. And, you know, we see Steve Levine's kind of releases on this. And so, you know, it's it's we still have to work to make sure that we stay on top of our business. our, you know, this is again about customer relations and making sure we're treating our customers right and that we keep our nose clean, so to speak, in terms of our operation. Just on this one, one point, there is so much information that it just it's like, oh, my gosh, they're really, really rich information on this. You know. I remember the the Yay, CFPB is being defunded. And now we don't have to, you know, where we were out, Steve Levine, and it's the CARS rule. We should be watching. We should be doing all this stuff. CFPB now, it's not gone. It just looks at some of the biggest operators. And so with the way that this is, you know, it's gone down to they will be focusing on The biggest operators is what it's looking like. And the idea that the scrutiny just shifted. It didn't change. It didn't go away. It just shifted. And it shifted in places that people are not trained on. they're not watching and so it's going state it's the senate banking committee who would have thought that the senate banking committee would now be putting bhph under uh uh that kind of a spotlight um because it's not a customer it's it's banking it's it's like we are being discussed like a merger between JP Morgan and whatever. It's as a whole, as an entity. So there are some pretty big things on that. And then Senate investigation. Senator Elizabeth Warren launched a formal probe into auto lending and repossession practices this February. She sent letters directly to major BHP services, including car hop and drive time. Those are big ones that we that we see. So there is a big you know, she started an investigation, a Senate investigation. The trigger is auto repossessions have hit their highest levels since two thousand eight. Remember what happened in two oh eight? Oh, sure. Yeah. Yeah. It's the highest it's ever been since then. And so the concern with the CFPB sidelined, there's no federal backstop preventing illegal or erroneous repossessions. And so the Senate is trying to create a paper trail on industry practices. And then you've got your state level enforcement is also except accelerating to fill this federal void. You know, because that's the state. It's been taken care of by the federal, but now that it's not, it's like we still need to protect our constituents. Yeah. Let's talk a minute about, try to imagine if you're somebody who's not from the car business, not from the buy here, pay here business. If you had somebody just sitting here, a friend of ours, and you asked them, what do you think they would be looking at in terms of repossession practices? Why would they be inquiring about repo practices? What do we suppose they're looking at? A couple of things come to mind for me. It's going to be, how timely we repossess, like how flexible and how consistent are we in repossession? Because if we change practices midstream without notifying the customers that we're changing our practices, that would be among the things. If I were a federal regulator, this would be among the things I'd be trying to make sure that people were consistent about that and fair. And then the other thing would be, you know, you could argue it's the same thing, but if People have heard of churning in our business. That's a, that's a big negative. It's obviously it's something to be watchful of. And I think people who are outside the business might recognize that as a problem as well to say that when we, when we quickly repossess and we finance the car again to another customer, we do that over and over again. That's generally described as churning and it's viewed pretty unfavorably by regulators. So we just want to be watchful about that. Look, a lot of our dealers will recycle an inventory. Inventory is hard to come by if we do repossess a car for whatever reason. This is not to say that we... couldn't, shouldn't finance the car again. It's simply, if you look at overall in totality, how would a regulator view our practices in terms of how we process repos? How cooperative are we? How much of an opportunity did we give the consumer who was repossessed? an opportunity to resolve that. That's, I think, where you start to get into something that looks unfair. And, you know, we're talking about some fairly subjective things here, but they can be backed up by some numbers in terms of our practices and repossessions. So, Claude, you know, bottom line for listeners is the regulatory environment is not friendlier. Mm hmm. Okay, it's just differently structured. And it might feel friendlier because the ones that you always have your eyes strained on are not doing the same thing that they did before. There are we should be looking at opening up our view because now it's state AGs and Congress and all of that that we're having to deal with. This is what Claude said, dealers who have clean, transparent, documented practices are in a strong position. I agree. That's one. They're likely to be around. Dealers who have been relying on regulatory gaps are increasingly exposed. This is exactly the environment where white hat way operation is a competitive advantage. Thanks for the plug, Claude. Not just an ethical choice. Yeah, Claude dropped that in there because it knows our stuff. It knows who we are. So shall we move on to the impact of tariffs? And this one is a little bit heavy. It's kind of a tricky topic because it's hard for us to know. So let's just kind of lean on what Claude has to say about the impact of tariffs. You got that there? Let's add it to the stage. You may have heard tariffs discussed mostly in the context of new car prices, and yes, that affects new vehicle dealers significantly. But for BHPH operators, the tariff story hits differently, and in some ways it hits you in places you might not expect. There's a silver lining in the demand picture. More buyers priced out of new vehicles means more people looking at used. but the