Sixth in a series of six articles. 

While the names and locations are being changed to protect the company’s privacy, this is the sixth of six articles that document the process being used to develop a startup Special Finance Operation inside an already successful independent dealer, located on the fringe of one of the major metro markets in the United States. It will detail the plan, the strategies, the successes and the challenges encountered over a six-month period, with the end goal of the new department to reach a monthly sales volume of 70 deals at over $230,000 total gross by the end of that period.

Finished the 5th Month & Sprinting for the Finish

December in the Special Finance industry is never for the meek. The lack of required down payment, as consumers are using their available cash for Christmas presents, makes putting Special Finance deals together significantly more difficult. Nonetheless, you can’t take the month off, so DealerStrong and the Red Team at Champion Motors made plans to have a strong and profitable month.

Some of the obstacles encountered in the fourth month of our special finance operation rolled forward to month five, however, the team had plans established to work around them in the short term and evolved past as the month moved forward. At months end, the sales volume (although not what we aimed for) was still very strong and very profitable and we were well positioned for the final push.

The Highs 

• Our Red Team desk manager had come into his own. Personally, I had some reservations when he was invited to join the team at the onset of the project, however, he more than erased those doubts. He continued to work deals cleanly and profitably while allowing for a high closing rate and customer satisfaction. He absolutely has kept the store’s best interests in mind and has been a very pleasant surprise. It will be our recommendation once our six-month project is completed that he becomes the desk manager for the entire store.

• Our closing ratio of customers visiting the store improved – in a tough month to do so. We hit 34%, well above the benchmark of 28.6%, tallying 47 Red Team deals (highest yet, but short of our goal of 50) out of 138 store visits.

• We added Credit Acceptance as an additional finance company and they helped create some deals in Tiers 3, 4 and Zero Score, as did Pelican Auto Finance and Exeter.

• We successfully moved a non-motivated BDR employee out and onto the Red Team sales team. It was a win-win as they sold 8.5 units on the sales floor, effectively doing it in less than three weeks after going through training, and, we replaced them with a strong performer in the BDC.

• The Nation’s Premier Auto Dealer Program really hit its stride. On the same spend it brought in 445 identifiable and unique phone prospects and the BDC, even not in full stride, brought 80 into the showroom. It was easily the largest source of business.

• Focus Inc., the supplier of shared leads (between four dealerships) generated from TV infomercials, finally hit their stride. For the first four months the leads had proven to overmatch the rookie BDC team members. While the percentage of leads that actually made it to the showroom was small, the Red Team delivered 50% of those that did. Additionally, it wasn’t until the end of the month the team demonstrated their proficiency. We expect more success in January on those leads.

• InterActive Financial Marketing Group, after a tough perplexing start in prior months, stood true to their word and delivered very good leads. While the quantity was relatively low, the quality was very high and not only was the BDC excited to work them, they resulted in four very cost effective sales.

• The surprising development of sales of near luxury and luxury vehicles to Special Finance customers continued. A surprising number of BMWs, Lexuses, Mercedes and Volvos have been delivered, many of them at very good gross profits. While they are certainly older and have a bit higher mileage, the customers are willing to come up with the needed down payment when they are buying something they can get excited about driving. Payment-to-income ratios are the key!

• The best news is through our first four months, after all Special Finance Operation related expenses including personnel, advertising, credit bureaus, etc., the dealership, after its break-even first month, has generated an additional $233,760 in net profits!

The Lows

• December hit. While the weather had been mild, the area was bombed with a 12-inch snowfall on a Friday night early in the month, essentially eliminating Saturday, our biggest day of the week. With just four Saturdays in December, losing 25% of them made for a challenge. Weather is just something dealers have to contend with, but it really was a disappointment to have it wipe out a weekend.

• The website. It is a broken record and a dismal failure. More aggravating is that as I login to the backend dashboards of other clients using them, I see that Champion is the only dealership not having terrific results. Repeated phone calls and emails have generated nothing, and the dealership has just managed to eke to page number two on Google, even when searching using their specific name, which is their city coupled with the words “auto” and “loans” .com. We finished the month with a large broadcast budget, even with 600 fewer website leads than we had originally forecast. At this rate we don’t expect it to improve in January.

• The BDC still does not have a BDC manager, but is at least improving. While the 37% appointment show rate didn’t show any improvement, there were a few mitigating circumstances. First, we did get a quality replacement hired and morale, which had floundered unbeknownst to us in the last week of November, soared. Second, in the last half of the month the show rate jumped to 45%, indicating good progress. Finally, they easily put the highest number of showroom visitors in the store ever, and it was in December.

