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  1. Have Everything in Place Before Advertising

    When you build a house, you start with the foundation. What happens if you don’t have a good foundation? The house falls down. Spending advertising dollars without the foundation in place will have the same results. Be sure you have all of the tools necessary to be successful if a flood of clients hit your door as a result of advertising.

    Setting appointments – Have you trained your personnel how to handle questions over the phone?  Phone scripts are a great tool.

    Without perfecting this process, you will never see the customer. Recently, I was in a store and heard the sales person discussing the monthly payment, down payment and vehicle options on the car over the telephone with the potential customer. If your personnel give the customer all of the information over the telephone, the buyer never has to visit your store, eliminating you as an option sight unseen. The next dealer that has trained people that say, “Yes, when can you come to see us?” gains the edge.

    Proper Inventory – Do you have a good mix of vehicles in every payment range?

    When you advertise a sale, be sure you have a good mix of inventory. Another store I recently visited had a client walk in looking for a vehicle; the bank had approved it on a 110 percent advance plus ttl up to 130 percent and a payment call of $350 with a $995 fee. The dealer did not have a vehicle that would fit in the approval guidelines of the bank and had to send the customer home. Inventory is the key. Don’t short sell yourself. Have the inventory it takes to make deals.

    Buying inventory for special finance is a tall order in today’s market. Use the rule that you want to have inventory on the front line at $1,000 back of average trade or more than $1,000 back. Here are some buying tips I have learned through the years. Two-wheel-drive vehicles bring less in the northern market – they get snow and don’t want two-wheel–drive vehicles. Four-cylinder trucks or base six-cylinder trucks with manual transmissions and long wheel base trucks in undesirable colors are usually a good bet in the auction lane and can fit into the special finance inventory mix. As for the economy cars, it doesn’t hurt to have one that has a dent or two, base models with no power windows, etc. Also watch for the top-of-the-line models; they usually book for a lot more than what the auction price is. Those LX models and SES models have a lot of options and a large book, but usually you can sneak up on these units and make a good buy.

    Closing that tough customer – Do you have a set of closing techniques to use on the hard–to-satisfy customer?

    Remember, when a customer asks for a $300 payment on a $25,000 vehicle, you can’t do it and neither can the dealer down the street. This is time to educate the customer and sell them on the idea that what they are asking for is impossible for any dealer to do. With this situation, you are selling against reason, and to win in this situation, you must convince the customer that they need to give up the “ideal” unit notion and show them what their budget will buy.

    Don’t be afraid to pull out that NADA book and go shopping. The NADA book has every year, make and model available for sale in the United States. Let the customer pick out vehicles they like; then give them the payment and down payment. Through this process, the customer will realize what is possible and what is not.

    These points are the ones I see missed many times in the stores I visit. Advertising is key, but having the right processes, trained personnel and inventory will make you or break you. Be sure – before you advertise a big sale – that you have everything in place. If you don’t, you may not show a favorable return on your investment.

    To register to attend a Special Finance SuperCharged workshop or training with Greg Goebel, click here.

  2. In Search of Silver Bullets

    Does Your Special Finance Department Need More Leads Now?

    I have been asked the same question countless times, often not by new departments but by some of the highest-skilled dealers. “Greg, I need more ‘good’ leads. What are your best dealer clients doing to drive more special finance traffic?” Inevitably, I answer the question with a question: “How many opportunities are you currently generating each month right now?”
    My definition of maximum advertising return on investment is having every salesperson busy working with customers every minute of the day with no more customers calling or coming in than the sales team can efficiently handle—all accomplished with the smallest spend possible. Utopia? Maybe, but I sure know some dealers who come close to it.

