Our Business

Helping People Drive.^® Changing Lives.^SM Since 1996.

The following information concerning the Buy Here Pay Here industry, how CarHop does business, and who our customers are, is intended to provide you with information regarding CarHop’s place in the industry and how we work on behalf of our most valued people: our customers.

The Buy Here Pay Here Industry

CarHop is in an industry often referred to as Dealer Financed or Buy Here Pay Here. Buy Here Pay Here refers to a part of the used vehicle industry in which dealers finance the vehicles they sell, either themselves or through related finance companies. This is in contrast to new and used dealers that sell used vehicles which are financed through outside sources such as banks, credit unions or other financing entities.

Buy Here Pay Here dealers are unique in many ways:

• Buy Here Pay Here dealers primarily sell vehicles to customers with very poor or no credit histories, often considered subprime or deep subprime. Consumer Reports estimates that 35%, or as many as 79 million people in the United States had subprime or below credit in 2010.
• Buy Here Pay Here dealers and their related finance companies have more regulatory oversight and licensing requirements than dealers who do not provide financing, primarily from state financing regulators and now the Consumer Financial Protection Bureau (CFPB).
• Many Buy Here Pay Here dealers report customer payments to a credit bureau, giving consumers a chance to get a major purchase reported to a Credit Reporting Agency. Better credit scores may increase consumers’ chances for a better job, reduce insurance, housing and utility costs, as well as provide opportunities for bank accounts, cell phones and other types of credit that are often difficult to obtain with poor or no credit history, according to Kiplinger.com.
• Unlike most car dealers who earn a cash profit at the time of sale, Buy Here Pay Here dealers are cash negative at the time of sale and thus depend on the long term success of each customer to make a profit.
• Buy Here Pay Here dealers see vehicle sales as investments in their customers; they assume the risk of the vehicle or financing going bad, and therefore:
  • Buy Here Pay Here dealers sell vehicles that can be affordably financed by their customers, which sometimes means they sell older, higher mileage vehicles.
  • Buy Here Pay Here dealers also focus more on the reliability of the vehicle rather than book value and spend money to verify the condition and/or recondition vehicles before the sale so they can confidently finance those vehicles over 2-4 years.
  • Buy Here Pay Here customers often have limited funds for a down payment, which often falls short of the necessary state fees and sales taxes. The Buy Here Pay Here dealer finances the entire remaining amount owed. Consequently, to make a profit, the Buy Here Pay Here dealer must earn back most of the vehicle cost and operating expenses through 15-24+ months of customer payments.
  • Buy Here Pay Here dealers have a vested financial interest in the success of the customers and thus often provide additional support, including limited warranties*, post-sale mechanical services, and reasonable accommodations when the customer is unable to make payments. Furthermore, when life events occur causing the customer to stop making payments, the Buy Here Pay Here dealer’s first hope is to see the customer through their difficult time. If that does not work, the dealer must try recovering the vehicle, often resulting in a significant loss depending on the vehicle’s condition, the cost of recovery, and the length of time since the sale.

According to a report by Manheim Auctions, there were over 250 million cars on the roads in 2009. Manheim estimates that there are 80,000 total businesses participating in the used vehicle industry. In addition, there were 36.9 million used vehicle sales by dealers in 2010 ($327 Billion in sales) and almost 30 million additional private party sales, according to CNW Marketing Research. CNW estimates that consumers have over 56,000 auto dealerships to choose from in the US (37,700 independent used dealers, including Buy Here Pay Here, and 18,600 new car dealerships). Buy Here Pay Here consumers clearly have a multitude of shopping choices when they decide to purchase a vehicle.

According to Experian Automotive, Buy Here Pay Here represents about 24,000 dealers, with approximately $24 billion in annual originations and 1.8 million contracts covering about 10% of the total auto financing market. This suggests that the average dealer in a very fragmented industry sold just 6.25 vehicles a month. The size and fragmentation of the industry provides customers in towns of every size numerous options when purchasing and financing a used vehicle.

The overwhelming size and diversity of the used vehicle sales and financing industry provides Buy Here Pay Here customers with access to a broad spectrum of information on pricing and financing options. This enables the vehicle purchaser to make informed choices based on information from thousands of automobile dealer sites, vehicle valuation sites like kbb.com, and hundreds of sites listing individual vehicles for sale, like Craigslist, AutoFinder.com^® and local newspaper websites.

The typical used vehicle shopper (including the Buy Here Pay Here customer) is a sophisticated vehicle consumer. According to one source, 58% of used vehicle shoppers used the internet and spent an average of seven hours online before buying. In fact, fully 43% of used vehicle shoppers researched pricing online (Source). For the Buy Here Pay Here shopper specifically, an AutoTrader.com survey showed 81% of Buy Here Pay Here customers did “some” or a “great deal” of research before purchasing.

How CarHop Does Business

With over 24,000 Buy Here Pay Here dealers across the country, you will find many different ways to operate a Buy Here Pay Here business. CarHop, for its part, tends to work with customers who have more limited incomes and lower available down payments than most dealers. Thus, we tend to sell older vehicles that are more affordable and can be financed over shorter terms.