• Other personnel issues arose. The top Red Team sales person, averaging nearly 20 units per month, was arrested away from the dealership for non-driving issues. He was instantly terminated, leaving an obvious hole in the sales team. While it was relatively quickly filled, it nonetheless created a void while we were getting the new hire up to speed.

• Another “broken record” occurred on the inventory front. While the owners and buyers have demonstrated they can buy what they need, they simply aren’t doing it to the proper quantity, all the while overbuying for their Green Team – which is creating a massive inventory glut. It looks to be doubtful that this issue will change in time for it to make a significant impact in January.

• Additionally, the bottleneck in the service department, where they were one service advisor short at the desk, still exists. They identified a solid person and thought they had them hired. Ultimately it did not pan out. Dispatching and parts sourcing are still slowing the reconditioning process immensely.

The Bottom Line

In spite of it being December, being bombed by weather, and experiencing the usual challenges of any dealership, the Red Team rocked it for 47 units, just three shy of the goal, and brought our Special Finance Operation net profit up to over $233,000. With the BDC coming into line, we keep our fingers crossed with the January weather and eagerly look forward to our sprint to the finish!

Miss an article in the Special Finance Operation series?

Part One: The Timeline

Part Two: The Launch

Part Three: End of Month Two and Halfway There

Part Four: Halfway Point and Very Optimistic!

Part Five: Two-Thirds Completed, But with a Speed Bump

Part Six: Sprinting to the Finish

Fifth in a series of six articles. 

While the names and locations are being changed to protect the company’s privacy, this is the fifth of six articles that document the process being used to develop a startup Special Finance Department inside an already successful independent dealer, located on the fringe of one of the major metro markets in the United States.It will detail the plan, the strategies, the successes and the challenges encountered over a six month period, with the end goal of the new department to reach a monthly sales volume of 70 deals at over $230,000 total gross by the end of that period.

Two-Thirds Completed and Finally a Speed Bump

At the 2/3 mark, the ‘Red Team’ as they are known was certainly excelling and growing. We had been waiting for the inevitable speed bump, hiccup, whatever you want to call it, and it finally showed during month four. That’s the bad news. The good news is that it didn’t impact gross profits and we managed to achieve our goal for sales volume, so certainly, in the body of work, we still won’t complain. Here is a summary of what we experienced in month four.

The Highs

• With DealerStrong’s Executive Trainer, Shawn Foster, on site a couple of times this month, the sales management team continued to gel. During the month there might have been a few more personality clashes between the two Type-As working together, but with Foster being onsite less and the team having to work things out between themselves, that was not unexpected. Nonetheless, they appeared to be solid and the department closed 40 sales out of 125 total showroom visits for a 31% closing ratio. While the closing ratio was down from the previous month, it remained 3% over benchmark. We were still happy, as the month was the beginning of the holiday season in which down payment always dwindles.

• The sales personnel team had stabilized and was maturing well. With four Red Team employees and no turnover, the group had really gotten the hang of not only the sales process and overcoming objection, but they had also done a very good job of logging their traffic and activities in ProMax, which enhanced our ability to measure and make good decisions.

• One of the surprises of this project has been the sales of near luxury and luxury vehicles to Special Finance customers. A surprising number of BMWs, Lexuses, Mercedes and Volvos have been delivered, many of them at very good gross profits. While they are certainly older and have a bit higher mileage, the customers are willing to come up with the needed down payment when they are buying something they can get excited about driving. Payment-to-income ratios become important here, so as you read this, don’t go buy a bunch of highline vehicles without a way to finance them at affordable monthly payments.

• It was another strong month for the Nation’s Premier Auto Dealer direct response program. While we trimmed the budget a tad in this month, because the BDC performance wasn’t as high as we wanted, we were still able to hit 399 unique calls, and the BDC did manage to increase the show rate as well. We will be continuing this through the completion of the six-month stint, and know the results will continue to improve.

• Craigslist has remained a terrific lead source. Posting about 500 vehicles with credit focused ads, we received 94 leads, got 32 dealership visits with 11 sales. Total cost was $3,250 for just $295 per sale.

• The team is really using their ProMax CRM and desking system well. The Instant Screen feature has allowed an easy hand off of credit challenged walk-in customers to the Red Team. This certainly is providing an incremental increase in sales for the company as before, the Green Team would have worked the customer on the wrong vehicle where an approval could never take place. I would say by now this team would rank among the top 20% of skilled users for the product. Their proper use of the system allows DealerStrong to continue to help make suggestions for improvements, even while not onsite in the store.