    Tracking
    As my definition alludes, it isn’t necessarily just about more customers. I know many dealers who have more leads than they can possibly work. The average salesperson can handle an average of 75 to 80 new leads per month. I talked with a dealer recently who was trying to work an estimated 900 leads/opportunities a month with three people. That is impossible, yet they were convinced they needed more leads in order to grow. Another dealer client whose sales had plateaued was trying to do the same thing, with three people attempting to work roughly 600 leads.
    What I learned was (a) neither dealer (like most) could give me an accurate lead/opportunity count?they were all guesses; (b) neither really had any idea of the efficiency of the team members working the leads, just the actual sales; and (c) while neither had a problem with a willingness to spend more money, each might as well set their money on fire, as they would have had the same end success.

    There is an old adage that states, 50 percent of your advertising works well, you just don’t know which half it is. Why not?! I have preached countless times from my soapbox: take the time to track where your traffic comes from and the success your sales team has in working the leads, and it will pay you back in spades. Over the last 10 years of working with dealers all across the country, I can unequivocally tell you those who track and use the data to analyze their business are the ones excelling.

    Budget
    The benchmark for advertising expense as a percentage of total special finance gross profit (front and back, general ledger gross, no commission packs factored in) has risen to 12.7 percent since 2007. Basically, that means if you are grossing $3,250 per unit sold, then the benchmark advertising budget would have you spending $412.75 per unit sold. “Benchmark” is the 75th percentile, so one in four is doing better than this; some are doing much better. Set a budget and stick with it.
    So how do you accomplish this? Where and how do you spend advertising dollars?

    Be Different
    Now, if you find you do have additional capacity and have done all the simple things to incrementally increase traffic—like harvesting all the names and addresses from the required references and sending them a direct mail piece, then calling if they are not on the Do Not Call List; analyzing the available Internet leads and other lead sources for the best options and buying them; or direct-mailing the open Chapter 7 bankruptcy filers the day after they file?then what do you do?
    Everyone wants that “silver bullet.” My experience is that it does not exist. I have clients and friends who collectively advertise in every significant form of media, and I have seen outstanding promotions work famously for me or someone else but fail miserably in another store or setting. Some popular schools of thought advocate spending whatever it takes on radio to achieve 400 gross rating points in one week and stacking the buys to basically begin on Tuesday or Wednesday. I have seen this work fabulously for some and not for other dealers. The same is said for television, direct or saturation mail, Internet leads, trigger leads/Market Thief, you name it.

    I do believe two things. First, you must be different. You must stand out! If you are saying or advertising the same thing as everyone else in the same manner then you fade into the landscape. Whomever has the best branding and share of mind will get the business. Some of the best operators I know push a personal brand, personal message, games, contests or even comedy to break through the clutter. My heart nearly stopped when I saw one of my clients offer a $10,000 cash-drawing giveaway to someone who purchased a vehicle during a contest period. (I found out they had done their homework, and it had been blessed legally.) I will tell you one thing; it got my attention and has gotten their customers’ attention.
    Second, I believe in consistency. If you are in radio this month, television next month, then buy leads a third month and do direct mail the fourth, you really don’t give any of the media a chance to work. Commit to one or more and give it a run of at least a quarter.
    Additionally, you have to understand market conditions—make hay while the sun is shining, as they say in the Midwest. Specifically, I am not going to be the one to try to force the market if the Super Bowl is in town one week or try to buck a weekend home game for the Nebraska Cornhuskers or Green Bay Packers. Sure, people still buy vehicles on those occasions, but fewer people are really thinking about it, and I am not going to spend the same amount of money to try to reach a smaller body of people.

    Search
    Online reviews count; they really count. Reviews, good or bad, search extremely well on the Internet. Special finance customers can, at times, be challenging with their expectations, and they can be loquacious online. You need to have a strategy and a budget to ensure your customers are being encouraged to post positive reviews and even use tools like Presto Reviews. This will help counteract that occasional negative review that hits on Google, Yelp or RipOffReport.com. You just can’t afford not to.

