|As it seems, more often than not, this month’s column is inspired by another consulting visit I recently returned from. The visit was with a Midwestern automotive group, a very successful group that has been around nearly as long as I have been alive…OK, I might just wish that were the case, but in any case, 44 plus years.|
The group invited me to address their special finance (SF) team, looking to increase market share. The markets they operate in are highly competitive in the SF arena – more so than many. How could a team that has accomplished so much and has been so successful be leaving so much on the table when it comes to the sub-prime market? The people I had the opportunity to work with were talented, driven and they possessed the desire to excel, yet other dealers in their market areas, many of them smaller independent dealers, were truly operating at a different level. Of course, that’s what these “outside eyes” were supposed to find. In the end, it was relatively simple. It’s all about the focus and it usually is.
I’ve said it before; SF is not rocket science or brain surgery. On the other hand, if it were as easy as I claim, everyone would be excelling in SF, average deal grosses would be approaching $3500 and I would be spending more time on my tennis game.
The key to making SF simple is often just making it a priority to take advantage of the opportunity SF presents. Sometimes the bigger and more successful the operation, the more difficult the task becomes. The focus of the executive level gets thinned out in a larger operation, and SF gets lost in the shuffle. New car departments are trying to hit their monthly bogey to qualify for the maximum dealer cash incentives. Used car departments are tied to keeping their inventories on the money and on a 60 day turn. There is focus on compliance, balanced product sales and profits in the F&I office and some dealers are still trying to find their way with their Internet marketing opportunities. The majority of franchise dealers face significant pressure from the factories to overstock new car inventories. Did I mention the need to maintain world class CSI? That just begins to cover the front end of the operation. Larger operations can have 50 to 100+ technicians; collision centers; parts wholesaling operation; accessory showrooms with wheels and other gizmos; boutiques and even diners. All these areas are generally separate profit centers, all requiring attention. I am sure those managing these operations have days when they feel like the Little Dutch Boy with the leaky dikes.
There is one more thing the aforementioned areas generally have in common…most are broken out on a franchise dealer’s factory financial statement (OK, maybe the diner isn’t…). My point is, the SF department is not. Their efforts and numbers become buried inside the new and used vehicle departments and finance department numbers. The result is not easy to measure, hence no real focus.
How does David (the small second or third tier franchise or independent dealer) slay Goliath in SF? Focus. Most do it one unit at a time, with laser beam focus on their sales process and all eight essential elements of success. They find ways to brand themselves as the company of choice for the sub-prime consumers, develop a game plan to serve customers and execute the plan consistently. They measure efforts daily to ensure their continued excellence, and because of that, they succeed and grow. Meanwhile, the larger organizations feel like they are missing something – they see their AutoCount or Cross Sell reports, surmising an opportunity exists, but many never really manage to get their arms around it.
This certainly doesn’t imply that mega dealers aren’t equipped to excel in SF. One of the most successful SF operations resides in the Phoenix market: the renowned Earnhardt Auto Group. Averaging over 600 SF units a month, they certainly demonstrate what can be accomplished by a large, focused organization. Without a doubt, however, smaller operations, for example independents with no fixed operations, can often achieve strong success with the advantage of focusing their entire sales operation on the sub-prime customer.
So, how does a company go about bringing special finance into focus? First, it takes awareness and the education of team members essential to its implementation as to why it’s important. Often, general managers, general sales managers and conventional finance departments are resistant, feeling that the dealership is simply going to shift sales and gross from one side to the other – also meaning they may personally lose income opportunities. If upper-level sales management harbors these attitudes, the organization faces an uphill battle.
Next, you must be able to identify what SF means to the bottom line. Start by defining what constitutes a SF deal – they are likely deals placed through a finance company with a discount fee and higher interest rates or customers that respond directly to SF department marketing.
Once defined, it is time to measure the SF activities and their results. Measure on a daily basis, as well as month-to-date, the following: sales turns from the floor, the number of leads coming into the department, the number of appointments set and kept and, of course, sales. Measure the number of “DNQs” (customers that Do Not Qualify due to credit or income), the Beacon score distribution of SF customers and the source of advertising that brought the customers to the store. Then measure the front and back end gross profits. Make everyone part of this process, and keep all management team members aware of the results. This then becomes focus.
I am convinced there are few people in management that truly don’t want to deal with “those kind,” of customers (credit-challenged). I simply believe they are not able to see the benefits that will occur after making the necessary changes in their sales process to accommodate SF. Generally, it’s an eye-opener just to discover the number of customers the company is pulling credit bureaus on that fall below a 610 Beacon score, a simple report to pull from DealerTrack.
Once the value of the sub-prime business is understood by all, daily focus is applied to all activities and accompanying results can be seen from SF, it truly becomes simple. However, until focus becomes crystal clear, a dealership, regardless of how large and successful it is in other areas, will see SFas the equivalent to scaling Mt. Everest – a daunting task indeed.
Vol 3, Issue 6
Swapalease.com’s latest report show U.S. lease approval rates improved slightly to 70.9% in October following a 3.9% dip in September.