Performance Groups

Greg's brand new special finance performance groups will help you improve your SF operation.

Upcoming Workshops

See the event calendar and attend a workshop that Greg teaches.

Onsite Consulting

Need some help getting your operations off the ground? Get onsite consulting from Greg.

  1. The State of the Special Finance Industry

    2014 Expected to Be Banner Special Finance Year

    Dealers, vendors and finance companies all attend the annual NADA convention for a variety of reasons – education, opportunity to see the latest in products and services, to network, and in some cases, for the parties. My annual trek is always with the focus to get important face time with the top executives of the banks and auto finance companies that serve our market. It give me the chance to learn what is “new and improved” about their programs (in order to be able to help dealers understand what that means for them), to learn how their company is doing and what to expect over the next 12 months, and finally, where they see the Special Finance industry in general heading.

    For a myriad of reasons, two years ago I predicted a downturn in the 4th quarter of 2014 (and still expect it) – so all of my conversations included that – but I came away from the convention definitely feeling better about 2014 – actually very bullish – and any impending downturn.

    The Past

    The Special Finance industry has been very cyclical over the past 25 years. About every five or six years “lending” has gotten very competitive (read “loose”) leading to a few companies really stretching the envelope with regards to dealer advance, loan-to-value ratios and term. It happened last in 2006 and 2007 when I stated often that even a trained monkey could structure a SF deal, throw it at the wall and make it stick. Companies in bullish markets fight for share then “suddenly” there is a hiccup or two.

    After said hiccup comes a period where dealers find it is tougher to get deals done, and the reverse occurs – advances tighten and fees/discounts seem to increase. This last happened in 2008 and 2009 when Special Finance companies and banks drastically tightened up when it became extremely difficult or even impossible for those that need to borrow capital to lend to do so (all caused by factors not involving auto). Many dealers thought that the end of subprime lending had occurred. Obviously, it didn’t.

    When the tightening occurs, to no one’s surprise, those that remain generally get more profitable. Special Finance banks and finance companies enjoyed record profits after those two years of tight credit. Record profits in turn encourage growth, and loosening of the credit, which brings us to where we are today. For those of you in the business then, 2006, 2007 and even the first part of 2008 brought incredibly profitable days for Special Finance dealers and departments. That is where we are today … at least six years later in an industry that seems to cycle every five years.

    The Present

    The good news is that every executive that I spoke with at NADA sees a year full of continued prosperity. Even though margins are shrinking, many of the markers that tend to impact the industry – such as climbing unemployment – are still not present. Loan performance, while not as good as it was after the tight credit policies of 2009 and 2010 is still very good. Indeed, while many of the companies are happy with their market share, some are predicting some incredible growth for 2014, which means good things to the dealers and departments.

    I also had the chance to assuage my concerns about the financial health to any of those that I spoke with. CEOs, COOs and presidents have been very forthcoming with me over the years and every one of them gave me the confidence that they are on very sound financial footing – no matter what happens in the market – and in spite of what the rumor mill might churn up. For those that securitize their portfolios in order to raise capital, the pricing of upcoming securitizations are expected to be at or below their last venture into the market, again boding good things.

    Finally, as I also predicted two years ago, we finished at nearly 16M SAAR in new vehicle volume, the highest since 2007. All industry analysts predict that we will eclipse the 16M mark in 2014. Combine that with the fact that credit scores have continued to deteriorate, that nearly 28% of new cars sold are to subprime credit customers and you should have a recipe for good things to come.

    The Future

    So what does this mean to the dealers and their departments? First and foremost, if you aren’t in the game you are missing a significant part of the business. With the average credit score, as reported by Experian, for someone financing a used vehicle being 657 that means that the average used car buyer has non-prime credit. So whether new or used vehicles, why wouldn’t you want to be getting your share?

    As for the actual programs, I can report through individual transactional data that is reported to me daily by dealers across the U.S., and confirmed by many of the banks and finance companies, less emphasis is being placed on down payment, even in the lower credit tiers. Of the last 1,800 deals reported to me on sales financed where the primary applicant has a credit score of 650 or below, the average cash down payment is just $961. Additionally, 111 of those deals, on credit scores below 474 (average credit score 451) , had an average cash down payment of just $869, of which 82% went through mainstream SF banks/finance companies (NOT portfolio style finance companies). [As a side note – The lowest credit tier approvals do NOT appear to be due to factory-subvented programs on new cars as might have been the case a year ago.]