    Comply!
    Finally, from the compliance side (which I will address further with next month’s article), there never has been a time when you need to pay more attention to your ad copy. With the Consumer Financial Protection Bureau and Federal Trade Commission now staffed to the gills and needing to show heads on sticks to justify their budgets, get with the program or get in trouble.
    I have had very good dealer clients, those who really want to walk the straight and narrow, run afoul of the Truth In Lending Act. Consent decrees and/or fines are not what you want, nor the press releases that then blanket your market. (That stuff searches, too.) Don’t use the claims or disclaimers of your ad agency, rep or a competing dealer as a benchmark to make your claims and disclaimers. Contact your state or national auto dealer association, get the rules that you must live by and learn what they mean. As I travel, I can’t tell you how many ads I see that are in blatant violation. In the past, there were a lot fewer enforcers with a much smaller budget to chase dealers.
    In summary, here are the five things to remember:
    • Track your traffic and analyze your results.
    • Budget.
    • Be different and give whatever you do a chance to work.
    • Don’t forget online reviews?they can make or break you.
    • Comply with all the rules and regulations dealers must live by.
    Simple as pie! From an execution side, that is about as good as I can do for the masses. If you have specific situations you can e-mail me atGreg@AutoDealerMonthly.com and I will try to help.
    Until next month, great selling!
    Vol 9, Issue 9

    To register to attend a Special Finance SuperCharged workshop or training with Greg Goebel, click here.

  3. The Annual State of the Union of the Special Finance Market

    It is February and I am writing this one day back from the 2013 NADA convention, which is one of three times each year I get to spend significant quality time with a large number of the top executives in the auto finance companies that support the Special Finance industry. In years past I have used NADA as the time to gauge the barometer of the lending industry, specifically in most recent years, trying to determine their appetite for the coming year in the subprime market along with the supply of capital to support it. (It wasn’t all that long ago when even if their appetite was strong, the capital just wasn’t available.)

    This year’s talks were framed much differently. It would take someone that really hasn’t been paying attention to not realize the SF market is running wide open with gobs of money behind it, and has been for at least a year. Just before our annual SF Conference in Las Vegas last September I surveyed all the execs in the SF industry and learned their collective fear was that with capital running so freely that many companies had become overly aggressive and that someone (not themselves, of course) would push what I call the “Stupid Button,” which others would then follow, and ultimately cause a correction in the market, otherwise known as a downturn.

    As always, I wanted to know how their respective companies were doing, and if they had seen anyone push the button yet. I also presented them with my own opinion of when I felt we would see the next downturn, and I wanted to get their take on it.

    Basically, the collective story was all good news. While I can never divulge any confidential information disclosed to me, from a profitability and capital perspective, everyone is smiling. Every company that I spoke with was extremely happy with their books of business written in 2009, 2010 and 2011, which have performed at extraordinary levels. Meanwhile, the cost of money has been dirt cheap. Those that have long been established as banks have money that they are paying virtually no interest on to their depositors, while those that use securitizations and other methods to raise capital have found their costs to be very low. Combine excellent portfolio performance with cheap capital and you have phenomenal margins.

    As a quick sidebar, many of these companies are also very big in the prime and near prime space. There the margins are razor thin. Even though the cost of funds is still very low, in prime, where many loans are being written in excess of 78 months, and to be competitive, interest rates must be in the mid to high 1% range, by the time you factor in loan servicing, the additional costs of CFPB compliance and any defaults at all, the margins are microscopic.

    Add all this together and it is no wonder that everyone that I talked with was very, very bullish on the Special Finance market, and expects it to be strong through 2013.

    That leads me to the other side, the “dark” side. When is it going to turn the other direction?

