Carving Out the 4th Tier

Welcome to my blog. I may be an old hat to the used car industry, but technology is definitely not my forte' so please be patient.

For those interested in finding out just who I am please see the "Who is Steve Barrett" section of this blog to find out a little about who I am and what I do.

It is a crazy time in the auto industry right now with the big boys filing bankruptcy and the credit markets strained. The times create some very interesting issues. I will try to sort through and post up my perspective on many of these issues........hopefully without boring you.

I wrote this next little bit for an advertising piece fairly recently. I thought it might give you a little bit of insight as to who my company is and what it is that we do. Not that I am going to use this blog to push sales (not directly anyway), but rather to give you some perspective on the market that we are currently in as well as give you some idea of what my background is.



Spend some time browsing the internet using the search phrase “Buy Here Pay Here” and you will get a variety of replies (nearly 10 million on Google). The most accepted definition of a “Buy Here Pay Here Dealer” is a dealership that finances all of its loans “In House”, meaning that there is no bank or lending institution involved in the transaction. What is the advantage of this, you might ask? Dealers that finance their loans in-house are able to offer credit to consumers who cannot qualify for a loan through a typical bank or lending institute. This type of lending has advantages and disadvantages to consumers. But to understand those advantages and disadvantages you need to understand the history of the business.
Buy Here Pay Here dealers became somewhat of a phenomenon in the early 1950’s. In those days people either had the credit to finance a new car (or used one) or they did not, in which case they had to pay cash for their purchase-there was no middle ground. Banks had no intentions of handling loans for consumers with credit trouble. This created a market for dealers who were able to take cheap cars and offer them for sale with credit terms to fit a consumer who had credit problems. If that consumer did not have money saved to purchase a vehicle they could go to a Buy Here Pay Here dealer and with a down payment and a little information could purchase an inexpensive means of transportation. This market took off like a wildfire and many companies emerged and began financing people with credit trouble. The problem was that most all of these companies bought and sold the very least quality vehicles at the highest interest rates allowed, in order to control their out of pocket investment.
Now, fast forward in time to the 1980’s and the entrance of “Special Financing” or “Subprime Lending” when investment groups and banks realized the opportunities they were missing by not offering auto credit to people with credit blemishes. It was at this time that many independent finance companies and banks began offering credit to people who had minor credit problems. These people were now able to purchase a quality vehicle, at a higher than average interest rate, as long as their credit situation had only minor flaws. This caught on and franchised dealers as well as some independents began offering credit to people that they could not offer it to before. It was during these years that the auto credit market became a three tiered market.

1st Tier- Being good credit customers who could purchase whatever they wanted with a low rate of interest.

2nd Tier- Being credit flawed customers who could still purchase a quality vehicle as long as their credit was only slightly flawed. These consumers were able to get a quality vehicle but had to pay a rate of interest that was much higher than those with good credit

3rd Tier- Being the “Buy Here Pay Here” customer-a customer who has had significant credit issues including such things as bankruptcy, multiple charge off’s and repossessions. These customers were still isolated to the typical “Buy Here Pay Here” vehicle-older and with higher mileage financed usually at the highest interest rates allowed by law. This was so the dealer was able to minimize their risk and keep their cash investment at a minimum due to the higher risk involved with this market.



Carving Out The 4th Tier
Barrett Motors began financing vehicles “In House” over twenty five years ago. It is true that Barrett Motors began just as many other “Buy Here Pay Here” dealers did-financing higher risk loans based on low risk (older and higher mileage) vehicles. But, that evolved over time. With a vision of carving out its own niche in the market by creating a 4th Tier in the market, Barrett Motors, heavily reinvested profits back into the company rather than drawing them out. This enabled Barrett to be able to have the capital to offer customers better quality, higher valued vehicles, all the while maintaining its commitment to providing financing to the higher credit risk market, a market that for many years only had access to low end transportation. All the while doing it with rates below that of typical Buy Here Pay Here dealerships.

Barrett Motors has created the 4th Tier credit model- successfully providing quality, competitive auto loans by understanding its customer, knowing that people do not intend to become credit challenged but rather do so by many circumstances beyond their immediate control. Barrett Motors hand picks every vehicle offered for sale and makes sure that the vehicles are in quality condition by performing a rigorous pre-sale inspection. They also provide a warranty, roadside assistance and future repair financing for customers, should the need arise. This provides two benefits 1) assurance to customers that they are buying a quality vehicle from a company that will back what it sells 2) A hedge against losses by enabling customers to not have unexpected, costly, out of pocket expenses without the means to pay for them, which often creates problems for a customer to be able to make timely payments. It is through this creation of a 4th Tier business model that Barrett Motors has been able to grow its company over the past twenty five years and it is what has separated it from the rest of auto industry. Barrett Motors is celebrating its 25th Anniversary this year with the opening of its third location in Sachse, TX. and as recently as this past year, surpassed the 12,000 vehicle mark.


Well....there you go, blog number one. I know it was a bit of a pitch, but it will give you some insight as to my background and my business. In future blogs I will focus more on the used car market and auto industry in general. Follow me and I will try to offer up some insider perspective and maybe even some advice to help you make sense of the used car industry....if that is possible.