The Subprime Coach

The Sins of a No-Sale

2009-12-15T13:33:00.000-08:00

It’s a bit slow today, so I had a few minutes to read the latest issue of Automotive News. I was almost finished when I saw an article on the last page of the December 14th edition that read “Power study finds 6 no-sale sins”. Needless to say, with business being a little slow this week, I was intrigued by the headline.

What struck a chord with me was that we are all guilty, at one time or another, of these no-sale sins. Jon Osborn, JD Power and Associates media/marketing research director listed these sins in his study.

Dealership personnel:
1. Were rude
2. Not knowledgeable
3. Pressed the customers too hard
4. Ignored a customer
5. Wouldn’t give the customer a firm price.

Well, maybe I forgot to take my happy pills today, but I’ll bet many of us are thinking that this couldn’t possibly describe our dealership or sales staff. We sell cars despite what customers who didn’t buy from us think, and we do a pretty good job at it. We make sales, we make money, and after all, isn’t that what it’s all about?

Many years ago, my dad, who I thoroughly believe was one of the greatest salesmen to ever live, told me the number one reason sales people don’t make a sale is because they never ask for it. Many sales people are so afraid of the customer saying “No” that they avoid asking for a sale to avoid hearing that dreaded word. Treat a potential customer well in the beginning and you’ll earn a be-back and a sale.

Trust me; I used to be the be-back king! I had one sales manager who called me a vampire. I couldn’t close a deal during the day, but when my customers came back that night, I was unstoppable. It got to the point where he thought about letting me come in after 5PM, since I was worthless during daylight hours.

We spend too much time telling a customer why they can’t buy a car or get approved for a loan, instead of telling them what they need for an approval. I tell my sales people all the time that we get the customer approved for a loan, but it’s up to them to meet the term and conditions of that approval. Even though they wanted to put no money down, they’re approved with $3000 down. It’s up to them to come up with the required down payment. But we don’t have to be rude when we tell them that. Explain what the lender approved, and if you take the time to explain why, it may make sense to them. We’ve done our job; now it’s up to the customer to do theirs.

I seen sales managers tell first time buyers that they can’t get approved for a loan. How many of us deal with sales managers who think they know finance? I have several lenders who will approve FTB’s ON THE RIGHT UNIT! If sales managers would just do their jobs and let us do ours, it would be so much easier. I spend way to much time dancing around someone else’s ignorance when I get a deal done.

Take your time with your customers. We used to call this step “Qualifying”, but I think a more appropriate name for this step in the sales process is “Discovery”. Once you know your customers need, you can address their wants without becoming overbearing or obnoxious. It isn’t hard to find out about a customer. Ask questions; people love to talk about themselves. Remember, selling requires a transfer of enthusiasm from you to your customer. If you get a customer that doesn’t want to talk, ask them if perhaps they’ve had a bad experience somewhere else. I’ll bet that they’ll have a horror story or two to tell you. Maybe they ran into a “shark” or a “badger” down the road. (If you want a laugh, Google “auto badger” and watch the You Tube videos.)

The worst sin you can ever make is to ignore a customer. Second to that is to turn your attention to something else while you’re with a customer. Put you cell phone in your pocket and forget about it. Ignore your pages; they’ll take a message or call back. I like to think I’m the center of someone’s universe when I’m spending my money. Don’t you think your customers feel the same way?

If you can’t give your customers a firm price, what the hell are you doing selling cars? Wait a minute, let’s stop and consider this…what exactly is a “firm” price? Is it the lowest possible price you’ll take for that car? Is it the advertised price your competitor has that you have to match? Actually, it’s a price that’s fair to both you and the customer, one that gives your dealership a profitable deal and your customer a fair value. Remember, a deal has to be good for everyone involved – the dealership gets a fair profit, the lender gets a loan they can collect on, and the customer gets a vehicle and a payment that they can live with.

5 Ways to Kill Your Credit Scores

2009-11-23T09:53:00.000-08:00

The curtain has parted, albeit slightly, on the mystery of how your credit rating is calculated. Find out what these common credit problems can do to your standing.

