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The Eighth Essential Element: Systems - Tying it all Together

The Final in a Series of Articles on the Eight Essential Elements of Special Finance

I often like to use sports analogies when discussing the retail automobile business. I am sure that this is partly due to the fact that I am an admitted sports-aholic, and partly because I always looked at my own dealerships and their personnel as teams.
As we approach the start of the NFL season, I am sure much of the talk will focus on who can dethrone the dynasty – the New England Patriots who have won three of the last four Super Bowls.

They first won in 2002 with a backup quarterback that prior to that season had thrown a total of three passes in just one game in the NFL. Tom Brady stepped into the Patriots system when Drew Bledsoe was injured in their second game, and with Brady starting, they won 14 of the next 17 games, including their last ten in a row to win the Super Bowl.

Since then, in spite of losing (and cutting for salary cap reasons) many All-Pro players, the Pats have set a record for the longest winning streak ever in the NFL, and won the last two Super Bowls, by bringing unheralded players and inserting them into their “system”.

Their “system”, so often talked about in football, is what makes it all work. It ties together the conditioning, the Xs and Os in the playbook, the game plans and turns the team into a juggernaut.

Their “system”, so often talked about in football, is what makes it all work. It ties together the conditioning, the Xs and Os in the playbook, the game plans and turns the team into a juggernaut.

So how does that relate to Special Finance?

For the past seven months, I have outlined the first seven of the Eight Essential Elements of Special Finance. In order that would be Commitment, Inventory, Personnel, Lenders, Sales Process/Deal Structure, Marketing and finally Compliance.

This month I outline the final of those eight elements, Systems – the element that ties them all together and insures consistent execution of a good game plan.

As I have stated all along, Special Finance is not rocket science. I don’t know of any area in the retail automobile business that is. Your Special Finance effort is not different from any other department in the dealership – it takes the discipline to chart the course and then stay the course … something often easier said than done.

What systems must you embrace in order to consistently execute? There are a number of them. First, you must have an inventory management system. Additionally, you must have a system to track and manage leads; a system that guarantees a good telephone process; one that insures prompt funding of contracts; and finally one that provides sound analysis, forecasting and budgeting.


Whether you have 10 units available to you for SF, or you have 1000, you must have a system that allows you to quickly and accurately sort inventory based on both days in stock and the “spread” - which represents the difference between what the vehicle books out for, and the actual inventory value.

This allows the SF Manager to identify quickly vehicles that will fit into a customer’s payment range qualification while at the same time yielding the highest possible gross profit or identifying the oldest appropriate vehicle in inventory – both of which are a good thing!

This system is manageable in a number of ways. For smaller inventories, one of the most common ways is to create book-out sheets on each vehicle, and keep them sorted in a three ring binder.

Sort the binder with tabs representing payment categories – such as under $250 per month (skinny tab); $250 - $300 per month; $300 - $350 per month and so on.

Determine which category to place the vehicle in by calculating what the payment would be at a minimum benchmark gross profit deal ($2600 front end using a higher interest rate lender), and then sort by age, or by vehicle type.

When a salesperson brings you a customer that will qualify for $350 per month payment, you will already have a selection of vehicles that you know would be the best to show that customer.

Once your Special Finance inventory crosses the 100 unit threshold, you most likely will need software assistance. Those software providers (such as Micro 21, Motion Dealer Services or ProMax for example) will let you quickly and efficiently manipulate your inventory to maximize the selling opportunity as well as even help the SF Manager select the appropriate lender for the situation.

Why is there the need for software? It is simple, with that many vehicles in inventory, some simply just get lost or forgotten about. When that happens, you miss deals or vehicles age. With software in place, if a vehicle is in the system, it will always show up when the selling occasion is present.

Lead Management

It isn’t about how much you sell, it is about how much you keep. I have seen two different Leedom and Associates 20 Group members average 60 SF deals per month, yet wind up with drastically different net profits. They each were averaging roughly the benchmark gross profit of $3400 per deal. The difference, one was averaging roughly $250 in advertising expense per sale, while the other was over $850. That is $600 per deal difference, or $36,000 per month or $432,000 over a year!

How? One was doing a great job of lead management, tracking their advertising and telephone success rate. The other was simply subscribing to “if some is good, more is better, we’ll take every lead we can get!”

Unfortunately, without trained staff in place, those extra leads get squandered. There is no time for follow-up, and leads wind up getting pre-qualified. The sales that take place are the low-hanging fruit, and the other customers wind up buying somewhere else after having their appetite stirred but without being followed up on.

You must have a system in place that allows you to track your advertising and your team’s proficiency in working the leads that flow through. You should know how many leads you receive (from walk-in, phone apps, and the Internet), how many of them turn into appointments, how many appointments are kept, and how many are sold. You should be able to compare that to the 6-3-2-1 benchmark model.

Doing so will allow you to properly assess advertising effectiveness, as well as the performance of individual sales personnel. It will also tell you when or if you need additional staff – realizing that the average sales person can handle an average of 70 – 80 new leads per month.

Telephone Process

The telephone process is one of the most vital that you will have in the SF department. Whether you are a single person department, or the entire sales floor is involved, your ability to process leads through the telephone will make or break your department. You must have defined processes in place to handle all telephone activities. Just as the selling process is different for the SF customer, so must be the telephone process.

