Are You Ready to Make the Commitment?

I have the opportunity to work with so many elite SF departments that when I pen these monthly columns, I sometimes look past the basics. This year, like all sports teams do at the beginning of their season, I am going back to the basics, something I haven’t done in five years. For some, it will be all new ideas and concepts that may make you say, “Wow! Why didn’t I think of that?” For others, it will be a reaffirmation of things you are already doing correctly (or once did but quit to try something else).

Eighty percent of the dealers who offer indirect financing to their customers (nearly 32,000 franchise and independent dealers) have at one time or another been actively engaged in the special finance business. Most did not stick with it, as today only 20 percent of the dealers offering indirect financing are actively engaged in the SF business. Of those, fewer than half (around 2,500 dealers, according to my estimates) are excelling in the business.

The reasons dealers get into the market and then back out vary, but it always comes back to two main factors. First, SF remains the largest profit center in the dealership that is not broken out on the dealership’s monthly financial statement. Franchise dealers break their profit centers out into new, used, finance and insurance, service, body shop, parts, and even rentals. No SF. Independents, by their namesake, have no uniformity in the financials, but I haven’t seen one that has SF broken out separately. If dealers had to look at the productivity of the SF department each month, I bet things would be different.

The second factor, and the reason more dealers are not involved in SF, is failure. Dealers or GMs will hire a person or people, maybe even give them a little training, and say, “Have at it!” Inevitably, these situations only produce marginal success due to the lack of commitment of the entire team and the failure to provide the people or department with the components necessary to succeed.

For all the 23 years I have been around SF, the one thing that has remained constant is that I have never seen a single dealer succeed in SF without having all of what I call the Ten Critical Components for Success in place. Those components – Total Commitment, Proper Inventory, Properly-Trained People, a Complete Portfolio of Finance Companies, Good Telephone Skills, the Proper Sales Process, Good Deal Structures, Efficient Marketing, Compliance with Laws and Regulations, and Proper Systems to hold it all together – are what separate those that excel from those that are simply “in the business” or have come and gone.

This month, I start with Commitment, because without it, I guarantee SF will stand for “simply frustrating” rather than special finance.

There must be total commitment to the initiative from the dealer principal all the way through the organization to the sales personnel and receptionists. It is amazing how difficult it is to achieve total commitment. It might be simplistic, but I feel that the lack of commitment comes from three areas: capital, conflict and/or fear.

Lack of commitment from a dealer based on lack of capital is understandable. I always remind people that growth never comes for free, and you must be able to afford the additional capital that will become frozen within the dealership from the inevitable rise in contracts-in-transit (as it takes much longer to fund a SF contract in the average dealership). In general, I tell dealers to expect to need additional capital in an amount equal to their anticipated growth in monthly SF sales times $8,500. In other words, if they anticipate 10 additional deals per month, that would require $85,000 in capital, until they operate with benchmark efficiency.

Conflict and fear are different. Whether it is fear of change, fear of failure, fear of losing control or fear of loss of income, fear seems to be a driving force among management teams and sales team members. How else can you explain it when astute professionals, armed with the knowledge of the enormous opportunities of SF and both the skills and training to carry it out, seemingly ignore the edict of the executive level?

A used-car buyer or manager not familiar with the particular needs of a SF department may be reluctant to find the specific units at the price points necessary for success or may claim it is impossible. This is oftentimes due to the fact that the traditional buyer or manager is not used to buying or stocking SF units. The fear of buying something out of the ordinary can be significant!

Conflict can be similar to fear, and the very people looking for total commitment often create conflict inadvertently via compensation plans. All too often, I see executive management put comp plans in place that require someone to lose in order for someone else to win. Usually it occurs between the finance manager(s) and the SF manager. Someone in higher management pulls a credit score out of thin air and says anything above it goes prime, and anything below it goes to SF. One must lose for the other to win. Additionally, I see stores where everything is worked as prime first, and then anything the finance manager can’t get hung is passed on to the SF manager like leftovers for them to work miracles with. No wonder the wheels fall off this type of operation quickly.

Special finance deals can detonate through the lack of commitment to more than just the inventory or the processes. It takes the commitment to have all of the other nine critical components in place. Special finance deals don’t happen by themselves, and neither do SF departments. Successful dealers know how hard they must work with each of their profit centers for them to sustain excellence. Why should it be any different with their SF departments?

The start of a new year is the time when dealers wipe their slates clean and start fresh. With the subprime credit market growing larger every year, special finance offers nearly every dealership the opportunity to add hundreds of thousands, if not millions, of gross profit dollars to the bottom line.

It all starts with the total commitment to make it happen—every day by everyone.

Until next month,
Good Selling!

P.S. – If you are curious as to how much capital you will need to commit in order to grow your SF department, email me at [email protected] with “Capital Worksheet Request” as the email subject, and I will send you a form you may use to easily calculate it.

Vol. 9, Issue 2