Avoid the Simple Mistake Made by Many Inexperienced Departments

I spend so much time training and consulting with some of the absolute best special finance dealers and departments that I sometimes get lulled into thinking that everyone else operates in the same manner. As I have been talking with people inquiring about our upcoming Special Finance Conference, held September 26th to 28th at the Las Vegas Hilton and in conjunction with the F&I Conference as part of the Industry Summit, reality has once again slapped me in the face.

After nearly 22 years in the special finance world, the first 13 as a dealer, it is easy to forget what you have learned. The mistakes, the scars, the tuition paid for my continuing education (which paled my Purdue degree)—I have them all. Many of these conversations, especially those with the next generation of the automobile business (department managers who had yet to start school when I was cutting my teeth in the SF world), take me back to the memories of lessons learned.

For a few days last week, I felt like I was in the movie “Groundhog Day,” where Bill Murray kept living the same day over and over again. Each conversation had to do with working leads (mostly e-leads) and managers telling me how they are supposed to be worked. After four of these conversations, I alternated between chuckling and admittedly getting a little steamed at one of these “pros” (who’s been a manager for eight months, delivering only eight or nine deals a month) telling me that her way was “the only way that they can be worked.” Your career of maybe 65 deals confirms it! Seriously?

Now, I have always said that my approach to special finance isn’t the only way to do it; it is, however, one way that absolutely works. That said, in this instance, I would bet all my toys that my approach is better. Before I get labeled as chauvinistic, let me explain that 1) it could have been a guy just as easily, 2) I have three daughters, one of whom in my humble opinion was one of the best SF managers around, and 3) my entire publishing company staff is female.

Lucy (not her real name) was adamant that the way you handle leads is to submit them to the finance companies, work them to death and get them approved; then call customers to tell them that they are approved and invite them to the store. She does the same thing with customers who call in (try to get them qualified, ask them for a minimum of $1,500 down and try to get them to find a co-signor—all before she brings them into the dealership). Oh yeah, she said she had about 175 leads and calls each month.

She said the last thing she and the dealer needed was a bunch of people who can’t get approved coming into the dealership taking her and her salespeople’s time. I will give her credit about one thing. While she may not be the most knowledgeable person about special finance, she sure was confident in what she was wrong about.

I started tracking SF leads back in 1995; then I really started tracking them when I launched my dealership’s infomercials in 1997. Back then, I didn’t have anyone to tell me any differently, and when you have between 2,500 and 4,500 leads coming in per month, you get the opportunity to make many mistakes. What my team and I learned was we converted 33 percent fewer opportunities by trying to pre-qualify people before inviting them into the store. It was a grand idea in concept: contact the prospect after we received the credit application, verify the information, get the story behind it, discover exactly how much money the customer had for down payment, work the finance companies, and then call back the customers we got approved to give them the good news and invite them in. (FYI, Lucy, we were doing this in 1997, when you were getting ready to go into the sixth grade.)

The problem was, it didn’t work. We were able to contact those who were approved at the same rate we were able to contact all leads, and we set the same percentage of appointments. Unfortunately, we were obviously calling about a third fewer people. Our delivery percentage was actually lower than when we called all the customers. Perplexed but determined, we kept the process up for about 90 days. You guessed it, we achieved the same results.

We then went back to the “old” way where we set an appointment at the first contact. Sure, we indeed had some people come in for whom we couldn’t successfully structure a deal that worked for all parties, but guess what, our conversion ratio of total leads skyrocketed. You see, there really is some psychology in play in the customer’s mind.

First, they are in the mood to buy when they first submit their credit application. They don’t do it just for the sake of giving out their Social Security numbers. Contact them immediately and you will set appointments with at least 50 percent of the applicants.

Second, they most likely have been turned down at least once for a car loan. They are using the Internet and phone as ways to distance themselves from the embarrassment of rejection. Every question you ask them on the credit application and especially on the phone is, in their mind, an opportunity for them to answer incorrectly. As the hours and days drag on since they first contacted you, in their minds, the likeliness of them really being able to buy gets continually smaller. When you finally do call, they are likely to ignore your call out of fear.

Third, remembering that they are trying to avoid the embarrassment, do you really think you are going to get them motivated to come up with the extra $500 or $1,000 that they otherwise wouldn’t offer to get approved? Bring them to the store, let them see, feel, drive and smell the newer car with air conditioning that actually works, and that all changes. That is especially the case with co-signors, as it is particularly embarrassing to have to ask a family member or friend to sign with them because their credit is too bad to qualify on their own.

Finally, if you are successful in getting them approved, you have a dilemma. If you tell them, “Congratulations, you are approved,” you have just given them credit muscles. They now know that they can buy a car at your dealership. The problem is they have to drive by a bunch of dealers between their home and your store, and they figure they have nothing to lose by stopping in and seeing what your competition has, and of course they will tell them that they have already been approved by you. What do you think your competition is going to do? They’re going to lie down in front of the customer’s trade before they let them leave.

If you don’t tell them they are approved after this lengthy process, they will likely not come in since you have told them you were going to get them approved first. In that case, many of your finance companies will thank you for wasting their time in working the application, and the customer will wind up buying something from your competition anyway.

I know all this from many different experiences. First, way back in late 1997, I was so frustrated I paid a market research firm around $10,000 to contact 2,500 people who had applied to our store in one month, none of whom had bought and most of whom we had not tried to set appointments with. This was also back when I was about the only SF game in town. The research firm reached about 25 percent of the customers. I was appalled to learn that of those they reached, 49 percent bought a car within four days of contacting us. Granted, about half of all those contacted could only have bought via buy here pay here, something I did not have at the time. However, the others certainly were our customers we had simply missed, and our competition figured out some way to make the deals.

I encourage many of my clients to not make my same mistake. In late 2009, one of these clients was making my mistake when I visited them, and I convinced them to change their process. Now, I won’t say that is the only reason their business improved, but in four months, they went from 60 to 120 SF deals per month. Coincidence? I don’t think so. What is coincidental, however, is that they are about 10 miles from Lucy’s store.

Are there exceptions to this process? Certainly. We made exceptions for anyone who was driving from an hour or so away, but they were exceptions. We set our process for the 80 percent, not the 20 percent.

As it turns out, Lucy wasn’t too interested in coming to the Special Finance Conference. She knew it all. It is probably a good thing for her. Her competition is sitting on a dealer panel talking about how to convert these same leads, and she probably doesn’t want to hear how their store is now selling 150 SF deals a month.

Don’t make Lucy’s mistake. Invite all customers in, treat them with respect and empathy, and follow up with them. If you do, you will deliver a whole lot more SF units each month.

Vol. 8, Issue 9