What Makes Special Finance So Special?

by Geoff Cohen

Many of you are sitting there reading this thinking just that thought. What is it about special finance that makes it so special for your dealership?

The answer to that question is indeed one of the great mysteries of the auto business. Why is it that some dealerships do special finance extremely well and profitable, while others just can’t seem to get IT?

I typically hear these dealerships crying, “It’s too hard” or “There’s too much brain damage”. Well, if it were easy, they wouldn’t call it special! Anyone with a computer and access to Dealer Track could do Special Finance, and in some cases, that’s probably how it gets done in some stores. But in reality, is the easy way necessarily the best way? Are you getting the most out of your special finance department, or is it the orphan stepchild of your dealership, stuck away in a cold, dark corner, out of sight and mind until all other methods have been exhausted.

The first thing to consider is how do YOU define special finance? Do you use Beacon or FICO scores to determine who gets your business? Is it determined by whether the lender charges a fee or requires any stips? Do you leave it up in the air, and decide on a deal by deal basis? Consider that, if you are using any kind of lead generator, they typically use a credit score of 640 or below as their main criteria, so maybe you should consider this as well. While there may be cases of a sub-prime FICO score getting bought by a primary lending source, these are few and far between, and in many cases, may not be you best call because the lender may limit the amount you can sell the car for (advance).

Why should you treat your special finance department …SPECIAL?
· Primarily because “if you’re not in it for love, you’re outta here!” You have to love the fact that this is extra business that you might not have done. These are some of the most pliable as well as loyal customers you can find, and if you give them just a little attention, they grow into a sizeable profit for you.
· You have to love the fact that special finance gives you an outlet to retail some of those trades you might have wholesaled to someone else who ended up making a nice profit selling these customers.
· You have to love the fact that, done properly, special finance deals that include mechanical breakdown insurance (MBI) contracts create additional income for your parts and service departments.
· You have to love the fact that today’s special finance customer may be tomorrow’s prime customer; wouldn’t you want them back as easy repeat business.

Do you ever consider these customers to be free residual business in your sales, parts, service and your body shop as well? In addition, they become so of the best “good will ambassadors” for your dealership that you never hired!

How do treat your special finance department?
Do you even have a separate special finance department?

This is an issue we will address later on. Right now, I want you to think back to the early to mid 1990’s, when every dealer in America was jumping on the leasing bandwagon. Leasing and finance were two separate entities in most dealerships. Your leasing manager was one of your most valued and highly paid employees. He was your negative equity problem solver, low payment specialists, high profit generator who drove the most expensive demo you had and you treated him like a king. He knew every leasing company out there, and could write you advertising copy that would fill your dealership to capacity with customers looking for those ridiculously low monthly payments. Your service and parts department loved him as well, because of all the accessories he used to install on the cars he leased. And then one day it all changed! What ever happened to him when leasing software came into your store, and suddenly everyone could calculate a lease and most of the leasing companies we knew and loved went out of business? Well, if he was smart, he went into special finance!

Today’s special finance manager is a lot like yesterdays’ leasing guru. He has to know who has what programs, buys what paper, likes what kind of customer, He has to know all this and make a profit from the worst of the worst customers, and if he’s good, he smiles all the way to the bank. Think about how much bottom line he generates for your dealership from prospects that you probably wouldn’t have even considered to be a customer in the first place. Wouldn’t you agree that makes him pretty special for your dealership as well? Are you really supporting a sub-prime department, or do you simply let it exist; hoping it won’t cause you any headaches?

If you truly want the best for your health, wouldn’t you seek out a specialist? For legal advice, don’t you consult an attorney who specializes in the precise legal problem you have? You wouldn’t consider buying real estate from your parts supplier, so why wouldn’t you have a specialist handling your sub-prime business in your dealership?

When was the last time to actually gave your special finance department a complete physical? Do you meet regularly with your special finance staff to keep up on the latest developments? Do you know enough about what goes on in your special finance department to survive a mass exodus of personnel? Do you have the right mix of personnel, lenders, and inventory? Are you using the most effective business systems? Is your marketing plan still working, or has it become a bit anemic lately? Has the “special” gone out of your special finance department? Maybe it’s time for an annual check up.

