Eliminate Advertising and Find Success
There’s not much that’s traditional about Tracy Buick Pontiac GMC Cadillac in Tracy, Calif. From how their advertising budget is allocated to running the sales floor, their approach is anything but ordinary. While this franchise store meets its new car objective nearly every month, approximately 90 percent of its total business is special finance.
However, this was not always the case. The store had tried special finance “on and off, like everybody … but could never get the formula down,” said Owner Martyn Strong. When both new and used car sales declined in late 2006, he knew he had to do something to bring more gross profit into the store. He called a consultant he’d known for several years, Brett Boatright, to ask for help setting up a proper special finance department. With Boatright’s assistance, the store’s special finance operation launched in January of 2007, and he became the store’s general manager a few months later.
Based on his past dealership experience and his experience as an outside consultant, Boatright believed that using third-party Internet leads was the most efficient way to grow a special finance department. He explained that around 2000, the auto group he was with began purchasing third-party Internet leads on a limited basis and very quickly grew into a large special finance operation. “These leads were by far the best return on our investment,” he stated.
Tracy’s special finance department buys non-incentivized, exclusive leads from five different providers, including InterActive Financial Marketing Group (IFMG) and V-P Marketing. In fact, purchasing leads is the only tactic the dealership uses to drive traffic. They don’t do any traditional advertising, not even direct mail. “We don’t spend a penny in the newspaper, the radio or TV,” said Boatright.
Both men viewed traditional advertising as somewhat haphazard. “You just kind of throw money at it and try to get people to come in,” said Strong. Instead, all of the dealership’s advertising dollars are directed toward purchasing third-party Internet leads, and with the exception of a few walk-in special finance customers who may arrive at the dealership by word of mouth, nearly all of the store’s special finance sales originate as third-party Internet leads.
The store maintains an impressive consistent lead conversion rate between 10 and 15 percent—higher than the current industry benchmark of 8 percent. A lot of their success with purchasing Internet leads, they explained, is simply math. Within a few months of starting the new special finance department, Strong came to realize what Boatright already knew from years of consulting. “Martyn understood pretty early on that it’s just a mathematical equation,” said Boatright. “He said, ‘If we can buy 800 leads and sell 80 to 100 cars with 8 people, why can’t we buy 1200 leads and sell 120 to 150 cars with 12 people?’”
Their approach has proven quite successful. In 2006, when there was no special finance department, the store sold a total of 288 used cars for the year. In 2007, used cars sales in special finance alone totaled 762. Strong said it’s possible to make a reasonable prediction of the number of cars that will be sold on a particular day based on the number of appointments scheduled.
“The store’s run as far from a typical dealership as possible,” said Boatright. Unlike many other dealerships, the majority of sales don’t start on the lot and there’s no one walking the sales floor.
Strong commented that was “the old way of doing business.” In the case of a fresh up on the lot, a manager will assign one of the salespeople to handle it, but this does not happen often. Almost every special finance customer who arrives at Tracy is there by appointment.
“We have a BDC, but it’s not what most people would think of as a BDC,” said Boatright. About a dozen or so salespeople operate the phones. They contact the leads, set appointments, meet the customers when they arrive at the store and take them through the sales process. They also handle follow-up using the process built into IFMG’s management system.
All salespeople are trained on a phone script designed to bring in customers in the low-400 to mid-600 credit score range. Boatright also stressed the importance of avoiding specifics on the phone. “We never have our guys talk about specific cars, ever,” he said. “And we never talk about banks. We never talk about interest rates. We never talk about terms.”
To ensure their salespeople are following the correct phone process, they have developed their own system for monitoring calls. While not giving specific details, Strong said they are able to tell at any given time how many phone calls a salesperson has made, who they’ve spoken to, for how long and what was said.
Once a customer is greeted by the salesperson who made the initial contact, the salesperson gets the customer’s information and credit application, and then takes it to the sales desk. One of the store’s three sales managers will then determine what car to put the customer in and what the customer will need in order to buy. The sales manager relays that information back to the salesperson who then shows the vehicle. Once a deal is made, the salesperson turns the customer over to the finance department.
