{"id":6049,"date":"2025-07-09T09:32:07","date_gmt":"2025-07-09T14:32:07","guid":{"rendered":"https:\/\/niada.com\/dashboard\/?p=6049"},"modified":"2025-07-09T09:32:09","modified_gmt":"2025-07-09T14:32:09","slug":"robust-collateral-recovery-rate-puts-dealership-on-solid-footing-to-last","status":"publish","type":"post","link":"https:\/\/niada.com\/dashboard\/robust-collateral-recovery-rate-puts-dealership-on-solid-footing-to-last\/","title":{"rendered":"Robust collateral recovery rate puts dealership on solid footing to last"},"content":{"rendered":"\n

From the July issue of UCD<\/p>\n\n\n\n

By Jeff Owings<\/p>\n\n\n\n

After 40 years running a buy-here, pay-here used car dealership, I\u2019ve watched giants rise and fall through turbulent times \u2014 and I wouldn\u2019t trade it for anything.<\/p>\n\n\n\n

This niche, serving nonbankable customers, is a goldmine bursting with opportunity, and every day I\u2019m grateful to do what I love. I can\u2019t imagine a job more rewarding than tackling the challenges of managing sales, inventory, cash flow, employees, service and the whole vibe of the dealership. It\u2019s a privilege to keep it all humming, and sharing insights with other dealers who feel the same fire for this business is pure joy.<\/p>\n\n\n\n

I\u2019ve poured 40 years into this, and I\u2019m hoping for 20 more because there\u2019s nothing I\u2019d rather do. But it\u2019s no easy ride.<\/p>\n\n\n\n

To build a dealership that endures, master three pillars: cash flow, profitability, and Collateral Recovery Rate (CRR). Lenders scrutinize these metrics, and ignoring them is a recipe for failure.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Cash flow is your lifeline. Forget waiting for \u201c200 more accounts\u201d to break even \u2014structure your deals to generate positive cash flow now. I track it deal by deal, woven into every transaction.<\/p>\n\n\n\n

Profitability is your long-term report card. You don\u2019t need to be profitable every month, but you must show gains over time.<\/p>\n\n\n\n

CRR, though, reigns supreme. It measures how much value you recover from collateral, like repossessed cars, when customers default. A strong CRR \u2014 72 percent or higher (I aim for 80 percent) \u2014 tells lenders you\u2019re a safe bet, unlocking better loan terms or credit lines.<\/p>\n\n\n\n

Cash flow and profitability can get quick fixes. Need a boost in these? Raise prices slightly while lowering down payments to jumpstart profits. To boost volume, extend financing terms or ease underwriting. These are bandages, not cures, and won\u2019t build long-term health for your portfolio, but can work short-term if your CRR is strong.<\/p>\n\n\n\n

Fixing a weak CRR is brutal. It means cutting markups, raising down payments, and tightening underwriting \u2014 all at once. These moves strangle sales, cash flow, and profits for months, maybe years, so you\u2019ll need deep reserves or strong lender ties to weather it. I\u2019ve been through this grind, and it\u2019s not for the faint of heart.<\/p>\n\n\n\n

To keep CRR strong, double down on collections. Keep customers paying to reduce defaults and lift CRR. Use lean markups \u2014 just enough to stay profitable. High markups boost short-term gains but balloon losses when customers default, tanking CRR.<\/p>\n\n\n\n

Here\u2019s a critical tip: rethink how you value repossessed cars. If you\u2019re breaking even at auction on wholesaled vehicles using standard trade-in values, you\u2019re undervaluing your keepers \u2014 the cars you retail again. You should expect to lose about $1,000 per car at auction because keepers are worth more. Breaking even? That\u2019s a red flag. Recheck your valuation metrics to avoid selling keepers too cheap or padding new markups at the expense of CRR.<\/p>\n\n\n\n

A robust CRR makes your dealership attractive to lenders and investors, giving you flexibility. It\u2019s not about gaming the system; it\u2019s about prioritizing CRR management. Balance cash flow, profitability, and CRR, but put CRR first. It\u2019s the bedrock of a dealership that thrives for decades, not one that crashes and burns.<\/p>\n\n\n\n

Here\u2019s a bonus tip: Keep an eye on your interest income from customer notes compared to your monthly net charge-off losses. When your interest income covers those losses, managing the business gets a whole lot easier\u2014and way more fun. Better yet, aim for interest income to cover both charge-offs and your bank interest expenses. That\u2019s when this business becomes a thrill to run. Track it, measure it, and chase that goal \u2014 it\u2019s a game-changer. A strong CRR, paired with solid interest income, keeps you in the driver\u2019s seat.<\/p>\n\n\n\n

Jeff Owings
jeff@owings-auto.com<\/p>\n\n\n\n

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