Eighty percent of the dealers who offer indirect financing to their customers (nearly 32,000 franchise and independent dealers) have at one time or another been actively engaged in the special finance business. Most did not stick with it, as today only 20 percent of the dealers offering indirect financing are actively engaged in the SF business. Of those, fewer than half (around 2,500 dealers, according to my estimates) are excelling in the business.

The reasons dealers get into the market and then back out vary, but it always comes back to two main factors. First, SF remains the largest profit center in the dealership that is not broken out on the dealership’s monthly financial statement. Franchise dealers break their profit centers out into new, used, finance and insurance, service, body shop, parts, and even rentals. No SF. Independents, by their namesake, have no uniformity in the financials, but I haven’t seen one that has SF broken out separately. If dealers had to look at the productivity of the SF department each month, I bet things would be different.

The second factor, and the reason more dealers are not involved in SF, is failure. Dealers or GMs will hire a person or people, maybe even give them a little training, and say, “Have at it!” Inevitably, these situations only produce marginal success due to the lack of commitment of the entire team and the failure to provide the people or department with the components necessary to succeed.

For all the 23 years I have been around SF, the one thing that has remained constant is that I have never seen a single dealer succeed in SF without having all of what I call the Ten Critical Components for Success in place. Those components – Total Commitment, Proper Inventory, Properly-Trained People, a Complete Portfolio of Finance Companies, Good Telephone Skills, the Proper Sales Process, Good Deal Structures, Efficient Marketing, Compliance with Laws and Regulations, and Proper Systems to hold it all together – are what separate those that excel from those that are simply “in the business” or have come and gone.

This month, I start with Commitment, because without it, I guarantee SF will stand for “simply frustrating” rather than special finance.

There must be total commitment to the initiative from the dealer principal all the way through the organization to the sales personnel and receptionists. It is amazing how difficult it is to achieve total commitment. It might be simplistic, but I feel that the lack of commitment comes from three areas: capital, conflict and/or fear.

Lack of commitment from a dealer based on lack of capital is understandable. I always remind people that growth never comes for free, and you must be able to afford the additional capital that will become frozen within the dealership from the inevitable rise in contracts-in-transit (as it takes much longer to fund a SF contract in the average dealership). In general, I tell dealers to expect to need additional capital in an amount equal to their anticipated growth in monthly SF sales times $8,500. In other words, if they anticipate 10 additional deals per month, that would require $85,000 in capital, until they operate with benchmark efficiency.

Conflict and fear are different. Whether it is fear of change, fear of failure, fear of losing control or fear of loss of income, fear seems to be a driving force among management teams and sales team members. How else can you explain it when astute professionals, armed with the knowledge of the enormous opportunities of SF and both the skills and training to carry it out, seemingly ignore the edict of the executive level?

A used-car buyer or manager not familiar with the particular needs of a SF department may be reluctant to find the specific units at the price points necessary for success or may claim it is impossible. This is oftentimes due to the fact that the traditional buyer or manager is not used to buying or stocking SF units. The fear of buying something out of the ordinary can be significant!

Conflict can be similar to fear, and the very people looking for total commitment often create conflict inadvertently via compensation plans. All too often, I see executive management put comp plans in place that require someone to lose in order for someone else to win. Usually it occurs between the finance manager(s) and the SF manager. Someone in higher management pulls a credit score out of thin air and says anything above it goes prime, and anything below it goes to SF. One must lose for the other to win. Additionally, I see stores where everything is worked as prime first, and then anything the finance manager can’t get hung is passed on to the SF manager like leftovers for them to work miracles with. No wonder the wheels fall off this type of operation quickly.

Special finance deals can detonate through the lack of commitment to more than just the inventory or the processes. It takes the commitment to have all of the other nine critical components in place. Special finance deals don’t happen by themselves, and neither do SF departments. Successful dealers know how hard they must work with each of their profit centers for them to sustain excellence. Why should it be any different with their SF departments?

