Key Auto is a chance Noel Keene needed to take — and took in July 2008, when he entered the buy-here/pay-here system of directly financing vehicles to people with negative or nonexistent credit.
Keene, 41, a former Park Bank branch manager and Capital Auto sales associate, has a background in auto financing and lending. He said he opened an “in-house” car dealership to utilize his work skills and have the final say on all lending matters.
“For 11 years, I was helping people most auto dealers wouldn’t touch because they’ve been through collections problems,” noted Keene. “Now that I have my own business, I don’t have to go strictly by the past, but I ask about the causes. I don’t have to just deny people due to past problems. Many good people have credit issues.”
On the leased grounds of Key Auto, LLC, the inventory spans all price ranges, models, makes, and years. IB visited the location on a Monday at 9 a.m., a half-hour before the office opened for the new business week. The front desk and waiting areas boasted multiple magazines and newspapers, many in Spanish.
“I advertise a lot looking for Latinos — and it’s paid off,” acknowledged Keene. “As of right now, I’d say that 35 to 40 percent of my loans are to Latinos. They are good loans so far. They pay on time, and they aren’t running and hiding from their bills.”
Keene’s mode of dress reflected his desire to be approachable: no tie, no collared dress shirt or handsome sport coat, the countenance of casualness. That’s not to suggest things can’t be hectic.
As Key Auto’s sole employee, Keene also wears a stack of hats pyramiding up to the ceiling. From sales representative to financial banker, to secretary and office clerk, to accounts receivable and payable, he keeps his overhead — and car prices, he said — lower through strict multitasking.
“There are no self-help books on how to start up a used car financing dealership,” noted Keene. “I was uneasy about the office set up and organization. I wanted a partner to be that office guru.
“Many people would find that to be the easy part setting up the business, installing the right computer system, finding the software, but for me, I look forward to the conversations.”
Keene borrowed against his house, “every inch and penny of it,” to muster up the necessary start-up capital. He wants to cultivate a strong portfolio so that he can supplement the $300,000 initial investment sum with a small-business loan.
“Before I start to earn any profit, I’m going to have to spend upwards of $1 million,” added Keene. “I only had about $300,000 of my own money to put in. As long as my customers keep paying, then I won’t be seen as that much of a risk, based on my inventory and receivables.”
Keene doesn’t consider industry price norms when he affixes a dollar amount to the vehicles on his lot. His markup is calculated solely upon just how much money he has paid for them and how much he has poured into their maintenance and repairs.
On average, Keene estimates that it takes around two to three years before buy here-pay here car financiers draw profits.
“Generally the markup is between $2,000 and $3,000 dollars,” said Keene. “But that’s provided that the buyer makes payments over the course of two or three years. The gross is only on paper until the car is paid off.
“Hopefully,” he added, “by the end of the second year, the company will be taking in upwards of $400,000 a year in payments. Right now, it’s taking in $8,000 a month, about $90,000 a year.”
Although he conceded that the stale economy has kept business sluggish these past few months, Keene doesn’t foresee any obstacles to future success.
One reason for his brisk optimism: Key Auto, LLC, is “one of just three buyer-payer businesses in the Madison area” so competition is a bit slack.
Moreover, spring means tax time, and the down payments typically are larger in March and April, thanks to the fluidity of refund money. At least, it’s his hope.
Keene has given ample thought to the attractive flip side of operating a high-risk business, which is that sometimes their dividends come in faster — and much heftier — sums than do their low-risk counterparts. It’s a gamble that, to Keene, has a tantalizing exit strategy.
“Not many places want to take the chances that I take,” said Keene. “But I want to retire young. I hope to work hard for 10 years and retire well.”
