Investors place big bets on Buy Here Pay Here used-car dealers
Private equity firms are investing in chains of used-car lots, and auto loans are being packaged into securities much like subprime mortgages. They're attracted by the industry's average profit of 38% for each car sold
By Ken Bensinger, Los Angeles Times
Los Angeles Times Staff Writer
November 1, 2011
The J.D. Byrider used-car dealership in Visalia, Calif., sits amid a jumble of tow yards, hubcap vendors and vacant lots littered with empty beer cans. It may not look like much, but selling aging cars to waitresses, secretaries and farmworkers is a lucrative business. That's why private equity firm Altamont Capital Partners of Palo Alto bought the J.D. Byrider chain in May for a reported $50 million.
On a recent morning, a dozen executives could be seen huddled in a glass-walled conference room, reviewing a slide presentation on plans to buy some franchised Byrider lots. It's part of a strategy to boost profit at the 135-lot chain, which had sales of $740 million last year.
Firms like Altamont pride themselves on being the smart money, identifying profitable opportunities ahead of the herd. Lately they and other investors are finding just such a windfall in a little-noticed niche of the used-car business known as Buy Here Pay Here.
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.
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http://www.latimes.com/business/buy-here-pay-here/la-fi-buyhere-payhere-day-two-20111101,0,3779131.story