By Liz Pulliam Weston, MSN Money

One of the questions I'm asked most often about credit scores is exactly how much certain actions affect people's scores.

Until now, the best I could do was say, "It depends." That's because the company that created the leading credit score, the FICO, has been wary about releasing specifics.

Fortunately, that just changed. At my request and for the first time, the company (also known as FICO) has released details about how specific actions, from maxing out a credit card to filing for bankruptcy, can affect people with different credit scores.

I asked the company to compute the results of those actions for two examples: a person with a 780 score, which is an excellent score on the 300-to-850 FICO scale, and someone with a 680 score. The results:.

Effect on a 680 score
Maxed-out card = 10 to 30 drop in points
30-day late payment = 60 to 80 drop in points
Debt settlement = 45 to 65 drop in points
Foreclosure = 85 to 105 drop in points
Bankruptcy = 130 to -150 drop in points

Effect on a 780 score
Maxed-out card = 25 to 45 drop in points
30-day late payment = 90 to 110 drop in points
Debt settlement = 105 to 125 drop in points
Foreclosure = 140 to 160 drop in points
Bankruptcy = 220 to 240 drop in points

Source: FICO

The results are given in a range because FICO is still a little nervous about revealing too much about its proprietary scoring. But the range is fairly tight, and we can clearly see the disparate impacts of the different actions.

A guide, not a guarantee
Before we go further, I have to make this clear: Your mileage may vary.

People with the same credit score can have very different credit profiles more or fewer accounts, a different mix of accounts, a longer or shorter credit history, use of more or less of their available credit, etc.

Because of those differences, the same action -- maxing out a card, say -- can have different effects on people with the same score, depending on the details of their individual credit profiles.

For the sake of this exercise, FICO assumed both people had several active major credit cards as well as a mortgage, a car loan and student loans.

The person with the 780 score:
-Has at least 10 credit accounts in total and a 15-year credit history.
-Uses 15% to 25% of her credit card limits.
-Has no late payments on her credit reports.
-Has no collection accounts or other major negatives.

The person with the 680 score:
-Has six credit accounts and an eight-year credit history.
-Uses 40% to 50% of her credit card limits.
-Was 90 days late on an account two years ago.
-Was 30 days late on another account one year ago.

Here's what you need to know about each action and the effect it had:
Maxing out a credit card
Using 100% of your limit on any credit card puts you at risk of over-limit fees. It also takes a bite out of your credit score.

Our person with the 680 score might lose 10 to 30 points from this one action, while the 780 scorer could shed 25 to 45 points.

The difference points up an important fact: The higher your score, the more points you tend to lose from "bad" actions. That's because the scoring formula is sensitive to any sign you're getting in over your head. Maxing out a credit card is considered one of those signs.

You also should know that it typically doesn't matter to the formula if you carry a balance or pay off that maxed-out card as soon as you get your statement. What's usually reported to the credit bureaus is the balance on your last statement. Even if you pay the debt in full before the due date, the maxed-out card will hurt your score.

Skipping a payment
Mailing a payment a few days late normally won't hurt your score, although you may incur late fees and trigger higher interest rates. The big hurt comes when you miss a payment cycle entirely.

A 30-day-late report would shave 60 to 80 points from our lower-scoring person and 90 to 110 points from our higher scorer. In other words, one lapse of attention could plunge the 680-scorer into subprime credit territory, and our 780-scorer could find credit much harder to get and more expensive.

This is why it's so important to set up automatic payments to ensure your bills get paid on time, all the time. With credit cards, you can set up automatic payments that take the minimum payment out of your checking account to ward against a late payment. You can always make a second payment that reduces your debt or pays it off entirely. You can sign up for automatic payments on the Web site of your card issuer.

Settling a credit card debt
All the advertisements about "settling your debt for pennies on the dollar" make debt settlement sound like a great solution. But failing to pay what you owe a creditor will take a serious toll on your score.

The 680 scorer would lose 45 to 65 points with this maneuver, while the 780 scorer would shed 105 to 125 points.

