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Lessons In Special Finance Growth

Stuart Landsverk likes to take a $100 bill out when he's conducting special finance training. He'll hold it up and ask the class members what they think its worth.

That's obvious -- everybody nails it. Then he gets the bill dirty, crumples it up and throws it in a corner.

"Now," he asks, "how much is it worth?"

"Both are worth the same money," answers Landsverk, the GM at Cardinale Way Mazda at Superstition Springs in Mesa, Arizona. The point: The money you make from a customer with bad credit is just as good as the money you earn from good credit buyers. If you take the special finance customer with dirty credit and help clean it up by restoring their credit rating, "they’re going to love you."

It's a simple lesson; one that sticks. And if you want to grow a special finance department, it's a lesson you should never forget. The customers that come through his special finance department have been treated like dirt, told to leave other dealerships, spurned. Treat them right and work deals they can afford for good transportation they need, and they'll come back every time they need a new car or service, and they'll send their friends and their family.
“Training is just one part of building a special finance department,” says industry special finance expert Greg Goebel. In fact, eight key elements go into designing a special finance department that's built for long-term success. “Take some time to learn the process point by point,” says Goebel, “and your special finance department can perform alongside the best in the country.”
"You absolutely must have vehicles that will fit the demographics of the customer and the finance companies' program that you work with; matching the customer with the lender," says Goebel. "The sweet spot is $9,000 to $10,000 cost basis value, with low enough miles to go at least 60 months on. At the end of the day, 80 percent of the deals financed are under $400 a month, so you have to have the inventory that fits those parameters."
"Inventory is the key," agrees Kevin Murphy, who runs the big special finance department at Earnhardt's Auto Centers in Arizona. "We track all the vehicles we sell to our customers. The database is quite complete, with over 75,000 sales. We have a history of all our deals and can look into what our customers want. We're able to determine how many Ford F150s we sold, and so on. And then we try to find those vehicles and maintain those on each lot."
“Getting that right mix just seems to keep getting harder and harder to do,” according to Landsverk. For Landsverk, that means going to the auctions and making a bee-line for the rental lanes. An alternative is to go straight to the rental agencies. There, he can get the kinds of Neons, Cavaliers and Malibus that have fewer than 30,000 miles and will qualify for a 72-month note that will cost $200 to $250 a month, the sweet spot for most of his special finance customers. About 70 percent of his inventory will be priced under $12,995, which tops out in the $250 to $350 a month payment range.
Landsverk also likes to arrange for a steady supply of current-year program cars that are new enough and low enough in miles to arrange a deal for someone that is upside down on their trade-in. Those units qualify by many finance companies as new vehicles, which allow the loan advances to be based off of a “like invoice”. It works for the customer and it works for the dealership, allowing a nice profit on each deal.
"Without people, you go nowhere," says Goebel. "You have to have good people who are excited and trained and efficient."
Murphy is quick to note that he felt personnel is so critical he hired his brother, Terry, to co-direct Earnhardt's finance department, which has swelled to 60 employees. His brother and every single member of the department provide and receive regular training as part of Mr. Ed University.
"Anyone can sell a car," says Marla Belson, who manages the U-R Approved special finance department at Sherman Dodge. Her special finance department wants to help people get back on their feet, and have a variety of lender programs to make it happen. "Experienced car salesmen can't usually make it in my department. It's heartbreaking; they bring so many bad habits to the table. The most successful people in my department have never sold cars before."
"My staff is extremely well trained," says Belson. “No matter who you ask, they will have the same answer borne out of a core belief system in what they're doing.”
She looks for people with good phone skills, who can be sincere and dispense with the hype. They have to have the tenacity and hunger needed to make it in the special finance world.
Finance companies
"To be effective, you must have a minimum of four to six finance companies to work with the whole spectrum of customers," says Goebel. "My stores had substantially more than that. Maintaining strong relationships with whomever you have is the key. At the end of the month though, four to six companies will likely comprise 85 percent of your volume.”
Make sure you always have a few lenders on the list who can step up the loan volume when one of your most popular finance companies steps down. "Any big volume dealer will say the same thing," adds Goebel. "Finance companies are like the ocean; there are both ebb and flood tides, and some days a company is on top of the wave, and another it is in the trough.”
"Lender relations have got to be up there as one of our most important points," says Murphy. "You’ve got to have a small group of lenders that don’t conflict with each other. One may be at the top, one in the middle and one bottom tier. We're big. We have three top, three middle and three bottom. You have a small corps of good lenders and you have a good amount of business with each, with high book to look. That means if you submit 100 applications to a lender, we want to book 35 to 50 loans. Nationally, it's probably 3 percent to 4 percent.
"We've got great rapport with our lenders, and they have taught us well," adds Murphy. "We don't even submit a loan unless it's close. The lender does a lot less work, and they appreciate that. And if you need to stretch a couple of points on a loan, they're more apt to give it to you. We track the profitability of each lender's portfolio. We want them to be profitable."
Marketing and Advertising
