Date post: | 16-Dec-2015 |
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We are an independent insurance agency doing business in Louisiana, Alabama, Mississippi, Arkansas, Nebraska, Ohio, West Virginia, New York and Texas. In other states we use brokers and general agents.
Our agency specializes in 2 Niche Programs: Mardi Gras Parades & Special Events (Over 40 years)
Car Dealer Programs (Over 15 Years)
Let’s Talk About Car Sales
As a dealer, are
you feeling the
pinch in these
Troubled
Economic times?
U.S. Economy
Need a Bailout?
Have you ever had a slow month in sales?
Bank FinancingFirst, banks are in the business of issuing loans. In a down economy, where more and more people are experiencing credit challenges, banks are tightening their lending.
Interest rates on an auto loan may not be as attractive to people with less than perfect credit.
How many banks are offering auto loans today?
What type of FICO score will qualify?
BHPH A very good option, but it does have some negatives.
The mark-up on the vehicle creates a large dealer federal/state income tax liability (even after sale of the transaction to a Related Finance Company (RFC) at a discount).
Most of the customer’s upfront cash payment goes to state sales tax.
”Related Finance Company.” To reduce the income tax liability on the “gain on sale”, typically the dealer establishes a wholly owned “Related Finance Company” to which the vehicle can be sold at a loss. However, the discount rate in the sale must reflect the true market value and cannot create a tax loss.
RTO While RTO programs offer great tax advantages they are not as safe from a compliance standpoint.
RTO programs have no federal safe harbor so the states have created a messy array of rules.
State attorney’s general often view RTO programs as “predatory” and create retroactive restrictions and penalties in response to consumer complaints.
LHPH Increased CASH FLOW!
Deferred Federal and State Income Tax Liability
No UPFRONT sales tax in most states (33 states)
Acceleration of Accounting Income
Collection of Tax-Free Security Deposits
Bankruptcy Protection
No Usury Limits
A tale of two buyers Both John and
Mike are shopping for vehicles.
Both have $1,000.00 total available cash.
Both can afford a monthly payment of around $240
John Mike
As fate would have it, they chose the same car on the same lot
John suggested to the dealer that he wanted to Buy Here Pay Here
---but--- Mike suggested to
the dealer that he wanted to know
more about Lease Here Pay Here
John chooses Traditional BHPH Financing
The car is priced at $7,200.00
+ 8.75 sales tax at 630.00
+ title and license at 44.00
For a grand total of $7,874.00
Less his available cash down payment
1,000.00
Financing the balance 36 mo @ 18% $6,874.00
His monthly payment is $284.66
Total available cash down $1,000.00
- 8.75% sales tax on $7,200.00 630.00
- title and license at 44.00
Dealer keeps only ……………………… $326.00
…after the tax man takes his $ CHUNK $
The Buy-Here-Pay Dealer gets to keep the cash down…
Mike chooses aLease Here Pay Here
The car is leased at $7,200.00
+ Sales Tax (8.75%) $630.00
Sub-total $7,830.00
Lease Here Pay Here $217.50
Insurance & Tracking Fee $8.00
= Total Monthly Lease Payment (36 mo) $225.50
Mike’s $1,000 gets divvied up too!
(4 months) Security Deposit* 950.00
Processing Fee +25.00
Detail/Delivery/Destination Fee +25.00
-Tax (8.75%) x 4 months, Title & License -114.00
Dealer keeps …………………………………….. $886.00
Because the sales tax is deferred, the dealer keeps more of the up front cash.
Let’s Recap How Much
Each Buyer Spent
John’s NOTE Mike’s Lease
The Car $7,200.00 $7,200.00
The Cash $1,000.00 $1,000.00
The Payment $ 284.66 $225.50
Interest Rate 18% 0%
Of the two, which buyer feels that he got the best deal?
Mike
…and which dealer feels that he got the best deal?
John’s NOTE
Mike’s LEASE
Down Payment Retained
$326.00 $886.00
Sales Tax Paid Up Front Deferred
Survey Says???
