Second-Tier Financing Is Helping Dealers Find New Markets and More Profits

March 15, 2018

Editor’s note: There’s a segment of your potential customers with poor credit and without cash to buy tires. That leaves you in the position of either not selling them tires or working with them to secure alternative financing.

As the price of tires has escalated, several companies are emphasizing no credit needed financing, also known as lease-to-own financing, for tire retailers. We talked with five finance companies for details on their services and the no credit needed payment option: Acima LLC, FlexShopper LLC, Snap Finance LLC, Tempoe LLC and West Creek Financial Inc. We also interviewed some dealers offering this payment option for their perspective.

When Jerry Tidwell and Chuck Wait added lease-to-own financing to their customer payment options, a new market opened for their respective tire shops. Customers began saying yes to purchases they would have otherwise declined, and the profits followed.

In Arizona, Tidwell’s six-bay, 5,800-square-foot Big O Tires store west of downtown Phoenix generated $2.6 million in sales in 2017, a 6% increase over the prior year. One million dollars of 2017’s sales were funded by lease-purchase agreements between Tidwell’s customers and Snap Finance LLC. As of February 2018, less than two years after adding the Snap payment option, Tidwell’s store is averaging 90 Snap-financed purchases totaling about $90,000 in sales every month. His monthly car count is 1,200.

Tidwell bought the store from TBC Corp. in July 2014. At the time, the shop’s car count was just 300 per month. He had worked for TBC for seven years, first as manager of a corporate-owned Big O Tires store in Las Vegas and then as a regional manager overseeing stores in the Las Vegas and Phoenix areas before becoming a Big O Tires franchisee.

Tidwell and his team finished 2014 with a 27% increase in revenues over 2013. Sales in 2015 were up 21% over the prior year. Tidwell set the goal for 2016 at $2 million in revenue.

“We were trending $2 million, and in March 2016 we brought on Snap Finance,” says Tidwell. The new payment option was promoted through print advertisements and website banners and mentioned every time a customer received a price quote by phone.

“We would end every phone quote with, ‘This purchase qualifies for in-house financing, no credit needed. If you have a bank account, you’re approved. You only have to pay $39 today.’ As a result, we really took off with it. We hit our $2 million goal on Halloween of that year.” The store finished out 2016 with a 39% increase in sales over 2015. The performance earned Tidwell 2016 single-store franchisee of the year honors from TBC Corp., owner of the Big O Tires franchise program.

“We were doing the right things. We had two years of big increases before we brought a no credit needed financing piece on,” says Tidwell. But Snap Finance gave his business a boost he did not expect.

“Snap has been a big part of my success. I’m sure I would have continued to grow without them. But I just don’t know I would have gone over double on our goal for 2016. I don’t know I would have done a 39% increase.”A new tool to close the sale

A private label credit card branded specifically for Big O Tires has long been part of the store’s payment options. Consumers who have very good, or prime, credit qualify for credit cards with lower interest rates and better payment terms. TBC Corp. partners with a third party, Citigroup Inc.’s Citibank division, to manage the credit card programs of its Big O Tires franchisee program as well as the Tire Kingdom, Merchant’s Tire and NTB brands.

“Ultimately, I would prefer my customers to have a Big O Tires credit card because that’s exclusive to me,” says Tidwell. But about a third of all consumers fail to qualify for a prime credit card, according to lease-to-own (LTO) industry estimates. LTO financing companies serve “subprime” consumers as well as people who qualify for credit cards.

Tidwell says the Big O Tires card is the first option he offers customers. But Snap gives him a new tool to close a sale. “People who have bad credit know they have bad credit, and the moment you mention credit you are going to get push-back because nobody wants to get declined.”

Now his employees just ask a single question: How is your credit? “If customers say they have good credit, we process them on the Big O Tires card, and we don’t talk about Snap. But if they say their credit is not that great, we say we have a financing option that doesn’t use a credit score.”

In addition to boosting sales, Tidwell says steering customers to the Snap option and avoiding a primary credit card denial has helped the store’s Big O Tires credit card approval rate.

A Snap lease-to-own agreement includes an interest-free, 100-day-long, same-as-cash period. “If your customers can pay off in a hundred days, they pay no interest,” says Tidwell.

