It is a new year, and many dealers have finished their annual planning and are prepared for a continued upswing in business for the coming year. Based on the calls and e-mails I have received recently, that includes for some dealers (for very good reasons) a refocus on their special finance efforts.
What is surprising is that more dealers are not doing so. Yes, the SF market experienced one of the toughest times in its history for about 12 months, from the middle of 2008 through the same time in 2009, as capital dried up. However, now most SF companies are in a controlled growth mode once again, and the market of subprime credit customers has grown steadily over the past 18 months. Most dealers have opportunities in the SF market. All they have to do is to examine the customers who are already coming through their doors to see if additional focus on SF wouldn’t make sense.
Step one would be to determine how many sales opportunities arrive at your store in any given month. This would involve examination of your CRM data or your up log. The question you need to then ask is, “How accurate is this data?” Does it represent 100 percent of the traffic, 90 percent or less? For now, we will assume 100 percent, but know better.
Step two involves a review of the credit bureau activity for that same time period. What you are looking for first is a count of unique customers (or couples) whom you pulled credit bureaus on. Obviously a couple would count as one opportunity just as it would in your CRM system. From there you need to determine how many of these customers were already part of the CRM data you tabulated. Those who had credit bureaus pulled but did not come to the dealership would be added to the total number of customers identified in step one. (Example: 500 customers identified in step one and 50 customers identified in step two who were not in step one would equal 550 customers.)
Step three looks deeper into the credit bureau log. Hopefully, you have the ability to pull a report from DealerTrack, ProMax or your DMS that will list the credit scores of all those people who had credit pulled. What you are trying to determine here is how many customers your dealership pulled credit on with subprime credit. For the purposes of this exercise, I would use the credit score at which your finance manager does not regularly have success getting deals approved through prime sources, and count everything below that. (I openly acknowledge that credit scores themselves only have a small impact on a customer’s creditworthiness, but from a quantitative perspective, we have to use some reasonably easy-to-identify determinant.) The result in step three then gives you a number of people who came to your dealership, had their credit pulled and had subprime credit.
Step four involves some objective analysis. Look at the total of customers in step one and determine how many of those customers did NOT have a credit bureau pulled. Why weren’t credit bureaus pulled on these customers? Did the salesperson or sales management team determine that the customer had subprime credit and broom that customer off the lot before pulling credit because there were no finance companies to go to with that deal? Do your best to determine if that was the case, and if so, then the total number of these customers needs to be added to the total in step three to give you the total number of subprime credit customers who actually came through the doors of your dealership.
Step five now involves cross-checking your sales log with the list of subprime credit customers you have identified. Yes, this can be a bit painstaking, but it is well worth the time. Identify the number of sales you made to people with subprime credit (again, these customers had credit scores below that which your finance manager could regularly get approved through prime sources). For dealerships not actively engaged in SF, this number is usually eight to nine deals per month.
Step six involves some math. You now know how many total sales opportunities you had for the month (from step two). You also know how many opportunities had subprime credit. Divide the number of SF sales opportunities by the number of total sales opportunities. What is the percentage? Is it to 40 percent (or more)? If it is, then your store has ample SF opportunities to work from. Next, you need to determine what percentage of your sales came from the total number of SF opportunities. Divide the sales by the number of SF opportunities. The 2009 benchmark for converting SF sales opportunities that did not involve buying leads or advertising for SF customers was 27 percent of all the walk-in, repeat/referral and be-back opportunities. How does your percentage compare?
The average dealer I talk with is converting just three to four percent of the total SF customers who are walking into (not marketed to) the dealership. If your dealership has just 100 sales opportunities per month that have subprime credit, the difference between the average dealer and the benchmark dealer is as many as 14 deals. That is based on no additional traffic. The 14 additional deals at the benchmark gross profit of $2,682 per deal would provide $37,548 additional gross profit dollars per month. That equates to over $450,000 of additional annualized gross profit. Not just in today’s economy, but in any economy, why would anyone turn their back on that? Sure, it is a rhetorical question, but I am amazed to see it happen over and over again.
Now, just to be sure, even if you are already doing a great job in SF, the exercise above can prove to be quite helpful (besides validating what you are doing). As I have discussed many times, you need to maintain an inventory that is appropriate both in quantity and in value for the credit demographics of the customers you are attracting. With this regard, the information you tabulate on subprime credit customers is invaluable.
If you drill down deeper into the SF sales opportunities you calculated in steps three and four, you should be able to tabulate how many opportunities the dealership had in each of the four subprime credit tiers: near prime, traditional SF, rougher credit and very rough credit. Then, compare your sales numbers to the opportunities you had in each tier. This will tell you if you are succeeding in all tiers, or where you may have some additional opportunity. If there are one or more tiers where you seem to be underperforming, check the programs of the finance companies you use with those tiers and compare your inventory on hand to see if it matches up properly with those programs. Generally it doesn’t, and that is where you can turn to find additional incremental business.
With all its ups and downs over the past few years, special finance hasn’t changed. It still is as simple as consistently executing a solid game plan. If you need some inspiration to refocus your SF efforts, it often is as simple as examining what you already have coming into the dealership and discovering what opportunities are being missed. Get busy now on mapping out a solid game plan to capitalize on what should be a very lucrative 2010 tax season before you wind up another year down the road and once again wishing for what could have been.
Until next month,
Vol. 7, Issue 1