It Takes a Strong Foundation

Special finance—a topic that polarizes industry professionals still today. While some dealers are pulling out of the SF arena, several dealers think now is the opportune time to build a special finance department because they believe the future of SF is bright.

“I think it’s going to be better than ever because you’re seeing a much better customer come in the door that can’t get financed at the bank. I expect special finance to be crazy-busy,” said Mitch James, general manager of Onaway Auto in Onaway, Mich.

Mike Cox, special finance director at Covert Ford in Austin, Texas, agreed, saying he “definitely” thinks now is a great time for dealers who aren’t doing special finance to get into the market. He stated, “I feel that the need for special finance is always going to be there, but on the same token, my feeling is there’s going to be a lot more of it with the way the economy is going.”

Ken Zwigart, general sales manager at John Keating Chevrolet in Crosby, Texas, has a message for dealers thinking about SF: “It’s still a great way to make money and move more cars.” He feels SF has a strong future, adding that dealers “probably got spoiled in previous years” because finance companies were offering loan-to-values of 120 and 140 percent. He said, “The reality is that’s probably not what they should have been carrying, and they needed to tailor it back a little bit and watch what they’re doing.”

At Moberly Motors in Moberly, Mo., Business Manager Nick Miller said, “SF is about the only consistent thing we have going now. I think it’s more important than ever.”

Elements of a SF Department
Special finance is still a viable way to make money, but getting a special finance department off the ground and running is easier said than done. First, dealers and their employees need to be educated about special finance. Then, it’s time to define the structure of the department and its processes.

Equally important is cultivating relationships with finance sources. The more SF sources a department has access to, the more deals it should be able to get bought. However, even the best special finance manager won’t be able to get those deals bought if you don’t have the right inventory—a key ingredient to any SF department. And to draw customers who need special financing to the lot, you need marketing and advertising that targets subprime buyers.

Educate Yourself
Prior to building a special finance department, dealers need to learn the ropes of the business. There are many forms of education dedicated to special finance, all varying in cost. Price ranges are included for each type of education, but they are only estimates. You may find alternatives at different prices.

An easy and inexpensive way to educate yourself is through magazines in the industry (like this one) or industry-related Web sites. Another inexpensive training tool is books and pamphlets devoted to SF. Such publications can be found around the $50 mark. Miller suggested, “Read as much as you can—SF Insider, Auto Dealer Monthly, etc.”

If reading is not your favorite pastime, there are more visual options like Webinars and DVDs. While some Webinars are free, some cost $50 to $75 and others are closer to $200. DVDs tend to be a little bit pricier, in the $250 to $800-plus range, but you’ll have a DVD for life, as opposed to a one-time Webinar

For those that need a more interactive environment, there are conventions and conferences. They cover the spectrum from offering a class or two to complete conventions dedicated to SF. They typically last a few days and cost around $500 to $1,000 per person, depending on the event. Miller said, “The Special Finance Convention [hosted by Auto Dealer Monthly] is a no-brainer with all the vendors and the speakers. You can’t get more knowledge at one time.”

For dealers looking for a smaller classroom setting in which to learn about special finance, training classes and seminars are available, which can last one day to three or four days. The price point for such classes is higher, ranging from $1,000 to over $3,000. However, in this setting, there’s more one-on-one education, which allows participants to absorb a great deal of information about special finance and ask specific questions. Zwigart suggested attending seminars to learn about compliance in the special finance office. He added that some banks hold such seminars for their dealers.

The most intensive, and typically the most expensive, form of special finance education is on-site consultation, and it truly is an investment. While it may cost $3,000 or more per on-site visit, you’ll have an industry professional’s full attention, and everyone in the SF department will have a chance to learn from someone who’s been in the trenches. Since the training takes place at your store, the consultant is not only able to instruct you on how to implement a special finance department; he/she also has the ability to demonstrate things in your actual operating environment.

James Beck, owner of Village Motors in Sachase, Texas, said he gained most of his knowledge from the “school of hard knocks.” He is currently in the process of selling his dealership and advising the dealer who is buying it. The gentleman buying the dealership will work with Beck (who’s been in SF since 1980) to learn the ins and outs of the business over the next couple years. Having a personal mentor on hand will surely help the new owner get acclimated to the SF business—and lessen the blows from the SF school of hard knocks.