The start of a new year is the time when dealers wipe their slates clean and start fresh. With the subprime credit market growing larger every year, special finance offers nearly every dealership the opportunity to add hundreds of thousands, if not millions, of gross profit dollars to the bottom line.

It all starts with the total commitment to make it happen—every day by everyone.

Until next month,
Good Selling!

P.S. – If you are curious as to how much capital you will need to commit in order to grow your SF department, email me at FormRequest@AutoDealerMonthly.com with “Capital Worksheet Request” as the email subject, and I will send you a form you may use to easily calculate it.

Auto Dealer Monthly Vol. 9, Issue 2

Whether franchise or independent, large or small, domestic or import, highly skilled or not, I see a recurring challenge in the special finance industry where dealers struggle with customers in certain credit tiers. For whatever reason, I have seen more of it lately than I have in many years. Of course, it could simply be more apparent because many dealers now have their departments ramped back up.

It could not have been more exemplified than when I recently talked with four different dealers in two days, all in different markets. The first dealer has one of the top SF departments in the country, two others are skilled but a step down from the first, and the fourth has much less experience. They each said they knew there is more business for them to garner; they just weren’t sure where it was or how to get it.

After talking to the dealer with the terrific department, I quickly determined that they were struggling with their Tier 3 customers, or customers who are a step down from the typical SF customer but above the really rough equity deals of Tier 4 that go to Westlake, Credit Acceptance, Santander’s Drive program and the like. In this dealer’s case, the Tier 4 deals go to their own buy here pay here (BHPH) program. In talking with this dealer, I said I was willing to bet that the dealership didn’t have any inventory to support the finance company programs serving Tier 3. The response back was a smug, “Oh, we have the inventory; we have 380 used vehicles in stock!”

Since this dealer is a good friend of mine and is used to losing friendly bets with me (always for bragging rights and an occasional beverage, not money), I was ready to wager that the dealership didn’t have the right inventory. The bet was on and I volunteered to do a quick inventory analysis. Ten minutes later I had dissected the inventory and found that there may have been nine cars in stock that would work for a Tier 3 customer.

My next challenge to the dealer was: how quickly could one of your salespeople find any of those nine vehicles buried among the 380 used vehicles in stock to show a Tier 3 customer? With the high volume that this department and dealership does overall, there is no way a customer in this tier is going to get worked properly when the salesperson has to look for a needle in a haystack to make a deal.

The next dealer, also very skilled and profitable, had a similar situation. This dealership was doing a pretty decent job with Tier 1 and Tier 2 special finance customers, but the wheels fell totally off when it got to the bottom tiers. Since they don’t do any BHPH sales, they weren’t accomplishing anything in either Tiers 3 or 4. With regards to inventory, they had nearly as much used inventory as the first dealer.

I analyzed their customer credit demographics and learned that nearly 40 percent of their credit bureau pulls involved customers in the bottom two tiers. In examining their inventory, less than 10 percent of it fit those tiers, and worse, it was split between two locations.

The third dealer sold a much lower overall volume and had a much smaller inventory of around 80 used vehicles. I was hopeful when I logged into their ProMax system. However, I quickly found that only one unit of their entire inventory would work with a Tier 4 customer, and there were two in stock that would work well with Tier 3.

By the time I was on the phone with the fourth dealer, before we got very far, I asked to look at their inventory in ProMax. In about two minutes I stated, “I bet most of the SF units you are delivering are new vehicles, right?” And I was right. While they had 100 or more used units in stock, there was absolutely nothing – in any tier – to structure a SF deal with, without having $3,000 or more down.

Without a doubt, Tiers 3 and 4 are the toughest tiers in which to put deals together, but there are many dealers doing extremely well in those ranges. It all depends on the finance companies you have to serve those tiers and how well you match your inventory to those programs. You just can’t find yourself in the position of the four dealers above and expect to achieve a high level of success.