Deal or No Deal, Part 1

by Geoff Cohen

Depending on who you speak to regarding Subprime, there are either too many leads or not enough quality leads to work. The difference here is one of perception. How you determine your lead quality will ultimately determine whether you have a subprime “deal or no deal”.

If you see your leads as too many, you might want to consider how efficiently you are working your leads. Who do you have making your calls? Are they really calling every lead to secure an appointment, or are they rushing through each call without truly committing the customer to that appointment? Are they trying to sell a vehicle to each customer they contact, or are they trying to secure an appointment? If you are handing out leads to your sales force, are you sure that they are making every effort to contact these leads, or are they making just a token effort to appease you?

No matter how you look at it, to be truly successful in subprime, you need to have dedicated personnel responsible for it. Sales people who are handling primary customers as well will more than likely opt to deal with these “easier” customers, avoiding what they perceive as too much work for too little money. If you have your primary F&I managers dealing with subprime, you’re probably “stepping over dollars to pick up nickels.” Some F&I managers tend to be overly intimidated by subprime. There’s too much math involved, what with maximum advances, PTI, DTI and all the rest of the alphabet soup associated with subprime Finance. Your subprime deals probably end up with minimal front-end grosses but phenomenal back end penetration and profits. Why? Because that’s where they get paid from, so where do their loyalties lie? Keep in mind that, with subprime, front-end gross (profit on the actual sale of the vehicle) is dollar for dollar, i.e. you get 100% of the profit directly to your store. Back end profits (MBI’s, GAP, A&H, Life,) only make you 40-50% on the dollar. And it may be subject to charge-backs. Where do you want your money going?

If you say that you’re not getting enough quality leads to work, this is a perception problem as well. Every lead is a potential sale, whether it’s today or sometime in the future. Once again, you should have dedicated personnel working your subprime leads. Once you receive the lead from you lead generator, time is of the essence. The half life of a special finance lead is extremely short, and in most cases, if you don’t respond to their inquiry quickly, they will seek out another source and apply there as well Your phone staff’s only objective needs to be securing an appointment to bring these customers into your store so your financial experts can review their credit and help them to obtain financing. Your phone staff must continue to attempt to contact these leads until they either arrive at your dealership or are out of the market. Continually leaving messages accomplishes nothing. They must stagger their calls, so as not to try and reach them at the same time each day. Make the initial contact and set the appointment. If you initial contact is say, Monday at 1PM, and you call and get no answer, call back in two hour intervals until you finally reach them. Why call back the next day at the same time? Follow up on Monday at 3pm as well as Tuesday at 10AM. Use this 2 hour stagger arrangement for the next two weeks until you contact this lead and get an appointment.

Make sure that your phone people aren’t pre-qualifying the leads before they get to your store. Every lead should be worked fully. Even if the income is below the minimum threshold your lenders require, even if they tell you there is no co-applicant available, once they are sitting in your showroom, you’ve “awakened the giant”. They know that, somewhere out there is a loan for them; they just have to find a way to get it. Once you present them with the options, you’ll be surprised how hard they’ll work to get what’s needed to obtain a loan. Too many times it boils down to a half hearted effort on the part of the people you have working your leads that make it seem as though the quality leaves something to be desired. Again, a half hearted effort produces half hearted results. By having dedicated personnel working your leads, 100% of their effort is spent getting the appointment and making sure the lead actually shows up at your dealership.

Bottom line here is that, unless you have people who are dedicated and responsible for your subprime business, you’re probably short changing yourself. While you may be saving a few dollars on your payroll expense, the profit potential your dealership is missing out on is potentially enormous. We all know that subprime sales generate considerable profits for dealerships that are successful with it. Talk to them and you’ll find out that they all have several characteristics in common. First and foremost is using a dedicated staff to pursue the subprime customers in their market. Their phone people have one objective to achieve; to contact every lead and try to bring each and every one into your dealership. What happens next…we’ll address that in Part 2.

Deal or No Deal. Part 2

Okay, here’s the situation:

A customer (up) pulls into your dealership parking lot. They get out of their car and start to walk towards your showroom front door. A group of sales representatives are standing outside talking and see them. What happens next?
1. A sales rep goes up and welcomes them to your dealerships and asks what kind of vehicle they are looking for today.

