Why buy-here, pay-here is losing some turf

Jim Henry is a special correspondent for Automotive News.

Even though broccoli is better for them, lots of people won’t eat it when they can have ice cream instead.

The scenario is playing out more often these days in the auto finance world, too.

That’s according to top executives of America’s Car-Mart, the giant buy-here, pay-here used-car retailer based in Bentonville, Ark., as more consumers pass on the broccoli -- offers from buy-here, pay-here stores -- in favor of ice cream -- cheap financing by some franchised new-car dealerships.

“For about the last year and a half to two years, we’ve seen some increases in competition in this industry,” America’s Car-Mart CFO Jeff Williams said last month in a presentation for analysts and investors. “We’ve had excess money chasing the same deals,” he said.

America’s Car-Mart, founded in 1981, has 136 dealerships in 10 south-central states.

In a separate conference call earlier this spring, America’s Car-Mart CEO Hank Henderson said new-car dealerships are offering finance deals his group can’t or won’t match, on low-end new cars or high-end used cars.

“Some of the offerings are zero percent down, no payments for 90 days,” Henderson said. “We’ve even seen no payments for a year -- and then those are getting financed at 72 months, sometimes even longer.”

Lenders -- facing a more competitive auto finance landscape -- are also playing a role in the practice at some new-car dealers.

The America’s Car-Mart executives argued their conservative approach to lending -- with substantial down payments and shorter terms -- is healthier for customers with subprime credit. With long loans and no money down, customers are more likely to wind up upside down, owing more on a trade-in than it’s worth, they said.

But at retail, the conservative approach means higher monthly payments, or customers have to settle for less car. As a result, America’s Car-Mart has to pass up some business when customers opt for sweet, no-money-down deals.

It’s understandable if the customers skip the broccoli and reach for the ice cream, right?

You can reach Jim Henry at autonews@crain.com

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