In the car business, change is occurring at exponential rates. Well established and prestigious franchise dealers are fighting desperately for special finance customers that only a few years ago they would have turned away as unwanted. Today, the reality is the entire car business has changed dramatically over the last several years. There are more than 40 million vehicles sold annually in this country and over 18 million, almost half the market, are sold and financed through non-prime finance sources.
Special Finance and Buy Here Pay Here customers have more choices today than ever. Dealers, who view these customers as people who have unstable lifestyles, limited funds, poor credit and few buying alternatives, are wrong. Non-prime automotive customers are not credit captives without choice. They make up the most lucrative segment of the business today, and with so many dealerships struggling for survival, competition is going to grow. Presenting value, salesmanship and customer service are all key factors that will make the difference between success and failure in this market segment.
More and more dealers are flocking to this segment out of necessity. Finance companies aggressively compete every month to offer better lending choices for these customers. Three of the largest banks in the world each have competitive non-prime automobile finance programs. In fact, two of the largest have changed their focus to financing customers with FICO scores between 520 and 700. The reason is simple—profit. With effective and aggressive collection tools and the most up-to-date credit scoring, finance companies are realizing record profits from these high interest loans, and the dealers who truly understand and commit to Special Finance are having record years. Face the facts; Special Finance is here to stay.
Other changes in the market include the three major credit reporting companies. Transunion, Equifax and Experian have joined forces to develop an entirely new and standardized scoring model called the Vantage Score. This new scoring system is designed to better differentiate credit scores. These credit reporting companies have learned what Buy Here Pay Here dealers have known for years—bad things happen to good people. They are attempting to better identify the “good” paying customers with poor credit scores or those with no credit scores from the people who just don’t pay their debts. These companies are changing with their economic environment to keep their products and services viable in the dynamic world of automotive finance.
Dealers must also change. They must be knowledgeable of and reactive to the changes in market demographics, the technology of systems and the Internet, legal and compliance issues, financing, bankruptcy law, and the current market trends in vehicle values. Regardless of size, successful dealers will move quickly and purposely to take advantage of these changes. The thought is simple, either evolve or become extinct.
We are in the information age, which has caused the rules of business and economics to change. No business is impervious to these changes, especially companies associated with the car industry. The US Dollar is weak, used vehicle values are high, disposable income is low, credit scores are low and the costs of doing business are high. The home finance debacle is crushing people’s credit scores. To be successful, you need to recognize these changes, react to them quickly and focus on providing a service that meets the needs of the customer. Don’t just sit back and wait for the economy and market to return back to the good old days. Instead, be a student of the industry by learning all you can and leading your team to success.
Special Finance Insider Vol. 1, Issue 3