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Dealers who are engaged in special finance always look forward to tax refund season, when down payments — the one item subprime customers often struggle to save — are readily available. Having spent much of the fourth quarter of 2014 in some very strong SF dealerships, I thought I would offer a list of common mistakes I have recently witnessed. Avoiding these pitfalls will help bring you a bumper crop of sales in February and March.

8. Failing to Stock Suitable SF Inventory

When I meet franchised dealers who sell more new vehicles than used vehicles to subprime customers, I know a couple of things without looking: First, their used-car inventory is poorly suited for SF. Second, their SF sales volume and gross profit are compromised. There are a few exceptions, such as dealerships in high-income markets and some Mitsubishi points. But the numbers bear me out.

We collect volumes of data from our dealer clients. I mean a lot. If you define SF customers as having a credit score of 620 and below, 57.4% of the customers who bought a used car from our dealers fell into that category, and 84.1% of them bought used vehicles. Why? The average transaction on a used vehicle involving an SF customer requires a monthly payment of slightly less than $400. The higher price of a new vehicle would increase that payment by $100. When the finance companies and banks look at payment-to-income ratios, far fewer customers can qualify for a $500 payment.

7. Selling More Vehicle Than the Customer Can Afford

Having the right inventory won’t do you much good when a poor sales process (or a stubborn salesperson) fails to lead your subprime customers to it. Even if they qualify for a more expensive vehicle, to make a deal, all the profit will be stripped out. This is a situation that happens every day, even in some of the best-performing stores. You simply can’t afford to work the wrong process, especially during tax refund season. If you don’t make a deal, your competitor will.

6. Trying to Qualify Customers Over the Phone

In 1997, I was the second dealer in the country to launch a special finance infomercial. It resulted in 1,120 calls in 36 hours and 4,500 in two weeks. We thought we had all the systems and processes covered. It took about an hour to blow them all out. The one thing we managed to do well was track every lead.

It took about a week to hastily assemble our first business development center. In order to try to slow the foot traffic to the store, we started qualifying callers — and even trying to get them approved — before we invited them in. Our deliveries immediately dropped by 31%.

If a customer lives more than an hour away, a manager should get involved and make the decision. Otherwise, there is really no point to attempting this, because you don’t know enough to do it properly.

Yes, you can submit a deal to Capital One and Exeter with a generic (read: proper) deal structure and get an approval. But you will have played all your cards, often without completing the credit interview or collecting all the pertinent documents. You may be missing factors, such as additional income, that will help the deal score better — especially if the call is handled by the BDC or a salesperson. Once you have submitted a deal to a finance company and the customer is in their system, if it comes back declined, it is nearly impossible to overturn, even with new information.

If you are successful in pre-approvals, once you give the customer the good news, you have given them “credit muscles.” Now they can go shopping, and when they do, the first thing they will tell your competitors is that they were approved at your store. That dealership’s sales manager will lie down in front of their trade before letting them leave without buying.
Bottom line: Get them on the phone, set an appointment and ask them to bring all their docs to the dealership, where you can best help them.

5. Failing to Understand What Your Finance Companies Want in a Customer

I love the submission portals of Dealertrack and RouteOne, but they have trained finance and desk managers to enter each customer’s information and click “Submit” — repeatedly, in some cases. Customers are often turned down, and the individuals doing the clicking complain that “Those companies never buy anything.”

It usually has nothing to do with the company. I recently spent some time in the sales tower at a longtime client’s store in Northeastern Indiana. I was very impressed with the work of their desk manager and their finance manager — and their willingness to collaborate.

Each knew some bank and finance company programs better that the other, and for each customer, they were bouncing specific situations off the other, looking for the best fit. “Negative equity!” “Low income!” “Hard-to-prove income!” “Job gaps!” “Who do we know who does that?” “Call so-and-so before you submit it!” It was quite a sight. I was all too happy to join the fray, and I know we gave every opportunity its best shot.

Too many managers click their Big-6, get six declines in return (often because of a bad deal structure), then shoot it to Credit Acceptance. If the customer can’t afford the down payment, they figure there are no options and initiate the exit interview. You simply have to know what those companies are looking for — and that includes much more than the credit score. Be a student of the finance companies serving your market area and form a positive and trusting relationship with them.

4. Maxing Out LTV and PTI

By submitting a deal with the maximum (or more) loan-to-value or payment-to-income ratios, you are just asking for a turndown. The auto-scoring systems used by more and more companies weigh LTV and PTI heavily. Exceed their threshold and it is declined, period.

I have one dealer client who for many years has been signed up with what I consider to be the best full-spectrum finance company in the business. The dealer claims the company stinks, because they can never get deals bought. I disagree.

If you submit every deal at 130% (on the vehicle) or greater LTV, you are going to get very few deals approved in subprime. Also remember that the average payment for a subprime deal is just $400. So unless you have customers who earn higher-than-average wages, $500-plus payments aren’t going to work and submission of those deals will result in turndowns.

3. Asking for a Down Payment Before the Test Drive

Many SF managers properly complete the credit interview before suggesting vehicles. The one question I recommend they avoid is, “How much do you have for a down payment?” There is a time and a place to ask for the required down payment, and the interview is not it. You must build value in the vehicle by taking the customer for a test drive and allowing them to take mental ownership of the vehicle.

By asking too early, you lose any shot at building rapport and trust. And what if they say “$500” or “Nothing”? Those are common replies, and they can only lead to confrontation. Confrontation is a deal killer. If it gets to the desk and the deal requires $3,000 down, now what? The customer will feel that the salesperson is deaf or just stupid. Either way, their credibility is destroyed. If a deal is ultimately going to happen, it won’t be easy.

I certainly don’t mind when a salesperson notes whether the customer makes a comment about having money to put down and informs the desk. Just don’t ask the question in advance of showing vehicles.

2. Failing to Do the Math

More times than I can count, when I asked for a customer’s income during the credit interview, they got it wrong. Sometimes they overstated it, often unintentionally, based on the seasonal overtime reflected on their most recent pay stub. Simple math showed that the figure didn’t align with their year-to-date income.

But they just as often understated it. I remember a UPS driver who estimated he made $800 a week. “On a full monthly schedule?” I asked. “Aren’t you making about $25 an hour?” He was, and when we added it all up, we found he was making more than $1,000 per week. Considering his mortgage and other obligations already totaled $2,000 a month, that made a pretty big difference to the finance company.

Do the math. You will avoid unnecessary turndowns, restrictions and unpleasant surprises during the funding process.

1. Working Deals to Death

This pitfall might seem strange, since I am always encouraging dealers and managers to work them all. But at tax time, deals that should work but just won’t go through should at least be put on the back burner in order to get easier deals through the system. There is enough stress and commotion in the job. Learn to prioritize deals. Work every deal to a conclusion, but learn the difference between being diligent and beating a dead horse.

Until next month, great selling!

Greg Goebel is the CEO of DealerStrong and the industry’s leading special finance trainer since 1989. He is an 18-year former dealer principal and a highly sought-after speaker, author and consultant. [email protected]

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Greg Goebel

Greg Goebel


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