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Thursday, December 07, 2006

Advertising for Buy Here Pay Here, Rent to Own, and Subprime Finance Dealers

Look at any of the big online advertising sites for auto dealers....Autotrader.com, Cars.com, Automart, etc. If you compare the vehicles advertised on any of these to the vehicles advertised by other media such as magazines, newspaper, storefront signage, you may notice a big difference. Drive down "dealer row" in your hometown and you'll see a million signs for "no credit check", or "everyone is approved". Sometimes you may even see the dealers who aren't trying to sugar-coat it: "buy here pay here". Buy here pay here financing isn't necessarily a bad thing for the customers. Dealers realize there is a need to serve customers with bad credit that couldn't otherwise be financed. Customers need a car, and virtually anyone can get one using BHPH or rent to own finance. Do some research however, and you'll hear what a rip-off BHPH finance is for the customers. In reality though, why should they get the same interest rates as someone who has paid their bills on time for 20 years? Credit scores are based on a lender's risk, so for me a dealer doesn't have to justify high interest rates for someone that is a high risk for default, repos, etc. Because such a large percentage of the American public falls into this Sub-Prime lending category, it makes perfect sense that several dealers market directly to these customers. Look in the print advertising media and you'll see the same things as driving down "dealer row", geared at catching the eye of the car shopper with less than perfect credit.

Since so many dealers use in house financing, BHPH, or rent to own, wouldn't it make sense to advertise cars online the same way they do in the magazines? A shiny BMW for just $49 a week and no credit check is a lot more appealing to bad credit customers than bigger retail prices, extensive credit applications, and the "normal" car dealer look/feel. Why is it then that none of the online players gear anything toward this market segment? Do they think those customers don't have internet access? If so, it's simply not true. Look at the statistics from the U.S. Census Bureau: out of the people over the age of 18 who make between $15000-$20000 a year, 31% use the internet at home, work, or school. Think any of them are car shoppers? You bet. Everyone I've talked to about internet use among sub-prime finance customers has always said those customers just don' t use the internet. Two points on this:

First, 31% of the sample income group above DOES use the internet. Of course it's lower than the higher income population, but think about it like this. Suppose you have 1000 people on your lot with high beacon scores and 1000 with low scores. 310 of those low score people are looking for your cars, and 620 of the higher score people are looking for your cars as well. Would you completely ignore the 310 customers with lower scores? That's the equivalent of ignoring 1 out of every 3 people that step on your lot. By doing that you may make money on the 620 ups, but you'll never make money on those 310 others.

The second point is this: Do you really know what a sub-prime finance customer is? You're probably thinking stereotypically as you read this: "bad work history, doesn't care about bills, and low paying job". Of course you'll have those, but the truth is that on a national scale, a majority of these customers aren't like that at all. The typical customer is truly an example of "bad things happen to good people". Two of the top reasons for damaged credit are divorce or some sort of unplanned medical event. In reality these customers have had steady jobs for several years and average income might surprise you.

So this brings us back to the original question: wouldn't it make sense to advertise cars online the same way you do in the magazines? None of the major online classifieds like Autotrader.com or Cars.com offer such services. Everything is shown to the customers as either retail or MSRP. Since these are large corporations, adding this functionality is nearly impossible given the scope, let alone convincing them it's worthwhile. For this reason it's left up to you the dealer to market weekly or monthly pricing on a smaller level. Our websites and administrative back-end have recently had this functionality added. We feel it's the dealers choice in how they want to market their inventory. If some cars are better off with retail prices, list those. If some are more appealing with weekly or monthly payments, why turn potential customers away with retail pricing? We've even developed a product that allows traditional dealerships to keep BHPH inventory completely separate from retail units and not even have them on the same website. Everyone has their thoughts on the subject. As online marketing consultants, for us it makes the most sense to maximize the efficiency of advertising, and that means not lumping all inventory into one category, even if it's all on one lot.

2 comments:

Alex said...

Jake,
I could not agree with you more. We all know that Sub-Prime market is huge...just look at how many sites advertise Bad Credit Car Loans. But as you point out no one has put the two products together i.e. Used Car Search and Sub-Prime Auto Loan.
We at www.Web2Carz.com are working on a product that will do just that but it has proved to be difficult (not on a tech side but in business logistics)

A word on cars.com….
I did a six year stint at cars.com and to be honest they are just not targeting the same type of dealership that would have Buy Here Pay Here offer. They started with Franchised Dealers and as I was leaving them in 2005 they were starting to work with Non-Franchised dealerships. Considering sites like cars.com move much slower than the new comers like Web2Carz.com I would not expect anything from them for a long time.

danny said...

This is true, however the current economic situation and credit market has made it difficult for people to get subprime loans.