Our scenario assumed that our borrowers would miss one payment before settling the debt with their credit card companies. In reality, debt settlement negotiations can drag on much longer, with each missed payment taking another chunk out of your score.

Settling a debt with a collection agency would hurt less, probably much less, because the FICO formula is set up to weigh more heavily what the original creditor says about you than what a collection agency reports. But if our borrowers were settling with a collection agency instead, their scores would be lower to begin with, because they would have collection accounts on their records.

Also, you should know that the amount of debt your creditor "forgives" in a debt settlement solution is typically added to your taxable income. So you may save some money by settling a debt, but you'll give some of it back to Uncle Sam in higher taxes.

Losing a property to foreclosure
Foreclosure deals a severe blow to your credit score: 85 to 105 points for our person with the 680 score and 140 to 160 points for the one with the 780 score.

Foreclosures have implications for your future ability to get a mortgage as well. Although your score may start to improve as soon as the house is gone, mortgage lenders may not be willing to extend you another home loan until two to four years have elapsed.

In an attempt to protect their credit, many people attempt short sales, selling their houses for less than what's owed, with the lenders' permission. Unfortunately, these transactions, even if successful, are often reported as settlements. And a settlement, as you've seen, is pretty bad for credit scores. To lenders, a short sale isn’t quite as bad as a foreclosure, though, and it may be easier to get another mortgage once you’ve rebuilt your credit.

Filing for bankruptcy
FICO spokesman Craig Watts once called bankruptcy the nuclear bomb of credit actions. Filing for bankruptcy would shave 130 to 150 points from the 680 score and 220 to 240 points from the 780 score.

This is different from the other black marks, where the higher scorer was still left with better numbers than the lower scorer. In this case, both would wind up near the bottom of the credit barrel. Getting new credit, particularly in the current credit-crunch environment, would be extremely tough.

Sometimes, of course, bankruptcy is the best of bad options. But if you can't pay your bills, you should at least explore the other possibilities: forbearance, credit counseling or even debt settlement.

Finally, if you have any of these five black marks on your record, remember two things: The impact on your score may differ from what's shown above, and regardless of how many points you lost, you can rebuild your FICO score over time.

You can start by using a free FICO score estimator, such as this one at Bankrate.com, or MSN Money's credit score estimator, which similarly models a score on Experian's 330-to-830 range, to see where you stand.

Or you can sign up for free credit scores from sites such as Quizzle, Credit.com and Credit Karma, which use the actual information on file about you with the credit bureaus. But the scores you get still may not be the ones lenders actually see.

Or you can buy your Equifax or TransUnion FICO score from MyFICO.com. (Experian no longer sells FICO scores to consumers, although it continues to sell the scores to lenders.) With paid scores, you'll get specific advice about how to improve your numbers. In general, when you're trying to build a credit score, you should:
-Pay your bills on time, all the time.
-Reduce your credit utilization; below 30% is good, below 10% is better.
-Have a mix of credit on your reports, including installment loans (mortgages, auto loans and personal loans) and revolving accounts (credit cards and lines of credit).
-Refrain from closing accounts.
-Apply for new credit sparingly.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board and helps middle-class families cope at Building a Brighter Future
Published Nov. 11, 2009

A New Way to Look at Debt

2009-11-16T15:30:00.000-08:00

I heard this gentleman the other day on XM Comedy while I was driving and nearly drove off the road! Have a laugh on me.

http://www.youtube.com/watch?v=I5bbvMR8Ee4

Riding the Waves

2009-10-17T07:15:00.000-07:00

Last year, I said that the waive of credit defaults was just beginning. First to go were those subprime loans which should never have been done in the first place, many a result of fraud and/or greed in the mortgage and real estate business. It was obvious that these loans would default. Debt and payment ratios were out of whack, in both mortgages and auto loans, and it was inevitable that these loans would go bad sooner or later.

The second waves of defaults were people who initially could afford their loans, but severe income reductions or unemployment left them unable to pay their bills. No one expected the economy to turn around so badly or abruptly, and people making good money suddenly found themselves in the situation where their payments exceeded their income. This group probably includes those newbie investors, who bought investment properties with little or no down payments, and found themselves unable to pay the mortgage or sell the property. Buyers were scarce, and mortgage money dried up. Values crashed, and many of these folks walked away from their investment properties, trying to save their primary homes.

