ACADEMY OF SPECIAL FINANCE

I Need Your Help to Figure Out the What Are the "Best" Subprime Vehicles

2008-07-01T17:11:00.000-04:00

I'm trying to compile a list of the best vehicles for Subprime. I'm looking to find out which cars, trucks, SUV's, minivans or crossovers tend to be the most popular for special finance customers, as well as which tend to be the most profitable for special finance dealers.

Please put together a list of your top 10 selling vehicles and email it to subprimecoach@hotmail.com. Submit your lists no later than July 20th, 2008, and I'll compile the results and publish them here, plus, I'll personally email everyone who responds a copy of the final list. Make sure to include your name, the dealership you represent, the location (city and state) and your position there.

Thanks for your help.

New Tech Tool Beefs Up Thin Files

2008-06-12T14:39:00.000-04:00

Posted by Marcie Belles on May 15 2008 14:24:37 PDT, BankNet360

With so many banks tightening up lending standards, it seems unnecessary for a company to find ways to bring more people into the credit market — especially those with limited credit histories. But Payment Reporting Builds Credit is trying to do just that.

PRBC’s premise is simple: "There are two ways to look at [the credit situation]," said Corey Stone, the Annapolis, Md.-based company’s chief executive. "You can say banks want to lend to fewer people — which is not true — or you can say they want to lend with less risk."

According to Stone, there is a large population of low-risk consumers out there desperately trying to access capital, who can’t because they have "thin" credit files — or no credit at all. In fact, 20% of car-loan applications in 2007 were considered too thin to score, Stone said.

So now PRBC, which got its start in the apartment rental business and has since branched into the mortgage space, is dabbling in auto finance. So far, nearly 100 consumers have secured auto loans using information about rent, cable, insurance, and other typically unreported payments that they reported to PRBC. "Most of the bills we pay come long before we have a credit history," Stone said. "Yet they are all agreements to make regular payments."

Here’s how the system works: A consumer visits the credit bureau’s web site (www.prbc.com) and enrolls in the "Report Builder." From there, it’s up to the consumer to enter his payment history for any bills he chooses to report. After a minimum of six months, the consumer may use the report to apply for a car loan, for instance, provided he verifies the information with proof, like a stack of receipts from the water company. Customers may also opt to have online payments automatically added — and immediately verified — to their profiles. This is all the more handy, since verification is the only cost for users of the site. Users pay $5 to have their personal information verified, and between $15 and $20 to verify each payment account.

PRBC is talking to several national auto lenders about rolling out the project in the direct auto lending environment within the next four to six months, Stone said.

—Keith C. Smith

Customer Service: Tips for Curing Bad Customer Service

2008-05-22T15:57:00.002-04:00

by Jill Homer

Bad customer service is everywhere these days — unmanned front desks, surly servers, clueless staff, employees talking on the phone, and managers who refuse to acknowledge a customer. It’s no longer an exception ... poor service has become the norm.

In an all-too-typical scene, a customer walks into a retail store with a question about where to find a product. The employee, who is busy and doesn’t want to be bothered, gives the customer a curt answer and continues what she is doing without even looking the customer in the eye. The customer persists, so, with obvious annoyance, the employee begrudgingly turns around and points the customer in the general direction of the product’s location. Instead of buying the product, the customer leaves the store, frustrated, vowing to never return.

Most business owners and employees recognize this as a classic example of bad customer service. And yet, this scene is repeated endlessly in modern society. Negativity breeds negativity, and eventually, nobody is happy.

“Never, never, never ignore a customer,” says Art Waller, Regional Department Head for Utah State University. Waller provides tips on how to improve customer relations, a vital segment of any business.

“It’s important to be accessible,” Waller said. “Everything is an interruption. A phone rings, someone comes into an office, that’s an interruption. But if a customer is right there, do that first. That’s why you’re there.

One of the single most important aspects of a successful business is good customer service. Waller cited recent findings in customer service. A typical business only hears from 4 percent of its dissatisfied customers. The other 96 percent quietly go away. Of this 96 percent, 68 percent never reveal their dissatisfaction because they perceive an attitude of indifference in the owner, manager or employee.

Waller said this statistic is particularly dangerous for businesses because if a dissatisfied customer can’t express their complaints to a business, they’ll express them through other outlets such as friends, neighbors and family. A typical dissatisfied customer will tell eight to ten people about their problem. One in five will tell 20. “It takes 12 positive service incidents to make up for one negative incident,” Waller said. “Seven out of ten complaining customers will do business with you again if you resolve the complaint in their favor. If you resolve it on the spot, 95 percent will do business with you again.”

Waller said these statistics speak to the importance of taking action. Often an employee perceives dissatisfaction in a customer, but chooses to ignore it and hopes that the problem will go away. However, if the customer then goes away with the problem, the customer will likely never return to the business. This trend is what hurts businesses more than anything.
“We don’t have the ability to keep people that are already happy with our product,” Waller said. “The average business spends six times more to attract new customers than it does to keep old ones. Yet customer loyalty is in most cases worth 10 times the price of a single purchase.”

The first step is recognizing tendencies toward bad customer service. But how do businesses improve their overall customer service? Waller offered some basic tips:

- Like what you do“If you don’t love what you do, get the heck out,” Waller said. “If you love what you do, it will be evident and people will know it.”
People who have a bad attitude about what they do will reflect their attitude onto everyone around them, including customers. Like most everything in life, good customer service always comes back to attitude.

- “If you believe your customers are a pain in the butt, guess what — you’re right,” he said. “What you say, what you do, and what you think are the same thing.”
Learn to adjust your perceptionBecause good customer service depends on a good attitude, a bad attitude will surely diminish any facade of friendliness. Waller recommends that employees analyze what is causing their negative outlook and make a conscious effort to change, rather than cover it up with a false smile.

- “How do you change a belief of certainty?” Waller asked. “You take out references and change it. Over time, it changes that belief system.”

Establish Rapport
Customers will do business with people they like. Employees gain this approval by establishing rapport, or a positive connection, with a customer. Rapport can be established by simple gestures such as calling a customer by their name, recognizing mutual interests, asking questions, and making eye contact. The customer instantly recognizes the employee as someone who cares about their well-being, and is more likely to do business with the company.

“Won’t you spend more money to go to a car dealership where you’ve been treated well?” Waller asked. “Develop a genuine interest in and admiration for your customers.” So what happens when an employee doesn’t establish rapport? The customer automatically meets that employee with more suspicion, which leads to distrust, which leads to potential conflict.

Avoid a standoff
Many times businesses find themselves locked in an argument with a complaining customer that becomes impossible to resolve. Waller said the way to prevent this is to avoid the argument in the first place. His advice is to step back, analyze where the customer is coming from, and form a solution from their standpoint, not yours.

“I never fought with them,” Waller said. “In fact, I went into a dance with them. You’ve got to dance with them. You have the empathize, and get into their world.”

Be reliable, be responsive and be credible
Local cable and utility companies are a prime example businesses that do not possess these qualities, Waller said. When a customer calls up in need of service, they give vague ideas of when they’ll be there (“sometime between 9 a.m. and 4 p.m.”), sometimes don’t show up at all, and are generally indifferent to customers’ concerns. Because of this behavior, they have lost nearly all credibility in the public eye.

On the other hand, businesses such as Mercedes-Benz, Ritz Carlton Hotels, and Disneyland have all gained reputations for immaculate customer service, where employees are always nearby to cater to customers’ every need at any time. These businesses gained this reputation with years of training their employees to put the customer first.

“The customer’s perception is everything,” Waller said. “People pay for peace of mind. They want security, integrity, and the assurance that if there is a problem, it will be promptly handled.”

All of these tips come down to the platinum rule, or to “treat people like they want to be treated.” This rule takes the Golden Rule a step higher, forcing the employee to assess exactly what the customer wants and act accordingly, not just act as they would want to act in the same situation.

“You can’t reach everyone the same way,” he said. “You don’t deal with reality. Nobody does. We deal with our perception of reality.”

Waller said any attitude in good customer service fits in the “as if” clause. Always act “as if” you are the only personal contact that the customer has with the business, and behave “as if” the entire reputation of the business depends on you.

“The ‘as if’ clause puts you where you need to be,” Waller said. “The bottom line comes down to relationships and how you treat others.”

About The Author
Jill Homer is a freelance writer who is happy to provide articles and ad copy for business and financing specialties. For more information, contact her at jill@biketoshine.com.

Special Finance Dealer Survey

2008-05-21T12:04:00.002-04:00

I've added a link on the top right side of this page to a short survey. Please take a moment to click on the link and complete this 4 question survey regarding what is happening at your dealership today. Once we have the answers compiles, I will publish our findings, a try and give you all a better idea of what is going on in dealerships around the country TODAY!

We all know that the landscape for Special Finance has changed dramatically since January 1. The market is tougher, lenders are tighter, and customers are facing more challenges than ever. Take a moment to let me know what you think is happeneing at your dealership so we can help each other SURVIVE & THRIVE through these tough times. Thanks.

Here We Go Again!

2008-05-09T12:28:00.003-04:00

AG Settles in Case of Deceptive Advertising

May 6, 2008Attorney General's Office

NEWS RELEASE May 6, 2008 Jim McKenna, AAG (207) 626-8842 David Loughran, (207) 626-8577

Attorney General Steve Rowe announced today that the State has entered into a Consent Decree with Level 10 Marketing, Inc., a New Orleans corporation, and Newcastle Chrysler Dodge Jeep of Newcastle Maine. The Consent Decree, which was signed by Kennebec County Superior Court, prohibits the two companies from using unfair and deceptive advertisements or practices such as sales “vouchers” which appear to promise “$4,000 Instant Savings” when in fact such savings are not realized. Further, neither Level 10 nor Newcastle Chrysler can use promises of significant savings unless such savings can be documented, including the following:

• “Will be sacrificed for pennies on the dollar;” • “Save up to 90% off original M.S.R.P.;” • “Prices will be slashed for immediate liquidation;” • “Wholesale pricing direct to the public.”

“As part of this Consent Decree, 22 consumers who purchased vehicles at the sale will each receive a refund of $550,” Rowe said.

The Attorney General’s Consumer Protection Division investigated the purchases made at the Level 10/Newcastle Chrysler sale held November 14 through November 18, 2006. It found that consumers did not receive the promised savings. “During this sale, many consumers paid non-sale prices despite promises of ‘wholesale prices’ that had allegedly been ‘slashed for immediate liquidation’” Attorney General Rowe said.

