When the economic downturn hit and new-car sales tanked, family-owned Bill Marsh Automotive Group in Traverse City, Mich., decided to diversify.
In 2009, the Marsh group opened a "buy-here, pay-here" outlet that specializes in selling old, high-mileage used cars and trucks to customers with poor credit. The business model calls for dealers to finance customers at interest rates that typically exceed 20 percent.
Bill Marsh Jr., a partner in the six-dealership, multifranchise group, says his family's J.D. Byrider "buy-here, pay-here store" sells only about 150 vehicles per year. But he says it is profitable.
"With all the uncertainties in the economy and the volatility in the new-car business, we were looking for a way to diversify," Marsh says of the store. "We wanted to get into a business that was still the car business but was significantly different from the economic factors in the retail car business."
But buy-here, pay-here stores, such as J.D. Byrider-franchised outlets, are high-risk, high-reward ventures.
Says Chris Leedom, a Sarasota, Fla., consultant and trainer for buy-here, pay-here operators, the industrywide average gross profit per unit is about $3,750 and the average net profit is approximately $700.