Launching Special Finance: Part Three

This is the third of six articles chronicling the launch of a special finance operation at an already successful independent dealership located on the fringe of a major metro market. It will detail the plan, the strategies, the successes and the challenges encountered over a six-month period. The end goal of the new department is to reach a monthly sales volume of 70 deals at over $230,000 total gross by the end of that period.

End of Month Two and Halfway There

Month Two represented the first time we were fully staffed, trained and operational for an entire calendar month. We were excited to say that we beat our monthly goal in units and gross profit. While we patted ourselves on the back for that accomplishment, we knew there was so much more opportunity in front of us. Here’s where we found ourselves focused on personnel, lead management, marketing, finance company spread and inventory.

1. Personnel: This is a good news/bad news story. The bad news is that, without a doubt, we can say this is the toughest market we have ever experienced for finding salespeople and finance managers. We expected to have three solid customer service representatives on board by the first week of the first month. It took us up to the last week of the second month to actually achieve that goal. During that time, we must have interviewed two dozen people, hired 10, and only had a handful even report for work. During the same time, the dealership tried unsuccessfully to hire a prime finance manager and failed in that regard as well. I even started looking online to see if there was some red flag we were missing about the dealership. That was not the case. It was just a tough market!

The good news is that, after two months, both the business development center (BDC) and the sales team are finally fully staffed, and they seem to have gelled into a good crew. We now have a very solid management team with our SF director as well as a very experienced credit manager. The two have begun to develop chemistry and adapt to their roles. That meant we could commence the daily training of our sales team, which, surprisingly, has taken longer to build than expected.

We had been going through the typical ups and downs of a startup BDC. They initially started working the shared leads from Focus. We felt that would be a great place to start practicing and role-playing because those leads are relatively inexpensive and typically represent people who are genuinely interested in buying a vehicle. The team quickly learned to set appointments, but the show rate was slim — again, nothing unusual, especially in a competitive market. By the end of the month, they were not only getting them to show but buy. Total cost per sale was $243 per car, which was very affordable, and it was great training.

The best news was the conversion rate for people who made it into the showroom. While the special finance team (nicknamed “Red Team”) worked with just 74 people in the showroom, they delivered 37 for an amazing 50% closing ratio. (I should note that we pulled more bureaus and could have had more showroom traffic; however, they were from well over 50 miles away and the decision was made to not invite anyone that did not have the income or verifiable job required to make a deal.) The team worked well together, selecting proper inventory to match with finance companies and, in the end, averaged $3,600.34 per unit retailed — 20% over our target deal gross.

2. Lead management: During the second month, Red Team started showing adeptness at working with ProMax for just about everything. From inventory and finance company selection to CRM and follow-up reporting, they really came into their own. The automated follow-up protocols that our BDC expert, Wendy Reeves, set up for scheduled and missed appointments helped improve the show rate as the month rolled on.

Additionally, the management team really started to click with using the reports to measure, manage, train and coach the sales and BDC teams to continually improve their performance.

3. Marketing: After getting our feet wet in the first month with Focus leads, we tapped the “Go” button with some broadcast advertising. We launched our Nation’s Premier program on the 15th of the month. We did a two-week test with broadcast television for just $10,000. The results were very positive, with calls and walk-ins generated from it running under $50 per call, and sales tied to it at about $540 per unit sold. Considering it was a new trade name and a small buy, we were certainly excited, and will push the “Go” button about twice as hard in the next month.

The biggest disappointment in marketing came with one third-party lead provider that I have had a very long relationship with. They were confident they could produce 135 leads within a 15-mile radius that would be within certain credit score parameters and income. Unfortunately, that did not pan out. We did receive about half of that, but with disastrous results. Of the 67, the BDC was only able to appoint three, and no one showed.

The overwhelming theme from the customers was that they had not applied for an auto loan. To the provider’s credit, they had their own BDC call the entire customer list with the same results, indeed validating they were worthless leads. To their credit (and to no surprise) they did not charge for the leads. Again, this was good news and bad news: While we didn’t pay for anything, we were definitely counting on those leads to be a source for at least another 10 sales which did not occur.

4. Finance companies and credit tiers: For the month, we sold five units to customers with no credit score, one to Tier 4 SF customers, five to Tier 3, seven to Tier 2 and 19 to Tier 1. Only the most difficult tier, SF T-4, was underserved. Surprisingly, we cashed contracts with 11 different finance sources. Capital One Auto Finance led the way with eight deals, followed by seven with AmeriCredit and six with Wells Fargo. We used all resources, however, as we had three each with Ally, Exeter and United Auto Credit, and the mix also included Pronto, Sierra, Gateway One, CPS and Honor. All in all, a great job was done by the credit team.

5. Inventory: We had sufficient inventory, so our biggest challenge was getting the units through the shop on a timely and cost-affordable basis. Some units had to sit for three weeks before getting into service just for an inspection. This was addressed and new procedures were put in place for the buyers and service department.

On to Month Three

With glowing results, you might think that this project is going to be a piece of cake. We know better. As we head into the next month, we are focused squarely on continually hiring and upgrading our talent and using all the reports and tools available to better manage and train. … And of course, trying to create more showroom traffic.

We know that, even if our conversion percentage were to drop to 33%, if we can put 200 people into the showroom, we would nearly be at our goal of 70 SF units per month. Of course, it doesn’t work that way. Certainly, if that were to occur, we would outgrow our systems and processes for inventory sourcing and, very likely, funding.

Our goal at the onset for the third month was 40 units and $120,000 in total gross profit. While the sales growth is minimal over actual, and the gross goal would be a step backwards, we are really focused on the bottom line of the department. The department cleared nearly $28,000 after paying all associated expenses, including payroll. So while we are certainly looking to grow the department, we will certainly be bottom-line focused as we progress to the halfway point of the project.

If you have any questions on how our project might relate to yours, feel free to reach out. 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]