Buy Here Pay Here

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Buy Here Pay Here Portfolio Benchmarks And
Industry Trends
Presentation to NABD Tuesday, November 13,
2007 Houston, Texas
Ken Shilson, CPA, Founder National Alliance of
BHPH Dealers (NABD) 2180 North Loop West Ste 260
? Houston, TX 77018 Phone [phone] ? Fax
713-290-8183 www.subanalytics.com ?
www.bhphinfo.com
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Buy Here, Pay Here Industry Benchmarks2007

• Contributors

Booth 32
Booth 15
Booth 29
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Notes to TheseBenchmarks

• Compiled from our best performing dealers in SGC
  database of more than 500 dealers nationwide.
  Operating information represents a composite of
  all BHPH Twenty Group participants.
• All Results have been verified for accuracy and
  comparability.
• Results are combined (dealer finance
  affiliate).
• Intercompany activity has been eliminated.

(Continued)
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Notes to TheseBenchmarks (Cont.)

• Financial information compiled by Shilson,
  Goldberg, Cheung Associates, LLP, Certified
  Public Accountants, Houston, Texas, (Booth 28)
  and verified for accuracy and comparability.
• Loss statistics were determined by Subprime
  Analytics, who performed electronic portfolio
  analysis of approximately 334,000 subprime loans
  aggregating approximately 2.7 billion to
  identify loss rates and patterns.

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What you should dowith this information

• Learn how the most profitable BHPH dealers do it!
  (Not what they made but how they earned it!)
• Identify ways to make your own operations more
  profitable.
• Discover important industry trends.

(Continued)
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What you should dowith this information (Cont.)

• Evaluate the performance of
• your own portfolio.
• Develop consistent financial information and
  management reports.
• Use this information to help you
• raise capital.

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BHPH Financial Trends 2000 2006 Costs /
Expenses
Source Shilson, Goldberg, Cheung Associates,
LLP
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NABD Benchmarks 2004 2006 Cost of Sales -
Detail
2006 2005 2004 Cost of Vehicle
Sales 55.26 55.10 53.94 Reconditioning
Costs 5.38 5.42 5.5 Other 2.86 3.15 2.16 Tot
al Cost of Vehicle Sales 63.50 63.67 61.60
Source Shilson, Goldberg, Cheung Associates,
LLP
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BHPH Operating Practices 2003 2006 Average
Total ACV Per Vehicle Sold (Including Recon)
Source NABD / NCM
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What 5,000 will buy .
Average miles at time of sale all transactions
between 4,000 and 6,000
Source Manheim Consulting
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Average Mileage by Price Tier
Source Manheim Consulting
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Average Age by Price Tier
Source Manheim Consulting
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BHPH Financial Trends 2000 2006 Bad Debts
Source Shilson, Goldberg, Cheung Associates,
LLP
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BHPH Financial Trends 2004 2006 Gross Profit
Comparison
2006 2005 2004
Revenues 100 100 100 Cost of Vehicle
Sales (64) (64) (62) Subtotal 36 36 38 Finan
cing Income 18 18 17 Bad Debts (20) (19) (17)
Gross Profit 34 35 38
Source Shilson, Goldberg, Cheung Associates,
LLP
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BHPH Operating Practices 2003 2007 Average
Cash in Deal
Source NABD / NCM
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BHPH Operating Practices 2003 2007 Average
Customer Down Payment
Source Subprime Analytics
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BHPH Operating Practices 2003 2007 Average
Weekly Payment Amount
Source Subprime Analytics
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Whats Ahead?
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BHPH 2007 Whats Ahead?(Major Challenges)
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• Consumer liquidity will be low because
• Inflationary cost of staples
• Gasoline
• Mounting debt levels
• Lack of financial capacity
• Electricity and heating costs
• Finding the right inventory at
• a reasonable cost
• Subprime Mortgage meltdowns impact
• on the financial markets!
• BHPH is only for the well capitalized!
• Consolidation is likely!

(Continued)
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• (Cont.)
• Impact of immigration reform?
• More credit impaired consumers will enter the
  market!
• Unscored consumers will become more important!
• More competition as subprime industry buying
  deeper!
• Legal and regulatory issues!

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Putting the Customer in the Right Vehicles

• If you sell them a vehicle, make sure they can
  afford the one they
• are buying!

