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Making the Correct Call: Where Prime Ends and Sub Prime Begins

Every month I receive hundreds of e-mails from people with questions about their Special Finance (SF) departments. A good number of them are from SF managers who want me to put on the referee’s shirt and decide where prime ends and SF begins. As we turn the page on the calendar to 2008, we are ready to launch ourselves into the thick of the SF season. It is the time of year where you must maximize every SF opportunity, as your buyers have down payment money (tax refunds) because if you don’t make the deal, someone else will.

I honestly hate to draw arbitrary lines. What might work for one dealership doesn’t come close for another. While a 550 FICO may still be a prime deal for some, the cutoff may be 90 points higher at other dealerships. It isn’t about scores or interest rates. It is about making the correct call to work the deal the best way in order for the store to deliver a vehicle, make the customer happy and maximize the gross profit opportunity.

The source of all this concern and aggravation generally lies outside of the “battle line” itself. It has nothing to do with a customer’s score or interest rate, but rather the compensation plans set up by the dealer or executive level management. The problem is that the comp plans mandate conflict. Someone arbitrarily must lose for someone else to win. It doesn’t mean that the prime finance manager or SF manager is wrong, unfair or is “whining.” It simply means that when the comp plans were set up, they weren’t thought all the way through. Unfortunately, when conflict like this exists, there is another loser in the equation—the dealership. So, step one is to make sure your “house” is in order and everyone has reason to be pulling in the same direction.

tep two is yet another twist. You see, I measure SF differently than how I suggest you manage SF deals. We measure in order to manage – not manage the individual deals but manage operations. We monitor the progress of the department a number of ways, but one consistent thing is the need to track your SF volume. To do so, I suggest dealers count any deal (regardless of the finance company or the interest rate) if it originated from SF marketing or SF leads. I also add any deals that were turned from the prime sales desk and eventually funded by a finance company or tier designated by the dealership as SF. That defines the measurement. If comp plans are not in conflict, that measurement should grow.

Managing the deal is a different story. To turn it into something to measure, you must work the customer properly. When it comes down to who should work the deal or how it should be worked, I submit that any deal the desk looks at and is unsure whether it can be spot delivered through a prime credit source is better worked as a SF deal. This will likely include deals with decent credit scores, but significant negative equity. You are much better off knowing in advance what you are working with before you land the customer on a vehicle—especially if they have significant negative equity. The bottom line:  you want to maximize your ability to deliver the vehicle, make the customer happy (one way is by spending the minimum amount of their time in the process), and then earn gross profit.

Does that mean that there will occasionally be a deal that is miss-called? Of course, it does, but if you are going to make a rule, you have to focus on the norm, not the exceptions. So, what if you mistakenly err on the side of the SF manager? Most likely, the deal will be structured with the maximum front end gross. A deal worked prime that needs to be sub-prime almost always will result in a reduced gross (if it results in a deal at all).

Will this process work in every dealership? Of course not, for a variety of reasons (i.e. the desk isn’t capable of reading credit, the sales process mandates that the customer is landed on a vehicle before credit is pulled, etc.). The bottom line is that in some stores you have to have an arbitrary guide to help make the correct call.

If you have to draw a line, I suggest you make it a thick line – actually more like a band. When you get down below a certain credit score (differs by dealership), it becomes very difficult to take a deal prime. Additionally, there are times when you have a SF customer with a lower score that in a particular situation (maybe an excellent payment history through GMAC or maybe a Toyota Tundra lease) where it is more favorable to take the customer through a prime finance company. If you don’t have conflicting comp plans and everyone wants to find the best way to make a deal, pick a credit range – from a 550 to a 620 for example – and try to have both prime and SF look at the deal to discuss the best plan of action.

This is one time; I can safely say that common sense should prevail. Do whatever it takes to make the correct call based on the talent and the circumstances you have in the dealership. The deals need to get to the department that has the best opportunity to make a deal as early as possible.

Before you ask, implementing these steps could likely involve modifying your sales process and pre-qualifying, but I will save that for another day. For now, simply realize that no matter what, in Special Finance, the earlier you make the correct call and get the deal to the appropriate manager, the better chance you have of putting together a deal, making your customer happy and maximizing the available gross profit.

Until next month,
Make the correct call!

Vok 5, Issue 1


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