Now we come to the third wave - folks who can still pay their mortgages or car payments, but owed so much more than the collateral is worth that they are simply walking away. Credit scores are getting trashed, but what's worse is that these folks don't understand how to deal with their newly damaged credit. People with 700+ credit scores are finding themselves faced with the prospect of trying to secure credit with a score, in some cases in the low 50o's or even lower.

For the most part, the customers care little about the consequences of their actions. Many are still under the assumption that, because “everyone is doing it”, defaulting on their loans shouldn’t matter, and they should still be entitled to low interest rates and no stip loans. They balked at providing proof of income, or phone bills and references, figuring the lender shouldn’t require and documentation for their loan. However, lenders I deal with are now asking even good credit customers for POI and POR.

Many dealers I talk to have cut back their subprime departments, finding it too difficult to do these deals anymore. Prime deals are getting tougher, and F&I profits are shrinking. But faced with the new waive of subprime customers; maybe dealerships shouldn’t completely abandon special finance. Now is the time to put your ace in the game, the special finance expert you hired to help get through these tough times. Lender relationships, knowing what deals to send to what lenders, will help dealers sell more cars, make more money, and earn new customers who appreciate a true professional, who can guide them through this newly uncharted territory they face.

I’d like to think we’re starting to see the light at the end of the credit tunnel. I just hope it’s not the headlight from the oncoming train!

Auto Loan Applicants Face Tougher Scrutiny

2009-10-15T07:46:00.000-07:00

Dealers Must Heed Lenders’ Demands for Proof of Income, Residency, Phone Bill

By Donna Harris
dharris@crain.com
Automotive News 10/12/09

Dealer consultant Frank Martin has come to expect auto lenders to call a customer's cell phone to confirm the customer's credit information – right in the middle of the finance transaction. It is just a sign of the times.

“Even customers with high Beacon scores get calls," says Martin, who works in Boca Raton, Fla., and sometimes fills in for absent F&I managers in the stores he serves in the Southeast.

In many markets, major lenders are requiring proof of income and sometimes proof of residence even from customers with excellent credit.

Although lenders have stepped up standards during the credit crisis, finance experts also attribute this intense scrutiny to additional factors:
- Some banks report an increase in fraudulent credit applications related to the credit squeeze,
- Identity theft continues to rise.
- Lenders are subject to greater government regulation requiring them to confirm the accuracy of customer information.

Like A Mortgage
"We have seen credit restrictions the rise in each of our regions throughout the last eight to nine months even on high-prime customers," says Jeff Dyke, executive vice president of Sonic Automotive Inc., the nation's fourth-largest dealership group based on new-vehicle unit sales last year. "That includes both proof of income and proof of residence."

Chuck Butler, owner of Butler Automotive Group, says that over the past year, applying for a car loan has become almost as complicated as applying for a home mortgage.

Butler says lenders require that total debt be no more than 50 percent of income, giving them a huge cushion, "They used to allow as high as 70 percent debt," says Butler, whose dealership group encompasses four import and domestic stores in Medford and Astrland, Ore.

Julie Westermann, a spokeswoman for Bank of America, says the bank has adjusted its underwriting model to require proof of income but typically just for customers with credit scores at the lower end of prime. Experian defines prime customers as those having credit scores between 680 and 739.

Gil Rabani, finance manager for Vacaville Pontiac-Buick-GMC in Vacaville, Calif., says the lenders he works with are focusing on customers' phone numbers. "If the name and number don't match with the name, phone number and address listed in their records, customers not only have to prove income but provide a phone bill," Rabani says.

Ken Basdeo, finance manager for Star Auto Group in Queens Village, N.Y., says some major lenders are requiring proof of income on customers with A+ rating. "For 75 to B0 percent of the deals, we're required to provide proof of income and proof of residence," Basdeo says.
.
Some banks report an increase in fraudulent credit applications. Dealership employees and their customers are sometimes inflating income on the credit application to boost the chances of obtaining financing.