Good Underwriting NOT Undertaking!
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Learn From Your Losses
by Analyzing Portfolio Performance Underwriting
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What Portfolios HaveBeen Analyzed?

• Loans Analyzed - Approx. 334,000
• Dollars Analyzed - Approx. 2.7 Billion
• Total Loans Charged-Off - Over 86,000
• Total Gross Dollars Lost - Over 534 Million
• Total Net Dollars Lost - Over 376 Million
• Addl Net Losses Expected - Over 243 Million

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Our FindingsLoss Rates
2006
2005
2007

• Average Gross Loss 6,753 6,025 6,432
• (Before recoveries)
• Average Net Loss 4,693 4,370 4,952
• (After recoveries)
• Average Default Rate 26.0 26.2 25.6
• (Percentage of Loans
• Written Off)

(Continued)
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Our FindingsLoss Rates (Cont.)
2006
2005
2007

• Average Gross Dollar Loss
• Rate ( of Principal) 37.32 36.72 32.97
• Worst - 52.6
• Average Net Loss Rate
• ( of Principal) 24.83 26.63 25.15
• Worst - 35.7
• Average Recovery ( of
• Principal Charged-Off) 30.60 25.70 23.30
• (Excl. Repo Expenses)

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Our FindingsLoss Frequency
2007 2006 2005 Highest Cumulative Default
Month After Origination 17th Month 17th
Month 15th Month Highest Frequency Of Default 4th
Month 5th Month 5th Month Highest Loss
Month Worst 1) February 2003 3) February
2004 2) February 2006
(based upon originations)
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Our Latest Finding
Over 50 of All BHPH Installment Contracts Dont
Pay Out!
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What You Should Learn From This Industry Data
Its Not About Buying Selling Vehicles
Success In The Buy Here, Pay Here Industry
Is About Managing Risk!
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Frequently Asked Questions You Can Never Get A
Good Answer To
Until Now!
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What Three Factors Affect Repayment Performance
on BHPH Deals?
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• The Customer
• The Vehicle
• The Deal Structure

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What is the Most Important Customer Attribute
Affecting Repayment?
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Net Income Levels
Monthly Income (Net Pay)
Default Rate

• Less than 1,000 31.0
• 1,001 - 1,600 26.9
• Over 1,600 19.0

Net Pay Level Is More Important Than Debt /
Income Ratio!
Source Subprime Analytics
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What Are The WorstBHPH Vehicles?
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Sample Size Default Rate Eagle 695
units 36.7 Mazda 4,290 units 34.5 Geo 1,773
units 33.4 Honda 11,627 units 32.0 Daewoo 1,349
units 31.0 Average Default Rate - All - 26.0
Based upon 333,613 Vehicles Surveyed!
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Can You Provide Further Details on Why These
Vehicles Dont Perform Well?
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Worst BHPH Vehicles (Detail) Avg. Avg. Avg. Mfg
Model(s) Loss Year Mileage
Eagle Talon/Vision 4,870 1995 111,499 Mazda 626/P
rotégé 3,690 1997 99,469 GEO Prism/Tracker 4,350
1995 111,711 Honda Accord 3,315 1994 132,472 Dae
woo Leganza 4,920 2001 39,625
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Do Car Loans Default More Frequently Than Trucks?
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Sample Size Default Rate Cars
221,036 26.9 Trucks/SUVs 112,777 24.2 Average
Default Rate - All - 26.0
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Does Mileage Affect Default Frequency?
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• Mileage Default Rate
• 120,000 130,000 miles 25.3
• 130,000 140,000 miles 27.2
• Over 140,000 miles 31.5
• Average Default Rate - All 26

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Does the Termof the Loans Make a Difference?
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Sample Size Default Rate Under 130 weeks
170,263 23.4 130 140 weeks 50,382 27.7 140 -
150 weeks 15,374 29.7 Over 150 weeks
97,794 29.0 Average Default Rate - All -
26.0 Time Is Our Enemy!
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Do Starter Interrupt DevicesReduceDefaults?
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• Defaults
• With Device 24.2
• Without Device 26.1
• In addition, these devices
• improve delinquencies
• and reduce collection costs!

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Questions
At this time you are welcome to ask questions on
anything covered in this presentation
Visit Us In Booth 29 During the Show!