The special finance (SF) market has opened back up, leading some dealers to focus their attention on SF processes. In late 2010, Dealer Jill Merriam Dulitsky decided it was time to inspect such processes at Key Hyundai, which consists of two stores, one in Manchester, Conn., and the other in Milford, Conn.
The catalyst for her focus on special finance was seeing what an “amazing job” other dealers were doing in their SF departments. After joining a marketing group called the Rich Dealers Institute, she met several dealers who were successful with SF and over time learned about their operations. This led her to examine her own stores to determine why they were lacking in SF and how they could improve. “Just through seeing bureaus and DealerTrack, I knew we had plenty of [subprime] opportunities walking through the door,” she said. “I started to realize that we had absolutely no process whatsoever [for handling special finance].”
Opportunity had been knocking, and she was ready to open the door. So, the next step was to uncover and implement the proper processes. “I started asking around within the [Rich Dealers Institute] about where I could go to get trained on special finance, and Greg Goebel’s name came back 8 million times over.”
Almost a year ago, Dealer Jill Merriam Dulitsky decided it was time to put the microscope on special finance at Key Hyundai. Not only has the special finance business at her dealerships substantially increased, but the operations have seen improvements in other areas as well (including the BDC, manager pay plans, job descriptions, and used vehicle inventory acquisition and management).
Goebel visited the store in November 2010, and Dulitsky said, “For us, that was the beginning.” While she knew she faced an uphill battle, she was ready for the challenge. The initial goal was to improve each store’s special finance business by 10 units a month. However, she discovered both stores needed improvement in other areas as well. “We’ve really changed all the processes in the dealership. I shouldn’t even say ‘changed.’ We put processes in where they didn’t exist before.”
First, she tackled job descriptions and pay plans. “We were structurally set up for disaster. Every time someone said, ‘I need another manager,’ we would just go ahead and hire somebody and put them on a pay plan. We would never actually [consider the] overall impact … on our financial statement.” This practice, coupled with exorbitant sales manager pay plans, led to things being “completely out of whack,” said Dulitsky.
Obviously, pay plans at the Key stores had to evolve, and it’s not easy to tell employees that their pay plans are about to change. Initially, she was worried about how employees would respond to the news, but they responded well. She believed they took the news better than expected because they knew greener pastures were ahead. They’d already sat through Goebel’s training, which helped employees to understand her vision for the dealerships’ future. Plus, when she explained the coming changes to them, she told them they were going to generate more business, which meant the employees would soon have the opportunity to make more money.
The pay plans are now performance-based with minimum acceptable requirements. She was able to get pay plans closer to benchmark levels, and now, since business has improved significantly, the managers are making “as much if not more money” than before. The new performance-based pay plans also shed light on who was earning their keep. “Once you put people on a pay-for-performance pay plan, the good separate from the mediocre, and that definitely happened.” In Milford, the store has almost a completely new management team.
The hiring process at Key Hyundai has benefitted from implementing well-defined job descriptions and the new pay plans. In the past when hiring, she said they would ask prospective managers how they planned to grow sales, then hire managers based on their proposed plans, and “hope and pray” the new managers’ plans “would actually happen.” She said, “Now that we’re more structured, it’s just so much easier to go to someone and say, ‘Here’s your job description. Here’s your pay plan. This is what you’re expected to do.’”
The next issue on the to-do list was getting the dealerships’ used car inventories in order. “We took a big write-down on our used car inventory to get it in line,” said Dulitsky. Her current goal is to get everything to $500 behind NADA clean trade so they can properly structure their special finance deals.
Prior to the push to improve special finance, there was no “rhyme or reason” to used inventory acquisition at Key. Now, there’s a set process in place for stocking the lot that’s based on solid numbers. The stores use a system that segments used vehicles into four tiers based on model year, price, credit tier and finance companies. For example, a vehicle in Tier Two is model year 2007 or newer, has fewer than 50,000 miles, is used for a non-prime deal, and is a likely fit for Wells Fargo, Capital One, GM Financial/AmeriCredit or Santander.
The dealership’s used car buyers examine the number of vehicles in each tier that recently sold and the number of vehicles per tier currently in stock, and purchase accordingly. Stocking levels should match the selling levels; for example, if 10 percent of vehicles sold are Tier Three, then 10 percent of the in-stock inventory should be Tier Three vehicles. Since instituting this system, Dulitsky said, “Now I can’t imagine living without [the tiered buying system].”
The dealerships are having issues with new cars as well, but not because of processes. Rather, it’s due to Hyundai’s major increase in sales, which has depleted the manufacturer’s supply of new cars and made new Hyundais a hot commodity. “We cannot get enough new cars in. If we had another 100, we would have sold them.” Once Hyundai adjusts and is able to keep up with demand, Key Hyundai will be primed to grow new car sales.
