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Green Balloon Or Red Balloon?

It would solve the whole dilemma. It really would. You simply mount a rack containing two colors of balloons. One would be green, representing good credit customers, and the other would be red, representing those customers with no credit or bad credit histories. Sales personnel could approach them and know exactly which sales process to proceed with. The customers would arrive at the dealership, walk to the rack and take the appropriate balloon. Heck, you could even do it with colored hats if you like.
With customer participation like that, there would be no real issue over whether separate or blended floors are better. Until that occurs, the debate rages on.

At a recent meeting a lengthy discussion took place concerning the most effective department structure. Is it better to have a separate, specialized sub-prime department which handles all special finance customers, like an island within the company? Or is it better to have a blended floor where every sales person works with any type of customer which comes in the door, and the sales desk works between the Special Finance manager and F&I manager to accommodate different credit needs?

Is there a right way or a wrong way to do special finance? Well, there are certainly some wrong ways, but as to the best ways to structure a special finance department, there are a number of different configurations, and each has their pros and cons.

Let’s first look at the traditional configuration—the separate department. In the majority of operations, a person (sometimes two) has been identified as being able to read credit, assimilate the customer’s information and lender guidelines and make good decisions about how to successfully structure a special finance deal. In other words, they have been named the special finance manager.

This “manager” is often allowed to identify a salesperson or two to use to work with customers. The department works leads which they create themselves using direct mail or Internet leads, as well as leads that are referred to the department by the conventional finance manager (generally after the deals have been structured and worked there). This team is responsible for the entire special finance effort, and is essentially an island within a dealership.

Does this configuration work? It certainly does. How many units is it capable of supporting? This number varies, but in most dealerships it tends to yield 20 units to 25 units per month, with strong departments usually doubling that.

Does this setup have drawbacks? Just as certainly. Two significant drawbacks often exist in dealerships that have separate departments.

First, the separation of duties and departments (especially where pay plans create an “either/or” situation) can create conflict over who gets credit for the deal. I have had countless e-mails and phone calls from both dealers and special finance managers asking me to please help them decide “where prime credit ends and special finance begins.”

Generally an arbitrary line is drawn at a particular credit score (often 600) where above it the primary credit team works the deal and below that the deal is handled by the special finance department. Of course, there are plenty of 620s that wind up needing to go the special finance department, some 580s that are able to be placed with prime lenders and some 700s that are prospected by the special finance department.

As long as this doesn’t lead to discord among the dealership employees or losing the sale opportunity, you can work around it.

That leads to the second drawback. Often those customers are improperly classified when they come to the store. They were given the wrong balloon and worked in the wrong department. A “regular” sales person began the sales process and often landed them on a vehicle that will not work for special finance. By the time the customers are matched up with the correct personnel, they are already tired, frustrated and ready to leave. This leads to missed sales opportunities as well as shorter gross profits.

Now let’s examine the blended floor. It implies just what the name describes, a floor where the entire staff is trained to work with a customer of any credit quality and the efforts are blended through the sales desk. This is by far the scenario that is used less often in franchise dealerships and more often by independents. It requires more training (since all of the sales team participates), and like the separate departments scenario, has its benefits and its drawbacks.

The blended floor tends to be used by the higher volume special finance dealerships. It is in place where it is more important to maximize every sales opportunity and less important to define exactly where a special finance deal starts and ends. The obvious benefit is that every customer is approached as a sales opportunity rather than as primary credit. The sales desk, along with the finance managers (one or more specializing in prime lenders and one or more specializing in sub-prime lenders) look to make the determination as early on in the sale as possible (green balloon versus red balloon) then work each deal accordingly.

If it is better for a customer to go through a prime lender rather than sub-prime, there is no conflict; the decision is made, and both the customer and the dealership benefits.

With the blended floor, all members of the sales management and finance team are paid on various percentages of the combined variable (front and back) gross profit, rather than categorizing the deals and paying strictly on those assigned to a particular credit type.

The blended floor is the ideal scenario for dealerships that have a smaller sales team, which is why it is favored by many independent dealers. Generally with most dealerships averaging one salesperson for every 10 sales, the dealerships selling 100 total units per month or less are obviously candidates for the blended floor. This allows the dealer to maximize the efforts of the sales floor, and minimize the number of people on the sales management team. This does not imply that the blended floor isn’t used by dealerships selling 200 or more units per month, just that smaller volume stores are the obvious candidates due to their need to be a “jack-of-all-trades.”

Drawbacks include that nearly all members of the sales management team must be capable of assimilating credit information and making accurate decisions as to whether customers will be prime, near-prime or sub-prime credit. Additionally, some sales personnel may be better suited (or prefer) to focus solely on new or used car sales.

There are some dealerships that will employ a combination of the two setups. A special finance manager is named, and they choose select salespeople that are capable of handling the special finance sales process to work with their customers. This is a relatively common approach, as well. The drawback, here again, becomes the quick determination of whether the first-time dealership visitor is a prime or sub-prime credit customer.

As you can see, the common theme throughout this column, regardless of the way your department or dealership is structured, is to quickly determine “green balloon or red balloon?” For those prospects which the special finance manager or department has attracted as leads, contacted and set appointments with to visit the dealership, this process is simple. The credit status of the customer has already been established, and once the customer arrives at the dealership the sales process is already pre-determined.

So what about new customers walking onto the lot? The key, regardless of the setup, is to incorporate a simple, non-offending qualifying question or two into your meet and greet process. It can be as simple as, “Are you here for the big sale today? Are you interested in our special 0.0 percent [insert the appropriate number] APR interest rate program for people with above average credit?” If you get a “yes” response-green balloon-proceed with your normal 10 steps to the sale. If you come across a “no” response-red balloon-ask “Then would you be here to take advantage of our special financing programs to help you establish or re-establish credit? Great, please follow me inside, and we can get you quickly pre-approved.”

In some stores the “red balloon” will mean turning over the customer to the special finance sales team or department. In others it will mean beginning to offer the customer the opportunity to discuss their credit background. Ultimately, however, it will mean that those customers are much less likely to be shown vehicles they cannot qualify for, translating to less frustration and exhaustion for all involved while offering the greatest opportunity to deliver a vehicle.

The metaphor of using green and red balloons may seem simple and childish to some, but for those that understand how important these qualifying steps are to a special finance department it can turn the sales process into child’s play. Special finance really is simple!



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