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 friends today you only get to say hi to uh jim rhodes michelle is uh traveling on the way back from uh girls getaway so she's uh due back in here this evening and we'll have a chance to uh catch up on some things find out about her uh time in uh arizona so become kind of an annual trek for her and i'm excited to uh hear about the trip. A lot of great photos for those who haven't been to Sedona, which includes me. I still haven't been there. I've been invited to go a handful of times and I'll get there one day. But anyway, glad to have Michelle on the way back. We are taking on in the month of October this subject of fourth quarter strategies. And in particular, we'll be looking at You know, we're starting today with inventory, this whole thing about, you know, how much inventory should I stockpile? Some dealers stockpile pretty heavily in the fourth quarter, anticipating tax refund season. So, you know, it just felt like the right time going into the month where we had the opportunity to Forgive me, I'm gonna do a quick audio check here. Oh, actually wrong audio, so let's try this. It may switch on you midstream here, but hopefully that's an improvement. So I just wanna make sure we have a chance to talk about, as we go into this quarter is like, what are the things that dealers can do in anticipation of a successful twenty twenty one, especially that first quarter of twenty seven? I said twenty twenty one, the first quarter of twenty twenty seven. As we as we think about how to position our inventory and other parts of our business, what can we do to To have a chance to make sure we have a successful first quarter. And of course, a lot of dealers out there in the buy here, pay here, lease here, pay here space build their strategy pretty heavily around that fourth or that first quarter haymaking season. You know, tax refunds are always a spike for buy here, pay here business. And, you know, as we go into this one, it kind of, as I think about the strategies that we've discussed in twenty twenty six of various things, I mean, my mind comes to, you know, how do we. How do we leverage that and make sure that we're effective and successful in the first quarter? How much of our resources do we put on that strategy? Especially when we know, and some of what I'll be bringing back in terms of data in the month of October will be, we know that historically... February sales and buy here, pay here have been some of the worst performing portfolios that we originate. Now, we can all speculate on why that is. We can dig inside the numbers and see what's there to be determined. But I think most of us have been around this business a while know that there are some factors that come to mind that would cause those February sales to perform the worst over time. So that's just based on a lot of anecdotal history. Of course, we've done our own studies in the past and seen that flushes out to be true. So I think we'll just do an update on that. We'll find out is that still been true in recent seasons and get a feel for what that means. And then also in light of some of the things we've talked about recently, Especially in the month of September, we talked about this idea of how many of our customers make it past twenty four months. Well, our data shows that it's a fairly low percentage of customers that are still active on a buy here, pay here note past twenty four months. That doesn't mean they all ended badly. It just means that they're not still paying at the end of twenty four months, very many of them. So begs the question, How can that affect our strategy going into the February season this year if we look at our current portfolio and which customers might we lose to somebody else if we don't have a solution for keeping them when they get a fat refund in their pocket? Are we going to lose them at that point? So these are all things we'll be talking about in the month of October. And I think as we think about this whole concept of of inventory stockpiling, you know, to me, there's, there's different things to think about. There are certainly going to be in preseason, which is now, it's why I'm bringing it up now. A lot of the dealers will start stockpiling October and November. So the question becomes how, how much inventory is available that fits our profile. And, and then the other question is, Can we stockpile? I mean, obviously, the question is, do we have real estate? Do we have enough asphalt or storage location to be able to hold a surplus of inventory? Can we buy it right this time of year? And if we can buy it right and we do have the space to hold it, What is it going to cost us to tie up that money throughout that period? And when we say first quarter, it's been my experience that January for most of our dealers has been pretty slow. Tax refund season hasn't really kicked into gear until February. Yes, there's some early money in January, but it's looked pretty small compared to the February business. So most of the dealers are pretty slow. So, you know, you start buying a bunch of October inventory, you're sitting on it for know at least three full months and so the question becomes how much time does it take me to recondition those cars right to get them ready and how heavily do i want to bank on that window and how do i determine what is what is the target inventory level that makes sense going into that season and most listening to this know that i'm a former dealer i've managed some operations with pretty significant volume uh as well and so You know, I've been there. I've had to make those decisions around inventory. And, you know, I certainly developed my own strategy. But, you know, as we talk about sometimes in our VA with moderators and what have you, it's like, it's really not about my experience. It's about hearing from you guys what your experience is and how you decide how to to take on extra inventory, you know, if you do? And how much do you bank your strategy on February sales? So this is part of what we'll be breaking down. I think then you think about how does it affect me when I get into in-season sales? Like if I don't stockpile enough, And I find myself with a tremendous amount of traffic and solid deals and I'm running low on inventory and I have to go quickly replace inventory in February and March. What is it going to cost me at that time of year to buy the same car that I could have bought pre-season? So will, will prices be up? Often they are in the, in the peak of season is a heavy demand. And so, uh, you know, costs can run higher. So it starts to, um, you know open those questions is what is it what will it take me how much more would i spend to buy inventory then and then how quickly can i turn around will i will i have it ready in time to you know uh be on the lot during haymaking season so that's part of what we have to ask ourselves and then i certainly remember as a dealer thinking about this one in the post season What is the liquid value of whatever inventory I'm sitting on? If I buy