Some Businesses Just Deserve to Die!

[Parsad]

I'm sure it was lucrative for a while, but really...what a dumb business model!  And any banks that lent money to them...you deserve the losses!  Cheers!

 

https://www.cnn.com/2025/09/12/business/subprime-auto-loans-recession-risk

 

 

[Rainier]

I am not a fan of the business either. Feels dirty charging a poor grandma who’s on a fixed income a 100% mark up and 19% interest for the pleasure of driving a 15 year old beater.
 
However, from a business standpoint, I’ve seen this industry work either extremely well or be a complete disaster. I have had some exposure to several operators of franchised buy-here-pay-here dealerships in a prior job. For high quality operators, the net margin was consistently between 20-25% and all metrics operated like clockwork. They have a clientele that will always exist and the key to it is to be rigorous with the (often proprietary) underwriting process and to keep the car running. The keeping the car running part is a big priority and it (oddly) builds loyalty in a customer base that is being price gouged - because they’re always accommodative in servicing cars for customers who are hugely dependent on that single car in getting to work. So these guys basically operate almost like a utility for their customers and have a pretty high degree of customer satisfaction and repeat business. If the car keeps running, they have like a 2-5% loss rate. So they place a huge emphasis on the service departments at their dealerships and buying the same make/model over and over that are easy to service. The only real risks in the industry are rates getting too high (so that there isn’t enough delta between the borrowing cost to fund the loans and the actual usury rate that they’re charging the customer - virtually all of these businesses have the note portfolio levered up 50-60%), regulatory pressure, and the used car/auction market getting too frothy too quickly. For good operators, it’s almost machine-like how they do business. 
 

On the disaster side, I’ve seen several guys get into the business and deviate from underwriting or start buying cars that aren’t easy to service or other deviations. Lots of capital set on fire.

 

it was probably 25% top tier operators and the other 75% were either buy-here-pay-here guys who were in some stage of catastrophe or investors buying securitized pools of these notes, which rarely works out for a number of reasons. In other words, a lot of garbage in terms of business quality. 

Edited September 12, 2025 by Rainier

[Eldad]

Talk about boom to bust. Millions of unbanked illegal immigrants to zero in a year. 

[Hektor]

Any thoughts on CACC? They seem to be in a similar space, probably better managed.

[DooDiligence]

Happy Anniversary!