2. A sales rep goes up and welcomes them to your dealership and asks if they are there to see anyone in particular.

So what happens at your dealership? Is it “Deal or No Deal”? Most of the time, the first scene unfolds. While it’s great to have a sales person “assume the sale”, this sales rep is already counting his commission. Better yet, he’s planning on selling that big bonus vehicle your sales manager announced at this morning’s sales meeting. He’s got it all figured out in his head, and he ready to make a deal.

Two hours later, these nice folks are driving away from your dealership in the car they drove up in! Your sales manager is sitting with his head in his hands, and your sales rep is off, muttering to himself about another “waste of time” his customer was.

What missing from this picture? Well, what about the customer? Do you really know why this “hot prospect” turned into a “No Deal” so quickly? It’s probably because the sales person never really took the time to find out the particulars about this customer until it was too late. The customer was never identified as either a primary or secondary customer. They arrived at your dealership, fully prepared to purchase a vehicle, but they were never shown a vehicle that they could actually purchase. The sale person never properly qualified the customer to find this out. And the “No Deal” at your store quick became a “Deal” at the dealer down the street, where your customer went right after he left your store!

“Why?” is the question most people would ask at this point? “What’s different at the dealership down the street?” Very simply, they’re probably identifying their subprime customers at the start of the process. What does that mean?

Most, if not all of us that have been in the business of selling cars for a while, learned the basic sales process known as “The 10 Steps to a Sale”. We probably learned it from someone years ago, who learned it from someone years earlier, who probably learned it from Henry Ford himself! The basic steps in this system haven’t change much over the years although some dealerships have made a few minor modifications. All in all, it is still pretty much the same process system today as it was in the beginning. What has changed, more so lately, is the customer.

As the number of “credit challenged” customers continues to increase, isn’t it time to think about changing the way your sales staff sells cars. Consider the fact that your dealership may no longer just be in the business of selling cars. If you are arranging financing for your customers, aren’t you really in the loan origination business? And if you happen to own your own finance company, you might be in the collections business as well.
If the business you’re in has changed, then the way your sales people conduct your business has got to change as well. If you are doing any subprime business at all, then your sales people need to understand the process to successfully work with these customers. While the meet and greet portions of the 10 Steps remain in essence the same as before, you should delay the “product decision” portion of the sales presentation until you have secured the “credit decision” . Keeping your customer focused on rebuilding their credit instead of trying to purchase a vehicle. They should be selling the program, not the car. Remember, in subprime, the objective is to get a loan and you get a “free” car. If your sales people focus on selling the program, this will avoid landing the customer on a vehicle that they can’t really buy. Keeping the customer off the lot and in your showroom lets you maintain control over the process. You can maximize your profit or move desired inventory by controlling the “product decision” and showing the customer the vehicles you want to sell them,

Take proactive approach to the subprime sales process. By settling the credit issues up front, you help set the customer’s expectation to reality. Avoid the “no sale” or short deal you’re forced into taking. Have your sales people once again explain the concept your dealership embraces. Keep your customers in the “credit decision” mode. Emphasize your dealership’s role as a credit counselor, trying to help them rebuild their credit. Doing this accomplishes several things;

· First of all, it tells the customer that your dealership is genuinely concerned and trying to help him.

· This gives your customer a chance to explain away their credit problems. Bad things happen to good people, and lenders try to understand that. A serious catastrophic medical event can bankrupt a family faster than anything else. This is much different from the guy who just went out on a “credit bender”, overdosed on easy credit, and just financed himself right into the ground.

· It reconfirms the credit issues that got the customer here in the first place. This sets the stage for later negotiations, legitimizing the higher rates they may have to pay.

· It helps set customer expectations where you need them – firmly in the reality mode. It gets the customer away from the “product decision” and focused on the “credit decision”.

Explain further that, if the job is done correctly, not only will they get a vehicle to drive, but they’re on their way to obtaining a credit card or maybe even buying a home. Maybe you can even provide them with some information on how they can repair their own credit for free! How many other auto dealerships offered to do that for them? You’re probably going to be the one an only!
Selling the vehicle first, as we have seen causes the “no deal” scenario to keep happening over and over again at your dealership. If your sales staff understands that subprime customers must be worked backwards from the start, they will have a lot more success at closing subprime customers. Your staff will ultimately have an easier time dealing with these customers because they understand the sale process. Keeping your customers focused on the “credit decision” part of the sales process allows you to control the sale and generate substantial profits. You’ll ultimately have a lot more “deals” than “no deals”.