    I have formulated my opinion on the following assumptions:

    1) The cost of money is virtually nothing. It can only go one way. Up, and I am sure it will.
    2) Underwriting, which tightened immensely in 2009 due to the lack of capital, produced phenomenal credit results from the 2009, 2010, and 2011 portfolios. We don’t know yet about 2012, but all execs admit they were very aggressive in their underwriting in 2012 and 2013.
    3) Discounts/fees charged by finance companies have dropped significantly. Good for dealers, not so good for finance companies.
    3) The supply of used cars since 2009’s Cash for Clunkers and a host of other reasons remained very tight from 2009 to mid-2012. This produced high used car values and helped minimize losses from defaults. Used car levels are increasing and this past fall we saw used car prices soften for the first time since 2008.
    4) Historically, since I became involved with SF in 1989, there have been industry corrections (downturns) every five to six years.

    Given those assumptions, I feel that by mid-2014 there will be an increase in the cost of money. I believe that the aggressiveness exhibited by many of the companies will result in the deterioration of portfolio performance, significantly in some cases. I believe that the supply of used vehicles will normalize back to pre-2009 and the prices will soften even more. I believe that a few of the companies will have a significant hiccup when all of these factors come together and I believe that will be in mid-2014. When that happens, we will experience the first correction/downturn we would have had in about 5 ½ years, but it won’t be anywhere near what happened in mid-2008 and more like what happened in 2002-2003. This is what I put forth to all the execs that I spoke with. My question then was, am I nuts.

    It seems like I may not be that far off course. While a couple really acted like they hadn’t thought about it, their reaction was that it would not surprise them. One said, definitely not, then backed up and said, well, “Certainly not us, but you know, I could see it for a couple of the others.” Overall, the consensus was that it certainly seems plausible. Finally, to a person, no exec feels like when the inevitable correction does occur that it will come anywhere close to approximating what we saw in 2008.

    All of this certainly makes me feel very, very bullish about Special Finance for the balance of 2013 and through the first quarter (tax season) of 2014. What that means is that not only is the SF business back, it is as strong as ever. Finally, remembering that the average credit score for a consumer financing a used vehicle is 659, or at least 21 points below prime credit, any dealer not participating in the subprime credit market right now might as well be walking their customers across or down the street straight to their competition.

    The good news is that if you have read this article all the way to this point, you are probably one of the 20% that are active in the SF market. If you don’t feel like you are hitting on all cylinders just yet, there are many ways to remedy it. Remember there are years of my “how-tos” detailed in the archives of Auto Dealer Monthly online. If you’re interested in attending one of our monthly one-day SF training schools, click here. Whichever your choice, as I always say, “Make hay while the sun is shining,” and let me assure you that right now, you really need your sunscreen!

    Until next month,
    Great selling!
    GG

  4. You Can’t Score Wow

    I spend a lot of time talking to dealers and their management teams about benchmarks and guides. Quantitative data is easy to compare (i.e. net profits, gross profits, expenses and such).

    The factories try to make it easy to compare qualitative data by assigning scores to customer satisfaction. Customer Satisfaction Indices (CSI), Service Satisfaction Indices (SSI), as well as a whole host of other indices exist to try to measure customer satisfaction and how well you are doing.

    One inherent problem is that the numbers can be deceiving because they don’t measure people that don’t buy from you. Dealers can receive awards and plaques for outstanding CSI and customer service, but awards really don’t tell the whole story. They also don’t measure the “Wow!” factor. I define it as the overwhelming experience that turns an ordinary customer into a customer for life, which will have few direct ties to a great CSI score.

    Being an ex-dealer who always enjoyed excellent CSI scores, I might be categorized as picky. It is hard to Wow me. Recently I had one of those experiences, and I feel compelled to relate it to our industry.

    Having bought more than my share of new boats years ago, and been nailed by the extreme depreciation they suffer in the first few years, I long ago vowed to never buy a new one again. That makes shopping a little more difficult, but nevertheless it was time to do it, and this time, I did almost all my shopping online.

    Compared to all the car shopping experiences I have chronicled in these columns, it was a breeze. To my surprise, nearly all brokers and sales agents responded to my e-mail requests in a timely fashion through both e-mail and by phone and with accurate details and descriptions. All in all, it was relatively easy and painless to find and purchase my cruiser at a distance. Why can’t it be that easy with autos?

