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From My E-Mail Inbox....

You can tell the New Year is almost here as dealers and Special Finance departments are planning for the upcoming tax season. At least that is my take, as both 20 Group clients and subscribers have had my e-mail inbox overflowing with questions lately. With many of the questions being of similar nature, as well as indicative of those that I routinely field, I thought this would be a good time to pass both the questions and answers on to our readers.

Q. Greg, I am the Special Finance Manager at a Chevy store (in the Midwest) and we just can’t seem to get over the hump of selling more than 25 units in a month. We have tried just about every type of advertising, but if we manage to have a big month (my high is 34), it seems like the next month we are back down to 18 to 20. I have one dedicated sales person in the department with me, and an advertising budget of $7,000. Do you have any suggestions?

A. The problem that you are facing is very common in dealerships where there are “separate” selling staffs for conventional and Special Finance. The problem that you are faced with is the best average monthly sales volume for the best one-person departments that I have seen in working with my many clients is around 20 units, with the average closer to 15. The second person generally gets the department to the 25 to 30 range where again it is capped out.

You have the ability to have the big month, but it usually takes so much out of the department (especially with funding) that the next month is generally well off the pace. Advertising promotions often add the feast or famine effect, which again taxes the capacities of smaller departments. It isn’t that the advertising campaign is ineffective; it is just that you do not have the ability to cover all the customers effectively.

One sales person can handle on average 80 to 100 new leads per month effectively. That is three to four per day per person. Additionally, a typical Special Finance Manager cannot work nearly as many new leads as a sales person is able to, as their job description covers far more roles than just sales. If you track your leads, you will likely see that you are at that level currently, and the next step necessary to increase volume is to add another person dedicated to the Special Finance department, and properly trained. Doing so should add another 10 sales minimum to your department.

Q. Greg, which is better, a blended floor where everyone sells both conventional and sub-prime customers, or a separated one where each side does their own?

A. The top volume producers in the country all have blended floors. Does that make them better just based on that fact? No, but it is certainly more than just a coincidence. In my retail stores, I also used a blended floor for the better part of 12 years. To me it is easier, but it is not for everyone.

If you are looking at a start-up operation, it works terrifically. If you are trying to carve a sub-prime niche out of an established conventional dealership, it can be disastrous to try to implement it right out of the box. In established dealerships, there are generally sales and management personnel that do not want anything to do with secondary-credit customers. If you try force-feeding these individuals, they are generally not going to be successful, and the overall results will show.

If the Special Finance department makes up less than 25 percent of the dealership’s total sales volume, you are generally going to be more effective with a separate department, until the department is embraced by all management and sales personnel. You have to crawl before you walk before you run.

Q. Greg, my conventional Finance Manager and I are always at odds over who gets credit for the “close” deals. Where should the cut-off line be set? 575 Beacon score? 600? 650?

A. Now you know one reason why I preferred “blended” floors. You don’t have to draw arbitrary lines in the sand. The problem is that depending on which prime lenders you have at your disposal, the cutoff (which may not really be dependent on credit scores) may range anywhere from 540 to 660. The worst leads that come to the Special Finance department are the ones that have already been mistakenly worked in the primary department, couldn’t get financed on the vehicle selected, and now are dumped into the SF Manager’s lap to try and get approved.

Conversely, if a customer comes to the dealership as a result of a Special Finance ad and the SF Manager is adept enough to find a way to get the deal approved through a prime lender, I don’t believe it should be credited to the primary department.

If I have to make a broad statement and draw a line around a Beacon score, I would probably draw the line at 625 and below for the Special Finance department, as well as any deals that are forwarded to the department by the primary side, and, any customers that come the dealership that can be sourced to the Special Finance department’s specific advertising. Keep in mind, however, that some of the manufacturers’ own finance companies are buying well below that number in some areas right now.

Q. Greg, I know that you did a number of the performance based sales events. Are they still working and how much Special Finance business do they bring in?

A. Yes, I did 16 of them, and had terrific results. There are a number of companies that conduct these sales, RPM of Mississippi, Falcon and Level 10 to name a few. I can’t give recommendations here in the magazine, but the company that I used is still producing outstanding results all across the country, just hosting a $288,000 gross profit sale for a dealer contact of mine recently, and averaging over $140,000 per sale. The best thing about these sales is that they are guaranteed—if they fail to hit the guaranteed minimum gross profit level, they refund all the advertising money in full.