No credit needed financing isn’t about people with bad credit, says Tidwell.

“Many people have plenty of credit cards in their pocket. When I tell customers about this option, they say, ‘Wait a minute, you could float me for a hundred days and I won’t have another credit card in my pocket?’”

Attractive to millennials

Lease-to-own payments appeal to many people. For example, millennials absolutely embrace lease-to-own financing, according to Tidwell.

“Young people out of college with sixty grand in student loan debt and two or three credit cards maxed out want nothing to do with credit cards. You tell them you have an option where they can pay off their tires in a hundred days, and they say ‘I’ll do that.’”

A couple whose money had been placed in escrow to buy a house is another example of credit-worthy consumers who may prefer a lease-to-own option. “They could have qualified for a Big O Tires card, but they did not want a (FICO) credit check because they were getting a loan to buy a house. But they would be able to pay off the tires in one hundred days. Snap was perfect for them.”

Tidwell feels he’s on the leading edge of a trend in tire retailing. “I believe this no credit needed financing option is going to change the industry. I believe it’s just a matter of time before Discount Tire and Walmart have it. If you’re a dealer and you don’t have it and you’re trying to compete with the shop down the street that does have it, you’re eliminating all people with questionable credit because you have nothing to offer them.”

‘Slap big box stores sideways’

Two years ago, a representative from Acima LLC called Chuck Wait Tire Inc. in Mowrystown in southwestern Ohio, and spoke to Mariah, whose father, Chuck, has owned the six-bay, 6,000-square-foot-shop since 1983. “She’s a millennial and she just graduated from business school,” says Wait. “She told me this is a game changer. We can give no credit needed financing and customers can get tires for fourteen bucks a week.”

Wait signed up and in the first month, Acima-financed purchases totaled $100,000. “I went from doing a hundred grand a month to two hundred thousand a month, and I made an additional $50,000 clear profit.” The growth occurred at a shop in a town of just 232 people. The shop serves customers from Ohio, Kentucky, West Virginia and Indiana.

In 2016, his first full year with Acima, the shop’s annual sales went from $1.2 million to $3 million. “It exploded on us,” says Wait. “I made an additional $700,000 clear profit in 2016.” In 2017, $1.7 million of the $3 million in sales at Chuck Wait Tire was financed through Acima.

Wait’s store also benefits from the ability of lease-to-own companies to promote their merchant partners to their own customers. “Many customers come in because Acima sends them a letter that says they are approved at Chuck Wait Tire for another $2,500, so they’ll come here to get tires or wheels.”

In addition, the advantages of road hazard coverage are clear to consumers making weekly payments for tires. “I sold $144,000 worth of road hazard last year because of our financing. It cost me $29,000 in payback, so I made a lot of money on the warranty,” says Wait.

Lease-to-own financing gives a small independent dealer a competitive advantage, according to Wait. “You can absolutely slap big box stores sideways. We have dominated Discount Tire, Walmart and the chain stores around us. We run customers right by their door, even if we are priced higher, because they can get tires for as low as $14 a week with us.”Success at Georgia dealership

The growth of Wait’s lease-to-own business prompted Acima to ask him to serve as an independent representative. Wait accepted and in that role, he introduced Hill’s Tire and Auto Service LLC in Griffin, Ga., to Acima in January 2018.

Robin Pierce has owned the eight-bay shop, which employs 10 people, with her husband, Dwight, and their son, Currie, since 2014.

In the first week offering the new payment option, Pierce discovered the idea of leasing tires appeals to many types of consumers. For example, the owner of a local business came to the shop needing tires on his work truck, but he didn’t have the funds and did not want to apply for credit. He was able to get the tires and pay them off in a couple weeks.

“I think it opens up a lot of opportunity for people who just don’t have the cash on hand for something like tires,” says Pierce.

The no credit needed option is drawing new customers from greater distances to Hill’s Tire. One man came from Lawrenceville, 80 miles away. When he called, Hill’s Tire asked for his phone number and sent the lease application to his smartphone. He immediately filled it out and sent it back. “It’s a really great tool,” says Pierce. “He called, we sent the application, we got him approved, got his prices together, and he came in when everything was ready for him.”