As in every industry, there are always some ‘bad’ actors that are spoilers for the vast majority of ethical companies; but CarHop, like most Buy Here Pay Here dealers, understands that our success is primarily based on our customers’ success. As described below, CarHop works hard to make the transaction understandable, affordable, and successful for the customer:

• Limited Warranty* included with every vehicle sold: Every CarHop vehicle includes an 18 month / 18,000 mile limited warranty*. The limited warranty* covers 100% of the parts and labor on many of the major components of the vehicle, like the internal engine, transmission and drivetrain.
• Set pricing: Our prices are fixed and we provide the price when asked. Cash customers pay the same price as customers who finance their purchase.
• Fixed interest rates: Our interest rates are fixed. We do not adjust rates based on customer income, past credit history or their ability to pay.
• Payments tied to customer pay dates: Our finance contracts are structured so customer due dates match their pay dates. It has been our experience that customers find it easier to make payments when their payments are due at the same frequency as their pay dates.
• Convenient payment methods: Customers can make their scheduled payments by ACH, US Mail, MoneyGram®, ACI Payments, Inc., or in person at any CarHop location.
• AutoCheck® Vehicle History Reports: CarHop accesses an AutoCheck® vehicle history report on every vehicle sold and provides those to all customers.
• Full disclosure: Our dealership processes are designed to slow down the sales process and help our customers (who are often in a hurry to complete their purchase) make informed decisions. To that point, if we haven’t already discussed pricing, we verbally quote the price before a customer test drives any vehicle. Once the customer has decided on a vehicle, they agree to the price, trade-in value (if any) and payment terms by signing a non-binding offer to purchase. Then, they watch a video explaining the documents they will sign and encouraging them to stop the sale if they have any questions or don’t understand anything about the process. Finally, the customer signs the final paperwork which formalizes the transaction as simply as possible, subject to all applicable state and federal disclosure requirements.
• Money Back Guarantee: We offer a 7 Day Money Back Guarantee** with every vehicle sold. Roughly six percent of our customers took advantage of this in 2015.
• Credit reporting: Our customers’ payment history is furnished to the three major Credit Reporting Agencies every month. We find that most of our customers need help to obtain financing and want a chance to improve their credit. Recent internal research demonstrated that a majority of our customers saw improved credit or FICO scores after financing their vehicle – though CarHop cannot guarantee that anyone’s credit score will improve.
  • 71.5% of CarHop customers saw their credit score improve after financing a vehicle.
  • The average FICO score for customers who didn’t have a score previously jumped to 575.
  • The average FICO score increase for customers with an initial score of 550 or below was 36 points.
  • (Source: Internal study using updated FICO scores obtained from Experian, updated 2015.)

While we cannot guarantee that anyone’s credit score will improve, our research supports the fact that we provide our customers with a chance to improve their credit through reporting their payment history (both good and bad), and with better credit comes great life-changing opportunities.

• Lower down payments: We try to work with lower down payments when possible (even though larger down payments are one way to reduce our credit risk), because high down payments are a big hurdle for our customers.
• No doc fees or add-ons: We don’t charge a “doc fee,” “prep fee” or “processing fee” on any sale. We don’t sell additional add-on products like GAP insurance, accidental death or disability insurance, service contracts, etch/security, etc., which also add costs beyond the sticker price for customers.
• Affordable vehicles: We carry a wide variety of vehicles that don’t require large down payments or large monthly payments and can be paid off in two to three years because our customers usually have limited incomes and cannot afford high monthly payments. While this means that the right vehicle for a customer may be older or have higher miles, we do back the CarHop vehicles with our 18 month, 18,000 mile limited warranty*. Research indicates that the quality of used vehicles has improved tremendously over the past 15 years. In fact, according to HIS Markit the average age of vehicles on the road jumped from 8.9 years old in 2006 to 11.6 years old in 2016.
• Service after the sale: We frequently cover additional repairs, over and above those required by our limited warranty*, when it’s the right thing to do for the customer and our Company. We provide these additional repairs on about 25% of our vehicles sold.
• Additional help: In some cases, we completely replace the vehicles for customers with unique problems or who are outside of their limited warranty* term. For example, in 2011, tornados hit customers in two of our markets and we provided replacement vehicles, completely free of charge, when insurance wasn’t available so these customers could keep driving.
• Customer education: We provide educational material and links on our website to help customers better understand credit, FICO scores, and vehicle insurance, including links to the Federal Trade Commission web pages, on buying used vehicles and its “Understanding Vehicle Financing” page.
• High customer retention: In many of our mature locations, approximately 20% of sales are to customers who have previously purchased from CarHop.
• Payment accommodations to help cash problems: Our related finance company extends the due date of payments for about 20% of customer accounts annually to help them keep paying when life events (like job loss, layoffs, divorce, illness, injury, family emergencies) limit their earnings and ability to pay.
• We don’t over-promise who we can help: CarHop does not guarantee that we can approve everyone and does not advertise things like “100% approval” or “All applications accepted”.