    To that point, roughly half of the execs opined that they are putting more emphasis on the ability to repay (payment-to-income ratio) and risk (loan-to-value) than on the initial cash investment. Couple that with some of the instant decisioning available in the market, a SF manager just cannot afford to look at most deals and arbitrarily say “this person can’t buy.” If so, you are going to be passing a lot of business.

    It is important to remember two things. First, those 111 deals only represents about 7% of the total sample, so don’t expect a high percentage of these deals to be approved. Most likely there was strong income involved, and maybe even a very fresh bankruptcy filing. Second, cash down still is important – and too many dealers just don’t do a good job in asking for it.

    So that is both my takeaway from NADA and my perspective as I steam through my 25th year in the Special Finance industry. Coming from the Midwest, we say “Make hay while the sun is shining.” Even though it is still may seem like the North Pole in many areas of the country, the sun IS shining in the SF industry – take advantage of it while you can!

    Greg Goebel

  2. It’s a Win-Win-Win

    One of the biggest challenges for special finance pros is desking a “win-win-win” deal — one that works for the customer, the finance company and, of course, the dealership. Without direction, a subprime customer can inadvertently be steered toward a vehicle that just doesn’t work. So what should you do?

    Let’s assume that your salesperson has properly asked a qualifying question or questions and determined that his or her customer does not have prime credit. He or she has brought the customer inside, completed a credit statement and conducted a quick credit interview. The deal then goes to the desk, which could be the sales manager, finance or special finance manager. This person must be aware of which finance companies are not concerned with look-to-book or approval-to-book ratios. They should also know which companies will give you a quick decision.

    Now it is time to pull the applicant’s credit report from the bureau that is predominantly used in the area where you and your customer are located. Depending on the customer or the information on the first bureau, you may need to pull multiple reports. At this point, savvier managers will almost instantly have an idea of who will approve the deal and at what terms. For others, the credit app and bureaus may simply indicate how tough it will be to get an approval.

    Structural Concerns

    Regardless of the level of experience, deal submission portals such as Dealertrack and RouteOne really make the process easy. I suggest using a generic deal structure to submit applicants to the companies that can provide an instant approval. This generic structure would be on a vehicle with a $14,000 sale price — use a much less costly vehicle for very low income customers — and a loan-to-value (LTV) ratio of no more than 104 percent.

    Keeping in mind the various companies’ minimum credit cutoff score and the finance companies in your arsenal, send it to Capital One and at least one of the following: Ally, GM Financial/Americredit, Exeter, Santander and Wells Fargo. If I wasn’t sure the deal would be approved by one of those companies, and assuming I had a lower-tier national or regional specialist in my arsenal, I would submit the deal to one of them as well.

    By this time, you will have an answer back from at least one (and likely more) of the top-tier finance companies. At this point, especially for those less experienced desk managers, you should have the direction you need. If it’s a top-tier, you should have an idea of what type of deal the customer is going to qualify for. If not, you know you have more work to do.

    Meanwhile, the salesperson should be sitting with the customer, not camped out with the manager. If you have a top-tier approval, the manager can then propose a price range or a group of vehicles the salesperson can suggest to the customer. In other words, don’t show them the steak if all they can qualify for is a hamburger. It is quite possible your only option will be through a lower-tier specialist, which means you will most likely focus on a lower priced (and lower payment) vehicle.

    If a top-tier finance company does not make an offer, or it is an offer on a less desirable tier or structure, then it is time to dig deeper. Again, using the generic structure and your knowledge of the programs of other companies, submit them to the two companies most likely to approve under the most favorable terms. These call-backs will generally take longer as well.

    Once the salesperson and the customer have found a vehicle the customer is excited about buying, the desk should structure the deal, and it should do so based on the dealership’s sale price, the chosen finance company’s approved LTV structure, and the down payment needed to make up the difference. This is the first offer.

    The salesperson will learn how much cash the customer has to put down; obviously, the more the better. Then it is time to get a final approval by rehashing the deal with the chosen company’s credit analyst. During this time, the deal will most likely get tweaked. It could be the finance company enhancing its approval, the dealer cutting the deal, or the now-motivated customer bringing more cash to the table or selecting another vehicle. Once you have a structure that is acceptable to the finance company, the customer and the dealership, you have your “win-win-win” deal — one that all parties are happy with.