One last educational opportunity that is sometimes overlooked because not enough dealers know about it is special finance 20 groups. Unlike many 20 groups that are focused on a franchise or a type of operation, special finance 20 groups focus on only one department of the dealership. Each group member is held accountable for their performance by other group members and learns from the successes and failures of other members. NCM Associates offers such groups and the cost varies based on the meeting expenses.

Processes Make Perfect
You’ve heard it about every department in the dealership—sound processes are the key to success. The same goes with special finance, and there are multiple ways to structure and run a SF department successfully. Some dealerships have a one-person department that handles the majority (if not all) of the special finance deals from cradle to grave, while others have a department with several SF salespeople and one or more dedicated SF managers. Still others have one dedicated SF manager and train their existing sales staff to properly handle SF customers and turn them over to the SF manager.

At John Keating Chevrolet, there’s one finance department and one sales floor, so SF is blended in with traditional financing. After a year and a half in special finance, Zwigart said about one-third of the store’s sales are special finance and he doesn’t foresee making any changes to the SF department there.

Eddie Russell, special finance director at Jim Norton Ford, said his department is separate from the traditional F&I office. The SF department – which they call the TCB department (short for Takin’ Care of Business) – consists of himself, a funder and six SF sales personnel. The funder’s job is to go through deals after Russell’s done structuring them to check for the correct stips and then send the deals to the appropriate finance source.

Of his SF sales team, Russell said, “It’s more phone than physical … We have an open floor, but the majority of their time, they’re on the phone.” Plus, he meets with all the salespeople each day to review their log sheets and call activity.

On the other hand, both Moberly Motors and Onaway Auto have always had blended finance departments and sales floors. That goes to show that either setup can be successful. Mike Cox of Covert Ford believes a blended sales floor is the best way to go because “you have a well-versed sales force instead of someone who’s strictly dedicated to special finance.” He, however, has a separate SF department where he handles the deals and works with the SF companies.

Finance Sources
Without finance sources dedicated to financing the subprime customer, you probably won’t get as many deals bought as you’d like. So, where do you find them? Start with the finance sources you already have relationships with and explore if there is potential for them to purchase deeper. Beyond current relationships, dealers need to research what finance sources are financing vehicles in their market. Some dealers subscribe to or otherwise purchase reports from companies like Experian’s AutoCount or Dominion’s Cross-Sell to identify finance sources that are purchasing in their market. Plus, almost all of the previously mentioned educational resources will also provide finance company leads for you.

Once you have the finance companies in place, you have to manage the relationship. Two words that came up repeatedly with the SF professionals when talking about SF sources were “honesty” and “paperwork.” Miller’s advice for dealers looking to cultivate relationships with special finance sources was: “Honesty, honesty, honesty. Don’t steer the finance companies wrong; it is a relationship. Treat them well and they will reciprocate.”

Zwigart advised, “Paperwork, paperwork, paperwork and honesty … The details are either what’s going to make you or break you. If you don’t have all the information up front or if you don’t verify the [customer’s] information, and you can’t get your contracts cashed, you’re going to end up having more problems than it’s worth.” He said if the SF department finds itself with such problems, the dealer might decide it’s not worth it. He said, “It is worth it. You just have to do your due diligence upfront.”

Cox stressed, “Reputation means a lot as far as this industry goes,” which goes hand-in-hand with honesty and clean paperwork as far as finance companies are concerned. He said he’s worked hard to develop strong relationships with Covert Ford’s SF sources and they know he sticks to their guidelines.

Russell said SF managers should try to cultivate relationships with as many subprime finance sources as possible and said a SF department should have at least “five to seven core banks that will do what it takes to put a car deal together.” To keep those relationships strong, managers need to “get personal, get involved and sell yourself. [The finance companies] need to know you’re out there for them. Know your marginal mix. If they give you one with a high bank fee, take some of those so they profit too.”

He said because he helps his finance companies out, they’ll help him out when he’s got a tough deal he really needs to get bought. “You need relationships with lenders. I think that’s the biggest part, especially in this economy right now.”

At Onaway Auto, SF is a little different because the dealer also owns a related finance company, which buys a portion of the dealership’s deals. In the end, he places each deal with the company that will make the most money for the dealership. He advised dealers, “Just expand your sources as much as possible … I don’t know if it’s all over the nation, but here in Michigan, it’s difficult to get [finance sources].” He said he came home from the 2008 Special Finance Convention with four or five new finance sources that he now works with on a regular basis.