Level 10 designed the advertising flyer that was sent out in Newcastle Chrysler’s name and it also arranged for a team of salespeople to travel to Maine to deal with potential customers during the November, 2006 “sale”.

Both Level 10 and Newcastle Chrysler are now subject to a Court order that prohibits such deceptive advertising techniques in the future. Neither company admitted to any wrongdoing. Pursuant to the Court Order, both Newcastle and Level 10 must pay a civil penalty of $6,250 and refund to consumers part of the purchase price.

I am truly amazed each and every time I get one of these notices in my email. Maybe I was absent that day in Business Ethics class, when the professor spoke about good business pracitces that lead to good business. Time and time again I read about shady practices by out of state companies that come in and promise extraordinary results in a short period of time.

The "staffed event" held at this dealership may not be much different than what goes on at many others; the only difference is this time, someone complained that they were misled. While we don't know how may units were sold during this "sale", nor do we know how much profit was made by the dealerhsip and the marketing comany, I do know this much - the bad press this event generated will more than likely have a negative value that far exceeds any profits made.

I've said it before, and I'll repeat myself over and over again. Before you invest money in a marketing campaign, do some research of you own. Google the company's name, check Ripoff Report.com, do your own investigating and don't rely on references the company you're planning to hire sends you. After all, who do you think you think they're going to want you to talk to?

"There are two guys here in dark suits and sunglasses driving a Crown Victoria with government plates on it that would like to have a word with you"

2008-04-28T13:51:00.005-04:00

In a recent visit to a dealer client, the conversation turned to how they were submitting credit applications to their lenders. I asked the sales rep I was training if the sales desk was submitting applications to the lenders on EVERY application they completed with a customer. He responded that he didn’t believe that was the case, so I framed my conversation with the general manager of the dealership to approach that issue. When I asked him if they were submitting every applicant to at least one lender for a decision, he responded with a resounding “no”. The dealership’s philosophy on this was that, if they knew a customer would not qualify for a loan, they would not submit an application, but would send out their own adverse action notice to the customer.

Now, I’m all for compliance, and it was a definite positive sign that this dealership knew enough about the law to be sending Adverse Action Notices when required to do so, but, as I finished my training with the rep I was working with, a nagging image was left lingering in my mind.

I pictured the general manager, the GSM and the desk manager, who were the ones who determined whether or not to submit an application, standing in front of a federal judge, in handcuffs, trying to justify their decisions, when in fact, the dealership did not have a buy-here, pay-here lot or their own finance company, and therefore was not in the position to extend credit to customers. How could they determine, with any degree of certainty, who would or would not be approved for a loan if they could not grant credit themselves, and did not give any lender the opportunity to make such a decision?

There are so many rules and regulations surrounding the retail automobile business these days, I would think that it would make more sense to err on the side of caution instead of playing the odds. All it takes is one customer to tell a story about a unpleasant experience at your dealership to the right (or wrong) person, and the consequences of a class action law suit can be financially devastating. Even if you think you’re right in what you are doing, and with the best of intentions, the mere fact that your actions may be just outside of the legal requirements could put you out of business. I would hate to be the “former” general manager of a dealership forced out of business by a legal settlement that bankrupted that dealership because I “thought” I was right.

Compliance is something that cannot be ignored. Here is a brief summary of the rules and regulations that affect Subprime business in a dealership. This is not a complete or comprehensive list, and in no means is a substitute for legal advice, but it may get you thinking about how business gets conducted in your dealership, and whether you are leaving yourself open to some costly litigation.

Truth in Lending Act – TILA - Regulation Z
- Requires financial disclosures in a “timely manner” – prior to consummation of deal

- Regulates advertising disclosures regarding credit

- Requires proper disclosure of “negative equity” as additional amount financed

- Does NOT specify a 3-day right to rescind a car purchase

- Requires dealerships to sell vehicles for the same price to credit customer as cash customers

Equal Credit Opportunity Act – ECOA
- Prohibits discrimination - cannot treat one person less favorably

- Regulation B – contains rules for implementing ECOA

- Tell consumers what action will be taken on their credit application:
- Extending credit as requested
- Declining to offer credit
- Extending credit if the applicant will agree to different or additional terms

- Defines “Adverse Action Notice” requirements
- Required when creditor refuses to grant credit substantially in the amount or on substantially the terms requested.

- Dealers are creditors when they:
- Determine APR
- Set the loan term
- Set other terms i.e. down payment or amount financed
- Refers customers to direct lenders

Gramm-Leach-Bliley Act & FTC Privacy Rule
- Requires consumers get privacy notices explaining information-sharing practices, restrictions and right to limit

- The Privacy Rule applies to car dealers who:
- Extend credit to someone (for example, through a retail installment contract)
- Arrange to finance or lease a car
- Provide financial advice or counseling

- Any personal information collected to provide these services is covered.

- The Privacy Rule does not apply if a person buys a car with cash, or arranges financing through outside lender.

- When a dealer enters into a retail installment, it must provide privacy notice to the customer, even if the contract is assigned to a third party lender

- Does NOT require a customer’s signature in order to pull a credit bureau, only the expectation of a credit transaction

Fair Credit Reporting Act – FCRA
- Regulates “permissible use” of consumer credit reports

- Makes dealer liable for employee’s misuse of customer’s credit information

- Prohibits “mouse type” in dealership ads

- Regulates direct mail “credit offers”

- Does NOT require a customer’s signature in order to pull a credit bureau

- Reasonable expectation of credit transaction

- Customer must indicate they want to finance transaction for “permissible use”

- Allows a customer to view the credit report obtained by the dealership

OFAC/Patriot Act
- Office of Foreign Assets (OFAC) “bad guy list”

- Established to “deter and punish terrorist acts”

- Prohibits doing business with any person or business on Specially Designated Nationals (SDN) list

- Transactions must be blocked if on the SDN list & report must be sent to OFAC with details of blocked transaction.

- Implements regulations similar to IRS “8300 rule” regarding cash transactions and money laundering

- Must report any transaction or series of transactions from an individual or business which involve cash amounts in of $10,000 in either a single transaction or two or more related transactions.

- Penalties include 30 years jail time, $10 million in fines against corporations and $5 million against individuals, with civil penalties of up to $1 million per incident

Disposal Rule
- Protect the privacy of consumer information

- Reduce the risk of fraud and identity theft

- Businesses must take appropriate measures to dispose consumer credit reports.

- Disposal practices must be reasonable & appropriate to prevent the unauthorized access to or use of information in a consumer report.
- Burn, pulverize, or shred papers containing consumer report information
- Destroy or erase electronic files or media containing consumer report information
- Conduct due diligence by hiring document destruction contractor

CBA Study: Credit Quality Deteriorates, Repossessions a Concern

2008-04-16T10:57:00.000-04:00

Special-Finance.com, Apr 15, 2008

Arlington, Va. The results of the Consumer Bankers Association (CBA)’s annual study weren’t shocking. If anything, the results provided a snapshot of how the industry got to the point it is today.

Conducted by Benchmark Consulting International, the CBA’s 2008 Auto Finance Study showed that 2007 loan terms stretched, advances increased and credit quality worsened. It also provided a clearer picture of what is becoming a major concern for the industry this year: repossessions.

“I think when you look at the data next year, you’re going to see a significant increase in those numbers,” said Rich Apicella, an executive for BenchMark Consulting International. “The biggest thing we see this year is the decrease in credit quality and the increase in repossessions. Terms are up as well, which is also a continuing concern.”

This year’s study attracted 32 participants, which, combined, accounted for more than 12.5 million loan accounts. The total outstanding principal balances for all was more than $223 billion. Surveyed were 16 large national banks, eight regional banks, five captive finance companies and three independent finance companies.

The study results were released at the CBA’s annual conference and expo. Apicella said attendees weren’t too surprised by the findings, and added that many are looking to retrench this year.

“Many lenders are changing underwriting guidelines,” Apicella added, “some are withdrawing from certain segments of the market, states and dealers.”

Liquidity is a challenge today, said Apicella, especially for consumers who relied on home equity, and lenders who rely on the asset-backed securities market for funding. This is one reason why new 2009 vehicle sales are forecasted at their lowest levels in more than 10 years.

“Historically, many consumers have funded vehicle purchases by drawing down on their home equity lines. Today, this is less often the case, due to the slump in housing prices. With respect to the capital markets, investors are not buying ABS debt instruments as freely,” said Apicella, who added that many investors are looking at other markets. “As a result, lenders are picking their spots more carefully, they’re raising their underwriting criteria and many of them are cutting back their originations.”

Signs of Housing Market Spillover

Credit quality for new-vehicle purchases was 31 points lower than last year’s study, with FICO scores dropping from 709 in 2006 to 678 last year. Scores for used-vehicle purchases dropped one point.

“That’s a pretty sharp decline in the average FICO for new vehicles,” said Apicella. “I think part of that is the credit crunch for the homebuyers and the subprime market spillover effect, which is leading to higher debt levels for the typical car buyer.”

The slight up tick in delinquencies was another side effect of the credit crunch, noted Apicella. Delinquencies increased six basis points last year for new-vehicle purchases, and 27 basis points for used-vehicle purchases.

The average for loan terms on new-vehicle purchases jumped one month last year, increasing from 64 months in 2006 to 65 months in 2007. Loan terms for used-vehicle purchases also increased by one month last year.

What is concerning is the increasing percentage of new-vehicle originations that were greater than 60 months. In 2006, 61 percent of new-vehicle loans were longer than 60 months. Last year, that percentage jumped to 65 percent. Additionally, 40 percent of respondents said they now offered terms greater than 84 months.

The average loan amount for new-vehicle purchases last year realized a 3.5-percent decrease. However, the loan-to-value (LTV) ratio experienced a 2-percent increase. Amount financed on used vehicles experienced a 2.9-percent increase last year, while the LTV jumped one percent.
Apicella said the reason for the higher LTV on new-vehicle loans could be attributed to consumers coming to dealerships with higher amounts of negative equity.

In 2007, about 25 percent of consumers who financed their vehicles were upside down by an average of more than $4,000, said Apicella. And while dealers sought to cover the difference by requesting higher advances, they also extended terms to keep payments attractive to today’s payment buyer.