    Is it always this simple? Certainly not. But this approach will help avoid upsetting your customers by trying to sell them a vehicle for which they can never be approved. You will also be less likely to poison your relationships with your finance companies by “shot-gunning” deals, and in the end, optimizing every opportunity that comes to your store.

    Until next month, great selling!

  3. The Time-Proven Plan for Successfully Working Special Finance Leads

    Leads. Website leads, third-party eleads, loan-by-phone leads, call-in leads – they all require the same thing – a plan, a phone call, and a call guide.

    In 1992, my dealerships started working loan-by-phone leads with a company called Voisys (who happens to still be around today). Compared to today, it was archaic. We advertised a toll-free phone number touting financing for anyone, people called the number, they answered automated prompts and we received a fax with all their responses. Today, most leads start at a computer keyboard and wind up in your CRM system, but regardless, they still must be worked the same way.

    You must have a plan to work them effectively. What is yours? Hopefully, it starts with how someone will be alerted to a new lead which arrived. It seems like these leads go from green to ripe to rotten in a nanosecond. When we were working those leads years ago our goal was to call them within one hour of receiving them. Today, 15 minutes maximum should be the goal.

    When should you call? Immediately upon receiving the lead! Don’t email first – especially if the leads are blind leads (meaning the customer is not aware of the exact dealership they have applied to). A customer may not want to talk to a Hyundai dealer if they are looking for a Chevy truck. Your email will alert them to who you are and your caller ID will be easy to ignore.

    Next on the plan – which ones will you call? Let’s make it simple – you have to call them all. Over the years I have gotten to know the executives of most of the quality leads providers. They continually tell me that their research shows that anywhere from one third to one half of the leads dealers buy do not get called. That is just plain nuts. To pay $20 to $70 for a lead then make a decision that the customer cannot be financed before they come to the dealership is just being lazy, but it happens every day.

    Additionally, should you not invite them to the dealership you have essentially turned down their application and many attorneys will argue that you then must provide them an adverse action letter.

    So, now we know you will call them all. Who will actually be doing the calling? Good question. I prefer call centers or BDCs, but it doesn’t mean a well-trained and coached sales person can’t be successful as well. What really counts is that whoever is designated to do so, makes calling the leads a priority, is trained, monitored and coached daily.

    Next comes the call guide. Some people call it a script. Semantics. Everyone talks a bit differently (if you have been to Boston, Nashville and El Paso you will agree) so it is more important to me that the call is bullet-pointed rather than scripted exactly. The call guide needs to be built around the goal of the call and the only goal is to set an appointment which will show up at the dealership – period.

    The call guide should be structured so that you first establish rapport. Next, you can confirm a bit of the information that you have received (you really don’t need any more to set the appointment) and do so by using it as an opportunity to keep building rapport. Then, ask for the appointment by giving day options first, then time choices (rather than yes-no options). Finally, confirm the appointment. My call guide always has a “hook” at the end to see whether or not you really have an appointment. (If you would like a copy of my call guide, which has set probably 2 million appointments, just email me at

    Finally comes the phone call. Before you do anything, remember “Smile before you dial!” That smile will transfer across the phone lines and you want to be open, disarming and friendly. More often than not it is not what you say, but how you say it that will make or break an appointment. Remember, most of the leads have applied before and been turned down. They are fearful that anything they say may blow the deal. Do not play junior-finance specialist on the call. Do not do a credit interview (unless they are coming from a long distance) to get them approved before inviting them in. (If you do, you will likely blow at least a third of your opportunities.) Do not ask specific questions about what they are interested in or how much money they have to put down. Do not do anything that will build mental barriers in the customer’s mind between them and getting their application approved.

    My suggestion is to have all appointments directed to a sales or floor manager when they come in. First, it ensures the customer is directed to the correct sales consultant or department. Second, it disarms any later confrontation when a manager is asked to step in and take a turnover – they have met, the manager has been friendly, and has introduced the customer “to one of their top people.” Finally, it assures that the appointment is accurately logged.

    Finally, any appointment that is made for another day should be called, confirmed and reminded of the appointment early the next day.

    Top Special Finance dealers, whether working a blended floor or separate department, have been using this process for a couple of decades. It is a tried and proven plan. Doing so should allow you to appoint at least 60 percent of the leads that you receive and have 60 percent of them show at the dealership.

  4. Don’t Even Think About It!

    OK, I may now have seen it all.

