If you read carefully a retail installment sales contract, you will see that your dealership is the creditor in the document. You assign the RISC to a finance source. Once assigned, the finance source is responsible for and services the account.
Unfortunately, dealers too often unintentionally guarantee the customer’s debt or lock themselves into servicing the account. How? By failing to bullpen trades until deals are neat and complete.
If you spot deliver a vehicle, and you cannot get the deal approved by an assignee finance source, the deal is done with the dealer as the creditor UNLESS you may rescind the deal under the terms of the language statutorily required in your buyer’s order. The language establishes the conditions under which you may cancel a deal, but you cannot do that unless you are able to return the dealership and the customer to what lawyers call the status quo ante, or the original situation. That means to get the car back you must be prepared to return the trade and any down payment. If you cannot do that, you may not legally rescind the contract and demand return of the vehicle purchased.
If you do not have the customer’s trade to return, you have financed the car you spot delivered. At that point you have two choices:
- Ask a finance source to buy the paper on a recourse basis. That will save you the trouble of servicing the account. However, you become the full guarantor of the customer’s obligation, and you must buy back the paper if the loan goes bad.
- Simply accept your role as a creditor and service the retail installment sale contract. That means you must have someone in your dealership accept payments, keep track of payments, confirm insurance, take action if default occurs, and otherwise do what a finance source does to service an account.
Many dealers will say they do not need to bullpen trades because they sell them to wholesalers “on a string”. Too often, those strings break. The wholesalers themselves sell the vehicles, and they do not want to get them back. Or they charge you an inordinate amount of money to cover their inflated losses to get the cars back. And even when they will give a car back, the wholesaler may demand that you pay for reconditioning and additional equipment added to the vehicle. When you return it in exchange for the spotted vehicle, the customer may not agree with the reconditioning and additional equipment and will rarely agree to pay for it. The customer may even contend that the mileage was put on the vehicle by improper use resulting in a lawsuit for conversion of the trade vehicle.
A lot of thorny problems can arise when you do not bullpen trades. We hear regularly that the used car manager has a hot customer for a trade, and he may never sell it unless he does so today. Or that the market is at its highest for the trade, and he may never sell it unless he does so today. However, the price reductions you may suffer from holding a trade (even if they are real) pale compared to the losses and expenses you will suffer if you do not bullpen trades, and you must rescind deals.