Starting SF From Ground Zero
“It’s just a matter of committing to it.” That’s how Ed Walsh, general manager, explained the success of Lamb Auto’s new special finance departments, more commonly referred to within the dealerships as secondary finance. “We’re just wholeheartedly committed to secondary finance and it’s been paying off handsomely.”
Walsh arrived at Lamb Auto in 2002, but he was hardly new to the business. In fact, he was practically born into auto sales; his family owns Lou Walsh Motors in Carroll, Iowa. Walsh wanted to start his career outside the family’s business, so after attending Michigan State University in the early ‘90s, he hit the sales floor at a Ford dealership in Okemos, Mich. “I didn’t set out to spend my whole career away from the family business, but I was fortunate enough to have some success early in my career. I now find myself in an ideal situation in beautiful Prescott, Arizona,” said Walsh.
Prescott, situated in the Bradshaw Mountains and home to the World’s Oldest Rodeo?, is where Lamb Auto began as Lamb Chevrolet in 1957. Since that time, the dealership has expanded to include stores for Chevrolet/Cadillac, Nissan and Subaru. The Chevy/Cadillac and Nissan stores boast brand new special finance departments. According to Walsh, Lamb Auto was “sitting on the sidelines and doing nothing” when it came to special finance. That changed, however, after Walsh attended a 20 Group meeting where the guest speaker, Greg Goebel, discussed the 10 Critical Components of Special Finance Success. After that meeting, Walsh made up his mind that Lamb Auto would soon enter the growing arena of special finance.
“Both my general sales managers wanted to add it,” said Walsh, referring to Rhett Wagner, GSM at the Chevy/Cadillac store, and Charlie Bennett, GSM at the Nissan store. “Nothing would have been done without their support.”
Walsh tapped Chris Knaub, new to Lamb Auto at the time, to be his director of secondary finance at the Nissan store. Knaub, who had been the general sales manager at a neighboring Dodge dealer for five years before that, did not know much about special finance and certainly had no experience setting up or running a special finance department. Even so, Walsh knew Knaub was the right man for the job, describing him as “a formidable competitor” at his previous position.
Like Walsh, Knaub enjoyed success early in his career, having been promoted to general sales manager of the Dodge dealership at the age of 25. “If we did one thing right,” said Walsh, “it’s that we found somebody who’s been good at everything he’s ever done in his life, gave him the education and skills … in the long term you’re much better off if you can find that special talent.” He believes one of the biggest mistakes dealers make is thinking they have to find someone who’s done special finance before.
He added, “Great secondary finance people are just about the rarest people in all the car business.” His opinion is that dealers need to focus on finding someone who is already successful and capable, even if that person doesn’t have a clue about special finance. If a dealer can find that talented person and give him the tools to learn special finance, according to Walsh, “the skills will come and you’ll be so much better off.”
Walsh provided Knaub with all the information he had gathered on secondary finance, and they began discussing the need for the right inventory and potential lenders. Knaub began calling and interviewing banks on the list he and Walsh had compiled. Knaub thinks it’s important to have relationships with as many banks as possible and is always keeping his ears open for new lenders. He also said that it’s important to stay focused on inventory to make sure the right cars are in stock.
With things up and running, Walsh and Knaub then had to focus on generating business. To pull more customers into their new special finance department, they send their own bankruptcy mailer and try to incorporate something for special finance into all of the dealership’s conventional advertising. Additionally, Walsh said they are very active in purchasing leads. At first, he stated, they bought every lead they could, but they have since learned what works best for them, shrinking the radius for some providers and eliminating others. “We try to go for the top-rated providers and add those,” said Walsh.
Lamb Nissan does not have a BDC yet, but Walsh anticipates developing one in the future as business increases. Right now, the responsibility falls on Terry Mamula, Lamb Nissan’s special finance business development manager, whose primary duty is calling leads and scheduling appointments for Knaub. Hiring Mamula full-time to handle things internally was an absolute necessity, according to Walsh. “If Chris has to call leads every day, he couldn’t sell 30 cars a month, and if he can’t sell 30 cars a month, I can’t afford him,” Walsh explained. “You really need someone like Chris to be successful.”
While advertising and lead generation drive much of the store’s business, many of Lamb Nissan’s special finance customers are walk-ins. If it is discovered that a customer has a low credit score while at the desk, the salesperson calls in Knaub. He conducts an initial interview then looks through the inventory to pick out the cars that could best qualify for the customer. The salesperson then shows those vehicles to the customer.
“When someone comes in … and starts giving us bad credit indicators, we try and work the deal backwards … pull the credit app, get them with Chris, then work backwards into the inventory,” Walsh explained. According to Walsh, this is more advantageous to the dealership and results in happier customers. He also added that there is no internal conflict amongst the employees, since the salespeople stay involved, get the deal and still get a minimum commission. “Our sales force has been nothing but excited about adding this department,” said Walsh.
With Knaub at the helm of the special finance department, Lamb Nissan has enjoyed exceptional success. The new department has been in existence only since Dec. 1, 2007, and Walsh said he’s seen a direct upswing in sales since then. Prior to that time, the Nissan store sold about 90 new and used vehicles per month. In February, Walsh anticipated sales of 130 to 140, with about 30 of those units being special finance. The Chevy store, which started its special finance department about one month after the Nissan store, averages 160 sales per month and will likely sell 25 of those through special finance.
Before the establishment of the special finance departments, Walsh said, “Like most dealers, we ran [subprime deals] through our normal finance managers. We ran them through the desk managers and just did the best we could … We didn’t think we had a problem until we started doing it the right way and really noticed just how much better we are at getting people financed and how much extra business there is out there.”
“If you sell somebody a new Cadillac and you take care of them, you might get a referral, but you’re more likely to get referrals and repeat business out of somebody you sell a $7,000 Cavalier to with low credit,” Walsh explained. “If you take care of that person, believe me, the friends and family are going to come running.” He said they’ve already seen a huge push of people coming in because someone they know was able to get financing through Lamb Nissan. “With the economy getting worse,” Walsh said, “the amount of people who are going to be ‘special finance’ is going to go through the roof.”
According to Walsh, creating the special finance department has “had a positive effect all through the organization.” He’s seen the Nissan dealership’s sales go up considerably and declared that the service department just had the best month in its history because its reconditioning more cars. However, it’s obvious he believes that, while there are many benefits to getting into special finance, it’s not for anyone who isn’t ready to take on a huge responsibility: “It takes a total dealership commitment … capital, inventory, finance sources, finding the right person. You’ve got to completely dedicate to it.”
While it might seem that the Nissan store’s special finance department had overnight success, there was a lot of thought and planning done before anything moved forward. “I had noticed a need for a while,” said Walsh, “but I didn’t want to jump into it until I had the right person and systems in place. I have seen too many dealers charge into special finance, only to retreat with their tail between their legs six months later.”
Knaub admitted that the process has had a lot of trial and error. Walsh acknowledged, “I don’t think we’re the smartest people in the country when it comes to secondary finance – not yet – but like a lot of dealers, we were sitting on the sidelines and we’ve jumped into this, into the deep end of the pool, and it’s been a wonderful thing.” In an area that’s usually sink-or-swim, Lamb Auto appears to be navigating the waters just fine.
Special Finance Insider Vol. 2, Issue 2