    Alright, probably not, but it sure seems like it.  I received an email from one of the top Special Finance directors, working in one of the best dealerships in the country.  It is always good to hear from him, but this time, I was stunned.  I didn’t know whether to laugh or to shriek with what I saw. Reflecting back a day later, I don’t know why I was so shocked or surprised.

    It seems that he had been contacted by his Ally representative who was just giving him a heads up.  It was not for anything he or his dealership was involved in, but another dealer in his market had been, and it shows how easily you can be caught up in customer-dishonesty.

    When it comes to Special Finance, many finance companies require proof of income for most of their credit tiers.  This is certainly nothing new.  What is new are the ways that customers are getting creative to prove their income. Thanks to modern technology and the Internet, it is now possible for customers to not only go online and create whatever paystubs that they need to verify whatever income they are stating on their credit applications, but also pay the “creator” to use a phone number assigned to them to have their job and their “stated” income verified when the finance company calls the number.

    Yes, you read that correctly.  I was stunned. Go to Google and search “create paystubs” and see what comes up – services everywhere the consumer pays, at most, a couple of hundred dollars, including web sites with photos of people standing by their new cars offering testimonial.  Really? Give me a break!  Things have come a long way since one of the 1972 Super Bowl Champs came strolling in with some really creative hand-written paystubs (the real computer-printed dates crossed out and hand-written “updates” added).

    I also remember about seven or eight years ago when a large volume SF dealer I knew used to have five incoming phone lines to verify income/employment and five incoming lines to verify residence, and every credit app used one of those numbers for each.  Can you say, “Bank Fraud?”

    I presented this and the accompanying warning at my most recent two-day Special Finance training school.  The class laughed and seemed genuinely equally surprised.  Then one person asked – probably the only one daring enough to comment – “Do you think we could use it if they really do get paid what they state, but they are hand-written stubs that the finance company won’t accept?”  In a word – “NO!”

    This stuff is totally off limits! Don’t even be tempted.  The criminal penalties are fines up to $1,000,000 and/or up to 30 years in prison.  Personally, I know a couple of people that have been forced to learn that the hard way.

    Sure, if the consumer is bold enough to go online and create their own paystubs and bring them to you, there is little you can do outside call (hopefully a real number) and verify the employment and income (something you should do).  If you are duped, which certainly could happen, you will without a doubt get to unwind or buy the deal back, but if innocent of wrongdoing, you should be able to dodge criminal circumstances.

    On the other hand, if you knowingly participate or worse yet, go online and create fraudulent paystubs, the federal statute states it is considered Bank Fraud when someone “…knowingly executes, or attempts to execute, a scheme or artifice to obtain any of the moneys, funds, credits, assets, securities, or other owned property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations or promises.”  I am not an attorney, but I assure you this covers the act of making fake paystubs.

    With the ramp up of the Consumer Finance Protection Bureau and stepped up enforcement from the FTC, you will get caught. Even if they don’t catch you, the Special Finance business has always required, and still does, a strong relationship between dealers and banks/finance companies.  Get caught with your hand in the cookie jar, and even if it doesn’t become criminal, it will ruin a relationship and that is something in this day and age, you can certainly ill afford.

    Dealers, if you are reading this, I’d go one step farther to the extent to block these web sites from being able to be accessed on your computer networks.  Doing so would certainly keep you one step farther away from a pointing-finger.

    The Special Finance industry is a great industry, but it is a small industry.  If one bank or auto finance company knows about stuff like this, it is a good bet they all do.  There are enough ways to accidentally fall into a “bear-trap” without creating one for yourself.  Don’t even think about it!

    Until next month,

    Steer clear!

  5. Compensation for Subprime Sales

    Don’t punish your sales team for following the special finance process. With the right compensation plan in place, everybody wins.

    Once again I find myself sending a dispatch from the road. We have had a very busy year so far, and it’s encouraging to see so many dealers enjoying the fruits of their special finance labors. Setting up a process to handle subprime customers is no easy task. It takes a serious commitment, and that commitment starts with the dealer and extends all the way through the store.

    Before long, however, commitment can begin to wane. You can usually chalk that up to one of two main causes: The first is a growing stack of contracts in transit, an issue I tackled here last month. The second is a compensation plan that creates winners and losers among the staff.

    More often than not, the “loser” is an experienced salesperson or F&I manager who is being underpaid for working subprime deals. That discourages the whole sales team from sending customers to the special finance desk and causes the finance office to try to wedge them into a prime structure.