With Tier 4, the buy (or the trade) makes the deal and the down payment makes the gross. I have always said you can never stock too many Tier 4 vehicles. It is always easier to sell Tier 4 inventory than it is to buy it. In this tier, a buyer may have to bid on 20 vehicles at auction just to buy one (discipline and patience are required), so this inventory often becomes comprised of trade-ins. Don’t let that discourage you, however, as this is a major profit center with many dealers.

Tier 3 inventory works much like Tier 2 (the traditional SF customer tier), only with less expensive vehicles. What typically happens in most dealerships is, since less-expensive vehicles are harder to find and easier to sell, they tend to disappear quickly. Hence, without constant attention, a dealership’s lot remains void of them. Additionally, one of the larger-volume finance companies that serves this tier well – Chase Custom – bases its advances on Black Book rather than NADA. Buyers taking the lazy route will purchase vehicles using NADA values, and unfortunately, they find that the difference in the book values is often not in their favor. Then they are stuck.

Yes, these tiers are more challenging and do generally require more work, but the difference between those who are doing well within these tiers and those who are not is that the dealers who are excelling are exceptionally focused on inventory. They are cognizant of what inventory they have and what inventory they need to replace. They resist overloading in the top two tiers, which are relatively easy to buy for, and they instead focus on replacing the units they sell.

One final thought for the month: While I often talk about the various tiers and niches, remember, there is no defined line between the tiers, and therefore the inventory. In fact, a Tier 2 customer at one dealership might be considered a Tier 3 customer at the store right across the street based on available finance companies. In every dealership, each customer stands on his own, and so does the inventory. A Tier 3 customer with a significant down payment on the proper unit might become a Tier 2. Similarly, they may slide to a Tier 4 on the wrong vehicle.

To excel in Tiers 3 and 4, you must first pay constant and close attention to the quantity of inventory you have for those customers, and consistently work to replace that which is sold. You must have patience and use discipline over what you buy. Once you identify a customer, it takes time for a proper credit interview and good decisions to match the customer with the right finance company and inventory. Finally, remember to ask for all the down payment you can. It will be the difference in a deal and a really worthwhile deal.

Use these tips and your department or dealership will experience an increase in SF sales with customers who are already walking through your doors. It’s tough to beat that!

Until next month,
Great selling!

Auto Dealer Monthly Vol. 9, Issue 1

For years, dealers have written or called nearly every day wanting to know what the latest and greatest thing in marketing is or where they can find vehicles that will work with their mix of customers and financing. These products literally address these questions in some form or fashion.

I frequently hear dealers or used car managers say their area of the country is different and you just can’t find inventory that will work with their store and their customers in special finance. Yeah, right. The dealer next door or across the street is able to fill their lot up with inventory. My comment is always, “Work smarter, not harder.” OK, it may have more of an edge than that, but it really just takes being smarter than the average bear.

So how do you do that? I have found two products that accomplish that.

Auto Auction Insider
The first is from ProMax Unlimited, a company that has been around SF a long time. The product is called Auto Auction Insider (AAI). There are a number of reasons why I like AAI. First, it is a standalone product; you don’t have to be a ProMax Unlimited user if you just want the auction tool. Second, it is inexpensive. At the time this article was written, their website offered it for just $195 per month. Basically, the gross generated from one car deal pays for it for an entire year, or probably more aptly, what you save by avoiding one purchasing mistake more than covers the annual fee.

It works by integrating and updating the NADA, Kelley Blue Book and Black Book values weekly and comparing these values to actual auction sales. It then allows you to see which vehicles compare best to the book values on a region-by-region basis to offer the most profit potential. Additionally, it allows you to filter the comparison between class type (mid-size, SUV, etc.) and make and model going back to the 2004 model year. Finally, it will even allow you to filter it by monthly payment.