cost side of your business is feeling pressure too and it's worth knowing exactly where if you haven't heard the name tri okay um amen uh i don't know about you but it is shocking how expensive okay it's gonna date me a car cost as much as a house did when i first got married okay mean i think i i i bought my first house for like eighty nine thousand dollars okay that's what you're saying a car today car today costs i mean it's like so maybe we should just yeah it's it's it's ridiculous um and you know it it prices a lot of people out of i mean there's not a I don't feel good about having a thousand dollar a month car payment. I, I, unless you're making a thousand dollars a day, that's a lot of money to put out there for a car payment. And so, you know, it is talking about the tariffs that like you, like it mentioned mostly new cars, but it's, it's this trickle down effect of, people can't afford that. So they're going to go here and there. And so they're going there, which is going to push, push things. Yeah. So we saw some of this in COVID. So let's, and we saw some of this whenever there was the chip shortage. So what happens is remember, remember all the empty car lots, the franchise car lots, when the chip shortage happened, suddenly there was inventory was drying up. So what happens in order to have inventory, the new car people, go out and buy used cars. Well, that's part of what would be happening here too, because if tariffs are causing consumers to not buy new, then that means new car dealers are going to want to have heavy used car inventory, which means they're competing with the local buyer. So we just really, it hasn't ever really recovered. And I can make the case that, you know, I'm going to date myself a little bit here. I can make the case that used car prices started creeping up back when obama did the cash for clunkers thing right so they started pulling a lot of the older stuff off the market and so used car prices started creeping up then and it really has just kind of been a steady climb for different factors here but you know dealers that's the tricky thing about this is is we just showed on other graphs where consumers are are feeling stress and pressure financially which means they're gonna have a limited down payment. They're gonna have a limited capacity to make a regular installment payment, but the dealer's cost in the car that they are providing to the customer is higher than it was five years ago. Yeah, it is definitely supply and demand, but it's also straight risk for the dealer. When the dealer has to adjust to that and pay based on limited supply and pay a high price, then that means that their cost and their risk in the contract is higher. And I think it's one of those things where I think this is a time if I were advising dealers and starting a business or looking at their own business, I would say, we got to really run the math and make sure that We don't make a mistake in underwriting so tightly that we won. We can't kill our sales because we can suffer in ways that hurts. We would kind of have to be able to stomach that higher cost of car. And the whole deal structure and mathematics and not penalize the customer by forcing them to a high payment in the interest of making the deal work in your software, your dashboard and underwriting, because that's not going to be a successful loan. That doesn't help you, doesn't help the customer. And so I think what we want to be doing. we're just going to have to run that math and see if we allow the customer to get to a payment that they can really manage. That may mean a longer contract. It's a time for us to look at leasing for these reasons. You know, if we can do a lease and we can do the same in a buy here, pay here thing. It's just the math is a little bit different, but the idea that we're going to put a customer in a car for two years and and then be able to trade them into something else. That's a whole nother conversation we've been talking about. It's like, oh my gosh, the numbers show two years of the sweet spot. Well, sort of, that's oversimplistic, but it's like, it does start to trail off. It looks like in some of our data that we're analyzing now, but I think it just is a time to think about how can we make it fit for the customer and still make it make sense for us financially because the cost of car is so high and there seems to be no real end in sight on that. And, you know, uh, around the tariffs, it's not, you know, it's, it's harder to get inventory and the inventory is going to cost a little bit more, but it made some really other good points. One reconditioning and repair costs because those parts for, for, um, a car that you you know you're going to do your your recon it's they it's the twenty five percent tariff on imported auto parts means the cost of everything from brake pads to alternators to transmissions is going up um for buyer payer dealers who recondition inventory before retailing it it's gonna hit directly on your cost per unit. There's the parts part. The next one is service and warranty costs. Now you're thinking to yourself, how is that going to affect that? Because the money that you're putting aside for your service and warranting costs or your reinsurance is going not as far because all of the parts and things that go into repairing a car costs substantially more than they used to. So, um, it, it, it's not, it's, it's having to stretch it further um so you know you it's more exposure it's more expensive than it was eighteen months ago next one is inventory availability and mix um tight supply you know you just you and and dealers who are independent dealers that are wanting to make sure that they're you know they're they're starting to encroach they're picking up the vehicles that that that uh have a better rating or better... Who is? The independent dealers and the franchise dealers you're trying to... You mean the independent retail dealers? The independent retail dealers, yeah. Okay, all right. So, you know, some of that inventory that