    I am loath to tell dealers to change their compensation plans. I know how precious those plans are to their staff and how demoralizing it can be to suddenly be asked to play by a new set of rules. That’s why it’s so important to have the right one in place to begin with. But if the existing plan is unworkable, you must be willing to change it.

    Let’s take a look at four potential sources of conflict between prime and subprime:

    1. Playing the Numbers Game
    Many dealers who are new to subprime will decree that any customer with a “low” credit score must be sent to the special finance manager. This approach is problematic for several reasons.

    First, where exactly do you draw the line? There’s no magic number that divides prime from subprime. A Chevrolet dealer might say that anything under 450 is special finance. The Jaguar dealer next door might say it’s more like 700.

    Second, even if there were a clear dividing line, it wouldn’t help you decide how to work the deal. Credit scores don’t get deals bought; it’s all the other factors that make up each customer’s profile and determine their creditworthiness.

    Finally, if the prime finance manager thinks he can get the deal bought, he’s going to work it to death. He will pull multiple bureaus to find the highest score. He won’t structure it properly. He will push the funder’s patience to the breaking point.

    A week later, he’ll be no closer to getting it approved. And that’s not necessarily his fault. After all, he might just be…

    2. The Right Manager in the Wrong Department
    Another common mistake is to take a talented F&I manager — and their compensation plan — and put them in charge of special finance. Of course, their performance was judged based on profit per retail unit (PRU), which depends upon penetration rates for back-end products such as extended warranties and service contracts, credit life and GAP.

    Now, they find themselves working with Tier 3 and Tier 4 finance companies that are not in the business of leaving room for F&I products. How on earth do you expect your finance manager to maintain a high PRU when there are no funds available?

    The solution is to pay them out of the front-end profit on each sold deal. But then you run the risk of …

    3. Cutting Out the Sales Team
    It’s so vitally important to be able to identify special finance customers as early as possible. So you train your salespeople to ask qualifying questions and send them to the appropriate desk.
    To compensate for wages lost on the back end, you give your special finance manager a share of the front-end profit. Specifically, you give them half of the salesperson’s share. That’s the same salesperson who sent the customer to the special finance manager and is now being punished for it.

    And he’s not alone. Don’t forget that you’re also …

    4. Leaving the Customer Hanging
    You can’t expect subprime customers to get a prime deal. There are a few exceptions; for instance, GM Financial offers a subvented program for new Malibus. Try to put the same customer in a new Silverado. No chance.

    Meanwhile, the F&I manager spends a week trying to get the deal bought and making life difficult for the funder. In the end, there’s no deal and no new truck. Good luck trying to switch them to the used car you should have been selling from the start.

    Remember, your CSI score is based on surveys returned by customers who were actually delivered. It doesn’t account for those who walked away frustrated — or their friends.

    What a shame that is. You got into the special finance business to serve those customers. You invested in training, rebuilt your inventory and opened up your finance company spread, only to see the whole enterprise undermined by a poorly constructed finance plan.

    Let’s get the process back on track.

    First, you cannot let your people suffer for following the rules. Your salespeople would rather have 100 percent of a prime deal than half a subprime deal, and rightfully so. Don’t punish them for sending customers to special finance.

    If you’re asking your prime finance manager to work subprime deals, make it clear at the outset that you appreciate the extra effort and you will compensate them accordingly. If their income is based on PRU, don’t let a shortage of back-end funds hurt their average.

    Let’s say their target is an average of $1,200 per unit. Then, one month, they get 10 deals funded by a subprime finance company that offers a maximum of $515 on the back end. They could sell the service contract on every single deal — a remarkable accomplishment — and still find themselves $685 below target.

    The solution is to identify the finance companies that limit the back end and pay a flat commission on those deals. And don’t include them when you’re calculating PRU and penetration rates.
    When a dealer asks me to set up a special finance operation at their store, I get started weeks in advance. I send a questionnaire that asks them everything but their underwear size. It sometimes takes two weeks to complete.

    There’s a method to my madness. I have to know everything about their sales and finance process — and their compensation plans — to be sure we can achieve complete buy-in from everyone who will be affected by the new operation.

    Investing in special finance can take your dealership to the next level, but it takes commitment to do it right. Don’t sabotage your efforts by failing to address the effect that subprime deals will have on your employees’ paychecks.

    Until next month,

    Great Selling!