When new-car dealer Richard Varner first visited the headquarters of J.D. Byrider Systems Inc. in Indianapolis, he was skeptical.
Byrider's plans to build a chain of buy-here-pay-here used-car dealerships sounded great. But to be on the safe side, Varner, owner of Courtesy Auto Group in northeast Ohio, brought along his attorney and his accountant.
'(Afterward) I asked them where the bogeyman was in this whole deal,' he said. 'They couldn't say.'
Today, Varner is a believer with one successful Byrider franchised store in Alliance, Ohio - where he sells 70 vehicles a month - and dreams of owning 10 more.
Despite converts such as Varner, Byrider is far from its original goal of more than 700 stores by 2005, with only 94 stores in 28 states and two Canadian provinces.
Last month, Byrider revised its 2005 goal to 515 stores. The company is depending on an aggressive state-by-state campaign launched in October to recruit new-car dealers. Byrider also has hired a vice president of national advertising and marketing to build the brand.
Byrider also must continue to convince dealers such as Varner that despite franchise fees and a 3 percent royalty on each sale, there is no bogeyman in the deal.
Byrider began offering buy-here-pay-here franchises in 1989, primarily to new-car dealers. Since then it also has opened nine company-owned stores.
Franchisees operate two businesses: a used-car store that sells 5- to 10-year-old vehicles to subprime customers and a subprime finance company, known as CarNow Acceptance Co., that buys the subprime paper from the store.
'Mainly we grew the system through word of mouth,' said Steele Gudal, president of Byrider's franchising division. Gudal, 35, is the son-in-law of Byrider founder and Chairman Jim DeVoe.
Gudal said Byrider has had trouble finding the right property for the stores and finding potential franchisees with the capital and the commitment.
The company looks for franchisees with minimum net worth of $1 million and $300,000 to $500,000 in initial equity investment, Gudal said. It also wants franchisees who will open at least four stores and not treat them like stepchildren to new-car dealerships, he said.
Last year Byrider decided word of mouth was not enough. In October, Gudal took the show on the road, seeing as many as 30 dealers in each state he visited.
In the past three months, the road show has helped recruit 10 dealers, according to Gudal. Byrider also will meet more often with state new-car dealer associations and dealer 20 groups, he said.
Byrider faces another problem: dealers who feel they can open and operate a buy-here-pay-here lot without a bunch of franchise fees.
Byrider charges its dealers a one-time franchise fee of $39,000 for their first store and $25,000 for each subsequent store. Franchisees also pay into a national advertisement budget - about $21,000 a year for each store - plus the 3 percent royalty on each vehicle sold.
Gudal says those fees are more than offset by average net profits of $567,000 a store.
Dealer consultant John Beagan says new-car dealers do not need Byrider. 'Dealers can do it on their own,' said Beagan, president of Street Smart Inc. in Columbia, Ky.
However, Beagan cautions that dealers should first perfect the used-car lot at their new-car dealership and increase sales there to 100 vehicles a month.
Last year, Ford dealer Bob Pulliam, a seven-year Byrider franchisee in Columbia, S.C., dropped out of the Byrider program to strike out on his own. However, he remains a Byrider proponent. 'They give you good leadership,' he said.
Byrider provides its franchisees with training and computer software as well as advertisements paid for by the national advertising fees.
In January Byrider hired Jim England, an advertising executive, as vice president of national advertising and marketing. His job is to oversee the national ad budget - currently about $1 million - and promote the Byrider brand.
Byrider is not a household word yet, said Pulliam. 'If (it) were, it would have been more difficult to leave.'