Said Boatright, “The sales manager pretty much calls all the shots and makes all the decisions … from where the deal is going to how the deal’s structured, what’s sold in it.”
He has been working with some of the same sales managers and finance managers for at least six years, before ever coming to Tracy. All of the managers started out on the phones and therefore have been trained in every step of the process.
“You can build a special finance department as big or as small as you want it in any store and it can be as profitable as you want it to be; it’s just got to be manned properly,” Boatright stated. He believed this to be where many dealers fail at special finance. “Most dealers think they can just take their old car dog who’s been selling cars for 10 years and turn him into a special finance guy … and it really doesn’t work that way because these guys are already geared to go a certain direction.” He explained the key to success is in the process, in doing things consistently for every deal, and that it was important to make sure special finance employees are well-trained in the department’s processes.
Just as important as personnel and processes is the dealership’s inventory. While their processes have helped increase the number of sales at the dealership, purchasing the right inventory has been essential to increasing gross profit per deal. In 2007, the store’s average gross per deal increased by approximately 48 percent. “The philosophy is, the gross is all in the buy,” Boatright said, “but you have to have your inventory set up to be able to make these deals.”
They will not purchase a car unless it is at least $2,000 to $2,500 back of book, and are unconcerned with what make and model it is. “If every car was yellow and pink, but it was six grand back, we would buy all of them,” said Boatright. “We deal more with getting the loan for the person. The car is really secondary.”
Even with the car being secondary, they prefer to stock vehicles no more than three years old and with no more than 50,000 miles. “If it’s not going to service the customer’s needs, we’re not interested in selling it,” said Strong. “If it breaks down, the customers are not going to make the payments and they’re back in the same situation they were before.”
While staying within those parameters ensures the dealership will have quality vehicles capable of turning a profit, it often means they must focus on buying vehicles that other dealers are shying away from. Lately, that’s been trucks and SUVs. “We move them as fast as we get them in,” stated Boatright. “When we buy a car $8,000 back of book and we’re able to put it on the road at 105 percent of Blue Book … the bank’s happy, we’re happy and the customer’s happy because they’re in a loaded-up SUV.”
“It’s all about the car loan,” Strong acknowledged, “but it’s really nice if you can drive a nice car as well … Some of these people have run on hard times, unfortunate things happen. Why should they be penalized just because something bad happened to them in their life?”
He admitted that he has been pleasantly surprised by the type of clientele the special finance department has brought in. “You’ve got this stereotype in your mind that … these people are going to come in who are going to be a little on the rough side, not the kind of person you want around a Cadillac dealership so much,” said Strong. However, he observed, “They’re much easier to deal with; they’re nicer people. They just want somebody to help them get into a decent car.” He went so far as to say that, given the choice, he would prefer to work with a customer with special credit needs over a regular retail buyer.
He expressed no doubt that moving into special finance again was the right thing to do. “The writing was on the wall since ‘06 that the economy was not what we thought,” Strong said. “If we weren’t in special finance … business would be very, very difficult.”
Boatright agreed. “I can’t imagine being a dealer out there right now that is solely reliant on selling new vehicles.”
They acknowledged that they’ve suffered from many of the same problems as other special finance dealers have lately. However, they haven’t allowed it to slow them down any longer than it takes to adapt to the next change. “Special finance is almost immune to market conditions if you run it right and you roll with the punches,” said Boatright. He understood how some dealers could be wary of special finance, acknowledging that things can get messy and problematic if not done correctly.
Boatright, who still works as a consultant in addition to being Tracy’s general manager, said he always advises dealers, “Don’t dip your toe in the water; jump in. It’s nothing to be afraid of, unless you’re scared of making money.” He pointed out that their store’s monthly gross profit in special finance averages $300,000. “Other than your fixed ops department, special finance should be the number-one profit center in your store, if you run it right.”
Special Finance Insider Vol. 2, Issue 4