The dealership industry has been impacted by COVID-19, and buy-here, pay-here dealers may find their own set of challenges — and opportunities — in this situation. Consider what adjustments you may need to make to your business.

COVID Business Operations

Impacts and Opportunities for BHPH Dealers During COVID-19

  • Tim Wood
  • 4/7/2020

Key insights

  • Buy-here, pay-here dealerships that provide lending to car buyers should consider what additional challenges could arise during the COVID-19 crisis.
  • Dealers should discuss financing details and options with their lender.
  • Recent regulatory and tax changes can also impact a dealer’s business decisions.

COVID-19 has impacted every industry in the U.S., including buy-here, pay-here (BHPH) dealerships. Dealers are fielding customer calls related to health challenges, loss of employment, and other changes affecting their ability to make their vehicle payments. Increasingly, states and local jurisdictions are shuttering nonessential services, and in some cases, vehicle sales are considered a nonessential service. Prolonged closure of vehicle sales and customers’ employment uncertainty could drastically impact dealers’ ability to stay in business as available capital dries up.

Look at collection practices

Continuing collections during this time is critical. Many collectors are beginning to work remotely. Consider whether this option is viable for your operations and develop policies and procedures to maintain consistent collection practices and good internal review and approvals.

Collection departments should also consider — and document — which customers request delaying their payments due to COVID-19. In those cases, obtain check stubs or other documentary evidence to corroborate the change requested and maintain the documentation in the customer file. This practice should cut down on the number of customers requesting a change when they may not need one. Segregate contracts for customers with changes due to COVID-19, to help you manage and quantitatively assess the potential impact of these changes on your portfolio throughout this crisis.

Maintain lender relationships

Contact your lender to discuss COVID-19 strategies. You’ll need to address the impact and measurement of covenants and how to manage them proactively. Have discussions to outline the availability and accessibility of capital as well. Many dealers are closing in on their line of credit renewal period and will need to work closely with their lender. Having a plan in place will make this process more manageable.

Consider the Small Business Administration emergency loan program

Get familiar with the Small Business Administration (SBA) resources and emergency funding. The SBA Economic Injury Disaster Loans will provide up to $2 million, with interest rates of 3.75%, to help businesses with fewer than 500 employees pay fixed debts, payroll, accounts payable, and other bills they cannot pay as a result of the declared disaster. The loans cannot be used to cover lost profits. Many states are included in the disaster declaration areas and are eligible. The maximum loan term is 30 years with a one-year deferment on payments, though interest accrues immediately.

As always, cash flow management is key. The federal government is formulating other programs to help companies navigate the current landscape, so stay tuned for other potential emergency funding options.

Regulatory and tax update

The federal government has extended the federal income tax return deadline for returns due on April 15, 2020, to July 15, 2020, and deferred the payment of 2019 federal income tax and first quarter estimates due on April 15, 2020 to July 15, 2020. The extension does not apply to other returns/information returns. Each individual state will determine whether their state tax filing and payment obligations will be extended.

The Families First Coronavirus Response Act establishes a federal emergency paid leave benefits program, expands unemployment benefits, and provides grants to states to process and pay claims. The Act requires certain employers to provide paid sick leave to eligible employees. Read our recent article for additional information.

In addition, the CARES Act was signed into law, which includes an estimated $2 trillion or more in stimulus.

How we can help

BHPH operations often do well in times of recession. As we emerge from this crisis, available consumer credit may be tight and better credit-worthy customers could look to BHPH operators that weather the storm. Plan now, work with your trusted advisors, and trust you are making the best decisions for your dealership. There will be opportunity on the other side.

Our dealership checklist can help you navigate the COVID-19 crisis. CLA will continue to provide updates, resources, and livestreams to help you respond to COVID-19. Our professionals are also here to help you understand the impacts to your business and can support you through the process.

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