About CarHop Customers

Our customer is someone who often has trouble getting credit from a bank or finance company due to low or no credit scores, past bankruptcies, repossessions, or delinquent accounts. Many of our customers have been turned down for financing elsewhere – deemed not to be an acceptable credit risk by banks and other finance companies. CarHop understands this risk and works to give more customers a chance to drive, resulting in significantly higher credit losses than experienced by those financing prime, near-prime or traditional sub-prime credit. The lack of good credit, or any credit, limits our customer from the kind of options many people take for granted. According to Kiplinger.com, consumers with bad credit can pay up to 143% more for auto insurance, pay higher rent on an apartment, and pay thousands more over their lifetime in higher interest costs. Additionally, they have limited choices for cell phones (36% of our customers rely on pre-paid cell phones), pay higher deposits for utilities or can even be disqualified for a possible job. A 2010 study by the Society for Human Resource Management found that 60% of employers surveyed used credit checks in their hiring decisions.

According to “Pursuit of the Dream: Cars and Jobs in America,” a report by the Annie E. Casey Foundation, 88% of Americans drive their cars to work, with two-thirds of new jobs located in suburban areas away from public transportation systems. The report goes on to say, “A car can be a critical factor in getting and keeping a job and moving up the career ladder toward financial independence. Lack of access to a car creates serious difficulties for parents who juggle work, errands, transporting children to school, child care and other activities. Moreover, lower prices and a better selection of groceries, household items, and other services often are located in the suburbs. Cars make commuting at night safer and decrease the vulnerability of families during emergencies. Cars are also important for building other assets – Studies show that low-wage workers with cars are more likely to be homeowners than those without one, perhaps because car owners have a wider choice of locations for affordable, safe housing” (emphasis added).
Below we have identified some specific items from various CarHop customer surveys conducted by third party researchers, through surveys at CarHop stores, or from customer data.

Our customers:

• Have poor or no credit: Over 90% of our customers have no FICO score or a score under 600, with most well under the range considered “sub-prime”.
• Limited income: Unfortunately many applicants are turned down because they simply do not have sufficient income to support a reasonable vehicle payment.
• Little savings: About 90% of our customers are looking for a down payment of less than $500.
• Frequent employment changes: 44% have spent one year or less at their current job. 33% have spent six months or less. On average, our customers have had 3.3 jobs in the last three years.
• Frequent residential moves: 31% have moved in the last six months and 47% have moved in the last year. On average our customers have moved three times in the last three years.
• Strong loyalty: 20% of sales in our mature stores are to previous customers. Also, 23% of our customers say they were referred to CarHop by others. Nearly 90% of customers would recommend CarHop to friends and family.
• Transportation before visiting CarHop: More than two-thirds of respondents said they didn’t have a vehicle before coming to a CarHop dealership. Of those, 75% were borrowing a vehicle or rides from a relative or friend and 25% were using public transportation. Unfortunately, these options are more complicated and less convenient than owning their own vehicle.
• Getting credit: Over 75% of CarHop customers say it’s hard to get approved for credit, and 94% say having a good credit score can change their lives.
• Finding alternate transportation without a car: Over 70% said it’s difficult finding transportation alternatives, typically to get to work or for family needs, without their own vehicle.

CarHop tries to find a solution with a vehicle and payment that is affordable, given each customer’s budget situation. Obviously, we can’t help everyone and we say “no” when it doesn’t make sense for the customer or the risk of non-payment is too great. It is very difficult to predict future payment performance for specific customers, so we do our best to reduce that risk and work with each customer as best we can throughout the term of their financing.

Helping People Drive.^® Changing Lives.^SM It’s what we do at CarHop.

With locations across America, our customers have many different backgrounds and needs. Be it a family in a large city with no public transportation near work or home, or a single mom in a small town with a long commute and no other family support for her children, we Help People Drive®.

This means we try to help as many people as possible to not only get a dependable vehicle, but also a chance get their credit reported to the 3 major Credit Reporting Agencies.. That being said, we also say “no” or “not now” when it doesn’t make sense for the customer because we want our customers to succeed financially and not end up in a worse situation. Getting to work, getting to school, finding a better job, and/or being approved for a new home or a brand new car are just a few of the real examples of how we help change the lives of our customers. These are the “Success Stories” that our CarHop sales associates celebrate with customers every day. For example:

• Being hugged by overjoyed customers when they learn they’ve been approved for a car after being turned down to the point of losing hope. What other job gives customer hugs?
• Customers telling us about the new home they could get financed after seeing their credit score improve.
• Tears of joy, dancing, jumping, shouting and singing when that bus pass is torn in half because a customer is driving their own car…to work, to take the kids to school, to get to medical appointments. These are the freedoms only car ownership provides.
• Replacing CarHop customers’ cars at no charge after being damaged beyond repair in a tornado (something we did for several customers in Minneapolis, MN and Joplin, MO in 2011).

Visit one of our stores and you will find the walls decorated with dozens of letters from our customers. We are proud to have earned their gratitude; their success is what drives what we do every day. Our customers say we change their lives and lend a hand when they need it the most. We want to get them on the road and driving straight towards the brighter future that they deserve. That’s a tradition we’ll never change.

*See dealer for copy of limited warranty.
**See dealer for details.