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The Debate Continues: Separate Versus Blended Special Finance

Almost every special finance department that operates independently of a frontline group of sales people knows the first questions that come up when you are operating as an island in the sales stream. How does the dealership identify which customers are likely sub prime buyers? What exactly is the right time to flip a buyer over to special finance? And how do you execute a transfer early enough in the sales process so you can complete a deal and satisfy the customer?
For a large group of franchise dealers, though, there’s an even bigger question to answer: Should I even have a separate finance unit for poor credit customers, or should I train the entire sales staff to qualify the sales lead as they arrive and handle each according to their credit-worthiness?
For dealers with blended floors – where sales people are trained to handle any and all customers regardless of their credit score – the process of identify-and-divide never even comes up. Used vehicle dealers in particular gravitate quickly toward a blended sales operation.

“Since most independent stores have a high volume of sub prime traffic that comes to them, that’s the nature of the beast,” says Greg Goebel, a Special Finance trainer. “They tend to always be a blended floor.”

More often than not, he adds, it works fine. “In blended, the whole team is prepared to handle any type of customer, and they are trained to see the deal through, in any manner that the deal needs to be worked.”

For a number of high-end dealers, though, keeping special finance as a separate unit just makes sense. “We have clients that are luxury store owners – Infiniti, Volvo, BMW, Mercedes, Cadillac – who have separate special finance departments,” says Goebel. “The lion’s share, of the customers arriving at their store, is going to be prime credit customers. You don’t need to have everyone on the floor qualifying customers. If the overwhelming majority of a dealership’s customers are good credit, they’re not likely candidates for working a blended floor.”

Special Finance departments have been set up to work independently, and time and again, it raises problems on the sales floor. Sub prime credit customers wind up in the wrong sales process, being shown vehicles they can’t possibly afford.

“It limits the volume,” says Goebel. “The sales process is generally botched by the sales person when a sub prime credit customer comes in and they speed down the traditional sales track. That customer is sold something they can’t possibly afford, don’t qualify for and that the finance manager will never get approved. By the time it’s turned over to the special finance manager, it’s too late. Customers are worn out, frustrated and disappointed, whereas in the blended floor that customer would have been worked correctly from the beginning.”

Helping the most customers

Back in 1989, Gorges Motor Company in Wichita, Kansas decided to create the ultimate blended floor program, catering to good credit retail customers, special finance buyers and buy here-pay here buyers on the same lot.

"I was brand new when we started in the special finance market,” says Gorges’ owner Scott Pitman. At the time, lenders were discounting the longtime relationships that had influenced who they would lend to and started to do business strictly on credit scores. In a place like Wichita, where great blue-collar jobs abound, more and more would-be customers were coming in with bad credit scores but a good profile for paying off a car loan.

“It’s just grown and evolved since then, says Pitman, “Kansas used to be rate-capped at 18 percent. Six or seven years ago they lifted the rate and that brought in a flood of lenders. So we learned their programs. When I was a young sales person, I felt that if 10 people came to our showroom, I wanted 10 chances to help people buy a car. I felt I was improving my statistics if I had more options. Now, we can help nine out of 10 customers, rather than half.”

“The key to working a fully blended floor,” says Pitman, “is knowing how to interview the customer. If you bore right in with questions about credit trouble, a buyer with good credit may find it insulting. If you hold back, you wind up spending hours with a customer on a car that they could never get a loan for.”

“You can’t take too long,” says Pitman. “If you don’t find out up front in a tactful way, you’re going to get into a lot of trouble.”

“One dealer in my market doesn’t ask any qualifying questions,” notes Pitman. Want to drive a Navigator? No problem. Want to see the numbers? Sure. And three hours later, after all the driving, talking and kicking the tires, the credit score comes back.

“And boom, it’s a 490. They’re done, and everybody’s mad. The dealer’s mad, the customer’s mad. Everybody wasted their time.”