Lenders Retrenching; Dealer Reserves to Suffer

Apicella said there were signs in the data that finance companies began to change their lending habits in the second half of 2007. However, he said the results of those changes won’t be clearly visible until next year, as 2007 lending habits remained highly competitive.

“There’s probably going to be a moderation of that if you look at the data next year,” said Apicella. “It will be interesting to see what happens next year as a result of the marketplace response, because most of the actions were not really started until the fourth quarter of last year, which was at the tail end of this study.”

This expected retrenching, however, may hurt dealer reserves, a trend that was already being seen in the fourth quarter of 2007. “With higher advances and longer terms, in general, reserves are higher,” said Apicella. That won’t be the case next year, he added, as lenders require deals to be restructured to conform to their new underwriting guidelines.

One statistic to keep an eye on next year will be repossessions. Apicella said he expects that to be a bigger problem this year than the predicted increases in bankruptcies.

“Repos are much more of a problem right now,” said Apicella, who noted that more than 2 percent of accounts are repossessing. “Repossessions were four times more prevalent than bankruptcies during 2007, and the average net loss for repos is about $1,000 higher than bankruptcies.”

Despite the challenges ahead, Apicella said the automotive finance industry will not suffer a fate similar to that of the mortgage industry.

“In the car business, the fundamentals are sounder, and the good lenders know how to originate and liquidate loans,” Apicella said. “From a risk standpoint, there’s been a slight worsening in some of the overall metrics, but fundamentally there is still good business to be had. And I think the general mood of the bankers at the CBA event is ‘we’ve seen markets like this before, and it causes us to re-look at our operations and improve them and manage them much more carefully. But sooner or later we’re going to come out of this cycle, leaner and meaner.’”

Middle Class Glum on Economic Status

2008-04-10T12:46:00.005-04:00

Study: negativity is highest since 1964 - Majority say they've made no progress, or have fallen backward
HOPE YEN - Associated Press (Charlotte Observer – 4/10/08)

Growing numbers of middle-class Americans say they aren't better off than they were five years ago, reflecting economic pressures amid growing debt, a study released Wednesday shows.

Their short-term assessment of personal progress, according to the study, is the worst it's been in nearly half a century.

The survey by the Pew Research Center, a Washington-based organization, paints a mixed picture for the 53 percent of adults in the country who define themselves as "middle class," with household incomes ranging from below $40,000 to more than $100,000.

It found that a majority of Americans said they haven't progressed in the last five years. One in four, or 25 percent, said their economic situation had not improved; 31 percent said they had fallen backward. Those numbers together are the highest since the survey question was first asked in 1964.

Among the middle class, 54 percent in the current survey said they had made no progress (26 percent) or had fallen back (28 percent).

Asked about their financial experiences in the past year, 53 percent of middle-class people said they had to cut spending because money was tight. About one in five said they had trouble getting or paying for medical care, while 10 percent said they had been laid off or lost their jobs.
Looking ahead to the coming year, half of the middle class surveyed said they expected to have to cut more spending.

Among those employed, one in four, or 25 percent, expressed worries that they would be laid off, that their job would be outsourced, or that their employer would relocate in the coming year, while 26 percent were concerned that they would see cuts in salary or health benefits.

At the same time, most middle-class people remained upbeat when asked to measure their progress over a longer time frame. Two-thirds say their standard of living is better than the one their parents enjoyed at the age they are now.

"It's been a lousy run for the American economy, and people feel it," said Paul Taylor, director of Pew's Social & Demographic Trends project and lead author of the study.

He noted that people's pessimism largely tracks annual median household income, which has gained little in recent years. Middle-class people also may be disproportionately feeling the pinch because they tend to borrow more heavily against their homes to support their lifestyles, Taylor said.

Among other findings:
- Nearly eight in 10 of all people, or 78 percent, said they believe it has become more difficult compared with five years ago for the middle class to maintain their standard of living, up from 65 percent in 1986.
- Among the income winners 1970-2006 were seniors 65 and older, blacks, native-born Hispanics, and married adults.
- Losers included young adults (ages 18 to 29), the unmarried, foreign-born Hispanics, and people with a high-school education or less.

The Pew poll involved telephone interviews with 2,413 adults, conducted Jan. 24-Feb. 19. The margin of sampling error was 2.5 percentage points.

Blogger's note: If this is the perception the public has regarding their "buying power" , makes you wonder how they see their credit status. "The 700's of today are the 550's of tomorrow!" -GC

CNBC’s Phil LeBeau looks at a worrying new trend in U.S. auto loans

2008-04-02T16:30:00.002-04:00

Opening Day!

2008-04-01T11:17:00.004-04:00

Ah, spring is in the air! It’s getting warmer outside here in Charlotte, and the showers are becoming more frequent. The drought may soon be over, and once again, a young man’s fancy turns to thoughts of …baseball?

No, it’s direct mail season again, and once more, Chooch is on the receiving end of some high profile pitches.

For those of you who may not remember, Chooch is my border collie! In order to identify telemarketers who call my home at the most inconvenient times, I have listed my home phone in Chooch’s name! There’s nothing better than getting a call from someone asking to speak to Chooch, and laying the phone on the floor for her!

Yesterday, Chooch got an invitation form a local auto dealer to come in for a test drive, and get a chance to win a “racing experience” at Lowe’s Motor Speedway here in Charlotte. So I called the dealership and asked to schedule a test “ride” for Chooch – after all, she has a dog license but not a driver’s license! I set one up for this weekend. I let you know what happens when Chooch goes in to claim her prize.

My point here is once again, who’s getting your mail? Cheap mailers are just that…cheap. The old saying “You get what you pay for” is especially true here. How many of these mailers, sent out on a list based on the Charlotte phone book, were sent to undeliverable addresses or people who could not participate for one reason or another. I have a friend of mine in New York who still has his home phone listed to his dad, who passed away ten years ago! And who doesn’t get a phone call for the person who last had your number…guess they’ve probably moved since the number was re-assigned! After all, how often do they update the phone book anyhow?

You need to ask where a lead provider is getting their lists from. Saturation mailers based on public information lists may be inexpensive, but all you end up with is a showroom full of people looking for their free gift or NASCAR ride, but not a buyer among them. How many of these “gift grabbers” does your sales force have to weed through to find a real customer? If you have to offer something for nothing in order to get customers into your showroom, you’re probably going to end up with lots of activity, but no sales!

Consider using a mailer that targets a specific audience for your dealership. If you are using an owners list, target specific competitive makes and models to sell across franchise lines and increase your market share. Look for specific interest groups that may have a need or desire for your vehicles, like a local PTA for family vehicles, or a local sporting group for SUV’s and pickups. And if you are considering using a credit mailer, find a provider who using lists created from credit files that make a bona fide offer of credit to the recipient. Consider a blind mailer that directs the recipient to an 800 call center, so you can sell across franchise lines and capture that additional market share.

Buy-Here,Pay-Here May Grow

2008-04-01T10:22:00.000-04:00

Arlena Sawyers - asawyers@crain.com Automotive News 3/31/08

Home foreclosures. Vanishing jobs. Even good credit histories are at risk. As the economy worsens, people who once had good credit may be unable to get car loans through traditional sources. But one consumer's loss might be a gain to a buy-here, pay-here dealer, industry experts say.

"This is going to be a pretty good growth year for any dealer that's in the buy-here, pay-here business,” predicts Mike Unn, president of the National Independent Automobile Dealers Association. About 1,000 of the association's 20,000 members are franchise dealers who operate standalone used-car lots. Some people, he says, "can't get credit anywhere else."

Buy-here, pay-here dealerships sell older, higher-mileage vehicles to people with bad credit. The dealerships hold the loans and assume the entire risk. They charge interest rates of 25 percent or more, depending on state usury laws. 50 far, there's scant evidence that dealers are having problems obtaining credit for their customers. That could change.

Ken Shilson is president of the National Alliance of Buy-Here, Pay-Here Dealers, an organization representing 10,000 dealers in the United States. He says buy-here, pay-here business may pick up, but not until about a year to 18 months from now.

Last year in Florida, some buy-here, pay-here stores suffered as many of their traditional customers - construction workers in the housing industry-lost their jobs, Shilson says. Now, those same stores are seeing an increase in business from consumers who lost their homes and good credit standing in the home mortgage mess.

Shilson predicts that as other parts of the country are hit by the deep downturn in real estate that has plagued Florida for more than a year, buy-here, pay-here dealers will see their business grow.

"People who are losing their homes are not our customers now," Shilson says. 'The traditional buy-here, pay-here customer rents. He doesn't own a home. All those losing their homes are new customers.”

Black Book Reports Drop in Used-Car Values

2008-03-26T12:20:00.001-04:00

Mar 24, 2008 Gainesville, Ga.

Vehicle pricing data provider Black Book reported that the average values of used vehicles produced between 2005 and 2003 has dropped roughly 16 percent, from $17,345 to $14,441, since March 2007.

The greatest depreciation occurred in the domestic truck segment with values declining between approximately 5.24 and 8.56 percent for three-, four- and five-year-old trucks. Import trucks fared only slightly better with decreases between 2.16 and 4.27 percent, while the import car segment showed drops in value between 1.89 and 5.82 percent, according to Black Book.

Vice president and managing editor Ricky Beggs said that concern over the state of the economy and rising fuel prices are to blame for the losses.

“The spring season typically signals an upswing in vehicle resale values, but continued economic troubles and high gas prices have had a sustained impact on the used car market,” Beggs said. “The market for domestic trucks was hardest hit, but luxury cars and full-sized SUVs continue to experience above-average depreciation rates as well.”

The domestic car market segment showed modest increases of 2.13 percent for four-year-old vehicles and 5.82 percent for five-year-old vehicles when compared with March 2007 values. The December 2007 to March 2008 quarter saw overall declines of 7.36 percent for all car segments and 5.89 percent for all truck segments over the previous quarter from September through December 2007.

“Although depreciation for the last segment of 2007 was quite strong, there are signs that market declines are beginning to slow,” said Beggs. “The most recent month of this past quarter showed average depreciation rates of slightly less than 2 percent for all car and truck market segments. Hopefully this will mark the beginning of a steadying in the used car market as we move into the late spring and summer

Black Book: Slide Continues in Used-Vehicle Values; Relief May Be in Sight

2008-03-19T14:43:00.000-04:00

March 19, 2008 www.autoremarketing.com/

GAINESVILLE, Ga. — Despite modest increases in the domestic car segment, the average market value of used vehicles has continued its decline into the spring, according to the latest analysis from Black Book. Officials indicated that the average value of vehicles produced between 2003 and 2005 was $14,441, down about 16 percent from March of last year when the median value was $17,345.

