|With the holidays past, many dealerships are focused on the upcoming “Tax Refund” season, when Special Finance really heats up. It is the time of the year that the department must be ready to take on more than its market share. It may never be more important to be ready than in 2006, with Chapter 7 Bankruptcy discharges for the fourth quarter of 2005 being nearly ten times the norm, the season stands to be a windfall for those dealers on their game.|
|I receive so many calls and e-mails looking for answers, that proverbial “silver bullet.” My response is simply to go back to the basics; take a look at the Eight Essential Elements of Success in Special Finance. If your department possesses these elements, it will most likely always excel.
I have had the opportunity to work with thousands of dealerships around the country over the years. It has been my experience in working with them and from my own former dealerships that if a store is underperforming in Special Finance, one or more of the eight elements are missing.
I must be brief in this column, but in order, let’s look at what I term the Eight Essential Elements. We must always start with Commitment. It must be maintained from the top down, starting with the dealer or executive manager, all the way down to the lot attendants. If only part of your team believes in the program, then the rest of this discussion is mute. It is like driving a car on a flat tire. You can do it, but it’s not very effective. Lack of commitment is often caused by a lack of knowledge and understanding of how Special Finance differs from conventional retail business.
|The second element is Inventory. For first time readers, yes, I list inventory ahead of personnel. With the vast array of finance companies pursuing customers of sub prime credit quality, you simply must have sufficient inventory in stock to meet 80 percent of your preset sales goal. These are units that can be sold at full gross and under the $400 monthly payment threshold. If your inventory doesn’t match, you have nothing to sell, which means lost deals and/or lost gross profit. Even the best sales professionals can’t sell vehicles that aren’t in inventory.
The third element, and one I really call 2-B, is Personnel. This is a people business, and Special Finance requires ample and well-trained staffing. Figure 80 leads and ten sales on average for every person you have working in Special Finance (keep in mind that some of these people may be administrative in function). To benefit from an incremental sales increase, you simply have to add additional personnel, lest you wind up cannibalizing existing new or used car sales.
The fourth element is the Finance Companies. You must have an adequate supply of companies, usually four to six, which cross all credit spectrums. The key isn’t necessarily about having the consensus #1 lender (that arguably changes from month to month anyway), but having companies that are consistent and predictable. It is essential in being able to buy inventory, as well as spot-deliver deals (if that is legal in your state). Maintaining good relationships is critical. Know what is important to your finance companies, and strive to maintain it.
To the surprise of many, the fifth element is the Sales Process/Deal Structure. The most common mistake in dealerships is approaching the deals as if they were conventional credit, then trying to convert the deal. It simply doesn’t work. I always use the “Green Balloon or Red Balloon” analogy. It would be great if the customer coming onto your lot would identify themselves by selecting a balloon at the door identifying their credit worthiness. Green for good credit or red for sub prime. It would certainly make it easier for you to direct customers to the correct inventory (something you must do), then work deals backwards to create the maximum gross profit opportunity – structuring them towards the anticipated lender.
To the surprise of many, I consider Marketing the sixth element (not higher). It is the one subject that most managers are always asking about. In the majority of dealerships, there is already built in Special Finance traffic. The biggest challenge is identifying it (see element #5). Budget about 10 percent of your department’s gross profit forecast, track the source and results of your leads well and try to only add as much traffic as your sales staff can adequately handle.
The seventh element is Compliance. Federal law governs all transactions. Many states are even more restrictive. Dealer agreements also govern each transaction. Realize that mail fraud and bank fraud are crimes that dealers and their employees do go to jail for. Realize that the “land mines” that lay and wait for dealers don’t particularly care if the intent to do wrong existed. You are supposed to both know and comply.
Finally, the last element is Systems and Processes. This is the glue that holds it all together. It doesn’t matter whether you are a small department or one doing hundreds of contracts per month; you simply must be process and system driven to keep the cash flowing. Whether it be the outbound telephone process, the funding checklists, the process of tracking leads or buying inventory, the dealerships that have sound processes and systems – and execute them – consistently do better.
So there you have it. A very abbreviated description of the Eight Essential Elements. (Last year it took eight issues to cover this.) There is nothing particularly earth shaking here but they are all vital. Take just one away and your productivity will fall drastically. I will also add that it is amazing how I have seen some very strong organizations have such a difficult time putting all of them together.
With Special Finance benchmark total-deal profits exceeding $3400, the next eight weeks can mean an additional $100,000 to $1,000,000 in additional net profits for savvy dealers. Are you on your game? If not, it is time to go back to the basics. You almost always find the answers there.
Until next month,
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