February 2011, Auto Dealer Today - WebXclusive
Things You Really Should Consider Before You Push the ‘Go’ Button
Now that it has become apparent to many dealers that the special finance industry has been reborn, those same dealers are trying to rekindle the flames their departments used to have. I know this because my inbox and phone lines have been full with requests for assistance from dealers trying to get themselves situated for the January tax refund season.
For months, the inquiries were more from dealers and managers wanting to know who was still buying business. That has shifted to dealers wanting to know what type of marketing and advertising they should be doing to drive the customers to their websites or through their doors. As I have written often, I always ask a question when someone wants to increase their traffic count, and that question is, “How much traffic do you currently have, and how are you staffed to handle it?” Usually a lot of hemming and hawing takes place at that point, or I get a lot of numbers that end in zeros or fifties.
The reason I always ask is that first, dealers tend to be rather urgent people. We ask questions like, “What can we do to put that deal together today?” Similarly, when they decide an opportunity exists, they are ready to roll out an advertising or marketing campaign instantly. I often call that approach, “FIRE, ready, aim!”
There are some dealers who are really making the needle move again in SF. Whether they are using conventional media, digital media or a combination of both, they are successfully driving traffic and converting sales. One client has increased SF business by 150 percent over the same time a year ago, and the store was already doing a lot of SF business. Upon hearing that story, other dealers are instantly ready to cash in on opportunity too.
The problem is most dealers are just not ready to do something like that. Indeed, they may be able to create astounding traffic, but unless they have the proper staffing, systems and processes in place, when the traffic hits, it either cripples the dealership (or department) or upsets the customers, or both.
There are a lot of talented marketing people around our industry. There are a lot of clever and ingenious dealers. Mix the two, and you can often create magic when it comes to floor or Web traffic.
The marketers (who get paid when dealers advertise) obviously fan the flames trying to entice the dealers to advertise. The problem is, it is the marketer’s job to create traffic; the dealer is the one who must convert that traffic into sales. Too often, the organization just isn’t equipped to handle it, especially when it comes to special finance. You could set thousands and thousands of dollars on fire in the middle of your showroom and enjoy it more.
That’s why you must first build the foundation. Through the hills and valleys of the auto industry, one thing that simply has not changed is the necessity of the 10 Critical Components for Success in Special Finance. The need to have all 10 components in place in order to excel is absolutely essential. After the industry downturn, many SF departments were stripped down or dismantled. Systems and processes vanished. The basic knowledge of how to structure a profitable and approvable deal may still exist, but everything else has disappeared in so many organizations. This is not something you are able to recreate overnight.
Start with commitment. It seems like that should be easy, but that’s not always so, especially if someone spends a wad of money on a marketing campaign that generates traffic but doesn’t result in deliveries. As a dealer or general manager, are you really ready to recommit to the budget increases necessary for inventory, staff or technology to make SF work?
If the answer is yes, then do your homework. Earlier in the year, I have discussed how to perform an analysis of the credit demographics of your store’s customers. Rather than detail it again, I will just remind you that if you haven’t already, you need to check our magazine archives online for the January 2010 issue and then perform the analysis. It will give you great insight on where your opportunities are.
From the analysis, you will also learn if you have the proper mix of finance companies on board. If you have a niche of customers you don’t have good financing solutions for, you need to take action before you push the marketing button; after all, how much fun is it to have a showroom full of customers you can get financed?
Once you have the finance companies in place, you then know what inventory is required to match up with their programs. No inventory, no collateral. No collateral, no way to structure deals. It is that simple. Once you acquire the inventory, you must also have a system (either manually or using software) to quickly be able to match a SF customer’s credit profile with the appropriate vehicle for the appropriate finance company.
Personnel follows next. Remember, the average salesperson can effectively work 75 new opportunities per month. That is why I always ask what the current traffic count is and how many people are on staff to work the leads. Certainly a call center or BDC will change the dynamics and allow a dealership to process more leads, but it is still very easy to overwhelm either your sales team or your finance desk.
If you already have the people aboard, are they properly trained? As the SF business waned, many people changed their approach, essentially ignoring the subprime credit customer. Is your staff quickly qualifying traffic to ensure the correct sales process is used? More importantly, are they using a standard SF sales process for the subprime customer? Are they trained to get a complete credit application? Are you sure that a solid credit interview is taking place which will provide the finance desk the best possible opportunity to get the deal approved?
Beyond training, how are employees compensated? Do you have a pay plan in place that is causing conflicts of interest? Does it mandate that someone in the store must lose for someone else to win on the deal? Does you comp plan penalize a finance manager for structuring a highly profitable front-end deal for the store where no back end is possible due to the finance company?
Finally, is your team able to quickly and accurately structure a deal so it can be approved and at the same time achieve benchmark gross profits? This would seem like an easy task, but in my workshops and conferences, the majority of people will leave money on the table when we work our sample deals. If that is happening in my workshops, you can bet it is happening in your stores.
Once the deal is sold, it’s just really beginning. Contracts must be turned to cash quickly. How many days does it take you to fund a deal now? Do you have the systems and processes in place to ensure that you have clean (and compliant) paperwork? If not, potentially doubling your sales volume could cripple your cash flow.
You should realize, this is just skimming the surface. These are just some of the issues I uncover when working with dealers. Many dealers naively think they can just sell their way through it. Occasionally you can, but even so, what opportunities are you giving up to do so?
Don’t mistake it—I am all for creating excitement and selling vehicles, especially through special finance. I encourage you to take advantage of the opportunities in the market today, and aggressively go after them. Just make sure you have a foundation in place that will both allow you to capitalize and create happy customers and employees at the same time. Only through that will you be able to perpetuate your success.
Until next month,
Vol. 7, Issue 12