"It's Not a Marathon, Not a Sprint"

The past year has left many in special finance feeling slightly less than optimistic. That’s not the case with J.F. “Doc” Richards, special finance director at Keystone Ford in Chambersburg, Penn. Despite the recent slowdown, Richards is confident 2009 will be a better year for special finance and sees opportunity ahead for those who’ve had the tenacity to stick with it through the rough times.

“I do think it will rebound. I don’t think it’s going to be dramatic, but I think when income tax season starts, the core business in general is going to pick up,” he declared. In the meantime, Richards and his staff are doing what they can to keep things moving along on an even keel. One thing that has helped that endeavor “is having a general manager who is 100 percent supportive,” he said, referring to Keystone’s general manager, Clayton Black. “He’s there for any support I need, from inventory to advertising. It was a struggle to make things happen [in the past few months] and without his help, some of the people [at the dealership] might forget what our end goal is.”

Teaming up with Richards are the two other members of what he described as the core special finance department: Tracey McKenrick, whom Richards described as his right-hand person, and April Deshong, who handles business development for the department. McKenrick gets deals funded, sells the warranties, delivers the deals and acts as Richards’ backup. Deshong, in Richards’ words, “works the phones, works the phones, works the phones—and sends out the mail. She’s pretty much our contact to the outside world.”

The three of them do not handle sales directly. Subprime sales are left up to the regular retail salespeople. “That’s what I feel they do best,” Richards commented. However, the special finance department gets involved early in the process. A customer’s information is gathered by the salesperson then brought to the special finance department to determine exactly what the dealership can do for that customer.

When it comes to what vehicles to present to a special finance customer, Richards takes a somewhat different approach than others in the business. He believes in allowing the customer to look at the vehicle they are interested in, rather than restricting them to only a few options selected for them. He reported having success with this method, explaining that even if it’s a car the customer can’t qualify for, people don’t like to feel as though they have no options available to them.

“Why not show them the car they really want?” he said, going on to say that telling a customer they can’t look at a particular vehicle can cause them to put up their defenses and ultimately hurts the chances for a sale. “If you show them the car that they like, tell them how much down payment they’re going to need, they’ll determine at that point, ‘Well, maybe I should wait and save up my down payment,’ or, ‘What can you get me in for what I do have?’ At that point, you’ve lowered their defenses. You’ve shown them what they really want, and then you’ve determined you can still satisfy their needs in a different way and show them how to re-establish their credit … You’ve got to coach them on how the credit process works.” Richards held that many subprime customers are average people who’ve had some serious issues in their lives, like a medical crisis or job loss, and will appreciate being offered some hope and the opportunity to rebuild their credit.

Richards viewed inventory management as a top priority for keeping the department in good shape. “Right now, especially, we try not to have too many of anything; [we] try to have a relatively varied inventory,” he said. “The key, I think, is having the right inventory … inventory you can work with the least amount of money down.”

An inventory meeting takes place daily between Richards and Bill Sites, the general sales manager, to go over the previous day’s trade-ins. They also make sure everything books out at the end of each month, and if something takes a big drop, Richards said the best decision might be to get rid of the vehicle in order to put their money into other cars that will sell, even if it means taking a little loss,.

Richards tries to stock cars that are $10,000 or less and noted, “We’re in the country here, so the $10,000 car is the perfect car for us.” While he could send Keystone’s wholesaler to the Ford sale and get plenty of suitable vehicles, he still tries to go to auction himself. Since he is familiar with the programs of his different financing sources, he can easily size up a car according to what program it would fit and can “adjust what I want to do on the fly.”

Richards believed a couple of big challenges for special finance departments today are having the right financing programs available and getting the word out to subprime customers that there are still programs available to help them even though the market is tight. He believed many special finance consumers are waiting out of fear of rejection, convinced they’ll be turned down in such a restrictive credit environment. “If they think they’re going to go into Keystone Ford and be turned down, they would rather default out and not come in at all,” he speculated. “I think the biggest challenge is getting into people’s heads that they can still buy a car today … There [are] still car loans out there.”

Richards said he’s been able to finance many of the dealership’s lowest-tier customers with the help of Credit Acceptance Corporation, and also mentioned the program of another company, AutoTrakk, as being particularly helpful to him. “It’s a great program,” he said, explaining that the company offers short-term leases for customers with credit problems. Customers must come to the dealership weekly to make their lease payments, making it a good way to build a relationship with a customer who is in the process of repairing their credit and will likely want to purchase a car in the future. Richards pointed out, “Down the road when their credit is starting to come back, who are they going to think of?”

He thinks too many dealerships focus on simply getting a single special finance deal done, instead of looking at a sale as an opportunity for repeat and referral business, and subscribe to a philosophy of, “Sell them a car today and whatever happens, happens.” However, he continued, “If you don’t set up your deal for success and your customer for success, you’re going to fail.” His intention is to get people with very bad credit into quality vehicles, educate them on how to rebuild their credit and eventually bring them back in to sell them even better cars. He put it another way: “You’re fertilizing a field and you’re raising the new crop of people for next year. They’re going to have better credit and be able to buy another car.”

Naturally, follow-up is another of Richards’ priorities. As part of his department’s process, an initial follow-up call is made one week after delivery to make sure everything is satisfactory, then another call two months later. “If there’s some kind of an issue [Deshong] gets me involved so we can try and solve the issue before it becomes a repossession or something along those lines,” Richards explained. The big call, he said, is at the one-year mark, “when we try to bring them back in to look at the situation and see if we can maybe sell them another car.”

In addition to concentrating on repeat and referral business, Keystone’s special finance department also employs a couple of the traditional methods of generating special finance traffic, third-party leads and direct mail. Third-party leads are acquired primarily from Focus and Bar None; Richards noted Bar None had been a core lead provider for the dealership for quite a few years. For mailers, they sometimes utilize a direct mail company, Aspen Marketing, to target consumers in the 550 to 650 credit score range. However, they’ve recently been generating their own mailers to send to people in their database. The department usually sends out some kind of mailer every other month.

“We’re going back and re-reminding people that have maybe made an inquiry six months or a year ago, ‘We’re still here, we still can help you,’” he said. In addition to keeping the dealership in the minds of people who were in the market recently, generating their own follow-up mailers has been a good way to save on expenses. “We already know that we have a customer. Maybe they bought. Maybe they didn’t buy, but what have you got to lose—42 cents?”

Richards knows the customers are out there, just waiting. “I think there’s a lot of pent-up demand right now,” he said. “I think [customers are] waiting out of fear.” He expressed confidence that the lending industry will eventually loosen up a little. “The companies that are gone are gone and there’s going to be new companies coming into the game … once things start to turn around a little bit, it’s going to get back into the world of competitive banking.”

While he waits for the market to rebound, Richards wants to keep his special finance department in top shape and be prepared to adjust as quickly to whatever the market throws at them next. He believed SF dealers should also be ready to adjust at a moment’s notice when business picks back up. “I think we’re going to be busy. I think the worst place to be right now would be…[to] not have enough inventory and not be prepared to expand quickly,” he said.

“I think 2009 is going to be a decent year. I don’t think it’s going to be phenomenal, but it’ll be decent,” he stated. “It’s a marathon, not a sprint.”

Special Finance Insider Vol. 3, Issue 1