Telephone activity is broken down into three types of calls: 1) Inbound calls of unknown nature where the customer is not identified at the onset as prime or sub prime credit; 2) Inbound calls where the customer has responded to dealership marketing and has identified themselves as sub prime credit or has called in on a line that is only advertised for SF; and 3) Outbound calls to set appointments from Internet or other lead activity (generally an application for credit). While the goal for each of these calls is the same – setting an appointment that will be kept - each of these three types of activity require different approaches.

The most difficult of the calls is the inbound call that is unidentified. It is more problematic in the sense that, in most dealerships, it is likely to be taken by anyone on the sales floor. If the recipient is not trained to ask identifying questions prior to offering specific prices and rates, any resulting appointment is apt to be worked improperly. Sound training and word tracks are the best solution to these encounters, especially if working a separate floor.

Top performing SF dealerships almost always employ word tracks – especially when working with inbound calls of known identity or working with outbound calls to set appointments for generated leads. These tracks allow the sales personnel to use a script proven successful, and deliver it consistently each time. Additionally, it helps keep ad-libbing to a minimum, which often is what destroys the opportunity. Consistent execution is what this is all about.


The Achilles heel of many SF departments is getting contracts-in-transit (CIT) turned into cash on a timely basis. It is safe to say that the funding process has broken a dealer’s commitment to Special Finance more times than most all other reasons put together. An immediate knee-jerk reaction occurs when a dealer or general manager suddenly realizes that the amount of CIT outstanding equals or exceeds the entire number of SF deals done over the past thirty days. Nothing starts your day like discovering that you have $300,000 in CIT over 45 days old. I happened to witness this first hand while visiting a dealer and reviewing his operation (of course, I am not sure how you don’t realize this long before that occurs).

To achieve fast funding, you must have a process. The nemesis of fast funding is of course, missing documents; missing proof of income, proof of residence, references, insurance and the like. These wind up missing through lack of attention to detail and lack of consistency, both of which can be remedied with uniform processes.

My dealerships utilized sales checklists. The four page form included step by step information and documents needed for all types of transactions – from SF to prime credit leases. They also included a section for ten references (we discovered in our case this was the biggest offender in delayed funding), a section to fax to the lender requesting a payoff, a title guarantee section for the customer to execute, and an area for general notes. Inside this form was already loaded our privacy notice and a credit application.

Once the sales person was ready to work numbers, it was presented to the sales desk, along with all the information collected and checked off. Once the numbers were worked, the F&I office would confirm all information was present, then sign off on the form, acknowledging the sale person’s job was complete.

We also had a four page form for the F&I manager. It included on one page the “funding checklist from Hell”. It essentially guaranteed that if you had all the documentation on the checklist, the deal would fund. The other pages of the form addressed the other types of transactions, plus had a page designed to assist the title clerk – how the vehicle was to be titled along with all the necessary docs depending on which state was involved.

From there we used the funding checklist provided by the company whose paper the deal had been contracted on. All documents were numbered with a sequential stamp, and then photocopied. The funding package was always stacked neatly in the specific order on the checklist, and essentially made to look like a mortgage funding package.

All these steps are designed to make the job easier at the other end – in the office of the funder. If there is anyone you need to have a good relationship with, it is the funder. Remember, a deal isn’t really approved until the funder says it is!

Outside of a surprise pizza or lunch, there isn’t anything a funder appreciates more than a clean, orderly and complete package. Funders are often paid on volume. Which package do you think they want to pick up first, the one that comes in nice, neat and easy to read, or one that is jammed in a FedEx envelope in a dozen different directions?

From there, you must call every lender, every day, about every deal. Our funders knew we would. They also wanted to be able to say, “Your money is on the way”. There are other reasons to call everyday. Occasionally, SF managers have been known to send a contract to the wrong lender, or worse yet, a lender lose the contract after they have signed for it. In either case, it is much better to know sooner than later.

This is by no means a complete recount of the funding process – that would be an entire article by itself – but if you don’t have a system in place, funding will indeed be a nightmare.

Forecasting and Budgeting

For the SF Manager, the title includes the name “Manager”. This means you must manage more than just your time. If you happen to be the dealer, you know the same certainly holds true. A successful department must have a forecasting system in place to be able to establish reasonable performance goals for its efforts and then budget accordingly. Often, I have said you have to work a deal backwards to maximize profits. The same holds true for departments.

What are your goals for your SF profits? What will that take in sales volume? Gross profits? From that, how many leads will you need? That will determine both the expectations from your advertising efforts, as well as how many people you will need working the leads. Knowing your needed gross profits and volume, you can then budget your advertising and marketing expenditures. From that, we measure our results.

Yes, this recount is a bit simplified, but it gives you the basis of the process. It is far more detailed than at the beginning of the month trying to just figure out which weeks of the month you are going to drop your customary direct mail package or newspaper insert and hope for the best. The bottom line for the Eighth Essential Element is that you must have a plan for each of these processes. Busy and successful times have a way of eroding skills and creating shortcuts. Those shortcuts eventually lead to less busy times with everyone scratching their heads, wondering, “What happened?”

The New England Patriots will take to the field with new faces scattered among the returning champions, a situation not at all unlike the car business where turnover is all to common. Having solid systems in place, having them well communicated and understood allows a team or a dealership to execute consistently a good game plan, no matter which position has a new player to the organization. That almost always leads to a win. Just ask the players on the New England Patriots that now are adorned with three Super Bowl Rings.

Vol 2, Issue 8


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