At the end of the day, this powerful tool will tell any buyer which year, make and model vehicles offer the best profit potential based on class or payment range, as well as where in the country to buy them. Did I mention you can download an iPhone app for this as well? Now you can take this information with you on the road. As I said, work smarter, not harder, and through this, you will see that you really can find the inventory you need not only to put SF deals together, but with benchmark gross profit potential.

Now that you have found a particular auction or area of the country for inventory, you have to actually buy it. As good as AAI is, it doesn’t take auction-lane mistakes out of the game. I remember standing in the auction lane 15 years ago using some now-antiquated hand-held device trying to quickly book out a vehicle and process the information through a buying matrix that I had built in Excel to determine what I should pay for a specific vehicle based on its equipment and mileage and which finance company program I was trying to buy it for. Trust me, there weren’t many people trying to do that back then.

Bidzpin
Now there is an iPhone app that does it all and takes it one step further. Bidzpin is a product that was recently released and I think back to all of the hours of homework my buyers and I did before auctions and just wish I had this product.

Just as I used to do, you put in your predetermined settings: the minimum gross profit you’ll accept, average minimum down payment, average reconditioning cost, doc fee and sales tax. Finally, you select the top six finance companies to consider. The only difference is now this can be done in seconds and is accurate to the penny; my matrix was close, but not dead-on.

Now you walk into the auction lane (or online auction) and inspect the vehicle. Either by VIN or year, make and model (both entered in seconds), you dial the vehicle in, along with any additional equipment. Add the mileage and you are all set. You can “spin” the purchase price and see exactly how it impacts the gross profit across all six finance companies. Better yet, it uses colors so that you can quickly see whether a vehicle meets your criteria. As they say, “Green is clean and red is dead.” It offers even more neat and powerful tools, but this is certainly the key.

My buyers and I would have given our eye teeth for this way back when! At only $395 a month, it will pay for itself tenfold at the first auction you go to. Yeah, I am advocating spending nearly $600 a month to help you buy the right inventory, but so many dealers and buyers can’t accomplish this, and if you can’t find vehicles using these tools, you shouldn’t ever step foot in an auction lane.

VegasFlyTrap
This may be the best marketing tool I have seen in a long, long time. Today, talk to anyone with any digital marketing savvy and they will tell you that you have to drive more traffic to your website. I won’t disagree, that is very important. What is much more important is to turn that website traffic into actual leads (real people’s names with their contact information). There are a lot of theories on how to do that, but VegasFlyTrap is the best tool I have ever seen to accomplish it.

This new product uses an old hook – games – and turns website visits into leads. Auto Dealer Monthly will feature an article later this year about a Honda VW dealership in Port Charlotte, Fla., using this product to turn nearly 4 percent (249 last month) of their unique website visits into leads with complete customer data. Better yet, when scrubbed against their CRM database, it provided only one duplicate for an entire month. What does that mean? It means it is converting visitors who would otherwise not be leaving their contact information into leads!

Now for the proof in the pudding: the dealership and its BDC is converting 33 percent of the leads into dealership visits and 10 percent of them into sales! That is staggering. Do the math. The software is imbedded into your dealership website for $1,995 a month. Yes, it may seem pricey, but upon further review, if you are getting 4,000 unique visitors per month between your website, Facebook fan page and Craigslist listings (yes, it can go on all three) and you are able to just turn 4 percent of those into actual leads that you wouldn’t have otherwise had before, that would be 160 new leads. If you are able to convert just 5 percent, which is eight extra deals per month. At just $2,500 per deal, that is $20,000 in extra gross profit per month. That makes the cost well below benchmark. Now these aren’t just SF leads, but certainly a dealership with a good phone process or call center will absolutely eat these up. I absolutely love it, and best yet, it has very high accountability!

So there you have it. The three best things I came away with from the 2011 Special Finance Conference. If you have more questions, feel free to drop me a line!

Until next month,
Great Selling!

Auto Dealer Monthly Vol. 8, Issue 10