When trying to decide what services to offer your customers, it’s good to look at all the pieces and compare the risks and the benefits.
The following is a comparison of BHPH and Lease’T’Own® business models.
BHPH is a sale. It involves changing the title to the customer. If you do not get payments, you have to make a legal repossession to get the title back to the dealership.
LEASING is not a sale. The title stays in the dealer’s name. The relationship with the lessee is non-adversarial. You “allow” them to drive your car if they take care of it. If they can’t make the payments, you just “recover” your car and lease it to the next customer. Of course, you must follow your state’s right to cure laws.
BHPH cars are subject to bankruptcy. You can’t collect on the customer. You can’t repossess the car, and the bankruptcy court can even lower the price the customer has to pay following the bankruptcy.
LEASE cars can’t legally be put into a bankruptcy. There is no loan or credit extended to the customer. The court can’t legally put someone else’s car into the customer’s bankruptcy. We do see attorneys try to include lease cars, but they soon discharge the vehicle from the bankruptcy when they find out the problems they are facing.
BHPH deals require the same sales tax as a cash sale. It doesn’t matter to the state whether the payments have been made or not.
LEASING is different. The sales tax in most states is collected as part of the lease payment and passed on to the state.
FEDERAL INCOME TAX
BHPH dealers can stretch out the income tax if they have an associated finance company Most small dealers can’t afford to be licensed as a finance company so they have to pay the Federal tax on the whole deal at the end of the first year.
LEASE dealers pay Federal tax on the periodic income actually received during the year minus the depreciation for that vehicle. The difference in tax for a small dealer is phenomenal.
Insurance is the biggest issue for most dealers.
BHPH customers buy insurance for one month so they can get the license and them drop the coverage. They run uninsured for most of the time. BHPH dealers have difficulty in controlling the insurance so they have frequent losses on physical damage.
LEASE dealers continue to own the car. They have much more control over the customer and his insurance. They can be listed as an additional insured on the customer’s policy so they get notices when the insurance will be cancelled. They can recover the car from the customer before it gets in an accident.