you normally get, which is more reliable or more whatever, that... If there's going to be a squeeze down or what, those better cars are most likely going to end up in a regular independent dealer. You know, and I think the tricky part about this, and this goes back to what we started with today about this whole business model thing, because I think when we look at this math, it raises the question or the topic that has come up with me before in work and even as a dealer myself. I would have this conversation with our team and with fellow dealers in a twenty group is like my model was a financial model, not a car dealership model. In other words, I was in the finance business more than I was in the car business. So what that meant to me as a dealer, in order for me to have discipline within my financial model, I had to stay to a certain cost of car range to make it work for my customer and my own financial plan. So so the idea there is when cost of car goes up, what that could mean for my consumer is that they're going to get a car with a little older model year, a little more miles, because I'm trying to stay in a certain financial model. Whereas others may be moving to, I'm always going to carry, you know, a six-year-old Camry or whatever that looks like. And so when you stay in that lane, then obviously your costs can go up, up, up. And so it's an interesting thing to have to navigate. But I think what's the positive thing for all of this is that a big development, and this is not news, but to me, it's very much newsworthy, is that we're seeing AI have a positive impact on all businesses and certainly it's it's coming into our segment in a way that i i think is going to have some real meaningful impact and and this is an area in my mind that we can we can analyze what works best like what what which knob which lever should we adjust yeah and and i yeah yeah it's um what i like what you said is your your sweet spot for buying um you know age value all of that it's it's to be a little bit more fluid and not that you're gonna have to. But we get a chance here to move past guesswork. We don't have to go on what, you know, Bob, who's been a dealer for twenty years, he told me at the auction this, like that's pretty subjective and you don't get to get inside Bob's numbers. And so I think what we have a chance to do now is let's dig deeper and see what the data can actually tell us. And my sense is that the dealers of tomorrow are going to have that information at their fingertips. It's we don't we don't have the margin for error in buy here payer that we did, you know, ten years ago. And so I think it's going to be it's going to be important for dealers to get comfortable with the data and the technology that is shaping tomorrow. And so I think that's a good place to wrap up today. Just the advantage angle practical with the tariffs. Some of the points that were brought up were dealers who have strong auction relationships and regional sourcing networks. are going to have an edge over those relying entirely on major auctions. Okay. Which makes sense. It does. An awful lot to me. The next one is parts pre-purchasing. So, you know, if you have a shop and you're doing all of your own recon or that you see if you're doing customer repairs and it's the same kinds of things, buying common repair items before tariff impacts fully materialize. This is something larger operators are already doing and smaller independent dealers should consider. I don't know where you find that information, but I guess AI can help. But yeah, that's hard enough. And then there was one last. Reconditioning standards and cost control on the lot are more important than ever. When your margin per unit is compressed from both the buy... side and the south side so you know reconditioning a vehicle to i it's it's like every dent does not need to be pulled out yeah i mean it costs money and it's like you know it's only twenty dollars a dent well that twenty dollars uh and it just it adds up sure it adds up all of those little things that that uh You're paying someone because it looks better on the front line. I get it. I get it. But it's kind of the macro or the microeconomics of you think about your household budget or whatever. If you're going to buy a Diet Coke and a Twinkie, which they're You're doing that every day. It's like, it's only this many dollars, but if you stop or it's the, you know, if you're a smoker and you're buying a pack of cigarettes a day, that's that, that's so those kinds of things may have to go away in order to be able to, to keep your margins in, in. range that you feel good about, that you're not hurting the business. Which that reminds me, you mentioned Twinkie. This is the right time for me to share with you. I have recognized that my own love language, for those not familiar, my love language is donuts. And that's being the receiver of donuts. It really shows love. You know, and it's like the five love languages, they talk about gifts so Jim will go run an errand in the morning and he comes back with donuts right and so he's like I don't go yeah I don't I don't independently Go to buy donuts. And I had to go run errands this morning, pick up some stuff for the yard. And when I walked to the door, he says, did you get donuts? Why would you get donuts? I thought you loved me. I thought you say that you love me, but you come back without donuts. There's something about that that doesn't add up. Yeah. Yeah. Yeah, it's the weekend. It's the weekend after Memorial Day. It's so hard to believe that June first will be Monday. I know. So we are, kids are out of school, all the stuff. I don't have kids that are in school, but our neighbor's kids are out of school. Now we have to drive slower because there are slow children. on our strength oh that's not that's okay that's a different all right everybody thanks so much for joining uh we really appreciate you adding making us a part of your day and uh hope you guys have a great weekend and we will see you monday thanks again so much