Having the proper inventory on hand is critical to success in special finance, as many of the finance companies have guidelines on the vehicles they will finance for subprime customers. Mike Cox at Covert Ford caps SF vehicles at $15,000. He added, “You want them to be no more than five to six years old [with] mileage under 70,000.” At Covert, the used car director purchases vehicles at the auctions, both physical and online.

Russell, of Jim Norton Ford, said his buyers purchase SF inventory that he “can retail between the $11,000 and $13,000 range.” He did add that dealers need to be mindful of their market and what the average income is. In Oklahoma, that $11,000 to $13,000 range is a “good price point” for their Ford store. “You can sell anything, but if you’re selling too high [priced] vehicles to SF customers and putting them in too nice a ride, then all you’re doing is you’re cutting your profit.”

“You have to have the inventory,” stressed Russell, adding that his dealership tries to keep the mileage on SF inventory between 35,000 and 55,000. He buys what he calls “cookie-cutter cars” from rental car companies, but he warned of buying the wrong cars from those outlets because some of them will sit on the lot for too long. To avoid buying vehicles that sit too long, he studies what’s selling in his market and will buy two or three of the same model at once if he can.

Zwigart gets John Keating Chevrolet’s SF inventory from the auctions and trade-ins. He looks for “vehicles that fall into the areas that have a little bit larger book value in relation to what you can purchase it for, and you always want to try to get as close to $10,000 and under as you can.”

At Onaway Auto, James said all his SF vehicles are model year 2000 and newer, and he mostly sells Impalas, Tauruses, Malibus, Caravans, other minivans and “just four-door, traditional mom-and-pop cars.” He aims to keep his inventory priced at $7,500 or less. He purchases about 90 percent of his inventory from a company that specializes in lease turn-ins. He said, “The lease vehicles are traditionally a little better car.”

Miller, at Moberly Motors, agreed that sedans and minivans work well with the SF customer base and SF companies. He added that SUVs and trucks are tough in today’s market. He suggested dealers keep a close eye on NADA values when purchasing inventory, adding that sometimes quality vehicles with a little cosmetic damage can be found at a good price.

A keystone of any dealership is its marketing and advertising, and dealers can greatly increase their SF sales with marketing and advertising that targets subprime buyers.

Cox prefers to do bankruptcy mailers and place ads in the local paper that target the subprime buyer. The dealership has a portion of its Web site dedicated to special financing, which goes directly to an online credit application. Plus, Covert lists its inventory on and, which also generates some SF traffic.

Russell said his TCB department does “tons of mail,” most of which is bankruptcy mailers, and purchases exclusive third-party special finance leads. His six-person sales team spends most of its time working purchased leads and calls that come in from mailers.

While the Jim Norton Ford Web site doesn’t have a section dedicated to special finance, it does have a finance section with a credit application. When the Internet department receives applications from customers with credit scores of 600 or lower, they’re turned over to the TCB department.

Zwigart also purchases exclusive third-party SF leads and sends out mailers to generate traffic. The mailers go to previous customers, outlying customers and “conquest customers that aren’t in Chevrolet products now, but are in pre-owned cars.”

At Onaway, James said his referral program is a great way to get prospects. He tells all his customers that he’ll write them a check each time one of their referrals purchases a vehicle from him, which he said creates quite a few sales each month for him.

The SF department at Moberly Motors blends its message in with the dealership’s advertising in an effort to “conserve cash in such a tough environment.” Miller said, “We still piggy-back all our special finance tags on our regular dealership advertising.” He purchases approximately 50 SF leads per month and tries to create most of the department’s traffic organically through the Moberly Web site to keep costs down. Plus, he said the closing ratio of leads from their site is much higher than purchased leads.

At Village Motors, Beck said his best advertising source is the Dallas newspaper. He also sells a lot of vehicles from referrals. As for the verbiage in his newspaper ads, he doesn’t advertise that he does special financing because he feels, on average, he gets a better-quality customer that way.

Rolling it All Together
There are several key elements to a special finance department, and when building one from the ground up, it’s vital to be prepared on all fronts – education, department setup and processes, finance sources, and inventory – if you want your department to be a success.

Special Finance Insider Vol. 3, Issue 1