Check out the three-part L.A. Times series on buy here pay here automobile sellers. The second of the series came out today and is pretty intense. It is about the financial vultures who have seen the profit in extorting the poor and are investing heavily in these rip off car businesses.
These dealerships focus on people who need cars to get to work, but can’t qualify for conventional loans. They sell aging, high-mileage vehicles at prices well above Kelley Blue Book value and provide their own financing. As lenders of last resort, they can charge interest at three times or more the going rate for regular used-car loans.
Many require customers to return to the lot to make their loan payments — that’s why they’re called Buy Here Pay Here dealerships.
If buyers default, as about 1 in 4 do, the dealer repossesses the cars and in many cases sells them again.
The dealerships make an average profit of 38% on each sale, according to the National Alliance of Buy Here Pay Here Dealers. That’s more than double the profit margin of conventional retail car chains like AutoNation Inc.
“The amount of return from these loans you can’t get on Wall Street. You can’t get it anywhere,” said Michael Diaz, national sales manager for Small Dealers Assistance Inc. in Atlanta, which buys loans originated by Buy Here Pay Here dealers. “It’s the gift that keeps giving.”
Investor money is pouring into the industry from several sources, helping Buy Here Pay Here dealers expand their reach and raise their profile.
And who are those investors?
Subprime auto loan issues now represent a larger percentage of all auto-loan securitizations than at any time since 2006, according to Moody’s.
That means people who have never set foot on a Buy Here Pay Here lot, including retirement savers, own a small piece of the business.