Industry Minute with kip cochran

Custom Control of your BHPH Capital

TDS services

Are you a Buy Here Pay Here Dealer looking to sell your auto loans?

We are a top buying source in the market when it comes to purchasing auto bulk paper. We specialize in in various types of auto bulk portfolios ranging in size from $25,000 to $10,000,000 loan portfolio purchases in deep sub-prime auto paper (BHPH) as well as auto lease portfolios.


The BHPH market


The BHPH market is disjointed.  It operates completely different than the franchise car sales market. Marketshare is very small for any one dealer.  Even the top BHPH dealers comprise no more than five percent of overall used car sales, according to Carmichael.

The average vehicle sold by BHPH dealers sells for $10,000. Buyers are predominately male, aged 25 to 40, who have worked at their current job for 9 to 12 months – most of them are renters – their average gross monthly income is $2,000 – and most have credit scores in the mid to upper 400s.  They are true payment buyers.


The BHPH business runs on cash flow.  Cash flow is the most-critical factor to be watched, managed, and prayed over.

The key to a successful BHPH business is having the right cash flow model – where the cash comes from, how it is spent, and how it is managed, Carmichael says. Everyone who gets into this business knows it will take a lot of cash.  Cash flow is different from net profit or what you see on paper.  Cash flow means how much you are putting into your pocket.  A lot of BHPH dealers say their net profit is good, they’re making X dollars a month, yet they’re still having to fund the business from their own pocket.

Average Vehile Price


Average Aged Buyer

25 to 40

Time on Job

9 mo.

Ave Fico



Capital Resources

Today there are fewer capital sources for the BHPH market than a few years ago. At that time, hedge funds saw the BHPH market as a winning proposition, but due to a lack of familiarity with the dynamics of the market, they invested in portfolios doomed to crash.

What these funds thought they were buying was the buyer’s ability to pay, but in reality they were buying the dealers ability to have good policies and procedures as well as good deal structuring guidelines.  Too many of these portfolios were comprised of very high mileage vehicles and terms that were too long, which resulted in high default rates. That access to wild capital is now gone.

In today’s market, BHPH dealers should be requesting larger down payments and limiting the length of origination terms if they want to have their deals funded.

While the credit markets and capital sources have tightened, they are still there for the right portfolios. 

Dealers are better positioned today because there is less competition for vehicles in the five to eight year range. One auction service recently noted a five to six week inventory of vehicles in the six to 10-year age range.

We’ve now gone through a cycle of unrealistic deal structures due to unrealistic wholesale prices for vehicles, which chased a lot of capital lenders off because too many of those deals were not structured properly to perform. And even though capital, from a cost perspective, is cheap right now, it is not as readily available because many funding sources dropped out of the market.

Capital resources are vital to control cash-flow in a BHPH dealership.  However, there are many other improvements that can be made to policies and operations that will stabilize cash-flow and make your dealership more attractive to a capital company.  Here are a few tips that should be considered for improvement:

    • Purchase inventory at the right price.

    • Implement ways to reduce transportation costs for new inventory.

    • Reduce overhead like rent and utilities.

    • Reduce staff.

    • Find ways to reduce marketing costs without negatively impacting business opportunities.

    • Get better (much better) at weeding out the wrong kind of buyer before you start.

    • Improve collections and get abandoned or repossessed units back quickly, through recon, and on the lot again right away.

            About the author

            Kip Cochran