August 2008, Auto Dealer Today - WebXclusive
It Could be Detrimental to the Bottom Line
Don’t Panic. The market is tougher than I have ever seen it. The old days are back—big fees, low advances, short terms and high interest rates. Thanks mortgage market for causing this overcorrection.
Don’t give this temporary situation any more steam than it already has. I have a dealer who “laid off” his special finance manager thinking that his regular finance manager would do the deals anyway. I work this market every day; trust me, your prime finance person does not have the time and sometimes the foresight to see these tough deals.
Lets say you have a special finance department that does 15 units a month at an average “true” profit (I say this because there are states that do not regulate the documentation fee’s, and lets face it, pack helps ease the expense burden) of $1,000 front, pack of $500, documentation fee profit of $300, back end profit of $800. That is a total “true” gross on each unit of $2,600, $39,000 each month or $468,000 annually. Can you afford to see your bottom line loose $468,000?
I have used very conservative gross figures because even with these small numbers, the special finance department is making your bottom line look better. Don’t make the fatal error of firing your SF manager and giving those duties to the prime finance manager. We all need that extra boost in this market, so don’t fall into the knee-jerk reaction of thinking cutting a cost like this will save your bottom line.
Dig your heels in, work harder than you have in years and it will all come to pass. Special finance is still out there, but not how we’ve been conditioned to expect. Make your used car buyer step up to the pump, be sure you have all of your inventory booked out so you don’t leave a penny of profit on the table and sell your clients on what “you” want them to purchase. If they won’t take anything but what they want, that is OK. Just make them pay for it, and your grosses will not take too much of a hit.
Special Finance Insider Vol. 2, Issue 4