Used-car profits lure investors | The Republic

LOS ANGELES — 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, Calif., bought the J.D. Byrider chain in May for a reported $50 million.

Altamont’s offices, on the 10th floor of a luxury office tower overlooking Stanford University, are 200 miles and a world away from the Visalia lot.

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.

Many require customers to return to the lot to make their loan payments — that’s why they’re called Buy Here Pay Here dealerships.

If buyers default, as about 1 in 4 do, the dealer repossesses the cars and in many cases sells them again.

The dealerships make an average profit of 38 percent on each sale, according to the National Alliance of Buy Here Pay Here Dealers. That’s more than double the profit margin of conventional retail car chains like AutoNation Inc.

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