"The spring season typically signals an upswing in vehicle resale values, but continued economic troubles and high gas prices have had a sustained impact on the used-car market," commented Ricky Beggs, vice president and managing editor at Black Book. "The market for domestic trucks was hardest hit, but luxury cars and full-sized SUVs continue to experience above-average depreciation rates as well," Beggs added.

Looking at the annual depreciation, officials indicated that most of this has occurred since September, as values have fallen 13.59 percent. The domestic car sector, however, did show some improvement from last March. Four-year-old vehicles increased in value by 2.13 percent and five-year-old vehicles increased in value by 5.82 percent.

However, domestic trucks were hit hard. Three-, four-, and five-year-old domestic trucks dropped in value between 5.24 and 8.56 percent. Import trucks declined between 2.16 and 4.27 percent. Meanwhile, import cars dropped in value between 1.89 and 5.82 percent.

According to officials, the survey measured resale values in the quarter between Dec. 1, 2007 and Feb. 29. In addition to the annual decline discussed earlier, values dropped from the previous quarter as well. According to the study, resale values declined 6.68 percent from the previous quarter, with cars dropping by 7.36 percent and trucks by 5.89 percent.

Despite the quarterly and annual declines, Beggs did offer some words of relief. "Although depreciation for the last segment of 2007 was quite strong, there are signs that market declines are beginning to slow," he said. "The most recent month of this past quarter showed average depreciation rates of slightly less than 2 percent for all car and truck market segments." "Hopefully this will mark the beginning of a steadying in the used-car market as we move into the late spring and summer," Beggs added.

What is a Credit Score?

2008-02-28T12:56:00.003-05:00

A credit or FICO score suggests the ability and willingness of an applicant to be able to repay debt. This score is compared and evaluated against other consumer credit reports, and is,in essense, a "barometer" to measure hte likelihood that the debt will be repaid in a timely manner. Higher scores indicate a a better chance that the applicant will repay the debt as agreed, with no collection efforts required by the lenders. In effect, a higher score can mean the debt is "self-servicing", with payments coming in on time.

A lower score may indicate the need for some collection efforts on the part of the lender. Payments may come in late, or serious collection efforts may be reuired by the lender to collect deliquent payments. A substantially lower score may indicate the debt may become uncollectable for a lender, and as such, the lender ,ay decline an application with a significantly low score.

Results in scores ranging from 350 (highest risk) to 800+ (lowest risk). Higher scores may mean a lower chance of default or late payments and may generate better terms.

So what exactly goes into calculating a credit score?

PAYMENT HISTORY (35%) - Account payment information and payment patterns
AMOUNTS OWED (30%) - Number of accounts with balances, the amounts owed on specific types of accounts and the proportion of credit lines used.
LENGTH OF CREDIT HISTORY (15%) - Time the accounts have been open.
NEW CREDIT (10%) - This includeds the number of recently opened accounts & inquiries, the time since recent account openings and the re-establishment of positive credit history.
CREDIT MIX (10%) The number of various types of accounts.

Lenders Shun Subprime Market

2008-02-20T16:26:00.002-05:00

As credit standards tighten, customers switch to cheaper models, used cars

Donna Harris, Automotive News – February 20, 2008

SAN FRANCISCO - As the credit crunch deepens, many independent lenders are cutting back on loans to customers with tarnished credit histories. In January, more than 4 percent of subprime auto loans were at least 60 days delinquent, according to Fitch Ratings. That rate was up 43 percent from January 2007 and the highest in 10 years.

Some small regional banks have stopped making loans through auto dealerships altogether.

The credit crunch is forcing many would-be consumers to buy cheaper models, or purchase a used vehicle instead. If customers with shaky credit can get loans at all, often they must make a bigger down payment, pay higher interest rates and accept loans of shorter duration.

For dealers, tighter credit policies sometimes force them to shoulder more liability when loans go sour. And in some cases, independent lenders are ending long-term relationships with dealers.

That will create a significant drag on vehicle sales. According to industry estimates, consumers with subprime credit ratings buy nearly 30 percent of all new vehicles. The bottom line: Dealers are more dependent than ever on automakers' captive lenders. The captives appear more willing than independent lenders to make subprime loans in what is shaping up as the worst year in a decade for new-vehicle sales.

Many lenders say that because their cost of money has increased, it is more expensive for them to offer subprime loans.

"For folks in the subprime and near-prime end of the market, it is a much tougher place," said Brent Burns, president of World Omni Financial Corp., an auto finance company that is part of JM Family Enterprises Inc. Bums spoke this month at the annual meeting of the American Financial Services Association, which preceded the National Automobile Dealers Association convention.

Some dealers who attended the NADA convention said lenders are shifting more responsibility to them for failed subprime deals or are canceling lending agreements. Others cited tougher criteria for subprime loans.

Travis Christensen, sales manager of Mark Miller Toyota in Salt Lake City, said Capital One Auto Finance is demanding larger down payments on subprime loans. "That could mean switching the customer to a car they don't necessarily want”, to he said.

(Sub) prime cut
Many independent lenders are cutting back on subprime vehicle loans. They are:
• Leaving the subprime market
• Canceling loan arrangements with auto dealers
• Requiring larger down payments
• Raising interest rates on subprime loans

Tougher Rules

Among major lenders, Chase Auto Finance CEO Marc Sheinbaum said his company is shunning subprime loans longer than 72 months, calling them "a volatile part of the market.

“AmeriCredit Corp. said it is slashing subprime loan volume this year.”Our loan volume was $9 billion last year," said AmeriCredit CEO Dan Berce. "But we expect it to be $5 billion to $6 billion in 2008."

Last December, subprime loans made by AmeriCredit had an average retail interest rate of 16.5 percent, the company says. The rate for prime customers was 9.7 percent.

Although subprime loans can be lucrative, Wall Street has grown skittish about rising loan defaults. "This is a very difficult environment for a company like ours," Berce said. "Capital markets are very difficult to get money from and at an affordable rate."

Last month, Wells Fargo Auto finance told dealers it would not finance customers with credit scores below 540. Credit scores generally range from 300 to 850; most are from 600 to 800.

Mechanics Bank, a major California lender, stopped buying finance contracts from dealers in January. Thomas Brennan, a bank vice president, cited "the deteriorating profitability of indirect retail financing."

Sovereign Bank, of Reading, Pa, has stopped writing auto loans in the Southwest and Southeast. The bank has retreated to its original business territory in the Northeast.

To the rescue
At the same time, captive finance companies say they are willing to "buy deeper" than outside lenders. "Our underwriting criteria have been constant over the past five years," said Mike Bannister, CEO of Ford Motor Credit Co.

George Borst, CEO of Toyota Financial Services, said his company does not focus on subprime loans but will make them to help dealers close sales.

Likewise, GM and Chrysler dealers say they can finance loans for subprime customers through captives.

Some independent lenders, such as Wachovia Dealer Services, aren't backing away from subprime loans. "We are comfortable with the quality of our portfolio," said CEO Tom Wolfe.

Dealers say lenders are getting tougher even on nonprime customers who have slight credit blemishes. And David Duncan, general manager of Duncan Ford Mazda-Lincoln ·Mercury in Blacksburg, Va., said he is seeing changes in his dealership's agreements with lenders.

"What the lender used to assume responsibility for is becoming our responsibility," Duncan said. "If the deal fails, it's the dealer who has to buy the contract back.”

How Consumers Perceive Their Financing Chances

2008-02-15T15:36:00.001-05:00

Ward's Dealer Business, Feb 1, 2008 12:00 PM

The following are key findings from a survey on consumer perceptions of how the subprime mortgage debacle may affect their ability to get a car loan.

Youths Feel at Risk. Concern increases with younger respondents; 45% of 18-24 year olds are concerned, along with 43% in the age 25-34 group, compared to only 15% in the 65+ age bracket (individuals who are less likely to be seeking credit for a car or other big-ticket item).

Concern Matches Credit Need. By income, the greatest concern (43%) lies in within the $25,000-$50,000 segment, people with enough income to have an interest in a car loan, but not so much that they don't need the loan.

Kids Raise the Stakes. Respondents with children in the household — and are more likely to be in the market for a car loan — expressed greater concern (44%) than respondents in households without kids (27%).

Credit Impact Already Felt. For some of those in the lowest income bracket, this isn't a theoretical question; 12% say their credit has already been affected.

Genders Share Concerns. Men are marginally more concerned than women — 35% to 32%, but 6% of women and only 2% of men say their credit has already been affected.

Employment Offers Little Relief. Having a job doesn't significantly diminish these concerns. While 40% of the unemployed say they are “extremely” or “somewhat” concerned, 37% of those employed full-time feel the same way.

Dixie Worried. The perceived credit squeeze is hitting the South hardest, with 40% expressing concerns, about 10% higher than any other region.

Marked Racial Divide. The racial disparity is even more pronounced — 52% of nonwhites expressed concern vs. 30% of whites.

Repo lots overflow with reclaimed cars

2008-02-15T14:04:00.001-05:00

By Chris Woodyard, USA TODAY
February 14, 2008

Car and truck repossessions this year are headed for the highest level in at least a decade, thanks to easy credit and a faltering economy, says an economist for one of the largest wholesale auto auction services.

So many vehicles are being snatched from owners who stop making payments that some repo operators and auto auctioneers say lots are overflowing
.
This year's predicted 10% rise in vehicle repos to 1.6 million would be a third higher than 10 years ago, says Thomas Webb, chief economist for a unit of Atlanta-based Manheim, which sells cars to dealers worldwide. The increase comes atop a 10% rise in repos last year.

Webb blames overly "generous" auto loans in the past couple of years as a key factor in driving up defaults that lead to repossessions.

He says the rate might be even higher if employment hadn't remained strong despite the slowing economy.

An executive at another big auto auctioneer says that easy subprime car loans in recent years are a big reason for the flood of repossessed cars.

"We're experiencing significant growth in repo volume to the point where we're using additional lots to store them," says Tom Kontos, executive vice president of Indiana-based Adesa Auctions. "Our inventories are growing to record levels," caused by repos on top of a glut of cars coming off leases and out of rental service.

