Your Daily Operations Magazine
Search Close Menu

Dealer Ops

Choosing Which Pool to Swim In

A SF department or operation can work in virtually any dealership. I don’t care whether it’s franchise, independent, domestic, foreign or even a highline store. As long as all Eight Elements of Success are present, it will succeed. For those of you that are first timers to my column, those elements would be Commitment, Inventory, Personnel, Finance Companies, Sales Process/Deal Structuring, Marketing, Compliance and Systems.

How these elements are applied in each retail store will no doubt be different – it is not one-size-fits-all cookie-cutter program. Inventory will depend on finance companies and their programs available, which also needs to consider market demographics, and so on. One big issue with regards to personnel is the department structure, or how it will fit in with the rest of your business.

Regarding the structure, much has to do with which ‘pool’ of customers the dealership wishes to swim in. Three pools exist for most dealerships initially. Some dealers feel the only way they can approach SF is to utilize all three. Others will just focus on two, while some are most comfortable attacking one at a time.

The pools that I refer to should exist in any market. Pool A is the easiest to identify and work with. It is the pool of customers that you either buy or steer directly to your department. Pool A are those leads that are purchased from lead generators or providers, that come into your dealership via e-leads or respond to a direct mail piece that guides them to a specific phone number or Web site designed to be worked by a SF specialist.

These leads are turned into dealership visits that guide the customer to a special person or department. By the time the customer arrives, he or she is already defined as SF and worked accordingly. Pool A requires an investment as you are buying leads or spending targeted advertising dollars, but it also provides strong accountability if you are dedicated with your tracking.

Pool B is the least expensive pool to dive into, but also the most challenging. It is made up of the customers that are already finding their way into your showrooms, but they are presumed as prime credit and worked as such. Pool B are the customers that by the time their credit bureau is pulled, they have already been written up on a vehicle (generally the wrong one) and if you are able to deliver them, are generally low gross deals.

The number of customers in Pool B varies for every dealership, but this pool generally is much larger than one would imagine. One of the tools to determine how many already exist in your dealership is the Credit Report on DealerTrack, or similar report with the vendor that you pull your credit bureaus through. This report will show you the spectrum of your bureau pulls, telling you not only how many bureaus you have pulled, but more importantly, how many fall in various credit bureau score ranges.

For most stores, the scores ranging from 0 to 620 will be greater than 50 percent of all bureaus pulled, sometimes as much as 60 percent. Recently, I worked with a high-volume Toyota store that was told by Toyota Motor Credit that their customers had one of the highest Beacon score averages (760) of all the Toyota dealers in the country. The store was shocked when they discovered that nearly a third of all their bureaus pulled were sub prime credit. Additionally, you must consider the factor that many credit bureaus for sup prime credit customers are never even pulled. Sales personnel, after learning the customer likely has bad credit, ‘punt them’ off the lot as opposed to taking the time to work them properly.

The bottom line is that it can be an eye-opening experience to actually identify the number of customers a dealership has in Pool B. All one has to do is take that number and multiply it by the benchmark closing rate of 17 percent and the benchmark gross profits of $3,400, and it becomes a compelling reason to find a way to convert these customers to Special Finance. To make matters even more enticing, these customers require zero additional marketing dollars; they are already coming to the store!

The reason that Pool B customers are so challenging is that you must employ a sales process that allows you to identify these customers early – before vehicles are ever suggested or shown. This, for many organizations, requires a complete change of culture and must involve the entire sales team. This is not such a challenge with a sales team of five to seven people, but for dealerships with a staff of 20 or more, it becomes a totally different story.

Pool C is for the pool of customers the dealership attracts once branding occurs through the commencement of SF marketing and advertising. The use of many mediums, especially broadcast, means that the public will begin to recognize the company as one that welcomes customers with sub prime credit. With that, yet another pool of customers is born. They arrive at the dealership, some with documents and money in hand, looking for the SF manager, and others arrive disguised as conventional credit customers.

With this pool, the average Beacon score of the dealership begins to drop, as the number of sub prime credit customers increases significantly. Again, the key here is that processes must be in place to quickly differentiate between good and bad credit customers (what I always call green balloon/red balloon) so the customers are properly worked with the SF sales process.

Over time, once a dealership commits to SF marketing and advertising, Pool C will begin to blend into Pool B, with the branding then welcoming people with all types of credit to the dealership. At that point, if the dealership is successfully converting the traffic into deliveries, the dealership will have either become a blended floor, or will be doing an excellent job of identifying the SF customers and quickly referring them to the SF department.

For dealerships just beginning or re-entering the SF market, without a doubt, Pool A is the easiest point of entry. Generally, staffing is relatively simple, with one or two people being added. These people will do nothing but work the dedicated SF leads, and while there will no doubt be some turns from regular F&I, the success or failure of the department will be a numbers game based on the conversion rate of the leads generated.

As the SF focus matures, it becomes easier to gain positive momentum within the organization to tackle Pool B. Also, it is one that is relatively easier to sell to the dealer or general manager as it requires no additional marketing money.

The important thing to remember is that whatever level your dealership has achieved in SF, there are three pools of customers in your market area. Whichever of the pools you decide to swim in – one, two or all three – tailor your implementation of the eight essential elements to best focus on your area of choice. As always, to avoid any unwelcome surprises, check out your pool before you dive in head first!

Until next month,
Good selling!

Vol 3, Issue 10


Back on Track: 2020 Toyota Supra

Pricing for the 2020 Toyota Supra starts at $49,990 for the base 3.0 model and $53,990 for 3.0...

The Toyota Supra returns to U.S. dealerships in mid-2019 after a 21-year absence, evoking nostalgia for a lineage of racers that stretches back to the 1967 2000 GT.


Is It Time to Sell My Dealership?

A healthy economy and sustained levels of M&A activity are forcing U.S. auto dealers to ponder...

Former dealer opens up about the sale of his auto group and urges colleagues to consider the transactional demands of a sale and the emotional impact of unwinding yourself from the business you have built.

Dealer Job Finder

See more