This month I promised a number of the Special Finance Managers that I have worked with that I would make inventory the subject of my column. (I will save deal structure for next month.) Inventory most certainly is a critical issue. Of the seven key elements to success, I rate inventory the second most important. Yes, just ahead of personnel. Make no mistake; it certainly takes people – well trained people - to run a successful Special Finance department. However, you have quite possibly seen this situation repeated in your own dealership: A skilled sales person works with a customer that the Special Finance Manager has approved through a number of lenders. The customer has the required cash down payment and all the required documents. However, no vehicle exists that allows the dealer to both structure the deal to meet the payment call and allow the dealer a satisfactory profit – or any profit at all. The sales person is frustrated, often mistakenly blaming the Special Finance Manager for their “inability” to get the deal approved.
Between our 20 Group clients and those that visit us through AutoDealerDaily.com, often one of the biggest conflicts that exist within the sales department of dealerships is the one between the Special Finance Manager and the Used Car Manager/Buyer. The Special Finance Manager is continually pleading for more lower-priced inventory, with a lot-ready inventory cost of at least $500 less than NADA Trade. The Used Car Manager/Buyer retorts that “You can’t buy the type of cars that we sell at that price!” Both are right. What the Used Car Manager/Buyer doesn’t realize is that even though the vehicles that he or she is buying are good values and likely excellent inventory for the conventional Used Car Department, the fact that they are “on the money” has little to do with the ability to sell them in Special Finance.
Stocking for Special Finance has little to do with what the vehicle is worth when it crosses the auction block, but everything to do with what the lenders will finance them for. Often these values are drastically different, and generally the Used Car Buyer is not using – or even carrying - the same book that is used in the Special Finance Department and by its lenders. Until the buyer gets on the same page as the Special Finance Manager, ultimately the department is doomed to lower grosses and missed deals. My suggestion to Special Finance Managers is to do what I did for so long – either create a grid comparing book values to the cost that a unit may not exceed when it is being purchased for Special Finance. The other option is to compare the book values for select vehicles that sell well in Special Finance to the Manheim Market Report showing what they average selling for at auction. Where you see a “spread” in your favor between the two, note the vehicle and what the maximum inventory value should be. Both of these tools can easily help the Used Car Manager/Buyer, especially if they are looking at makes or models that they are not particularly familiar with.