• The best news is that through the first four months of this project, after all Special Finance Department related expenses including personnel, advertising, credit bureaus, etc., the dealership has averaged an incremental increase in profit to the bottom line of $63,037, which would annualize at over $750,000 in increased net per year.

The Lows

• The website. Our website to this point has been a dismal failure. Even though they have excelled with a large number of our other clients, and even though at their suggestion we paid a premium for the URL, [cityname]autoloans.com, organic search is non-existent. We were counting on it to be a major factor, and with all of our other dealer clients it is, but we were 400 website leads short through the month. Typing the URL into the search was not of any value. The PPC campaign that we ramped up provided essentially the only traffic to the site. The vendor is trying to make necessary changes, and we are hoping in month five it will finally bear some fruit.

• Ultimately our internal Achilles heel remains the BDC. We have proven why, when DealerStrong conducts BDC training with dealers, we always stress the importance of a full time BDC manager AND that someone in sales management both train and coach that manager on how to manage every day.

• The BDRs (we added a fourth late in the month) are all new to a BDC. Daily training along with daily call review is paramount for success with a lightly tenured staff. Unfortunately, we hired and fired two hopeful BDC managers suggested by the new management team during the month causing Wendy Reeves to have to assume the role of remote BDC manager – it just is not the same. There were BDRs simply not following the process or using the call guides, but without onsite oversight, there is little we can do to ensure change. The BDC was getting roughly 37% of the appointments into the store, and that was well below our expectations.

• The owners and buyers still struggle with getting inventory in and ready. Rapid Recon is helping, but something the Red Team can’t control is a bottleneck in the service department, where they are one service advisor short at the desk. Dispatching and parts sourcing are slowing the reconditioning process immensely. Additionally, there has been a reluctance to provide the inventory specified, and while the highline inventory has been a pleasant surprise, the bread-and-butter Special Finance Department inventory must get better.

The Bottom Line

This startup Special Finance Department had gone so well out of the box, we just knew issues had to surface, and of course they did.

The great news is, even with those challenges and the month being one of the two slowest months nationally for the Special Finance industry, we are still well ahead of the four-month Special Finance Department volume, gross profit and net profit goals. After washing out all of our startup costs in month one (better than goal) we have generated an additional $137,820 in net profit the last three. With December and January as the final months of the project, we know we will finish strong and set the store up well to takeover on their own for the strong February tax season.

Miss an article in the series?

Part One: The Timeline

Part Two: The Launch

Part Three: End of Month Two and Halfway There

Part Four: Halfway Point and Very Optimistic!

Part Five: Two-Thirds Completed, But with a Speed Bump

Part Six: Sprinting to the Finish

I get asked about once each week for advice on building a sales compensation plan. This is an area, for some reason, dealers are always tinkering with. As you might guess, I am absolutely not a proponent of frequent sales compensation plan changes – even a change to the benefit of the sales team can be viewed negatively and can impair employee morale and therefore performance.

Why these changes seem to take place is whoever created the existing plan failed to take into account some variables that ultimately create a surprise for the dealer when they receive their monthly financial statement. They build a plan, put it in place, and expect their targets to be hit. At end of the month, they look at their statement and it shows $450 per retail vehicle and/or 18 percent of their vehicle gross in sales compensation.

Most dealers have targets in mind when they create a sales compensation plan.

Those targets will generally revolve around a target dollar amount per retail vehicle sold (which must be competitive in their market area and often fluctuates around $350), and, a percentage of retail vehicle gross profit (target of 13 percent – 14 percent).

How do we miss these targets?

Issues occur when dealers look at their average vehicle gross profits, forecast their average monthly sales, count the number of sales personnel they intend to maintain and divide the average monthly sales by the number of sales people. (Ex. – 100 sales, 10 sales people, average of 10 units per sales person.) I give the dealer enough credit for being able to figure out their hard and soft packs along with the required percentage of commissionable gross profit to get where they need to. What happens is they fail to take other circumstances into effect. This includes:

• Minimum commission deals (often $200 – $300 on skinny or loser gross profit deals).
• Minimum wage and employee turnover.
• “Spiffs” and annual bonuses.

Minimum Commission

Minimum commission deals can have a profound impact. It is difficult to keep quality sales team members at franchise stores if they have to rely on gross profits on new vehicles. With manufacturers giving dealers so much money “beneath the line,” I dare say in many stores the majority of the new vehicle sales are “minis.” While these minis don’t impact the comp per retail unit adversely, they sure hammer the expense on a percentage of gross profit basis.