The sales are usually four days long, and generally about 60 percent of the business is Special Finance business. They work great everywhere, and especially in smaller markets. If you need to move a bunch of used vehicles, and at a high gross profit, this is the way to go. A SF Manager and a primary Finance Manager can usually put aside their separate interests long enough to conduct one of these sales and have everyone win.

The biggest obstacle that dealers face is that they often can’t envision their dealership or department achieving that level of success in four days. To the dealership that has never conducted one, it just seems “too good to be true.” The “players” in this market have been achieving these results for years, and do it with integrity and good CSI. With the right company, you just can’t go wrong.

Q. Greg, I need something new to attract traffic. If you had $_______ (fill in the blank) to spend, what would you do?

A. Without a doubt, the hottest trend in Special Finance over the last 15 months has been the emergence of Special Finance on the Internet. It was barely a blip on the radar screen two years ago, but now some very successful dealerships are using it as their primary (and sometimes sole) way to attract leads.

My Special Finance 20 Group members and other SF clients over the last six months have had so much success that the cost per lead and cost per sale for SF leads generated over the Internet have consistently been about 40 percent below the benchmark.

There are really two different ways to generate leads over the Internet, but the most cost-effective have been using third-party lead generators. They have been so effective that we even have one independent dealer client that is delivering 11 to 14 deals per month without a Web site, and, we have Buy Here Pay Here clients experiencing great success with them as well.

The challenge with these leads is that they must be worked differently than most of the other SF leads you receive, and unless you do so, it will be difficult to realize the benchmark closing ratio of 22.8 percent. If you are interested, I can provide you a very inexpensive training video that covers the process from A to Z.

Q. (From a recent chat forum on Greg, what are some of the things that dealers should be doing in Special Finance that they aren’t?

A. There are so many things that get overlooked. Aside from the major issues of commitment from the executive level of the dealership, or horrendous inventory (both which are common occurrences by themselves) I would list three things: tracking, telephone, and training.

Tracking the results of every lead, and then compiling the results for the sales department personnel on a weekly and monthly basis can provide you a mountain of information. You cannot manage what you cannot measure. Track the lead, when it came in, if someone from the dealership talked with the lead within one hour of it coming in, if someone from the dealership ever talked with the lead, if an appointment was set, if it was kept, and if the lead sold. A 6-3-2-1 ratio is the benchmark, where six leads result in three appointments, two being kept and one sold. You will also see a direct correlation between contacting the leads within one hour and how many appointments are set. The tracking helps assess advertising effectiveness, as well as sales personnel effectiveness.

Special Finance departments live and die by the telephone. What you say and how you say it makes all the difference in the world. Having worked with over 500 people in training and consulting since April 1, 2002, I can say I am amazed at some of the people that dealerships’ management allows to interact with their customers over the telephone. There are some people that could sell ice to Eskimos that still shouldn’t be allowed to talk with Special Finance customers over the telephone. Similarly, there are some people that are tremendous on the telephone that should not be allowed to work with a customer in person. Know your staff’s strengths and weaknesses and position them accordingly.

And last, training. So many dealerships are using the Four Cs for their training in Special Finance. (Actually Four “Sees”—“see your desk, see your phone, see your computer, see you later”). If you always do what you’ve always done you will always get what you’ve always got. Training is the only real way to change that cycle, as well as to at least look “outside of the box.” So often that extra ten deals, or extra $1,000 of gross profit per deal is just outside the department’s field of vision or scope of knowledge. The training shouldn’t arbitrarily be limited to the Special Finance manager or sales personnel. The most successful dealerships in sub-prime are the ones where the Dealer Principal and executive level acutely understand what is necessary to make the department a success.

As I receive over 30 e-mail messages per day on the subject of Special Finance, there are many more questions that I could add to this list, but these are among the more common ones that I have not addressed directly in a separate column over recent months. Keep them coming in, and I will do my best to answer them, or direct you to the resource that you are looking for.

In closing this month, the biggest message that I can offer is that our peak season is just a few weeks away. It takes commitment, inventory, personnel, lenders, deal structure, marketing, compliance and systems for a department to achieve success. Before the season arrives, take the time to take a hard look at all areas of your department, develop a plan in advance of the market, get it in place and be prepared to execute it. If you do so, you will ultimately wind up with more than your share of the market and come to understand why so many dealers and department managers feel that Special Finance is the greatest niche in the automobile industry.



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