While the nation has been transfixed by rising home foreclosures, scant attention has been paid to what is usually a consumer's second-largest purchase: their car or truck.

Wells Fargo, (WFC) for example, reported last month that it charged off $1 billion in auto loans last year, 3.5% of its portfolio, compared with $857 million in 2006. The bank says it expects a higher write-off rate this year.

The rise of bad loans, however, has meant busy times for "repo men," whose work can involve seizing cars from driveways in the dead of the night.

"Our business has skyrocketed," says Patrick Altes, president of Falcon International in Daytona Beach, Fla. In recent times, his service saw a first wave of defaults that involved picking up boats and recreational vehicles.

Now, it's cars and trucks, often in affluent neighborhoods.

"A lot of the vehicles we're getting are high-dollar pickups" whose owners got caught in the construction downturn, Altes says.

The repo surge has boosted business for locksmith Amy Palmer. She makes new keys for seized vehicles at Manheim's auction lot in Ocoee, Fla., one of Manheim's 144 locations in 14 countries.
"It's phenomenal," she says. "If you're not paying for your house, who is paying for the car?"

Lower-Priced, Higher-Mileage Used Cars Still Diamond in Rough

2008-02-08T09:31:00.000-05:00

By Richard Greene, AR NewsMagazine Editor February 07, 2008

ATLANTA — As the general economy continues to erode, Manheim's chief economist did find a significant bright spot that has major implications for used-car operations. The demand for lower-priced, higher-mileage units presently remains strong, Tom Webb pointed out in his monthly market evaluation.

"Despite the overall softness in the market, lower-priced units (less than $5,000) showed no significant weakening of pricing, even with considerably higher volumes being offered," Webb explained. "Some of this strength extended up into the subprime repossession and end-of-service commercial fleet markets, which generally have average transactions prices in the $7,000 to $8,000 range," he added.

But for the most part, Webb's analysis of market conditions was rather bleak. Reflecting reduced floor traffic, lower closing rate and tighter retail financing market experienced by most dealers, wholesale used vehicle prices fell for the fourth consecutive month in January, according to Webb. The prices are on a mix, mileage and seasonally adjusted basis, he indicated. Webb reported that the Manheim Used Vehicle Value Index reading registered at 109.1 for the month, which he said represented a 3.7-percent decrease from the prior January. "Although incentive activity rose in January, and looks to increase again in February, aggregate new-vehicle inventory counts remain low," he noted.

Webb pointed to several overarching economic concerns in his monthly report.

— The labor market weakened further. "Initial jobless claims surged in late January and non-farm payrolls posted their first monthly decline since August of 2003," Webb said. "Signs suggest that job growth will remain soft, at best, for several months. "

— Credit conditions tightened. "It is nigh impossible to get healthy job gains as long as the credit markets continue to restrict availability," Webb explained. "Rates don't matter if it only means being turned down for a 5-percent loan rather than being turned down for 7-percent loan." Webb noted that the Federal Reserve Board's Survey of Senior Loan Officers in January revealed that more than half of all banks have tightened credit standards for prime mortgages and that more then three-fourths have tightened for non-traditional or subprime mortgages. "The net percentage of banks raising standards for consumer installment loans increased to one-third, up from one-fourth in the October survey," he said. "It was the highest percentage of banks reporting tighter consumer credit standards in more than a decade. And the tightening has also extended to commercial loans."

— New vehicle sales dropped in January, as did inventory levels. "Although the seasonally adjusted annual rate of new-vehicle sales slipped to just 15.2 million in January, production cuts continued to whittle at inventory levels," Webb observed. "Although incentive activity did (and will continue to) increase, low inventory counts mean that manufacturers have been able to target monies to specific models and/or regions of the country. "As such, the negative impact on late-model used vehicle residuals has also been selective," he added.

— All market classes of used vehicles register year-over-year price declines. "SUVs, pickups and sports cars are down the most (more than 5 percent), while compact and midsize cars are down the least (less than 2.5 percent," Webb said.

Consumers Worry How Mortgage Challenges Will Impact Auto Loans

2008-01-16T14:55:00.000-05:00

Subprime Auto Finance News, January 2008

LOS ANGELES — As the challenges in the subprime mortgage market continue to play out, a new survey indicates that Americans shopping for car loans and other forms of credit are beginning to get nervous.

The survey of 1,000 consumers was fielded in late October by market researcher Synovate of Chicago for GDEXAuto, which is otherwise known as Global Debt Exchange. GDEXAuto is a new Web-based marketplace where auto dealers and financial institutions come together to securely package, buy and sell asset-backed debt, according to officials.

When asked,"Given the fallout in the subprime mortgage market, how concerned are you that your ability to obtain credit for something like a car loan will be affected?" a significant number of consumers expressed fear about possible spillover from the subprime crisis. One-third of the sample, or 33 percent, said they were extremely or somewhat concerned their credit may be at risk.

"Our survey highlights a continuing need to offer lending to a number of cash-strapped segments, with emphasis on the family/young adult market," said Michael Sheridan, founder and president of GDEXAuto.

"Next to mortgage lenders and home builders, no one is keeping a closer watch on subprime finance trends than America's automobile dealers and affected lenders," he added.

In 2006, financial institutions made more than $50 billion in auto loans from subprime borrowers, Sheridan said, sourcing J.D. Power and Associates.

Among the survey's findings:

—Youths Feel at Risk: Concern increases with younger respondents. A total of 45 percent of 18- to 24-year-olds are concerned, along with 43 percent in the 25 to 34 age group. This is compared to only 15 percent in the 65-plus age bracket, who are individuals less likely to be seeking credit for a car or other big-ticket item.

—Concern Matches Credit Need: By income, the greatest concern (43 percent) lies in within the $25K to $50K segment, or people with enough income to have an interest in a car loan, but not so much that they don't need the loan.

—Kids Raise the Stakes: Likewise, respondents with children in the household, or individuals who are more likely to be in the market for a car loan, expressed greater concern (44 percent) than respondents in households without kids (27 percent).

—Credit Impact Already Felt: For some folks in the lowest income bracket, this isn't a theoretical question. A total of 12 percent say their credit has already been affected.

—Genders Share Concerns: Men are marginally more concerned than women, 35 percent to 32 percent, respectively. However about 6 percent of women say their credit has already been affected, against just 2 percent of men.

—Employment Offers Little Relief: Having a job doesn't significantly diminish these concerns. While 40 percent of the unemployed say they are extremely or somewhat concerned, 37 percent of those employed fulltime share concerns. Perhaps less surprisingly, 8 percent of the unemployed are already seeing changes in their ability to get credit.

—Dixie Worried: The perceived credit squeeze is hitting the South hardest, with 40 percent of these consumers expressing concerns, which is about 10 percent higher than any other region in the country.

—Marked Racial Divide: The racial disparity is even more pronounced. About 52 percent of nonwhites expressed concern, versus 30 percent of whites. Likewise, 9 percent of nonwhites say their credit has already been affected.

What counseling can do to your credit

2008-01-15T09:58:00.000-05:00

By MSN Money Staff

You may have heard that credit counseling will trash your credit report or even that it's "worse than bankruptcy." Neither is really true.

Credit counseling may have some effect on your credit, or it may have none at all. Some lenders may not want to do business with you after you've completed your plan, but others will.

Contrast that with a bankruptcy, which is viewed by almost all mainstream lenders as a huge negative on your credit report. These lenders, who prefer to deal with consumers with good credit, typically won't do business with you for the 10 years the bankruptcy remains on your file.
What happens to your credit during counseling largely depends on how your lenders report your account to the credit bureaus.

First USA, the credit-card giant, reports its customers as delinquent on their bills until they make three consecutive payments of the new minimums negotiated by their credit services, said spokesman David Webster. Citibank, by contrast, simply adds a note to the credit bureaus' files that the customer is enrolled in credit counseling.

Being reported as late or delinquent can certainly hurt your credit score, the three-digit number widely used by lenders to determine creditworthiness. A simple notation about credit counseling probably won't. The credit score formula used by most lenders, known as FICO, now ignores any reference to credit counseling that may be in your file, said Craig Watts, spokesman for FICO creator Fair Isaac & Co.
Even some lenders that were traditionally suspicious of credit counseling have loosened their stance. More mortgage lenders are willing to lend to people who have successfully completed repayment plans, said mortgage broker Allen Bond, president of the California Association of Mortgage Brokers' Southern California chapter.

Some lenders say they even view credit counseling as an encouraging sign that a customer is getting his or her debts under control. Citibank, the largest issuer of credit cards, says people who have fallen behind on their payments often improve their status in the company's eyes by enrolling in -- and sticking with -- a debt repayment plan.

"We always viewed that as a positive," said Citibank spokeswoman Maria Mendler. "We've seen that for people who enter these programs, there's a significantly lower rate of default."

That said, there are still some lenders who refuse to deal with anyone who has enrolled in credit counseling. And if you fell behind on your payments before you entered credit counseling, you'll find those late payments will still affect your credit score even after you've paid off your debts.

Researchers Explain Why Subprime Loans Default

2008-01-10T17:49:00.000-05:00

by Jennifer Reed, Editor, Subprime Auto Finance News, January 10, 200

CAMBRIDGE, Mass. — A recent report from the National Bureau of Economic Research analyzed the trends of subprime auto defaults at a large U.S. financial institution

The data taken into account during the analysis included applications and sales from June 2001 through December 2004. This information was combined with records of loan payments, defaults and recoveries through April 2006.

"This gives us information on the characteristics of potential customers, the terms of the consummated transactions and gives the resulting loan outcomes," officials indicated.

"We have additional data on the loan terms being offered at any given time as a function of credit score, and inventory data that allows us to observe the acquisition cost of each car, the amount spent to recondition it and the list price on the lot," they continued.

Overall, the researchers said there were more than 50,000 applications in the sample period. The average applicant was in his mid-30s with the monthly household income of $2,411.

"Just over one-third of applicants purchase a car," the writers reported. "The average buyer has a somewhat higher income and somewhat better credit characteristics than the average applicant. In particular, the company assigns each applicant a credit category, which we partition into high, medium and low risk. The applicant pool is 26 percent low risk and 29 percent high risk, while the corresponding percentages for the poof of buyers are 35 and 17.

