One Dealer's Siege

For dealers today, subprime auto financing can certainly feel like an uphill battle. Many dealerships that are successful in special finance today are fighting for the small victories – in the form of SF sales – with the mindset that these small feats will lead them to emerge victorious from this economic war in which the auto industry is entangled.

One dealer fighting the good fight one month at a time is Avery Beland of Battleground Kia in Greensboro, N.C. Through leadership, dedication and perseverance, he led Battleground Kia through a tough fourth quarter in 2008 into a successful January 2009, and instead of holding his ground with the hopes of sustained success, Beland is positioning the dealership to increase SF sales so they account for a larger percentage of the dealership’s business.

On average, Battleground Kia retails about 100 vehicles per month, 30 percent of which are subprime; Beland defines subprime business as customers with credit scores of 600 or below. With the addition of Credit Acceptance to the dealership’s lineup of finance companies, he is hoping to increase the store’s SF business by 50 units a month. If the dealership wins that battle, SF will account for a little more than half of its sales. If plans go accordingly, Battleground will be financing vehicles through Credit Acceptance by the beginning of March ‘09.

While Beland is no stranger to subprime financing (his SF experience dates back to the mid-90s), Battleground Kia has only been open since October 2007 and generates quite a few repeat/referral sales (obviously, most are referrals). The dealership’s early success with repeat and referral business, which accounts for 15 percent of sales, indicates that the dealership takes care of customers.

Beland knows many customers battle some anxiety when car shopping and that bouncing customers from salesperson to manager in the dealership only makes the buying experience more stressful. To ease customers’ minds, “All my managers are involved in each and every sale [from the beginning], so I’ll have a salesman working with a customer, and I may have one or two managers physically working with the customer.”

At Battleground, which employs four finance managers, two desk managers and 10 salespeople (two of the salespeople are experienced enough to act as managers), “The finance guy’s not sitting in an office waiting for a deal to come in … In most dealerships, you’ll have one guy on a desk working two or three deals and there’s one salesman for each deal. With us, everybody’s involved … It’s working pretty effectively here right now.”

, the staff at Battleground can involve multiple employees in each deal, still remain profitable and properly handle of all their customers.

Half the battle in auto sales is getting customers in the door, especially in a city that’s considered one of the emptiest in the country (Forbes listed Greensboro as the fourth emptiest city in America in February 2009), but don’t bother telling Beland that because he’s still driving traffic to his store. The dealership has two Web sites generating as many as 15 leads a day; one of those sites is a blind site targeting customers with bad or no credit.

The blind site includes a credit application and “contact us” page, as well as the dealership’s entire inventory, a loan calculator and auto loan FAQs. While the blind site is search engine optimized, it’s also advertised on television. The store’s main site, BattlegroundKia.com, takes a more neutral approach. The site has a page for “fresh start” financing and subtle references throughout that Battleground Kia helps people in all credit situations.

The dealership also runs branded spots on radio and television, and Beland likes to differentiate his spots. “We try to do it exactly opposite of what everybody else is doing. Right now, Kia dealers are advertising buy one, get one free. What we do is we advertise cash back; that’s what a real rebate is. It’s cash back. Nowadays, people can’t get credit cards, so we figure ‘buy a car, get some cash back and it keeps you moving.’ It’s been working pretty effectively for us.”

In addition to the troop of customers Battleground’s Web sites and TV and radio spots generate, Beland also purchases leads generated from blind infomercials. For a dealership with a sales and finance staff of 16, it would be impossible to work all the leads from these different lead sources. That’s why the process for working these leads starts outside the dealership. Beland outsources all leads and incoming calls are routed to New Vision Sales, which sets appointments and sends them to the dealership with one of the managers’ names. And the dealership takes it from there.

Obviously, some customers who come in the door will retreat before filling out a credit application. While those customers count as appointment shows, Beland looks more to completed credit applications when dissecting his numbers. He estimated the store receives 800 leads per month and pulls credit bureaus on about 50 percent of them, and most of the people who come in the door fill out a credit application. In January 2009, which was slightly better than average, the store had 534 ups and pulled 515 bureaus—362 with credit scores below 600 and 153 with scores above 600.

The store retailed a total of 110 cars in January, 30 of which were special finance, meaning the closing percentage for SF bureaus was between eight and nine percent and the closing percentage of bureaus with 600-plus scores was over 52 percent. Collectively, the store’s closing percentage is just over 21 percent.

For each customer, the salespeople and finance managers must be able to map out the deal in their heads as they learn more about the customer. For subprime customers, that means being able to look at a credit report and determine what vehicles they can get financed for the customer.

Currently, Beland purchases all inventory. He attends three physical auctions that are close to home and sometimes bids on off-lease Kias online through the manufacturer’s site. He’s keeping his inventory pretty lean, working with about a 40-day supply of used vehicles. Although he’d like to keep a 70-day supply, he said, “I’ve been trying to keep my inventory at a crunch to keep my floorplan expense down, although rates are coming down.”

For pricing, he uses the NADA Guides. “I just look at what the banks will finance the cars for … I’ll take the trade-in value and I’ll subtract about $3,000 and then deduct for mileage or condition, and that’s where I want to be,” said Beland, adding, “Now, it doesn’t always happen that way.” His average cost per car is around $9,000, but he’ll “pay up” for an eye-catcher or a type of unit that his inventory is lacking.

Once the dealership begins financing with Credit Acceptance, his inventory buying may become a little more high-tech. As of mid-February, he was printing out lists of vehicles at auction, highlighting the ones that interested him and penciling the price he was willing to pay for them on the list. Soon, he’ll have a handheld device he purchased when signing up with Credit Acceptance that will make suggestions on which cars to purchase and at what price. While it comes with a one-year subscription to Black Book, he can load the NADA Guides onto it and use both books. While he doesn’t see the device changing his inventory-buying process entirely, it’s something he’s open to trying.

Beland keeps his ear to the ground to better understand what’s happening on the finance front; he regularly talks with the finance managers in the trenches day-to-day to learn what companies are financing at what terms. He said, “I think the banks are still skittish, but we’re trying to find the right avenue to get the right approval for the right customer.” Between credit unions and finance companies, Battleground works with about 25 different finance sources. For a while in 2008, however, that number had dipped below 20, so business is looking up.

Battleground Kia has a plan of attack for the remainder of 2009. The store is armed with proven sales and inventory-buying processes, advertising and lead sources that perform, and a solid lineup of finance sources. Considering this year began much better than 2008 ended, it may be the perfect plan of attack to emerge victorious from the current economic war. 

Special Finance Insider Vol. 3, Issue 2