Both Dealers…
Make Credit Decisions
Must Verify Insurance
Must Track Payments
Deal With Business
…but let’s look at the differences
Let’s Recap Both Deals
Compare and Save
Buy-HerePay-Here
Lease-HerePay-Here
Usury Laws Apply YES NO
Sales Tax Up Paid Up Front YES NO
Income Tax Paid Up Front YES NO
Bankruptcy Risk YES NO
Title Signed Over to Customer
YES NO
Limited Repo Rights YES NO
Hard to “Divorce” YES NO
Pro’s and Con’s of LHPHPro’s
No UPFRONT sales tax in most states (33 states)
Collection of Tax-Free Security Deposits
Deferred Federal and State Income Tax Liability
Bankruptcy Protection
No Usury Limits
Acceleration of Accounting Income
Con’s Vicarious Liability Exposure
Lease Accounting System
Training & Compliance
What are the risks to LHPH?
1. Vicarious Liability ExposureIn some states, lessors have been held to be responsible “vicariously” (i.e., with no finding of lessor negligence or fault) for injuries caused by negligent lessees simply because the lessor owned the leased vehicle.
Solution:Lessors Contingent Insurance
We offer 2 types of Lessors Contingent Insurance:
1. Lessor Contingent Defense Insurance
2. Lessor Contingent Liability Insurance
Dealers must qualify: The lessee must carry liability limits of not less than (25/50/25)
The lessee’s insurance company must name you as Additional Insured; and the lessee’s insurance company must provide you with at least a 10-day notice of cancellation.
What are the risks to LHPH? (cont’d)
2. Separate Lease Accounting SystemLHPH programs cannot be accounted for and managed properly on BHPH accounting and data processing systems. A specialized system is required.
What are the risks to LHPH? (cont’d)
4. Compliance & TrainingSince most dealership staff are not leasing experts, there must be a “technical assistance” capability to develop accurate answers to “frequently asked questions”.
All staff must be trained not to use BHPH sale and/or finance terminology because of the potential for confusing customers or violating federal and state disclosure or lease advertising rules and regulations.
Compliance & Training Solution:
BLC Associates In each industry there is one person or organization that is recognized as the principal authority. The national authority in consumer vehicle leasing is BLC Associates. Their clients include virtually every major lessor and finance company doing business in the United States.
Earn MoneyQualified Dealers can earn serious money when they start, own and operate our complete Turn-Key LHPH Program which includes Dealer Software, Insurance, Tracking, Training and Compliance.
As a bonus we show qualified dealers how to Make Money with our Point of Sale Insurance. This is a brand new program launched this year.
Customer Pays for
Car Loan
Maintenance/Repairs
Insurance
Why not collect the insurance payment at the same time as the car payment and earn additional income?
Point of Sale Insurance
Now you can with Point of Sale – Blanket Collateral Protection Insurance (CPI) – Self Insured Program with Great American.
Here’s how it works…….
Dealer opens a CPI Policy and sets a fixed monthly premium to charge each customer for comprehensive & collision insurance and builds this into the price of the car.
No underwriting required.
70% of the money is used to pay all comp & coll claims by Great American from this account.
Dealer also opens a Blanket Policy which allows him to file supplemental claims for coverage such as:
•Repo reimbursement - $500
•Repo storage reimbursement - $500
•Non-payment of comp/coll premium – up to $2000
•Insufficient insurance coverage (GAP Plus) – up to $2,500
Example of Premium$100 per month paid by the customer to the
dealer. This can be paid by the customer
weekly, bi-weekly or monthly. Hub Financial /
Great American keep $30 and the remaining
$70 goes into the account to pay both single
interest and blanket claims to the dealer.
Web-Based System handles
Enrollments Claims Accounting Reports
Dealer receives his own unique login name and password. This web-based system is very easy to use. This system handles everything…
What we do for you… Open Lessor Contingent Policy with
Open Blanket CPI Policy with
Set-Up LHPH Turn-Key Program incl. 5 Year Cash Flow Proforma, Worksheets & Manual with BLC Associates
Arrange DMS System with Constellation Auto