Identity Theft Rises
Identity theft also is rising. Such theft affected almost l0 million victims in the United States in 2008, the latest data available from the Javelin Strategy and Research Center, up 22 percent from 2007.

"Fraud has been increasing as the economy continued to sour," said Nicholas Stanutz, senior executive vice president of dealer sales for Huntington National Bank. Stanutz estimates credit fraud is up l0 to 15 percent.

Martin's firm provides temporary help to dealerships when the F&I manager is out sick or on vacation. The Florida consultant says lately, dealers have called on his firm to fill the job because they fired the finance manager.

"Many dealerships have become more seriously proactive in preventing fraud," Martin says. "What used to be a slap on the wrist has now become cause for termination."

Red Flags
All financial institutions must comply with the federal Red Flags rules requiring them to create a written plan to protect consumers from identity theft. Although enforcement of the rules was postponed a year to Nov. 1, many lenders already have stepped up their efforts to confirm customers' identities.

"No one wants to be the clerk that overlooked inconsistent proof of income or the credit manager that approved a deal with something missing," says Charles Ognibene, a Boston attorney who represents major banks and finance companies.

While Ognibene says regulation has prompted closer scrutiny of every deal, competition also comes into play: "Before the credit crisis hit, if a finance company pushed back an application because something was inconsistent and asked for more information, the dealer might have gone to another finance source. Now, with limited finance buyers, the dealer must heed when his finance buyer demands that i's be dotted and t's be crossed."

Consultant Martin agrees: "No one can afford to be cut off by a lender who is actively buying their paper. "

Sub Prime Car Buyers Still Can Find Credit

2009-10-15T07:27:00.000-07:00

Customers Face Larger Down Payment, Shorter Loan Terms

By Arlena Sawyers – asawyers@crain.com
Automotive News 10/12/09

Even though credit is tight and captive finance companies are focused on prime customers, sub prime customers still can find credit, say dealers, lenders and other financial experts.

Melinda Zabritski, director of automotive credit at Experian Automotive, says lenders are requiring larger down payments and shorter loan terms from all consumers – especially those with sub prime credit - in an effort to manage the lenders, risk.

"It makes sense," Zabritski says. ,,As banks better manage that risk, it helps them offer better loan products to the general market."

Willing To Lend

John Cavanaugh, CFO of Automotive Credit Corp, in suburban Detroit, says many lenders have either reduced their sub prime lending or pulled out of it altogether. But Cavanaugh's company is in it for the
Long haul.

Ln late September, Automotive Credit announced that it had secured a $50 million line of credit from Wells Fargo Preferred Capital, a subsidiary of Wells Fargo & Co.

Automotive Credit purchases the loans of auto buyers with credit scores of 500 and below. About 60
Percent of its customers are franchised dealers.

"Our portfolio is performing well, and we continue to have good access to capital that allows us to grow our business and do what we’ve done successfully for a long time,', Cavanaugh says.

Jonathan Neubauer, CEO of Vehicle Acceptance Corp., of Dallas, provides financial services for dealers who operate buy-here, pay-here operations. Neubauer says his company provides dealers cash advances that when coupled with a customer’s down payment, can cover the dealer's investment in the vehicle. Vehicle Acceptance charges dealers a flat fee to service and collect loan payments.

A small number of the dealers that do business with the company also have new-car franchises, Neubauer says. "We're trying to get the word out that we are lending money,,, he sa1n. "We are willing and able to lend money to buy-here, pay-here dealerships."

The Right Vehicle

Experian Automotives Zabritski says 12 percent of people who purchased vehicles in the first half of
2009 had sub prime credit scores of 550 to 619, down from almost 15 percent in the first half of 2008.

She attributes the decline to a number of factors, including lenders that didn't provide financing or consumers who could not qualify for loans.

Consumers qualifying for deep sub prime loans - scores under 550 - made up about 16 percent of vehicle buyers through June, up from l5 percent in the same period last year

Anthony Stalworth, vice president of sales and marketing at Automotive Credit, says sub prime financing works best when dealers provide customers the right vehicles. He ,says those vehicles typically are 2 to 7 years old, a domestic brand and in good condition.