“If you want to grow your department,” says Goebel, “you have to grow your leads.” The key is to know how many more additional leads you need each month to provide the expected growth you want and finding a cost-efficient way through marketing and advertising to bring in those additional leads. "Everybody wants that silver bullet,” says Goebel
"Infomercials seem to be the trend in our area now, and we're one of the few people successful with direct mail," says Belson. "We sell 31 to 36 vehicles per 10,000 pieces of mail. We're very calculated in how we market directly to people who would fit a specific program." People with bad credit often turn to the Internet for their initial query and for good cause. Bad credit scores are embarrassing to consumers and they'll quickly shy away if they think they're going to be refused credit. Belson is very specific about which Internet leads she buys. They have to be fresh and direct; not of the leftovers from the big Web lending sites.
The sales process/deal structure
"You have to have a consistent sales process that is designed to identify the special finance customer and allow the special finance manager to get them pointed to the right vehicle," says Goebel. "And you have to work the deal ‘bottoms up’ to maximize the gross profit. That is the Achilles heel for most folks that try to get into special finance.” Here's a good stat: 80 percent of all dealers have tried special finance, 20 percent are active and 10 percent are doing it well. Only one in ten dealers is doing a good job. There's lots of opportunity. Once you get to where you have a good handle on the sales process and how to structure a deal, you will become one of the 10-percenters.
The way a special finance department handles leads is crucial, adds Belson. Without the right follow-up procedures, a special finance department is "planting a flower in the middle of a desert."
An independent business development center (BDC) works with Belson’s loan origination advisers, contacting each lead in an average of four minutes. A Web portal is used to track each lead as it develops. And the BDC's main job is to make an appointment with someone in her department.
"We don’t need them to qualify them," adds Belson. "We want everybody in. We have a program for everyone who walks through our door that has at least $800 in provable income a month. You can't sell them anything over the phone. We want them to see how they'll be nurtured here; that we want to get them back on their feet. That we want to treat them differently than anyone else." All 13-members of the Sherman Dodge special finance group are committed to developing leads only; no floor traffic comes through their department.
"We treat it like the doctor's office," adds Belson. "We give them our undivided attention." With lots of privacy built in. No ballrooms, no balloons, no hard sell. Loan originators in her office are trained to do a complete interview. That way they can focus on diagnosing what needs to be treated, and devise a plan for them.
Systems and processes
"This is the glue that holds everything together," says Goebel. "The right systems and processes are necessary to consistently execute efficient lead management, inventory management, good funding processes, and as you grow you can keep turning these contracts into cash. If you tie up the dealer's cash in slow funding, his commitment to special finance will wane very quickly."
To keep his special finance department on track, Landsverk uses a customer relationship management system (CRM). "It enables me to track the incoming leads. If I buy internet leads, they're piped into the CRM and then managers and salespeople log into the system and work the leads out of the CRM. It's secure, efficient and gives Landsverk the "50,000-foot view" of how the department is performing.
Kevin Murphy says, "We ask our finance companies to report our book to look. They provide us their statistical data. They tell us how profitable we are. We have nine lenders we use. On our end, we do track each lender to determine how profitable they are. We track every single contract, every sale, customer and everyone who calls or e-mails. We have that data and we know just about all you need to know."
The same Web portal that is used for handling leads tracks everything that Belson relies on to monitor how her department is performing. "We use a portal that enables us to know everything about a customer: How long it took to contact them, what areas we get leads from, their ages, credit scores, how long on the job. I have fingerprints on everything they touch and do.” Everything they do goes into that portal, which generates reports, manages leads, and integrates with DealerTrack and Reynolds. It allows them to maximize their minutes.
Having the right system can also be the best strategy for making sure you stay in compliance. "We're pretty paperless," says Landsverk. "We're set up with Reynolds for electronic signatures. And there's an electronic trail on who accesses the data."
Expensive? "It's less expensive than getting sued," says Landsverk dryly.
"There are enough bear traps in the land to run into them inadvertently." says Goebel. This country is more litigious than the average. You have to watch out for the attorneys general. There's a lot of focus in this day and age on discriminatory or predatory lending practices. Any time you're dealing with 15 percent to 25 percent interest rates, there's always some sort of plaintiff's attorney looking for class actions and trying to turn something like that into a big payday.
Just how well you do at all of these points, though, will depend on just how committed everyone is to making special finance a success. "I think it's important to have people who have walked in your shoes," says Landsverk. "I was a special finance manager and I was very involved in the business. Having a GM and owner that understands that business is helpful."
"You have to have the commitment -- from not only the dealer but throughout the management team working with special finance customers," says Goebel. "Without that, I've never seen a department grow beyond 15 cars a month." Landverk, Murphy, Belson and Goebel all agree that there is no such thing as a “silver bullet.” Growth in special finance will come with consistent execution across all areas; a single weak link can stymie growth or even cause it to wane. To excel, dealer must be committed to all areas of the special finance department.
Vol 3, Issue 3


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