The most significant event during a special finance transaction is getting the customer interested in the “right car.” The right car is the vehicle that best fits the customer’s needs and budget, and is the one that makes the dealer the most money. However, too many special finance deals are blown, time is wasted and significant profit is thrown away because the sales team is too busy trying to sell the wrong car—the one that the customer wants initially when they walk onto the lot, or the most expensive one, or the one most difficult to finance. Special finance is all about understanding the customer’s needs and structuring a deal around those needs that makes sense to the lender and makes money for the dealership. Successful dealers must have an ample supply and the right mix of special finance inventory. They must also have a keen ability to control the deal by selecting and re-selecting the most appropriate vehicle for the sale.

What is the right car? It is the vehicle that fits the budget of the customer in the terms of both down payment and monthly payment. It is the vehicle that fits the customer’s functional needs. And, it is the vehicle that earns the dealership an acceptable amount of gross profit! It is most likely not the specific vehicle that the customer wants initially. The right car is one that can be financed at a term where the monthly payment will be no more than 18 to 20 percent of the customer’s gross monthly income, which is typically less than $400 per month. But, since most customers have champagne tastes on beer budgets, the salesperson must be tactful and able to direct the focus of the sale away from the vehicle and to a sales process that builds rapport, gains trust and discovers the real needs of the customer. This is the fundamental difference between conventional and any non-prime automotive finance; it all starts with the right inventory.

Where do I find the right car? Several dealers and used car managers I visit complain that the special finance vehicle just isn’t out there. You can’t find them. I disagree. The problem isn’t so much where they’re looking, but rather “how” they are looking for inventory. The business is very competitive today, so the traditional tactics of buying have evolved into a science in order to stock the lot with inventory that the customer will buy and the lenders will finance. The special finance customer needs reliable transportation that fits their budget and daily use. The customer wants the best value they can get for their money (and credit) and, as with any of us, we all like options.

Today, vehicle mileage is not as important as the age of the vehicle, its condition, the options it has and its reliability. So first, look at your inventory from the buyer’s perspective and answer these three questions: Does this vehicle fit the customer’s budget (Can you finance it at a term where the monthly payment will be below $400?) Does the vehicle fit the customer’s daily need? And, will the customer feel good about their purchase? (Is it reliable and are they proud to tell others what they bought and from where they bought it?) If you can answer yes to each of these three questions, the rest is about consistency, leadership and discipline, and you have just solved one of the biggest mysteries in special finance.

The special finance inventory buyer must be disciplined when purchasing vehicles. They must fully understand the relationship between market value and book value. And, they must take into account the total transportation and reconditioning expenses that will be added to the cost of each vehicle. They must also have a thorough working knowledge of what the finance companies will finance. These buyers must be well prepared long before they ever raise their hand to bid on a vehicle. The heat of the moment, at the high-paced excitement of the auction block while bidding against other dealers, is not the place to start thinking about all these factors. The penalties for these mistakes are extremely expensive.

The total amount you invest in inventory must be in line with the value of that vehicle as the banker sees it, or rather the “book” value, instead of just the market value. This value is typically listed as the NADA Trade-In value (Kelly Bluebook Wholesale on the West Coast) from which most finance sources calculate the loan-to-value (LTV) percentages to determine the risk factors and advance amounts for their loans. The market value is the actual cash value (ACV) of that vehicle today. If you were to sell your vehicle on the wholesale market, the market value is the net amount of the check you would take home.

Unfortunately, the book values and the market values seldom correlate and change frequently. Inventory buyers who are too proud to use the technology available today, such as a Personal Data Assistant (PDA) loaded with software that contains the most recent book values and market reports are simply shooting in the dark and gambling on the block. The prudent buyer must be an expert on book value, the market value, and the finance source profiles in order to make the most informed wholesale purchasing decisions. They must be knowledgeable about mechanics, reconditioning costs and what sells in their market. And, they must be well prepared long before they ever raise their hand at the block. I guarantee that the competition is.

To stock your dealership with the right cars, I recommend that you use a tiered purchasing grid that sales managers and wholesale buyers can use to communicate the inventory needs of the dealership. This grid should have at least four tiers to it that list the maximum age, mileage and ACV on all vehicles purchased for resale. Each tier is devised based on the vehicle restrictions of the finance sources with which you do business. The point is to take a team approach when buying your special finance inventory, communicate and always keep finance parameters in mind. They have the money and thus dictate the terms of the purchase. You must buy your inventory at a value whereby the total costs, when the vehicles are on the lot ready to sell, are at least $500 below the current book value in your market. The grid below is one that I recommend for use but should be tailored to fit your specific dealership.

The proprietor of any company, regardless of the type of business, must stock their shelves with inventory that sells and generates profit. These are some of the unique considerations and simple rules car dealers must follow when buying inventory for special finance. The vehicle has to be reliable, affordable and capture the interest of the customers walking through the door.

There is plenty of inventory out there, but the Special Finance dealer has to be smart about what to buy, where to buy and when to buy. Inventory purchasing requires discipline, persistence, knowledge and a plan of action. It also requires a keen eye for quality vehicles that fit the intricate balance between book value and market value. There is an old adage regarding inventory that will always hold true: “Your profit is made or lost, starting with the buy.” Your special finance department will live and die by the inventory stocked on your lot.