To keep everybody happy at Gorges, sales people go through three days of off-site training. While learning the ropes of putting the right customer with the right loan in the right vehicle, they’re taught the basics of swiftly and imperceptibly sorting out customers.

A favorite initial question of Pitman’s: Where did you see our ad?

If the answer is the Thrifty Nickel – or some other media he strictly reserves for bad credit customers – he knows right where to go with the deal. And he never upsets a customer.

“Special finance isn’t a hobby for us,” declares Pitman’ “It’s a way of life. We learn how to do this so it helps every part of the business. I just want to have options. We want to sell as many people cars as we can.”

The higher the volume of new and used cars and trucks, the harder it is to run a separate floor.

“I don’t think a separate floor would work here,” says P.J. Latsko, part owner of the Preston Chrysler Dodge Jeep Nissan dealership in Beaver Falls, Pennsylvania near Pittsburgh. “We sell 250 cars a month, and if I had a guy that just does good credit and a guy that just does special, it would be too hard to separate them.”

But, there is always an almost instinctual identification process that is underway for everyone who comes on the lot. If a would-be buyer turns up as the result of one of Latsko’s special finance lead generators, then his salespeople know that they’ve got a special finance customer. Several of the salespeople have also been designated to make special finance calls, and if someone comes in looking for one of them, chances are it’s a special finance lead.

“After awhile,” says Latsko, “it’s really not that hard to tell who you’re dealing with. Half the people you don’t have to ask, and the other half usually just volunteers the information up front.”

Not a perfect system

Goebel gives Garrett Laufer, special finance director at Gregg Young Chevrolet in Omaha, Nebraska, high marks for running a separate finance unit. But even Laufer is quick to note that it isn’t necessarily an ideal way to go about putting together special finance deals.

“I’m not saying I do that by choice,” says Laufer. “It’s basically the way we set it up when we first started here. We don’t want staff discussing credit on the lot with customers.”

In the owner’s eyes, getting into credit discussions right off the bat with a customer sends the wrong message in an operation that deals with a large number of high-end vehicles. So Laufer is left to run his end of the show with four special finance workers. He has his own ad budget which directs special finance leads straight to his group. And in theory, anyway, customers on the lot who are identified as special finance buyers are flipped to his group.

But it doesn’t always happen that way.

“We do have a sales process,” says Laufer, “meet and greet, conduct a customer needs analysis and try to bring people inside. If a customer is talking about a payment, then we bring up what it will take to get to a certain payment. We try to pull a bureau as early as possible in the process.”

But not every customer who winds up with a sub prime loan actually winds up in special finance. That’s because not all sub prime loans come from traditional sub prime lenders.

“That’s kind of a gray area,” says Laufer. “Somebody who definitely is special finance, all derogs, they get flipped over here; somebody with a mortgage paid and a car loan paid and the rest derogged, sometimes we see even GMAC will pick it up.”

“It’s not a perfect system,” adds Laufer, “I can tell you that much. I had thought we needed to move to blended, but at least from the owner’s eyes that won’t work. And he has some valid points; we’re not like a used car store here; we have a lot of high-end buyers here.”

For a lot of dealers, the transition from separate to blended floors takes a natural course. Dealers determine the need to enter special finance to add a clearly lucrative segment of the market to their business. They set up one or two people in a separate unit, train them to handle deals, work a list of sub prime lenders and devise marketing campaigns tailored for customers with credit trouble.

Then they start making sales. And then – with sales volume on the rise - that’s when everybody starts to see that there’s money to be made.

“It’s a lot easier to train someone on special finance, one person who can do 10 to 20 deals by themselves, and as it gains momentum, dealers are able to bring the floor around,” says Goebel. “You see success, and everybody wants to jump on that bandwagon.”

Manufacturers will continue offering more than one make and model to consumers, as dealers will continue utilizing different special finance models to achieve the same end. Some will just be more successful than others. Certainly the highest volume special finance dealerships seem to utilize blended departments, while separate departments are more plentiful and easier to initiate. As a result, the separate v. blended debate will continue.

Vol 2, Issue 10


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