heavily and I find myself with March trailing off and sales are slowing, the refund season is winding down, how much surplus inventory am I sitting on? And what's the tail on that? Now, if that's a car that I purchased in October, You know, it's got many months of aging and, you know, I now own it perhaps heavier than its liquid value. I mean, once you get past the demand and there's a surplus of inventory because people bought heavily, you know, in the preseason or whatever. So now we're sitting on a lot of inventory and now costs come down. I realize a lot of dealers who are sitting on surplus inventory may not necessarily liquidate it. They would probably sell through it. but it's aged, right? It's been there for some time now. And so this, it just really begs the question of how much, how much are we sitting on and we've got dollars tied up and we have to factor that in. I made a run at getting a tool put together and we'll have it. I'll probably be able to bring it back to one of our October episodes, a tool that will break down some of this math to help dealers make a judgment in terms of what What is an appropriate amount of surplus to target and what does it cost me to have that surplus? We understand what the gains are in season. So the tool is meant to, to, um, illustrate. The extra volume, the extra gross profit, the cost associated with having those units in inventory. And there is a real cost, even if you're using your own cash. You know, that cash could be invested elsewhere. So you have this opportunity cost associated with, even if it's cash and your own money, there's still going to be some costs associated with that inventory sitting there in a hard asset. And, of course, we know that used cars don't appreciate in value. They decline in value, especially through the winter months. You know, we obviously can see a lot of deterioration on cars and increased mechanical issues and batteries and what have you. So, you know, we know that that's a part of the thing. So we'll have the way to run some of that math. And I think... You know, this is just part of opening the conversation as we move into October. I quite enjoyed September staying in a theme and I think you'll see us continue to do this. I think we'll just keep in the same theme for all of October and we'll break this down around strategies. I think strategies will involve fourth quarter sales strategies. You know, one of the things that I come from a background myself of seeing that I've told people traditionally in buy here, pay here, November and December can be slow if we allow it to be. So this is part of why we want to talk about these things in October and determine what are some strategies that we can invoke that would allow us to continue to move inventory, create sales, and continue to produce volume through November and in particular December uh and now we've got to think about January too if we if we realize that refunds aren't going to start hitting till December or till February are we going to wait until February to do business I mean this is this is part of the question and part of what we have to really look at and I come from a background of of uh developing developing some strategies that allowed us to really do some substantial volume in the month of december so you know there's some things to uh consider we'll certainly uh can't really talk about the fourth quarter without talking about things like tax max you know we'll talk about um creating strategies around tax match for sure. And this is a shameless plug. We can say we know them. We like their service. We think a lot of dealers ought to utilize that. Seems like in my travels, I talk to dealers that say, you know, we tried that. We didn't have any luck with it. And I always think the same thing with that because I had many years of continuous success there and their program is better now than it was then. So I think what I would urge dealers to think about when it comes to a solution like TaxMax is sometimes the lack of success around a program like that is our own willingness and ability to work that program, especially in the fourth quarter. You know, it takes some effort, and I can certainly imagine that the first season wouldn't be as successful as the second. You're going to learn some things as you go through that first season. But there certainly are going to be ways to take the planning and the opportunities and kind of front-loaded benefits that come with a tax max program that allow dealers to get some of this inventory moving in December and January and not have to wait. Not to mention the pace of sales in February can be such that you know as a dealer myself i never loved being in a position to have to make fast underwriting decisions and i i remember just on this as a side note i remember telling our team you know through managers or even telling the customer directly that you know if you need a fast answer the answer has to be no like we just don't rush into this this is a three-year business relationship and so i just never loved the idea of having to rush into a decision about underwriting and that happens you know we get we get under the ether so to speak In February, the refunds are flowing and we've gone through, you know, ten months, eleven months with with smaller down payments than we like and make us uncomfortable. And now the customer sitting there with a three or four thousand dollar refund. And of course, we want to do business and we want to rush. And so, you know, you're starting to hear me touch on some stuff. I think it touches on why maybe our our February deals are are not as successful. Yes, our risk per contract is lower because of the down payment. But the ultimate performance of the loan is. And the real yield on that loan, it becomes the question is, you know, was it really a successful deal? And did that down payment really make the difference for us on those deals? So these are things we'll be looking at as we move toward refund season. You know, I was inspired to bring this particular subject because, you know, there's a little bit of, you know, crispy air out there. It's starting to feel like fall. And, uh, you know, we know that right behind fall comes, uh, as we start to feel this air, we've got November or we got, uh, Thanksgiving, we'll move quickly into Christmas. And so we'll have January first before we know it. And, um, so it's, it's time for sure to be thinking about your strategy in Q four, and especially as it, uh, positions to, uh, moving into, uh, the first quarter and, uh, in January. So, uh, So I hope you'll be back here with us on these coming Fridays. I'm hoping Michelle will be back here in the studio with me next Friday as we continue to break this down. And so look forward to kind of digging into all that and, and we'll have some tools and some data to be able to share and help dealers start to formulate their, their strategy as they move into the, the start of the year. So, uh, Tune in and we'll see you back here on a future episode of Buy Here, Pay Here Morning Show.
