Article

Special Finance: When the Wheels Fall Off

January 2014, Auto Dealer Today - Feature

by Greg Goebel

As we turn the calendar to 2014, many dealers are still in the holiday season doldrums. Your special finance deals generally require cash down, but your credit-challenged customers used their cash to buy gifts. Tax refund season is still a couple months away. These down months can uncover latent issues that have been robbing your department of opportunities throughout the year.

In general, you will see volume and/or gross suffer from the gradual erosion of good habits. This occurs even in the best of special finance departments. Even high-volume departments that continually deliver excellent gross profits will see their performance suffer. So where do we look?

The Inventory Double Whammy
First, it is always important to re-evaluate your inventory. Are you really stocking what your customers need? Do you own your inventory back of book? Lower sales volume can lead to aging inventory. You don’t want to find yourself on the wrong side of the equation when the books fall. If you fear this may be the case, you need to quickly develop a plan to make the adjustment.

In this segment, your inventory must match your customers’ credit demographics and the finance company programs that serve them. This is just as important as owning them behind book. If your subprime customers need vehicles you can finance at $325 per month, and the bulk of your units requires a $450 payment, you simply cannot connect. Add that to an aging inventory and you have a double whammy.
At this time of year, that is not a unique situation.

It’s Personnel
I frequently see special finance departments that are clearly understaffed. Yes, there are always exceptions. But at the risk of giving away my senior status, I have been around the retail industry for three decades, and I have seldom seen dealerships average more than 10 sales per staffer. My own stores did 14 per person for a while, but that is really difficult to maintain.

In my opinion, 75 new opportunities per salesperson and 200 new leads for a BDC are the most you should expect your staff to be able to efficiently handle in one month. Sure, the great ones can do more, but not everyone is great, or even average. Last year, I preached and preached to an elite dealership to increase their sales staff. After much persuasion, they did so.

We trained them and the store’s SF closing ratio went up by 50%!
Next, let’s move to the phone skills. Whether you have a BDC or not, you should be talking to — not leaving voicemails or sending emails — 90% of the valid leads that you receive. You should be reaching at least 70% of them within 15 minutes. From there, 67% of the people you reach should make an appointment, and 60% of that group should make it to your store.

If you’re not hitting those benchmarks, you need to put new processes in place. These metrics tend to be ignored when business is rolling, and skills erode. Only when showroom visits decline do the sirens and whistles go off. Are the leads being given priority? Do the people on the phone have a call guide or script? Are they staying on it or beginning to ad lib? Get ahead of the curve and recommit to proper phone training and coaching. There is no reason to settle for anything less.

Aging inventory is a symptom of slow sales. Dealers who excel in special finance have learned to stock the type of units that customers and finance companies demand.
Aging inventory is a symptom of slow sales. Dealers who excel in special finance have learned to stock the type of units that customers and finance companies demand.

Lack of Discipline
Another area of concern is the sales process. Are your sales personnel becoming lax or playing junior special finance manager? Are desk managers or SF managers giving up too quickly? Whatever form it takes, lack of discipline causes missed opportunities.

I recently witnessed a very talented desk manager look at a customer’s credit statement and bureau and send the customer away without sending the application to anyone. He was convinced the customer could not buy.

I suggested he pick out a car that would fit the appropriate payment-to-income (PTI) and loan-to-value (LTV) ratios and submit it to three specific Tier 1 and Tier 2 finance companies. Guess what? He got approved. They tracked the customer down, brought him back in and voilà! One $3,000 car deal, plus an opportunity on the trade.

You simply cannot be in this business without giving the finance companies the opportunity to say “Yes.” I realize that, for many customers, you can look at a statement and bureau and say, “That’s a [fill in the appropriate finance company] deal.” Others simply don’t work that way.

Many companies use alternative data — which you never see — to help decision deals. In such cases, you simply aren’t qualified to make decisions on the finance company’s behalf. Many are following Capital One Auto Finance’s model: Given a few boundaries, they want to see every deal, and they can offer a decision in a matter of seconds. Why on Earth wouldn’t you give them a chance? Consider the less experienced people on the sales or finance desk. If a finance company gives them a quick “Yes,” they now have a path to follow on future deals — and the incentive to do so!

F&I Benchmarks
Finally, let’s look at the finance office. Is your F&I income per deal falling below the benchmarks of $1,056 for franchised dealers and $763 for independents? If so, go back to your vehicle selection. I so often find that dealers are selling the absolute maximum vehicle the customer can qualify for, especially in the special finance department. Simply put, it is probably the path of least resistance for a salesperson.

It doesn’t take much to help steer a customer to a vehicle that is $1,000 less expensive when you know that will give you the opportunity to protect their investment. A service contract and GAP coverage will help the customer maintain their ability to pay should the unforeseen mechanical malady or untimely accident occur. When you’re trying to fit the coverages into the finance company’s PTI or LTV ratio, taking a step down — or even just a half-step down — will make all the difference.

These certainly are not the only areas in which you may be squandering opportunities. But they are among the easiest to identify and fix, and doing so will most likely get you operating much more efficiently. If you check off all of these items and your department continues to underperform, shoot me an email and I’ll help you come up with more ideas.

Until next month, great selling! 

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

Blog

On-the-Point

Jim Ziegler
A Faster Horse

By Jim Ziegler
The Alpha Dawg wonders where the demand for driverless vehicles is coming from and has good news and bad news — but mostly bad news — for Fiat Chrysler and Cadillac dealers.

Strangers in the Mall

By Jim Ziegler
The Alpha Dawg makes new friends, stands up for Cadillac dealers, charts the rise of the independent lots, and reconsiders free trade agreements.

You Can’t Handle the Truth

By Jim Ziegler

Watch Out for Grizzlies

By Jim Ziegler

Opening Observations

Over the Curb