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

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

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

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

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!

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"

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

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.’”