Twelfth in a Series of the 10 Critical Components of Special Finance Success
In the first of the 12 articles in this series, I stated the most important component of the Ten Critical Components was the commitment of the dealer principal, as well as all those involved with Special Finance in the dealership. Nothing undermines that commitment like a bunch of unfunded SF contracts. Dealers and general managers who suddenly see an additional $200,000, $300,000, even $500,000 tied-up in CIT, get very irritable, very quickly. Things always roll downhill, and it doesn’t take long for that emotion to arrive at the desk of the SF manager.
You see, the retail installment sales contracts that prime credit customers sign are very liquid. These contracts are generally drafted immediately, which eliminates most CIT issues. Dealers or general mangers who are not used to the intricacies of SF often expect the same type of timeline for SF contracts. Generally, this is not a reasonable expectation.
In all fairness, seven-day funding, from the day the vehicle crosses the curb until you have collected funds in the back, is indeed possible and should be for the goal with SF contracts. If it is attained, you will shave a week off the average funding time and achieve the industry benchmark. Doing so should add seven-days worth of cash flow back into the system which in many stores, would be an extra $100,000 to $150,000 or more.
Fast funding must be the culture of the dealership. For some dealers, that means a significant change of policy. Every dealer must set their own internal standards. I preferred the three-six-ten rule. Deals had to be approved as contracted within three days of delivery (allowing for weekends), and all required documents had to be in the store within six days of contracting. Finally, we had to have a funding fax within 10 days. If any of those points on our timeline were missed, the deal was unwound, or upper management had to approve an exception. Exceptions were also watched closely, so they did not become the norm. Absent these types of standards, I have witnessed some horrific examples of frozen capital. I have seen dealerships with deals out on the street for 60, 90, 120 and even 155 days without being funded, which is simply inexcusable.
So, what are some of the obstacles to fast funding, and what are some of the best practices used by dealers that have the system down pat?
First and foremost, in order to fund a deal, it must be approved. Quite often, managers are overaggressive, throwing it all at the wall to see what sticks, which often results in unwinding or re-signing customers. For higher volume or more aggressive dealers, it is normal to have to re-sign 4 to 7 percent of your delivered deals. Do your best to avoid this, but in a competitive market, most would not consider it a reckless practice. However, should that number become 12 to 15 percent, most likely the SF manager is making poor decisions on deal structure or on which finance company to use, or both. Keep in mind, for every re-sign that takes place (in the states allowed), the chance exists that the deal will blow up.
Another obstacle is not having documents at the time of sale. It is common for documents to be unavailable at the time of delivery. The problem is that customers lose the urgency to provide the necessary documents with amazing speed, after they’ve driven their new vehicle off your lot. Successful managers and funding assistants know where to draw the line. Many managers make the decision to deliver the vehicle without proof of income, employment or residence. If you are unable to get employment and income proof at the time of sale, you are simply kidding yourself. Sooner or later, deals like this will blow up in your face. If you are lucky, it will simply cause you to change finance companies. If not, you had better hope that Tom Hudson’s or Ron Smith’s legal teams have reviewed your spot delivery agreement and deal documents.
When delivering a vehicle without documents, many successful dealers provide customers with a checklist of missing documentation, along with a pre-addressed envelope and/or fax number, so they can be easily returned. Additionally, they will point out language in the purchase order or have the customer sign an acknowledgement that the deal is conditional on the documents being returned within 24 or 48 hours. In either case, the finance manager signing the deal must stress the urgency and importance of prompt action.
When packaging the deals, we used the funding checklist provided by the company whose paper the deal had been contracted on. All documents were numbered, then photocopied. The funding package was always stacked neatly, in the specified order on the checklist, and essentially made to look like a mortgage funding package. A deal that is neatly packaged and organized in the order a funder is familiar with makes for a happier funder and a quickly funded deal.
One of the best practices to utilize is a daily Save-A-Deal meeting. This meeting involves the SF manager and an assortment of people, like general managers, sales managers, office managers and funding assistants. Each deal that has been contracted but not funded has its status reviewed and an action plan established. The goal is to ensure no deal reaches the three-six-ten threshold and becomes an “unwind.” You would be surprised at how effective these meetings can be, all while keeping upper-level management comfortable with the level of focus on their CIT inventory.
While on the topic of funding assistants, they can be a valuable addition to higher volume stores. They actually break down the deals, recheck the numbers and ensure all the required documents are with the deal; then they package and forward them to the finance companies. They generally work the deal all the way through funding. The funding assistants are also the watchdog. They will call to verify employment, income and residence. They essentially perform the same job the finance company’s funder will do. If they find something that would become a deal-breaker, it is immediately sent back to the finance office for them to attempt to rectify. Again, this saves days in the process.
Two other things can greatly improve funding times, assuming your documents have been neatly packaged and accurately submitted for funding, the first of which is placing calls to the funders daily. Check the status of every deal, with every company, every day. Do not rely on DealerTrack or Web sites; mistakes happen on both sides. It is not unthinkable that a deal contracted with CapitalOne, for example, could be errantly put in the overnight package to AmeriCredit. It is also not unheard of for a finance company to lose a funding package after they have signed for it. Being proactive will often save you many days in funding, regardless of which side of the fence the mistake occurs.
Second, cultivate a good relationship with funders. Never underestimate the value of a relationship with a funder. Get to know them; kindness goes a long way. Their job is one of pressure from both sides – the dealer and their own company – and they spend their day in a cubicle with deals piled around them. Thank them, and make them want to grab your deal ahead of the others that were dropped on their desk that day.
Fast funding is about establishing a culture in your special finance department. From there, put simple systems in place that promote efficiency, and consistently work those systems. Then monitor your performance daily, while making corrections as needed. Before long, you will have your funding trimmed to the benchmark of seven days.
With that, this concludes my series of 12 articles on the Ten Critical Components for Special Finance Success. If you have missed any of the previous 12, you can find them all on our Web site. Remember, I have never seen a successful SF department that didn’t have all 10 of the components that I have discussed; however, the way they are integrated into an already-successful organization may differ in as many ways as there are different dealers. Start with the first step – commitment – and use it to ensure all 10 are in place in your dealership.
Have a Happy Holiday Season!
Vol 4, Issue 12
In a move billed as an industry first, DealerPolicy will showcase an all-inclusive dealer auto insurance solution at NADA 2019.