Minimum wage/Turnover

When it comes to a sales compensation plan, the states have varying laws as to how often a sales person must be paid, but suffice it to say, the Federal law is that they must all earn minimum wage. In New York a sales person can have an up and down month, sell 10 units in the first two weeks the rest of the month they didn’t earn any commission so they must be paid minimum wage. That would mean that if they worked 45 hours they would receive $427.50 ($9/hr) and for two weeks that would equate to another $85.50 per retail unit.

Considering the above, factor in turnover. The bottom 20 percent of a sales force is often churning. Those cycling out probably aren’t selling much, and frequently hit the minimum wage issue on no or poor sales. Someone cycling in probably has the same issue for the first few weeks. All this adds to the end-of-month surprise.

Spiffs and Bonuses

Finally, spiffs or annual bonuses can really add up. Some dealers pay double unit bonuses for aged unit sales. Others pay a bonus for three vehicles sold in one day. Some have graduated comp percentages that escalate well above the target based on achieving plateaus. All these have a profound impact on what the end of the month numbers will show.

When building your sales compensation plan, you should take all of these circumstances into effect before you launch a flawed plan. Additionally, you should ramp it up and make sure if you were to increase or decrease your unit sales by 10 percent, 20 percent or even 50 percent that it would make sense.

“A sales compensation plan in the auto industry is supposed to help an employee motivate themselves to achieve management’s goals, however, it can also be the source of poor morale and high turnover.”

If you have to make a change, be sure to think it through thoroughly before you roll it out. You will be happy for time well spent.

At the upcoming Dealer Summit in Tampa, FL (May 3-5, 2016), the DealerStrong leadership team will be presenting on a variety of topics representing their expertise in Special Finance (SF), Human Resources, Business Development Centers and more.

The following is a listing of their Dealer Summit sessions:

Greg Goebel, President & CEO

Keynote Speaker – State of the Special Finance Industry
(The 2016 Dealer Summit opens with the top trainer in the Special Finance industry welcoming the attendees and talking the health of the Special Finance business, which includes the new SF Index and what you should be expecting from the business back at your dealership.)

Greg will also present/moderate the following sessions:

* Finance Companies: Who’s Hot and Who’s Not is DealerStrong’s rundown of the top-performing subprime auto finance companies. The information in this session should be of particular use to dealers who are new to the special finance segment and may not be aware of what the average transaction should look like.

A Special Finance manager may have a close relationship with a finance company field rep or credit analyst who wants the business, but may not have the dealership’s best interest in mind. Goebel will open their eyes as to what they can expect.

* SF 101: The 10 Musts to Be Successful in Special Finance will serve as a 55-minute crash course on the essential elements of a profitable SF department. He decided to resurrect the topic for 2016 after leaving it off his annual curriculum for several years.

So many dealers, finance managers and sales managers don’t understand the basics of SF. Goebel is going to roll through the 10 critical components, how they relate to each other and what they would look like optimally.

Having served as the industry’s leading special finance expert and trainer since 1989, Goebel has observed countless cycles of prosperity in the segment. He said the aforementioned economic indicators and a surge in interest from dealers of all stripes, including those who represent high-line brands, has convinced him that 2016 will be a make-or-break year for experienced and rookie SF dealers alike.

Shawn Foster, Executive Trainer

* The Key to Approvable Deal Structures in SF will cover customer pre-qualification, the intricacies of automated approval systems — which have become increasingly popular among banks and finance companies serving the subprime segment — and how “dummy” structures can get more deals bought by Honda, Hyundai and Toyota’s captive finance companies, among other topics.

In many cases, dealers are shooting themselves in the foot by not understanding the proper deal structure based on what the lenders need. Contrary to popular belief, lenders want to buy deals. The goal of this session is to help dealers recognize what the programs require and how to present a deal that’s viable in the lender’s eyes.

* The Top 5 Keys to Sourcing the Winning SF Inventory will break down proven strategies for stocking special finance units, including Craigslist and other non-auction sources, employee incentive programs and more.

In many dealerships, the dealer says, ‘We can’t buy cars for the special finance market.’ Yes you can, but you’re looking in the wrong spots. They still want to stand in the ‘A’ lane and wait for the good ones, and they’re trying to outsmart 100 other wholesalers. That doesn’t work anymore. You have to adjust.

Harlene Doane, COO

* Developing Your Talent Pool – Planning for Your Business Future will focus on the growing representation of Millennials in the workforce and equip dealers with tools to develop talent among younger workers.

