5 Common Mistakes in Special Finance

The special finance industry has been around now for nearly a quarter century. No, I am not talking about the buy here pay here business, but the business of subprime indirect retail installment contracts originated by auto dealers and assigned to unrelated auto finance companies such as Capital One, Chase Custom and the like.

I have been joined at the hip with the business since its very early days – now over 21 years – and already witnessed three separate business cycles, and we are currently beginning the fourth. It’s déjà vu all over again. Yeah, that is an expression that Yogi Berra, the hall-of-fame Yankees catcher, made famous decades ago, but it sure applies to what I see happening in the special finance world today. As the optimism of dealers has increased, their trek back into the SF market has mirrored it. As I work with them, it is disturbing to see the same mistakes that were made during the last three upswings repeated (sometimes by the same dealers). As a result, I thought I would dedicate this space to the five common mistakes made in special finance I see made by dealers.

Mistake #5: Thinking “If Some is Good, More is Better”

More often than not, dealers are working too many leads with too few well-trained people simply picking the low hanging fruit. If more is always better, we’d be drinking out of fire hoses as opposed to drinking fountains (or plastic bottles). The average salesperson can handle about 70 to 80 new leads a month effectively, the best maybe 125. If they’re working anything more than that, something is compromised. Leads aren’t contacted, or gross profit is compromised due to lack of time. Maybe tougher credit customers are even passed over, or follow-up with previous customers is overlooked.

Mistake #4: Failing to Track Your Activities

The SF department is the largest profit center that is not broken out separately on a dealership’s financial statement. As a result, most dealers can’t come close to knowing what they are really doing in SF. Drill down one step further and even more have no method of knowing exactly how many SF opportunities their dealership has each month, let alone the success rate they have with either leads, or dealership visits. One of the oldest business adages is that you must be able to measure in order to manage. Most organizations fail miserably here.

Mistake #3: Fire, Ready, Aim

There are so many ways to approach this, but let’s try it like this. Baseball’s best hitter over the past decade is Albert Pujols, and he takes batting practice every day. Special finance isn’t brain surgery, but if it were easy, every dealer would have SF sales volume that was a minimum of 25 percent of their total, and deal gross profits of $3,000 or better.

Many dealers jettisoned their SF personnel through austerity programs during the industry’s downturn in late 2008 and 2009. They (incorrectly) assumed that their F&I departments or sales desks could efficiently handle SF. Now they are ramping back up with new managers and sales personnel—using the osmosis training program maybe once a week. Formal training? Name your excuse—time, money, people. Seriously? Every day in 90 percent of the dealership’s customers are being shown vehicles they can’t possibly afford and can’t possibly get approved on due to a flawed sales process. How many sales are you missing working such a high percentage of your customers like they had spotless credit? It isn’t the leads, and it isn’t the banks. It is a flawed sales and deal-structuring process.

Mistake #2: Inventory that Doesn’t Work

Every dealership thinks their dealership is different and that they can put SF deals together without modifying their inventory. Yeah, right. You have heard me expound on this for years, but it is still one of the biggest mistakes dealers and departments make. The best personnel still can’t structure a profitable and buyable SF deal without the correct inventory. That inventory must match your customers’ credit demographics and the finance companies’ programs. Sales volume and gross profit all start with the correct inventory.

Mistake #1: Lack of Team Commitment

Whether it is the dealer, executive management, key managers or sales personnel, people don’t totally commit. Usually it revolves around one of two issues: cash or compensation. Either upper-level management cannot tolerate the cash demands that funding SF deals entail, or someone has created a compensation plan for people that dictate someone must lose for another person to win (i.e., for a SF manager to get paid, someone else has to give up compensation). Either way, without commitment, one or many of the 10 Critical Components necessary for success will be missing, and your results will be compromised.

Certainly, these aren’t the only mistakes I see made, but they are the most common and in the most critical areas. If you aren’t reaching benchmark performance, examine your department and compare it to this list. My guess is that you will be able to find your shortcomings pretty easily.

Until next month,
Great selling!