    That wasn’t my Wow experience though; that came later. Buying a used boat, one can expect to spend some money on recon and upfitting. Additionally, nothing is inexpensive. (B-O-A-T does stand for Bring On Another Thousand.) Since I had to pay to transport the boat across the state, I thought I might as well use the service provided by the broker’s service department, since they were the franchise dealer for the brand of boat I bought. I didn’t want to pay to ship the boat twice. Additionally, since some items were factory-only that I wanted added, it only made since. Since it was impossible to miss the plaque on the wall when you walked into their Taj Mahal of a facility proclaiming them the 2006 Boat and Motor Dealer Magazine Dealer of the Year, as well as CSI plaques from their factory, I figured they had to have something going for them.

    To make a long story short, I placed three calls to their service department, talked with their service manager and let him know that I had just bought a used boat brokered through his company and that I was prepared to spend a good chunk of money with them. I was dismayed at the flat indifference offered. I couldn’t even get an estimate on a simple repair without a congressional act. When I finally discussed it with my broker, he offered that if I had someone in my area that could do the work, he would recommend it. I was stunned.

    Fortunately, before I bought the boat I had bugged the service/parts manager at the franchise dealer nearest to me (an hour away). I was trying to get an idea of what items would cost, electronics, etc. In truth, I was probably being an annoyance since I wasn’t their customer and didn’t even own a boat yet. In spite of that, their service manager (Gabby) was very attentive. She called me back with prices and alternative ideas to save me money (which I hadn’t even asked about), and of course suggested that I buy one of their used boats. My Wow- experience had already begun, but I didn’t know it yet.

    Heeding my broker’s comments, I called Gabby back. Additional dollar signs were spinning in my mind as I now had to pay to transport the boat a longer distance and further away from me.
    All those feelings were quickly assuaged by Gabby. Despite the fact that I had not bought my boat there (they didn’t have exactly what I wanted), she quickly offered, “Don’t worry, I will find a way to get everything done, and I promise you’ll love it!” I hung up figuring I was dreaming.

    For the next week, while I was on the road, she stayed in touch with me – always calling or e-mailing me before I could her. Nevertheless, the skeptic in me knew the “other shoe” had to drop. It couldn’t be this easy or this pleasant. I held my breath when I drove up to pick it up after it was finished (at the exact time it had been promised).

    Gabby had done it—in Florida no less, not normally known for customer service. She had Wowed me. She thought of every detail that would be important to me and came in under budget (and much less than what it would have cost at the “Dealer of the Year”). She did suggest to me a bunch of additional stuff, which I eagerly bought, all because she Wowed me. At delivery, my initial thought was, I have a couple of dealer friends that would kill to have Gabby work with them. She is a gem that makes a difference, and she has even been selling boats on e-Bay just to help out. They would hire her in a heartbeat and probably pay her the Franklin Mint. But there I stopped, because then she wouldn’t be the service manager at my new boat dealer for life.

    I learned a lot through this experience. My stores had great CSI, but they didn’t have a Gabby. I can’t imagine what that would have been worth. My charge to you, find your own Gabby. Don’t settle until you do. Great CSI is good, but to really make a difference, you have to find a way to Wow them.

    Until next month,
    “Wow” them!

    Vol 5, Issue 8

  5. Back to the Basics With a New Twist

    New Technology Offers an Innovative Approach to Green and Red Balloons

    The seasons are changing, and judging by my phone and e-mail messages, so is the climate for special finance. As inquiries pick up, I can tell more focus and effort is returning to the market.

    I have been receiving calls from people wanting to drive traffic of “improved” quality, as well as calls from those who are struggling from the inability to structure profitable deals. The underlying current with these calls is that the dealers have SF traffic; in fact, it really has never gone away. The issue is the traffic has been C- and D-tier credit customers, which are often too tough to structure an approval for.