Furthermore, the officials pointed out, "A typical car, and most are around three to five years old, costs around $6,000 to bring to the lot. The average sale price is just under $11,000 (negotiated price rather than list price). The average down payment is a bit less than $1,000, so after taxes and fees, the average loan size is similar to the sales price."

As many would suspect, researchers indicate that many purchasers would rather put down less of a down payment instead of more.

"Forty-four percent make exactly the minimum down payment, which varies with the buyer's credit category, but is typically between $400 and $1,000. Some buyers do make down payments that are substantially above the required minimum, but the number is small. Less than 10 percent of buyers make down payments that exceed the required down payment," according to the report.

Moreover, the paper discovered that more than 85 percent of the loans had an annual interest rate of more than 20 percent, with about half of the loans showing the state-mandated maximum APR. Researchers highlighted that the most states, according to the data, had a standard 30-percent cap.

"Our data ends before the last payments are due on some loans, but of the loans with uncensored payment periods, only 39 percent are repaid in full. Moreover, loans that do default tend to default quickly," the analyzers found.

In fact, they said, "Nearly half of the defaults occur before a quarter of the payments have been made, that is, within 10 months."

Another commonly known trend identified in the paper was the fact that demand for subprime auto loans tend to occur in a certain season, closely around the time tax rebates are released.

"Overall, demand is almost 50 percent higher during tax rebate season than during other parts of the year. This seasonal effect substantially varies with household income and with the number of dependents, closely mirroring the federal earned income tax credit schedule," officials said.

According to the report, applications are 23 percent more common in February than in other months, with the approval rate coming in at 40 percent, as opposed to 33 percent during the rest of the year.

"These seasonal patterns cannot be attributed to sales or other changes in the firm's offers. In fact, required down payments are almost $150 higher in February, averaging across applicants in our data, than in other months of the year," the paper said.

"Indeed, we initially thought these patterns indicated a data problem until the company pointed out that prospective buyers receive their tax rebates this time of year," officials mentioned.

Breaking it down further, the analysts discovered that households with monthly incomes below $1,500 and at least two dependents, meaning the rebate could be about $4,000, the number of applications doubles during February, with the number of purchases tripling.

On the other hand, for households with incomes above $3,500 and no dependents, meaning the rebate is likely zero, the number of applications and purchases shows no increase whatsoever.

"About 65 percent of February purchasers make a down payment above the required minimum, compared to 54 percent in the rest of the year," writers said. "Moreover, we estimate that after controlling for transaction characteristics, the desired down payment of a February buyer is about $300 higher than that of the average buyer. This is an enormous effect given that the average down payment is under $1,000.

"Second, we find that the demand is highly responsive to changes in minimum down payments. A $100 increase in the required down payment, holding car prices fixed, reduced demand by 7 percent. In contrast, generating the same reduction in demand requires an increase in car prices of close to $1,000."

The paper found that a $1,000 increase in loan size ramps up the rate of default by more than 16 percent.
"This alone provides a rationale for limiting loan sizes because the expected revenue from a loan is not monotonically increasing in the size of the loan. We find that borrowers who are observably at high risk of default are precisely the borrowers who desire the largest loans," the researchers described.

"The company we study assigns buyers into a small number of credit categories. We estimate that all else equal, a buyer in the worst category wants to borrow around $200 more than a buyer in the best category, and is more than twice more likely to default given equally sized loans," they pointed out.

The analysts found that risk-based pricing can only help a lender within "observably different risk groups."

"We also look for, and find, evidence of adverse selection within risk groups driven by unobservable characteristics. Specifically, we estimate that a buyer who pays an extra $1,000 down for unobservable reasons will be 8 percent less likely to default than one who does not given identical cars and equivalent loan liabilities," the writer explained.

Offering a word of caution, the paper highlights, "So, while there are limits to what we can conclude with data from a single lender, we think that our results highlight the empirical relevance of informational models of consumer credit markets."

Returning to the company at hand, the officials said, "Almost all buyers finance a large fraction of their purchase with a loan that extends over a period of several years. What makes the company an unusual window into consumer borrowing is its customer population."

More specifically, the customers are generally low-income workers, and most are subprime borrowers. Fewer than half of the company's applicants display a FICO score above 500, the paper noted.

Furthermore, given the low credit quality of many of the applicants, researchers indicated that the company has invested heavily in proprietary credit-scoring technology.

Turning to another fact, researchers wrote, "Within credit category, buyers who have higher incomes, have bank accounts, do not live with their parents and have higher raw credit scores are all less likely to default. However, the fact that these characteristics predict default and are not directly priced does not necessarily imply a serious adverse selection problem in financing choices.

"For example, buyers who live with their parents tend to make larger down payments, but have a greater likelihood of default later on," they indicated.

Just How Important Are Car Dealers to the Economy?

2008-01-10T12:27:00.000-05:00

Just a few statistics from the National Auto Dealers Association-(1/10/2008)

The importance of the retail car dealership community is never more remarkable than it is after you consider the profile routinely updated and publicized by NADA. Just in case you have not considered it lately…

NEW-VEHICLE DEALER FACTS

U.S. annually:

• Average sales per dealership: $31.9 million.

• Total sales of all new-vehicle dealerships: $675.3 billion.

• Dealership sales as a percentage of total retail sales: 20.3 percent.

• Estimated number of new-vehicle dealerships: 21,200

• Total number of new-vehicle dealership employees: 1,120,100

• Average number of employees per dealership: 53

• Average annual earnings of new-vehicle dealership employees: $47,191

• Dealership payroll as a percent of total state retail payroll: 12 percent.

• Annual payroll of new-vehicle dealerships: $53 billion.

• Average annual payroll per new-vehicle dealership: $2.49 million.

Source: National Auto Dealers Association

Change is Inevitable…Are you prepared to hire an Special Finance Manager?

2008-01-09T18:04:00.000-05:00

Once again you’re faced with the problem of having to hire an Special Finance
Manager again. Your current Special Finance Manager just gave you his notice ( if he was that kind to you) and the question is, do you take their two weeks to find their replacement, or were the warning signs already in place and you saw this coming?

Before you hire a replacement, take a minute to consider why you have to call your ad agency to place a help wanted ad. There are usually only a few reasons why your Special Finance
Manager is leaving:

· There was a change in the pay plan. If you think you’re paying your finance people too much money, just stop for a moment and think about how much they make for you. F&I is the only department in your entire dealership that has no overhead! There are no fixed costs to concern you with.

· You’ve hired a new GM/GSM or someone over your Special Finance Manager, who wants to bring his own loyal people. Special Finance Mangers are usually pretty devoted employees, so make sure the right person is leaving. If your recent hire isn’t working out, confide in your Special Finance Manager and ask him to stay on. Remember that a disruption in Special Finance leads to contracts in transit issues which cost you money!

· One we hate to consider, is that there is a problem about to come back to haunt you. Has there been a rash of contract errors lately? Are your contracts in transit list growing out of control? Is your finance department hiding something from you until they get out of there?

If you’re going to have to make a change, now is the time to look at the setup of your Special Finance department. Do you have a primary and Special Finance Manager? Have you set up your finance department to maximize your potential? Remember that non-prime customers must be sold and handled completely backwards from prime customers. Lenders are different, and as such, primary and secondary deals are structured differently. While your F&I manager is concerned with back end gross and product penetration, your secondary or Special Finance Manger should be all about maximizing front end gross and selling customers you might not have otherwise sold

Once you’ve identified the path to pursue and you’ve determined that you must find a replacement, where do you start?

· Talk to your lenders or potential lenders first and ask them whom they know is looking for job. Check with the local reps as well as the buyers/credit analyst for your market. These are the folks that an Special Finance Manager will complain to first about his current position and ask them who’s looking for someone.
o They typically know all the players in the market, and can make a recommendation based on their past experience with these folks at their previous dealership.
o Credit analysts or buyers know who’s a whiner and who’s a worker, and can give you a first hand knowledge about a candidate you’re considering running your department. They also know who is a funding phenomenon as well as who is a flop. Make sure you have this information before you schedule an interview with a candidate. It’s helpful if you have an idea about whom you are talking to.
o Lenders love to have someone they already know to deal with, making your transition period that much less stressful.

· Try someone from outside your market. If you can’t get any lender to nominate someone locally, perhaps it’s because there really isn’t any great talent lying out there waiting for you to hire him or her. Consider hiring someone from outside your area, someone who doesn’t already have any preconceived notions about the market and the customers you serve.

· Some dealerships may consider promoting someone from within. Promoting someone from within your organization who has no experience may not be the best idea . You want to be sure that everything runs smoothly in the beginning while you continue to grow. Keep in mind that you really need someone with experience to keep your business moving along. Starting from scratch is difficult for many stores to do.

Make sure you have some way of insuring that your short-timer is not taking advantage of you and considering his final two weeks a license to steal! I always recommend that every dealership have some kind of contingency plan set up for just this situation. Keep in mind that, as great a person as you think your Special Finance Manager is, do they really have your best interests in mind if they know they are on their way out the door? It’s important to remember that the loyalty usually lasts only until the final paycheck, then all bets are off.

In an emergency can another manager fill in for the short term until you find a replacement, without upsetting your dealership? Don’t make the mistake of thinking that one man can do both jobs effectively. While it may be tempting to combine the two and save a salary, you can not for all practical purposes pay him properly enough to make it work well enough for both of you. Undoubtedly something will have to give, so the question remains which you are willing to sacrifice.

The bottom line is you will be faced with replacing an Special Finance Manager, a reality faced by dealerships daily. If you have properly planned and prepared for this inevitability the change should be positive.

Subprime is Different From Prime Business

2008-01-09T17:38:00.000-05:00

Subprime customers must be sold backwards from Prime customers. It is imperative that the entire dealership staff learns and owns this fact. Processes must be put in place to ensure that subprime customers are handled appropriately for both lot traffic (re-active business) and subprime sales leads (pro-active business).

Sales people need to ask non-offensive questions to determine how to work the customer: Prime (Car First) or Subprime (Payment Call first). This will help to reduce the “switch” and put your finance people in control of what inventory is presented and when. This will result in more sales with higher gross profits, increased customer loyalty, and will improved dealership morale.

New FICO Score to be More Understanding

2007-12-27T10:12:00.000-05:00

Consumers caught in the subprime mortgage crisis may find some relief with Fair Isaac’s new FICO 08. Aside from providing a more accurate risk assessment of consumer credit, the new formula also aims to reward customers for keep other credit accounts up to date.

