Who Buys Under A 475 Score?

September 2006, Auto Dealer Today - WebXclusive

by Dan Henderson - Also by this author

Recently a lady called my office absolutely livid that we sold her a car at 14.99% interest when she thought it was 4.99%. I simply told her that it took more than the two repossessions she had on her credit to qualify for such a great rate. Well, needless to say that was the end of that conversation. I also remember the phone call from the guy who insisted that I not pull his credit because he knew he already scored a 383 and he did not want it to get hit with a pull from me. My response: “Sir if you score a 383, the last thing you need to be worried about is me pulling your credit.”

These customers, you’ve got to love them…they are however our bread and butter. One of the questions asked by many in Special Finance that even I ask is “Who is buying that paper under a 475 score without a big discount?”

The answer…NOBODY!

The reason: They don’t pay.

Back in the day when Americredit was King, I rode the train until it ran right into a brick wall. You know how it was done; you took a new car at a few hundred dollars or so over invoice applied the rebate, put it in DealerTrack and watched the computer give you the stupidest call you had ever seen on that 423 with no positive credit and a $100,000 tax lien. Well taking into account that my hair was not always the radiation yellow that you see in this column, I was still pretty stupid. At my peak I was putting 30-40 deals through Americredit each and every month in a store where we peaked at 60-70 cars per month in Special Finance. Before long I got the phone call from Americredit’s corporate office. I would no longer be an active dealer with their company. I did nothing wrong from a legal standpoint. My deals were clean. I didn’t powerbook, I never did anything that would jeopardize the integrity of the dealership or myself. But, at the same time I did nothing right.

Your lenders are just as much your bread and butter as your customers are…even more so. If you treat your lenders like I treat my ex-wife (this is the car business, most of us have one or two) then you have no reason to complain when they don’t want your business. That’s right Lenders will get to the point where they no longer want your business. We have to treat our lenders with respect and responsibility on our part. If you want them to be there for the long term, act like it. This week my assistant and I are taking our annual Christmas trip to our lenders offices. We take a day and travel to visit all of our lenders. We will greet them with a bottle of nice wine for Christmas. Our top lender, Transouth, will receive a nice bottle of champagne and champagne glasses and the branch manager will receive his bottle of Dom Per ion. It is not always necessary for your lenders to come take you out to lunch, try taking them out to lunch occasionally.

It goes beyond that however. We request a portfolio report from our lenders each month. We want to know if there is a problem in advance. We want to know if we need to focus on more “B” paper to help offset the costs of the “D” paper. Our finance department has a monthly meeting to review our reports and we take it very seriously. The lenders love the fact that we are just as concerned with the performance of our paper as they are. We ask our lenders what their expectations are, what is good, what is average and what is unacceptable and we will work with the lenders to make sure we stay above par. We have even been known to call customers in conjunction with our lenders to help in collection efforts. Portfolio reviews should be an essential part of your Special finance plan.

Take it seriously and don’t take your lenders for granted. They may not always be there. I think instead of asking who is buying that paper under 475 without a big discount, we should be asking our lenders what we can do on the other end of the spectrum to make this deal make more sense to them. What can I do to make sure the lender will be here next year to buy the same way they are buying for me today? A little—no a lot of consistency is needed in our industry, but it starts with us.

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