With personnel issues and the used vehicle inventory in order, it was time to get to the heart of Dulitsky’s goal for the dealership and focus on special finance processes. The two stores averaged fewer than 40 SF deals per month, combined, before Goebel came into the store in late 2010. In July 2011, they closed a combine total of 80 SF deals. Overall, prime and subprime, the stores sell about 230 vehicles per month, with the Milford store selling about 150 and Manchester selling about 80. Instead of having separate departments for prime finance customers and SF customers, the stores operate with blended departments and have cross-trained salespeople and F&I employees to properly handle SF customers.
"Just through seeing bureaus and DealerTrack, I knew we had plenty of [subprime] opportunities walking through the door. I started to realize that we had absolutely no process whatsoever [for handling special finance]."
- Jill Merriam Dulitsky, Dealer, Key Hyundai
To get customers in the door, the dealerships rely on a shared BDC, which is in the Milford store and employs five business development representatives and a manager. The BDC answers all incoming calls, works leads and sets appointments for salespeople. “We’ve had [a BDC] for a while … we’ve just plugged along with it,” said Dulitsky, who implemented the BDC in February 2010.
She hired a new BDC manager in May 2011, with the goal of getting the dealership closing 10 percent of leads worked by the BDC. The stores were closing about 6 percent of leads in May, and as of the first of August, the BDC had improved to closing about 8 percent. While those numbers may seem low to some dealers, she’s pleased with the increase so far, considering the quality of some of the leads. The BDC works about 1,300 leads a month. About half of the leads are squeeze-page leads, which traditionally have a lower closing rate (bringing down the closing average).
The squeeze page is on the dealerships’ website, KeyCars.com, and it requires online shoppers to enter their names, email addresses and phone numbers before browsing the pre-owned inventory. While some may question the use of the squeeze page, Dulitsky said it’s “hugely increased our lead count” and resulted in more sales. The BDC also works purchased leads from Santander’s RoadLoans program and Dealerlink. She said, “We have had huge success with [Dealerlink leads],” which are closing above-average compared to the other leads.
Also providing a steady stream of leads is radio advertising, which runs two weeks a month promoting the dealerships. Those leads don’t always get directly attributed to the radio advertising, though, because the ads drive people online, so the leads are often attributed to the website or squeeze page. She said. “There are significantly [fewer] phone calls now than I think there have ever been. It’s really more Internet leads.” She knows the radio ads are effective because the online “lead count kicks up by about 50 percent when the radio [advertising] goes on.” While the radio ads don’t contain a heavy subprime message, they include a line or two about how the dealerships are equipped to work with subprime credit customers.
To identify subprime customers early in the sales process, salespeople say to customers, “Welcome to Key Hyundai. My name is … Would you like to take 30 seconds to get pre-qualified for guaranteed credit approval?” However, subprime buyers aren’t always identified simply by the greeting. To help the dealership identify subprime credit customers early in the sales process, the dealership uses ProMax’s Instant Screen product.
Before a salesperson demos or shows a car, he or she must bring the customer’s driver’s license to the desk so that it can be swiped. Once swiped, Instant Screen performs a soft credit pull, which doesn’t require prior authorization from a customer like a hard pull does. A soft credit pull does, however, require that an offer of credit be given to the customer, which Dulitsky said ProMax handles for the dealership.
Based on information in the soft credit pull, Instant Screen assigns the customer to one of 10 tiers that are defined by credit. The store then has an idea of what the person’s credit score is, within 50 points. She said, “If the salesman misjudges a customer and wants to go show them a $50,000 car, it gives you a second option to say, ‘Wait a second. Let’s slow down and get a credit app.’”
While the dealerships have reached their initial the goal of selling 10 more SF units per month per store, the business has improved overall, said Dulitsky (so much so that they need more office space). She said, “I have nowhere to sit. I sacrificed my office completely.” They hired another finance manager at the Milford store, where Dulitsky’s former office is now a second finance office.
While Key Hyundai has made a lot of changes, one aspect of special finance it was already prepared for was having the subprime finance companies on board. “We [already] had a pretty good mix of finance companies,” she said. They did add a couple subprime finance companies, but she focused more on developing better relationships with current companies and representatives.
“We typically find that when there’s a good local rep, the relationship gets a lot further,” she said. She offered praise for a couple specific finance companies. “We have an amazing rep from Santander … and Hyundai [Motor Finance] is buying more full-spectrum. If we’ve made a mistake and can’t get something hung somewhere, Hyundai will typically step up and help us.”
Conversely, one area where there was room for improvement was funding. “I was pulling my hair out over funding,” said Dulitsky. “Now, [managers] don’t get paid their bonuses until all deals are funded for the month. That took care of it.” She estimated the dealerships’ improved average funding time is eight to nine days for subprime deals.
As a result of all these changes and improvements, the stores are selling more cars and grosses have increased and stabilized. “Prior to this, we’d have a good grossing month, a bad grossing month, a good grossing month, a bad grossing month. And now our grosses have gone up, and we’ve consistently been on our financial statement all in about $3,000 a car including new, used, subprime.”
Vol. 8, Issue 9