Are you on the 36% or the 64% team? Trust me – you want to be on the 36% team but it will take special finance commitment. In this post, I will explain the 64% team (and why you don’t want to be on it) and help you see where dealers are missing opportunities to grow.

According to Experian for 2Q2014, the average credit score for a person financing a used car was 641. This means the average customer’s credit score was well below the definition of prime credit and within two points of being a subprime credit customer (compared to a 711 for a person financing a new vehicle).

Combine that with some powerful proprietary data that John Palmer, the CEO of Promax Unlimited, shared with me. Using the State of Illinois as an example, data showed there are 1,060 dealers registered to do business. In that state, over 1 million people had credit scores between 500 and 640 – the heart and soul of subprime. Over a consecutive four month period, 817 dealers both pulled credit bureaus and had at least one credit bureau per month with credit scores between 500 and 640. During those four months, based on the known people living in the state with credit scores in that range, 10% came into a dealership and had credit pulled. Of those, 20% purchased a vehicle at that dealership, meaning 80% did not. Of those that did not, 29% purchased at another dealership.

Of the 817 dealers, 64% (521) had more customers that came into their dealership with those credit scores sold by competing dealers than they sold themselves. More telling, in the entire state of Illinois, only 18 dealers averaged selling at least 25 vehicles per month to customers in that credit range.

With the recently announced total-deal SF benchmark of $3,567 for used vehicles and $3,775 for new vehicles, what a colossal whiff, especially for the 64% that had their competition outsell them on customers they already had in the store!

Upon scanning the list of the dealers that made up the 64%, I found it to be littered with some of the largest and most profitable dealerships in Illinois. How can that be? It is really very simple – total lack of commitment to SF customers, which currently makes up exactly 33% of all the vehicle sales. This is nothing new, but it certainly keeps me scratching my head. I assure you, had we completed this exercise for all the other states the results would have been the same.

If I were to poll the 64%, many would take umbrage with my comments about them not being committed. They may even have a SF Manager in place, and might be doing 10 to 15 deals a month. I see it often. In their mind, they have put their money where their commitment is.

Denial is easy. Commitment goes well past writing checks. I really don’t have to look past some of our own consulting and training clients/friends to reinforce this point – and they are certainly writing checks. They “think” they are committed. If they were, their competition wouldn’t be outselling them with their own customers. They would ensure the systems and processes exist that they have learned need to be in place. They would commit to buying the correct inventory and in the correct quantities to avoid aging and book-drop. In general, they would be doing better.

To have the commitment, which means the whole team must be engaged, you first must understand why it doesn’t exist, then you have to address those issues.

The first reason is that the SF department is the largest profit center not broken out separately on a dealer’s financial statement. The sales and gross numbers flow into the new car department, the used car department, and the F&I areas of the financial statement and are unable to be distinguished. If a dealer doesn’t really know how well they are or aren’t doing, and all else is going well, they assume the SF effort must be as well.

Along the same lines, it is difficult to measure SF activities by themselves. How many true SF opportunities do stores really have – whether dealership visits or leads? My team and I are continually in clients’ CRMs and it is amazes me to see how ineffectively they have been set up. Without reasonably accurate information, you can neither manage nor hold people accountable. If the expected results don’t materialize, it is easy to lose commitment thinking, “We just don’t get that type of customer in here,” or “Our customers are different.”

Whether it is the BDC, sales personnel, used car manager, buyers, sales or finance management team members, there must be accurate and consistent ways of measuring to facilitate improvement and ensuring that it is occurring. Measure activities – not results. If the correct activities are occurring consistently, so will the results.

Next there are the comp plans. Often comp plans have been developed by F&I vendors who have based plans around product sales and penetrations. That is great, unless a Tier 3 or worse customer is approved by a finance company that does not offer finance participation or allow any/much back end product sale. If that is the case a finance manager delivering that type of deal (that at benchmark gross profits still means more than $3,200 for the dealership) actually will have his compensation negatively impacted by the sale. Do dealers really believe that a finance manager is really going to work hard to put that deal on the books if it hurts their compensation?

Additionally, I often see dealerships with a prime finance manager(s) and a SF manager. A hard line of demarcation is set, often based around a credit score. One manager must lose to have the other manager win, even though a credit score above/below might have been better served by using the alternate sales process. No matter what, someone always loses, and almost always it includes the dealership as well.

Compensation issues also carry over to the sales personnel. In some dealerships subprime sales commissions are reduced by 50% in order to help offset the compensation for the SF manager. Brilliant! Not so much. What this ensures is that the sales person is going to work the deal as prime credit to the death hoping for a miracle to occur in the prime finance office which allows them to receive 100% of the commission. If your dealership is set up this way don’t kid yourself about it not happening.

As long as we are talking about personnel, let me insert egos. I have had the good fortune to be able to work with some of the best SF teams in the industry. They all have at least one thing in common. While being experts at what they do, they all believe there is more to achieve. One client is delivering 150 – 175 SF deals a month. That is terrific (it is easily 33% of their business) but knows their grosses are just average because of a commitment issue with their used car buyer(s). They are working hard to fix it and recoup the extra $1000 per unit.

On the other hand, I continually chuckle at the inflated opinions many individuals have of their abilities when they are clearly performing well below average in every area. Their confidence and swagger makes them feel they have nothing to learn and need only “more traffic.” Due to the inability of the dealership to truly measure, they are able to get away with it (or eternally suffer from it) and therefore nothing changes.

Somewhat along the same lines, some dealers are so profitable there is little motivation to make it work. They are happy to write checks, but their rationale is often, “I don’t want to do anything to upset the apple cart.” OK, $3M to $4M net profits are nice, granted, but an extra $1M is even better, and it simply takes the commitment to convert the 33% of the business that you are missing. One dealer client that has nearly 20 stores in a market could easily add another $10 million in gross profit per year to their operation but it must be too much work to think about, because there is always an excuse to put it off until next month.

Finally there is what I call the fear of change or the unknown. A few clients come to mind where they have processes or team members that they know are holding them back. If they make a change in processes, they fear a team member (without commitment) may leave. Worse yet, they know they have a team member(s) that should be replaced but they fear (1) that when starting the search for the replacement that the team member may discover it and leave before the replacement is found; or (2) the replacement they find may turn out worse than what they currently have. The result – go with the status quo. No commitment and no improvement.

I am sure there are other factors that cause the 64-percenters to lack the commitment necessary to outsell their competition on the customers they already have in their own stores, but for certain, this list is a good start. Most likely those organizations that lack the total commitment necessary to excel in Special Finance have at least one – most likely many – of these issues.

My challenge to you as many of you approach your annual forecasting and strategic planning sessions for next year is to truly look at your organization and at the opportunity, then find a way to develop the total commitment necessary. Let’s restate the fact – the average credit score for someone financing a used vehicle is 641, 33% of all vehicles sold are sold to subprime credit customers, these customers are walking into your store every day and those dealers that are operating at benchmark levels are delivering at least 28% of those customers at total deal gross profits of $3,500 and beyond.

Whether you are fat and happy, or whether you have someone or a team that thinks they are ‘all that and a bag of chips’ and know it all, the bottom line is that in the majority of all stores, if one-third of your business isn’t being delivered to subprime customers then you are most likely on the 64-percenter team – not a team that most successful dealers every want to be on.

Besides commitment, there are nine other critical components that need to be in place to excel in Special Finance. Commitment IS the corner stone and foundation needed for the other components to fall in place. Get committed and choose to be one of the 36%. Get your Special Finance plan ready and watch the next year be your best ever.