‘It helps me close more sales’

Jerry Gonzalez added West Creek Financial Inc.’s no credit needed financing option in December 2017. He owns OTW-EP Inc., which goes to market as Oasis Tires and Wheels at seven locations in El Paso, Texas.

His experience with West Creek Financial “has been great.” Gonzalez says the consumer application process is simple, and he attributes about $10,000 in sales on a weekly basis to the payment option.

Another West Creek Financial customer, Rob Crawford,  founded MaxxDrive LLC in Shelby, N.C., three years ago. The three-bay store specializes in off-road tires and lift kit installations.

Crawford began offering a no credit needed payment option two years ago.

“We wanted a company that had good turnaround on approvals. It’s really seemed to help because people don’t want to pay out of pocket; they would rather have it taken directly out of their bank account. West Creek has a couple different finance options for them. It has really helped our business because it helps me close more sales and gives me more tools to give to the customer for payment options.”

Traditional credit still dominates

Although the concept of leasing tires is growing in popularity, manufacturer branded and privately branded credit cards, such as the Tire Pros card, remain the go-to payment option tire dealers offer their customers.

American Tire Distributors Inc. partners with Synchrony Financial to offer the Tire Pros card. Of 715 Tire Pros locations, 690 are enrolled in Synchrony’s credit card program. Year-over-year sales on the Tire Pros card are up 15%; transactions are up 14%; and applications for the card are up 6%, according to Bob Bittner, vice president of Tire Pros operations.

“As a franchisor, one key that helps differentiate our Tire Pros brand is the opportunity for us to provide franchisees with a branded credit card,” says Bittner.

“It gives us the opportunity to promote our brand identity, and it’s been proven that the flexibility of financing is something that consumers want more and more. Statistically it drives higher sales and better customer retention rates.”

Synchrony has offered enhancements in the form of additional rebates as part of Tire Pros’ exclusive sales promotions when consumers use a new or existing Tire Pros credit card account, according to Bittner. “Those offers help drive additional traffic and new applications, and they give customers of Tire Pros franchisees the opportunity to take advantage of additional savings in the form of enhanced rebates.”

He says many dealers have explored no credit financing, and Tire Pros continues to research it as well. “There are a lot of options out there, and we haven’t found one that fits all our needs as a franchise, but our franchisees have the flexibility to explore those options if they wish.

“Our priority is to promote the value in our Tire Pros card. That’s where we feel the best opportunities lie for our franchisees, and it’s where we feel our emphasis is best served,” says Bittner.

Credit option for subprime customers

Manufacturer branded and privately branded credit cards are typically awarded to consumers with very good, or prime, credit. Carlsbad, Calif.-based EasyPay Finance says it provides tire dealers with a non-lease credit solution at their point of sale that offers tailored approvals for customers with good credit to no credit.

“EasyPay understands that there are a number of reasons a customer may not have a favorable credit score, and goes well beyond this when evaluating a consumer’s creditworthiness,” says Cary Ladd, marketing manager. “EasyPay’s proprietary algorithm evaluates how a customer handles their bank accounts, as well as several behavioral patterns that are not credit related. Many customers are approved with a zero credit score.”

EasyPay says it will help approve up to 80% of a tire dealer’s prime lender declines and increase their revenue up to $30,000 per month when used as their alternative customer financing solution. Unlike leases, there are no restrictions on financing repair services — customers can finance any ratio of parts and labor, according to the company. The annual percentage rates (APR) is fully disclosed to the consumer.

EasyPay says 46% of consumers can’t afford needed repairs. And primary finance company approvals are often as low as 25% of customers, depending on demographics around the dealer’s location.

“A good secondary finance partner can approve a significant number of primary declines, resulting in game-changing revenues of up to $30,000 per month, as well as significant increases in the size of average repair orders. By offering an alternative payment solution, you are helping your customers when they need it most while also giving your business an important tool to increase revenue,” says Ladd.    ■

See "No credit needed financing providers at a glance."

About the Author

Ann Neal

Ann Neal is a former senior editor at Modern Tire Dealer.