    Much of this stems from the sales process, which in many stores has been hindered due to reasons such as staffing cutbacks, lack of focus and in general, taking shortcuts. With many stores having cut out their dedicated SF personnel, they are now running SF through their conventional finance offices and sales desks. Subprime credit buyers are mistakenly being worked as prime credit and landed on vehicles they cannot qualify for. This obviously does no good for either customer or dealership.

    I maintain that to make SF work, you need to be able to quickly and unoffensively ask customers a qualifying question or two. I call it the green balloon/red balloon process; the analogy would be getting a customer to arrive at the store and select a balloon based on their credit (green = prime, red = subprime) to walk around the store with. For whatever reason, be it lack of training or supervision, I often find sales personnel are reluctant to ask the appropriate question, and unfortunately, I doubt you could get away with the balloon thing.

    I seldom recommend products or services. When I do, it has to be something that is unique and really works. There is now a product that solves the Red balloon/Green balloon dilemma without requiring the salesperson ask qualifying questions. This new product is called Instant Screen. It was created by John Palmer, CEO of ProMax Online, in conjunction with TransUnion. Basically, all you need is a customer’s driver’s license to scan (or name and address) to soft-pull a credit bureau to learn the customer’s credit score range and which financing programs they will most likely qualify for. In my humble opinion, this is a slick deal. It takes the most often botched interaction – prequalifying – and turns it into a breeze.

    As the recently-departed Billy Mays would say, “But wait, it gets better!” Tired of working mind-numbing hordes of infomercial leads or cheap Internet leads that come in masses and all seem to have tier-4 credit or worse? Wouldn’t it be nice to focus first on the leads that have the best chance of being able to be approved? You can run any Internet lead through Instant Screen and find the same information to prioritize your calls. I still maintain you call them all, but work the best ones first.

    Now, I will admit to being cynical, but does it really work? In my routine calls talking to dealerships around the country about SF, I’ve asked. Do you use it? If so, how does it work?

    The first person I talked with is a sharp SF dealer in Danville, Ill. Jason Toellner is GM of Carmack’s Car Captial which routinely does 60-plus SF deals a month out of what was a Chrysler store until June 9. He said he has been using it for almost three months and absolutely loves it – instant qualification (including his e-leads) and he doesn’t have to pull a credit bureau now on most customers. It has taken the situation of having the customer on the wrong car almost completely out of the equation. Later I talked with Roger Rudin, the GM of Willowbrook Ford. He was very excited about the program too. Being on the southwest side of Chicago, the dealership sees plenty of SF customers. He has been relying on Instant Screen to ensure the customers aren’t shown the wrong car, and it’s working. He also said that it is just as important with his prime and near-prime customers. The dealership’s business has been strong, bucking the national trend, and this certainly was a big reason.

    When I hear dealers and managers complaining that they can’t get deals approved with the same SF companies that everyone else is, I know it is almost always revolves around a poorly structured deal. If you can better qualify the customer up front, you have the best chance for success.

    Today, payment-to-income and loan-to-value ratios are critical. It isn’t so much that customers can’t be approved, but rather they can’t be approved on the vehicle and deal structure they’re being submitted on. That is why the sales process is so important. If you know going in that a deal must fit within certain criteria, it is much, much easier to steer the customer to the more appropriate vehicles and structure a profitable and approvable deal.

    I promise the finance companies are buying deals! I am not trying to become a salesman for Instant Screen, but I recognize an innovative product when I see it, and if it helps dealers of all types close more deals, I am all for it. Whether you do it the tried and true way of asking solid, qualifying questions or you take advantage of new technology, make sure you do the green balloon/red balloon test, and start more approvable deals today.

    Until next month,
    Great selling!

    Vol. 6, Issue 11

    To register to attend a Special Finance SuperCharged workshop or training with Greg Goebel, click here.

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