Ask any dealer what the number one impediment to their business growth is and they will likely respond ‘finding talented people’ or a variation thereof. However, the talent pool isn’t the problem; the problem is not enough elite swimmers in the talent pool. Doane will focus on why the talent pool has dried up and how to refill it.

* 10 HR Policies or Procedures You Need to Review Now will be a countdown of serious personnel issues common to dealerships, including security breaches, workplace safety and employee legal claims.

The lack of focus on proper HR policies and procedures can be expensive lessons to learn for many business owners; however, it doesn’t take a lot of extra work to safeguard their stores if they shore up their HR policies and procedures.

Wendy Reeves, BDC Trainer

* The Role Call Review Plays in Continued Success for Your Dealership will discuss call-review processes and how the practice complements dealers’ staffing, training, process implementation and reporting efforts.

* The Keys to Getting Them in the Showroom  will be a comprehensive analysis of effective verbiage, “do’s and don’ts” and basic tools that make BDC representatives more effective.

Dealers who have yet to make a wholehearted investment in BDC will be surprised at the level of production they can reach. These two sessions are an excellent start.

Learn More

To learn more about Greg, Harlene, Shawn & Wendy, visit our Leadership Page.

For more information about the Dealer Summit, visit the conference site.

To Register Now, Click Here!

Selling and Financing Previously Canadian Titled Vehicles

The United States and Canada have been fast friends for years.  Travel between the countries has been simple and easy to the point that many people cross the border daily for their work.  Auto dealers living near the borders have for years crossed the borders both ways to purchase vehicles for inventory, properly documenting the changes through new titles and odometer documentation.

In recent months, the Canadian dollar has weakened greatly in relation to the US dollar.  At this writing the exchange rate is CND$1.45 to USD$1.00.  What does that mean?  It means that it can be really enticing for energetic US dealers to cross the border to the frigid north to acquire vehicles as a CDN$25,000 vehicle can be purchased for roughly USD$17,250 before transportation and US documentation.  Sometimes that is thousands back of book.

“Before you pack up to go buy these deals, you must consider how you will be financing these vehicles for your customers.”

The banks and finance companies that dealers are doing business with have very differing views on these vehicles.  You must keep in mind that very few banks and finance companies run a CarFax or AutoCheck on these vehicles before funding.  All of these vehicles will be ‘branded’ in both services as previously titled in Canada.  For some banks and finance companies, these vehicles are 100% off limits, similar to a gray-market vehicle imported from Europe or Asia.  Others are welcoming them with open arms.

I have spoken, on the grounds of anonymity, with several executives of the top auto finance companies in the US.  While my conversations are confidential, what I can say is that they recognize the issues and some are much more comfortable than others.

My advice is simple.  This is not the time to ask for forgiveness rather than asking for permission.  You might well find yourself unknowingly in the horrible position of being asked to repurchase the contracts of a large quantity of customers.  You should ask the highest ranking official of the bank or finance companies that you are doing business with if they will accept contracts on these vehicles and get it in writing.  If they company official says ‘no,’ then ask for them to run it up the ladder.  One executive from a large company currently beta testing a program for these vehicles in an area indicated that they would be more likely to try a one-off program for a good dealer than turning it on for their region or state until they had good data.  Therefore, if you ask for that, you very well may not only succeed, but have a competitive advantage over other dealers in your market.

Bottom line is that everything is governed by your dealer agreements, and many of them are overly broad allowing for a lot of interpretation by attorneys, as some of my clients are well aware of.  The interpretation is usually decided by more than one attorney, is always expensive, and often ruins what has, in some cases, been a good dealer/finance company relationship.  Don’t assume.  Ask.  Financing previously Canadian titled vehicles is not a subject that is flying under the radar with any finance company of any size.  I will fall back on one of my old adages:  If an opportunity is too good to be true in the auto industry, it likely is unless thoroughly vetted.

By the way, it goes far deeper than just financing, as it also pertains to factory warranties, the service contracts, and even GAP.  Some of the manufacturer warranties do not transfer across country borders.  If you are selling a vehicle to a consumer under the auspices of it still having a factory warranty, you may be misrepresenting the vehicle.  Not good.  Also, the service contract that you sell may not cover the vehicle depending on the company’s expectations of it still being covered by the factory.  Finally, even some GAP policies may not afford coverage to these vehicles.

Certainly, I have specific knowledge on some companies that I have been allowed to share privately. However, under the conditions that I talk with my friends in the auto finance industry, I simply can’t or won’t jeopardize their trust in a public manner.  If you have questions, feel free to reach out to us and we will try to clarify to the point we are allowed.

Thanks, and Great Selling

GG