“The main thing we tried to do with the score was to make sure it was in tune with current consumer behaviors,” said Fair Isaac’s Craig Watts. “We changed the formula to improve the predictiveness.”
The new formula takes into account consumer credit behaviors in all credit areas rather than focusing on accounts that have gone delinquent. Now, consumers who’ve fallen behind on one account could be rewarded for remaining in good standing with other credit accounts.

“If a person has a repossession or foreclosure on their credit score today, that casts a shadow over everything else. They are scored along with other people with serious delinquencies,” explained Watts. “But this new formula looks at not just serious delinquencies, but also at whether consumers have other accounts with positive credit histories. The consumer’s score is not penalized as much for serious delinquencies that are uncommon to his or her credit behavior.”

Although a consumer’s credit standing will vary from lender to lender, the new formula may present more opportunities for F&I managers to get consumer loans bought.

“Our expectation is that lenders will reduce the amounts of defaults on loans by 5 to 15 percent in certain demographic groups. It really helps with consumers who already have serious credit problems, those who are new to credit and those who are seeking credit.”

Making Lemon Aid from Lemons

2007-11-28T12:21:00.000-05:00

Everyone that has anything to say about Special Finance all agree on at least one thing. No matter how many cars or how much profit they make, it’s never enough. For the amount of effort required, Special Finance Departments are always expected to do better than they do, yet nobody seems to be able to pinpoint the short comings. They point fingers at the Used Car Manager (“The inventory stinks!”), the Special Finance Manager (“He can’t get a deal bought!”}, the Salespeople (“They can’t qualify a customer!”), the Sales Desk (“They can’t work a deal right!”) or the BDC (The leads they get stink!”).

Sound familiar? Some if not all of those comments are probably heard at your dealership’s Manager’s Meetings on a regular basis. So what can be done about it? Either let the war go on, with each department trying to blame the other, or call a truce and find a solution.

Regardless of the source, your dealership’s leads are only as good as you make them. The main reason that leads don’t produce appointments for a dealership is nobody has really worked them. What typically happens is whoever is making your dealership’s calls attempts to contact the lead once or twice. After getting no response, they assume the lead is dead, and it’s filed away in the no-sale category. Let’s analyze this for a moment.

Who does your dealership have making these calls? If your dealership has a BDC, there is no reason for this lead to be filed away and forgotten. The BDC’s primary responsibility is to make contact with your leads and/or customers. They should continue attempting to contact until either the customer buys a vehicle from your dealership or specifically asks not to be contacted again. If your dealership has a specific person making these calls, be sure the process is the same. Your dealership has only two types of customers – those that buy and those that don’t!

The secret to phone success is perseverance. Continue to call until someone actually reaches the customer. Make the initial contact, set the appointment and sell the process. Sell the concept of rebuilding the customer’s credit. “Sell a loan and get a car”. Continually leaving messages accomplishes nothing. Stagger the calls, so you do not try to reach them at the same time each day. The mission is to secure an appointment. If the initial contact is say, Monday at 1PM, and there is no answer, call back during the next day at 3PM. Work in two hour intervals. Why call back the next day at the same time? Follow up on Monday at 4pm as well as Tuesday at 6PM. Use this 2 hour stagger arrangement for the next two weeks until this lead is contacted and an appointment is made. In the meantime, be sure to send a follow-up letter this lead, which at least lets them know your dealership received their inquiry and have been trying to contact them.

If customers are not being worked properly, then it’s time to rethink your entire process. Too often it seems that a dealership is missing out on the special finance business in their market while the dealership down the street is doing extraordinarily well. The reason more often that not revolves around the process the dealership employs. The sales desk gets the prospect first and the desk and the salesman work the deal like a primary customer, only to find out after the deal is made that the customer has credit issues. Special finance customers must be worked backwards from a regular customer. Keep the customer focused on the credit issue and away from an inventory issue. Teach the sales force how to properly qualify a customer. Make sure that all special finance appointments come in asking for a manager who is already expecting them. Doing this helps upfront to know how to deal with a customer when they first come in to your dealership. Make sure the sales force knows to refer these people directly to the proper people or all is lost again.

Speaking of salespeople, make sure to properly train the sales force on how to deal with a special finance customer. Consistently successful dealerships know that these customers need to be work backwards. The first order of business is to assess their credit issues. Find out exactly what their situation is and work the deal accordingly. Keep the customer focused on the credit rebuilding process and away from the inventory. This will close a lot more deals.

Inventory is always an issue but should never prevent your dealership from making a deal. If the used car inventory is not properly aligned for Special Finance, there are two choices: pass on every deal because there isn’t enough profit on that particular vehicle or deliver a car, make the most profit on that particular deal, reduce your used car inventory by one, and go on to the next deal. As my dad used to say, “It’s just a hunk of steel that needs to go away.” Get it off the lot and get another one to replace it. It’s not like there aren’t any more used cars to go around.

More importantly, is the Used Car Manager up to speed on what he needs to buy. Does anybody let him know what inventory is preferred by the special finance lenders your dealership uses, or what vehicles tend to do the best with special finance customers? To get the best inventory, everyone needs to be on the same page. Communication is always the key.

If the problem is getting deals bought, the question is “Who is working these deals?” Are the sales desk or primary F&I manager working the deals? If there are problems getting deals hung, consider splitting the primary and special finance departments. A dedicated department focusing solely on special finance can rehash deals more efficiently, as well as having someone who knows the lenders and how to structure a deal accordingly. Remember that anybody can deliver a vehicle; the real talent lies in getting the deal funded quickly and without any deductions.

Things are never as bleak as they seem to be. No matter how bad things may look, with a little bit of cooperation, success is within your dealership’s reach. Stop the finger pointing and get everyone moving in the same direction. Soon your dealership’s special finance efforts will be everything you hope for and more

These leads &%^$#@@ (leave something to be desired)!

2007-11-05T17:34:00.000-05:00

The quality of direct mail leads hasn't changed. It's the circumstances these people face that is different

The subprime mortgage crisis effects the the people we mail to. Many of them are "victims" of these subprime mortgage loans and are unsure of what their mortgage payment will be when their rate goes up!

These are the same people that were banking on the equity in their home continuing to rise. Many took out equity lines or second mortgages and now don't have the equity left to support these loans.

The housing market is down, and many of the people who work in it are feeling the pain. The construction worker, carpenter, framer, electrician, plumber, etc. all were riding high when the new housing market was in full swing. Now, many of them, if they are still employed, have gone from 70-80 hour weeks making big overtime to 40 or less hours a week with no overtime. Income is way off, so many of them don't have down payments available.

Most special finance guys would walk away from this market because it's too hard to do the business. But then again, we're not most "special finance guys", are we?

Don't Sell Like You Buy

2007-10-25T13:02:00.001-04:00

By Keith Rosen, MCC The Executive Sales Coach™

I was almost at the end of the keynote I was delivering to an audience of Internet service providers in Tampa, Florida. As I brought the program to its natural conclusion, I let the audience know that I would open the floor to answer any questions that they may have.

Several hands went up. The third person I called on made a statement, not a question.

“Keith, that sounds too sales-y. I could never do that with a prospect.” He was referring to the four qualifying questions that I claimed are guaranteed to bring in more sales when meeting with a prospect.

“Sounds too sales-y?” I wanted to confirm I heard him correctly. I responded to this gentleman with a question. “To whom?” I wondered.

“To me!” the gentleman replied. “Those questions that you suggest we ask every prospect sound way too sales-y to me. There’s no way that would work with my prospects.” (Said a different way: “There’s no way I could ask those questions. I’m scared!”)

“Well, I can certainly appreciate the fact that these questions may sound a bit different or as you say, ‘sales-y,’ to you, especially if you don’t ask the prospect any questions. But what about your prospects? How do they sound to them?”

“Huh?”

“When you ask these questions to your prospect, do they tell you that it sounds ‘sales-y’ to them?” I clarified.

“Sure.”

“Really? Is that what they told you?”

“Not exactly,” the person said and then continued with, “I really don’t know. I’ve never used these questions before.”

“So if you did use these questions, you’re assuming that they will come across as sales-y or unfavorable to your prospects, is that what you’re saying?”

“Yes.”

I thanked this person for their comments and clarification and then asked the entire audience how many people felt similarly. That is, I asked if those of them who had never taken the time to ask the questions felt that it wouldn’t be something that worked for them. A majority of hands went up.

I then asked a question to the audience. “How many people have heard of the Sahara Desert?” Most of the hands in the audience went up. I then asked, “How many people here have actually had the firsthand experience of visiting the Sahara Desert?” No one’s hand went up.

“So, then, how do you know it even exists?”

Silence. I then continued, “If you’ve never experienced it, then how do you know it’s real? Just like the questions I suggest: If you’ve never used these questions, then you really have no idea whether or not they will work or how they will be received by your prospects.”

I was building my case. I then turned to the audience and said, “Do not sell the way you buy.”
Now, you may feel at this point that I’m contradicting some universal selling principles. After all, conventional sales wisdom suggests how important it is to empathize and sympathize with your prospects and clients.

However, there’s a very fine line between understanding and respecting someone’s decision-making process and assuming that everyone makes a purchasing decision in the same manner, using the same criteria that you do. Moreover, it is a faulty assumption that your prospects respond similarly to the type of sales approach and the type of salesperson to whom you would respond and from whom you would buy.

I then shared a personal example of the dangers of selling like you buy. “Folks, if I sold in the same manner in which I make a purchase, and if I in turn transferred those values and beliefs onto each prospect that I speak with, then I could tell you with great certainty that I would not be up here talking with you today.

“Reason being, when I make a purchase of any substantial amount, I take the time to research my options and to learn about the different products or services available. By the time I’m ready to actually make the purchase — whether it’s something for my home, a television, a car, or a computer — more often than not, I will know more about the product, the competition, and the marketplace than the person who is attempting to sell it to me.

“My point is, if I started selling the way in which I make a purchasing decision, I am now putting my values, thought processes, and beliefs on the customer; I’m assuming that they purchase the same or in a similar way that I do. The result? More objections, less sales.

“Besides, what if I was talking with an impulsive or assertive prospect who was ready to buy immediately? I would be talking myself right out of the sale!”

