Cash flow is a huge part of keeping any business afloat. In the BHPH business, there are so many things you must keep your eye on, it’s like the old plate spinning analogy. Your number one priority is to keep the payments coming in. To be very clear, you are in the payment producing business. If you can facilitate an atmosphere whereby your customers find less excuses to not send in their payments, the better off your cash flow will be.
What are those excuses usually? The three main categories are:
- Mechanical Breakdown: the car breaks, (because they are built in Detroit and not in Heaven), and the customer does not have the funds to have it repaired. This is usually followed by the dealer punishing their customer because their car broke down. This can many times lead to a repo. Remember, if you repo, the payments stop, you lose that customer, and you have to repair the car anyway.
- Lapsed Insurance: This has got to be one of the most frustrating areas of the BHPH business. Insurance companies are like a government sponsored shake down crew. The government mandates insurance and the insurance company relies on you to be their unpaid collections department. They screw you constantly. They don’t report lapsed insurance timely. They will use any excuse to not pay a claim. They will shortchange you when they do pay a claim. They take days and sometimes weeks to make a decision on a claim (usually resulting in your customer finding new transportation elsewhere)…all the while burning up your man hours. And then they will total your car for a fender bender and take possession of it. What the heck?
- Life events: Lost job. COVID. Divorce. Illness. Poor planning. Well, this is the nature of the beast. Suggestion, advise your customer at time of sale to contact you should they experience a life event that would result in them not making their payment. When they do, show grace. You may just create a loyal customer for life. If they run, however, you are going to repo their car. If you have a clear understanding, you won’t have a misunderstanding.
So, what can we do to build a mechanism that will provide a hedge against these inherent problems and create a capital resource?
A professionally managed reinsurance company can make such a big impact on your business. (Notice I said professionally managed. Like the car business, there are so called reinsurance company agencies that smell a little. They give you that “I need to take a shower” feeling after a conversation.)
There are very reputable agencies available that let you rest easy when your head hits the pillow. Don’t shop at Dollar General. You get what you pay for.
Anyway, I digress. I just don’t want you to step in anything.
By setting up a reinsurance company you are able to provide a mechanism that is customer funded that provides a solution for two thirds of the known inherent problems, all the while building a Capital Resource.
- Warranties. Providing a short-term warranty has many benefits. Outlining coverage: again, providing a clear understanding. Reserved funds to cover claims…this creates a known monthly expense, instead of the hit and miss “Murphy’s Law” business model. Plus, Warranty box checked on Buyer’s Guide. That of course is a marketing plus.
- Vehicle Service Contracts. Many BHPH dealers don’t sell VSC’s because of cash flow. For simple math, if you sell 20 VSC’s a month that cost $1000, you just sent a third party $20,000 out of your lending pool. Not to mention you are at their mercy on paying claims. Our company divides the premium by the term and bills you as you receive it from the customer. In and Out!! No cash flow hit. PLUS, the reserve is going into your reinsurance trust account.
- Pain free collateral protection. First, an important distinction. Liability insurance is required by the state. It is their job to make sure consumers abide by the law. You require collateral insurance. It’s right there on your Retail Installment contract. It basically says if you don’t have it your car will be repossessed. Oh, and the painful part, speaking of cash flow, many of your good paying customers have let their insurance coverage lapse, and you’re holding your nose and turning your head because of cash flow. All the while tossing and turning at night with a nightmare scenario that one morning you will discover that there was a 20 car pileup last night and 10 of them were your uninsured customers. YIKES!!
Wait!! Hold on!! Before you have a heart attack, there is a better way. In fact, there are a couple of better ways. Collateral Protection Insurance, Debt Cancellation Coverage waiver, and for LHPH, Loss Damage Waiver. Depending on your situation, any of these can make life so much better. Plus, grow that Capital resource we have been talking about.
So, what the heck are you waiting for? Don’t procrastinate yourself into a losing scenario. Let’s Go!! Make 2021 the year you took charge of your cash flow, with Reinsurance.
Bio: Tim Byrd is Founder and CEO of DealerRE, a managing agency located in Gloucester, Virginia, and an auto industry expert in Reinsurance, BHPH Operations, and Dealership and F&I Development. As a 30+ year veteran of the car business, Tim is a trusted advisor to many car dealers. Tim has appeared on Auto Dealer Live and has been featured many times in Dealer Solutions Magazine, The Virginia Independent News, Around the Commonwealth, The BHPH Report, DealerELITE.net, the Dealer Business Journal, AutoSuccess Magazine and NIADA’s BHPH Dealer Magazine. Tim is a sought after speaker and co-author of 3 #1 Best Selling books “Unfair Advantage”, “Race to the Finish Line ” and “Race to the Finish Line 2”. First and foremost, Tim is a Christian man whose values, he strives, are a reflection of those of his Lord and Savior Jesus Christ. Tim can be reached at www.DealerRE.com or by calling 804-824-9533.