“Let’s defuse a costly myth. The old adage of putting yourself in their shoes is really a costly assumption that destroys many a selling opportunity. Why? Because when you ‘look through their eyes’ or attempt to see things how you assume they see them, it is still really what you see, not what they see.

“The result? You develop a sales process based on how you think they buy rather than how they actually make a decision. Why? Because how you think they buy is really how you buy.

“If you truly want to wear their shoes, then you need to know how they think and what is important to them. Therefore, the only way to uncover how the prospect processes information, how he or she makes a purchasing decision, and what criteria he or she uses to do so is to ask better questions.
“Now, let’s take this same ineffective model of ‘sell like you buy’ and turn it around for a moment. If this belief in selling like you buy gets in the way of taking certain actions or of asking certain questions when on a sales call, then you must ask yourself what else you do or say, which you think safe, that is inappropriate or discomforting to your prospects.

The lesson: Don’t believe everything you sell or tell yourself.

Salespeople who sell in the same manner in which they buy are sure to have a lower number of satisfied clients.

Sell in the manner in which you were trained to sell and stick with the proven selling sequence that works for you and within your industry or profession. You cannot expect prospects to purchase in the same manner as you do.

If you sell in the same manner as you buy, you are instilling your beliefs onto other people. Since every person’s beliefs and buying habits are different, every prospect processes information differently. What is important to one person may not be important to another. Therefore, two presentations should never be exactly the same.

While one prospect might weigh company stability and the quality or value of the product as the most important aspect in making their decision, another prospect might weigh price as the most important factor.

Learn to adapt your presentation around the values of each specific prospect. In the end, people make purchasing decisions based on their style of buying, not yours.

Reading Between the Lines: Decoding Nonverbal Language

2007-10-25T12:53:00.001-04:00

It’s been said “A picture is worth a thousand words” The picture your customer paints with their body language can often say more about what they are thinking about you and your product than what they are actually saying. It's frustrating to be rejected when you first approach a customer, but what’s even more frustrating is hitting it off with a customer for a few minutes but soon finding that your presentation comes to a halt just when you thought everything was going so well.

With spoken words making up less than 10% of the information exchanged in a typical conversation, you may be missing out on crucial information being transmitted to you via nonverbal body language. By tuning in to the body language of others—as well as your own—you'll be in a better position to know whether to keep the conversation going or cut your losses

Understanding Body Language Cues
Body language can be very subtle, and can sometimes be misinterpreted. It’s important to keep in mind that individual body language cues are not all-or-nothing observations. Even if you notice a few indicators of disinterest, it doesn't mean you don't still have a chance. It is the sum of all body language cues that will clue you in to how well you're hitting it off.

The full impact of understanding body language comes not only when you can recognize the body language of others from the very start of your conversation, but when you can also perceive subtle changes in their nonverbal communication throughout your interaction with them. So if you're hitting it off but then notice that something changes suddenly for the worst, you can assess what turned them off on the fly by thinking about what and how you're communicating to them.

Most times people are unaware of their own body language and how it might be coming across. You may be saying a lot to a potential customer without saying a single thing! Even socially anxious people who are more sensitive to others' reactions may under- or overestimate their own behavior. So make sure you also clue in to your own body language cues that you're giving off in addition to observing the other person.

Body Language Basics
There are two general categories of body language that can help you assess whether someone shares your same interest level: open and closed. Open body language usually indicates that a person is interested in you or is receptive to your advances. Generally, a person who is expressing open body language is relaxed in stance, with arms and legs uncrossed, and may use their hands to animate their conversation. Also look for these open body language cues:

Eye contact is relaxed, but eye-to-eye contact between two interested people is fixed for a longer time. In some cases a person's pupils may dilate in when gazing intently at a person they have interest in
Preening gestures, such as someone running fingers through their own hair and tossing the head slightly to the side
Leaning inward or closer toward a person to gauge response
Subtle head nods while the other person is talking
Touching the other person on the arm, hand or shoulder when making a point in conversation .
Blocking, or standing between the object of interest and any other potential suitors in the environment

Closed body language usually indicates that a person is expressing some level of disinterest or apprehension in getting to know you further. Generally, a person who is expressing closed body language may appear somewhat tense or defensive in the shoulders, with one or more arms crossed or situated in the "cobra pose," in which hands are tucked upward behind the head with the elbows facing outward. Also look for these other common closed body language cues:

Eye contact. A person may avoid eye contact altogether, as if to hide their true feelings about you. They may look around the room, feigning interest in other people or objects to avoid you. Additionally this avoidance may alternate with short periods of aggressive or intense staring when you look away from them for a moment, as if to say, "Back off."
Staying perfectly still. Like looking away, freezing the body can sometimes help a person hide negative feelings toward another in their presence.
Defensive gestures, such as curling their shoulders inward slightly and pointing the chin downward. Subtle aggression can sometimes be seen with tightly clenched fists as well.
Leaning away from or physically moving away from the other person, even subtly, can indicate a subconscious desire to get away from the person who is communicating with them.

The Role of Mixed Messages

Sometimes mixed messages come into play during a conversation. During these times someone may seem to like you on the whole, but are giving you cues that they are not 100% comfortable. In mixed-message situations, you may find that a person's body language belies the tone in their voice. (Hint: If you have a hard time picturing this, try shaking your head side to side as if indicating "no" while vocally saying aloud "yes," or nodding your head up and down as if saying "yes" while saying "no" aloud. This is a mixed message in its truest sense.) Other times, someone may lean in toward you to get physically closer but make little eye contact with you, save for brief period of intense eye-to-eye contact.

Here are three basic explanations for mixed messages:
1. Disinterested. The person's not interested in you or your product, or is deceiving you by pretending to like you enough to keep a civil face.
2. Nervous. The person may be interested in you or your product, perhaps even a great deal, but they're really nervous, and are not sure how you feel about them. Really anxious or shy people can come across as aloof and disinterested when they're anything but that once they feel comfortable with you.
3. External conditions. There are external conditions you may not be aware of, such as another product they're interested in, or perhaps they're feeling a bit under the weather. Sometimes someone who is cold might have their arms crossed but is perceived as being defensive.

Putting it all together

All in all, the combination of both spoken and unspoken communication will best tell you how well you're hitting it off with someone. But armed with the basics of body language, you'll be well on your way to putting it into practice, and once in play, you'll be several steps closer to knowing that you're really hitting it off with someone who is eager to do business with you..

Who’s reading your mail?

2007-10-25T12:03:00.000-04:00

I’d like to introduce you to a member of my family. Her name is Chooch, and she’s 14 years old. She doesn’t work, does not have a driver’s license or a Social Security number, and as far as I know, has no credit file.

Let me start out by explaining something. My home phone number is listed in Directory Assistance under Chooch’s name. If you haven’t figured it out by now, Chooch is my border collie. That’s right…my dog! I do this so, when someone calls my home during dinner and asks to speak to Chooch, I know it’s a telemarketer. So far, Chooch has gotten calls for magazines, insurance and political contributions.

But recently, something new has started to happen. Chooch has been pre-approved for credit cards, real estate auctions. Recently, and most importantly, she started to receive mailers from auto dealers!

This is one of the credit mailers Chooch has recieved lately!

So, who’s reading your mail? Do you really know who your mail campaign goes to? Direct mail is not cheap, as we all know, and unless your piece is being opened and read by real consumers who need an auto loan, how effective can it be? In order to maximize the effectiveness of your advertising dollars in today’s market, you need to be sure that your marketing efforts are precise. After all, advertising dollars are limited, and, just like you teach your sales people, you have to sell value in order to sell your product.

Offering easy credit to customer with good credit is like trying to sell a compact to a family with six kids. It might work, but in reality, it’s going to be a hard sell. Make sure that the mailer you buy maximizes its impact on customers who truly need your credit offer. Using blind, targeted mail, with a genuine offer of credit, produces customers who want your help

Maximizing YOUR Results

2007-10-09T16:01:00.000-04:00

The first question we ask dealers is: "Of the last ten potential customers that came in for a car, how many left without one?" Conservatively, dealerships are losing at least one Special Finance deal a day or 25-30 deals a month. Our analysis of the lost opportunities enables a dealership to correct the processes that are losing these customers. With re-training in proper Special Finance processes a dealer can go from being simply average and frustrated in their Special Finance efforts to solidly and consistently successful.

What does that mean in real money? By recapturing the lost opportunities at $3,000 average gross per deal, an additional $75,000-90,000 in gross profit is added simply by correcting existing mistakes. Then, with AutoLending Network™’s Targeted, Blind Direct Mail Program and the AutoLending Network™ Profit Development Center, we look to add 18-22 additional units a month. This means, with a $3,000 average gross, the AutoLending Network solution adds $54,000-60,000 a month. Combining the AutoLending Network™ Solution and the customers recaptured from lost lot traffic, it is reasonable to add another $129,000-150,000 a month to the bottom line. That is $1,548,000-1,800,000 a year in a market that most dealerships are largely ignoring.

TOP TEN REASONS YOUR LENDER SHOULD BUY THIS DEAL

2007-10-09T15:48:00.001-04:00

TOP TEN REASONS YOUR LENDER SHOULD BUY THIS DEAL

10. IF YOU COULD ONLY SEE THESE PEOPLE, YOU’D BUY THEM
9. YOU’VE GOT TO HELP ME, IT’S THE OLDEST CAR ON MY LOT!
8. LOOK AT IT THIS WAY, HE CAN’T FILE BANKRUPTCY FOR ANOTHER SEVEN YEARS.
7. WHEN’S THE LAST TIME I ASKED YOU FOR A FAVOR?
6. YOU SHOULD ONLY HOPE THIS GUY GOES BAD, YOU’LL MAKE MONEY ON THE REPO!
5. NO, HE’S NOT A GYPSY – HE’S A ROOFER.
4. YOU DON’T WANT ME TO HAVE TO CALL YOUR BOSS, DO YOU?
3. COME ON, THIS GUY KNOWS THE OWNER.
2. YOU HAVE TO HELP ME; THE CAR’S ALREADY BEEN ON THE ROAD FOR TWO WEEKS!

AND THE NUMBER 1 REASON WHY THEY SHOULD BUY THIS DEAL…

OK – BUT THE REPO WASN’T WITH YOU!!!

What Makes Special Finance So Special?

2007-05-31T11:00:00.000-04:00

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

2007-05-31T10:40:00.000-04:00

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

2007-05-31T09:50:00.000-04:00

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”.