"That is where the biggest amount' of depreciation is already off the cost of the vehicle and allows our customer to get in at a reasonable payment;" Stalworth says.

"lf they do a good job putting the 'customer in a nice car and treat the customer right, we have a much better job of collecting”

No Cash, No Car

Bill Perkins, owner of two Chevrolet dealerships and a Buick-Pontiac-GMC store in suburban Detroit, promises customers he will find them financing - no matter their credit history- with one caveat 'they have to have $1,995 down; you can't buy a car without cash now, says Perkins, who sells about 140 used vehicles a month at his three dealerships. About 40 percent of the used vehicles he sells are to customers with sub prime credit.

Tony Testo, sub prime finance manager at Landers Automotive Group- in Little Rock, Ark., which handles nine new-car franchises, says he works with five financial institutions to finance his sub prime customers.

Testo says he spends an hour or i more with each customer explaining that he can get them into a good 3- to 6-year-old vehicle, but they will have to pay higher interest rates because they are high-risk customers' Testo also tells customers they need to have a down payment, typically $500 to $2,500. Testo says he empathizes with customers who find themselves in a financial bind, but he wants them to be realistic about their vehicle purchase.

"most of these people have been banged around, treated badly and told no over and over again," he says' "i tell them yes, but we have to do this together

Thank Goodness He Didn't Try To Finance A Car!

2009-08-31T17:39:00.000-07:00

Michael Jackson’s credit score: 564

by Karen Datko

TMZ, the news source for all things Michael Jackson, expressed amazement that MJ had terrible FICO scores.

"Here's a shocker -- Michael Jackson had an abysmally low credit score," said a story at the Web site. In 2007, TMZ says it has learned, Jackson's scores from the three major credit bureaus were 592, 524 and 575, averaging out to just under 564.

It's really no surprise, considering his well-documented ultra-extravagant spending and financial woes, including the fact that Neverland Ranch nearly slid into foreclosure. But there's a lesson for everyday people in the specifics that caused the King of Pop to have poor scores.

Here are the reasons given in the TMZ report:
- A derogatory public record or collection filed.
- The amount owed on delinquent accounts.
- Number of accounts with delinquency.
- Too many inquiries in the last 12 months.

To put this in perspective, FICO scores have a range of 300 to 850. A score under 620 puts you in the subprime market. (Experian offers a state-by-state look at average scores and debt.)

Michael Jackson may have made a mess of his finances, but he did prepare a solid estate plan, including a will, a living trust, and trustees and executors who are experienced and knowledgeable.
All told, Jackson's estate is worth hundreds of millions -- a number that's still being figured out. The total is expected to be considerably larger than his estimated $435 million of debt. Plus, the size of the estate has grown by $100 million since he died on June 25, and is expected to make $50 million to $100 million a year, The New York Times says. Compare that with the $55 million Elvis Presley's estate earned last year. The NYT also said:

In life, Mr. Jackson faced a precarious financial future, as he piled on debts to finance his tastes in art, to travel on private jets and to keep up Neverland. In death, his estate may enjoy the financial security he never had.

Jackson will be buried on Sept. 3, according to the Glendale News Press

Will the real FICO score please stand up?

2009-07-26T08:38:00.000-07:00

by Karen Datko

This post comes from partner blog The Dough Roller.

Earlier this week we took a look at how to get your free FICO credit score from myFICO.com. Operated by the Fair Isaac Corp., creator of the FICO credit score, it offers consumers a free credit report and FICO credit score when they sign up for a 30-day trial of Score Watch. The FICO credit score myFICO.com provides is from Equifax, one of the three major credit bureaus.
And that's where some confusion can creep in.

There are three major credit bureaus: Equifax, TransUnion, and Experian. And each of these credit bureaus calculates a consumer's FICO credit score, which can be and usually is different for each credit bureau. In other words, you likely have a different FICO credit score from each of the three major credit bureaus. And to add to the confusion, each of the credit bureaus calls its version of the FICO credit score by a different name.

So let's quickly sort all this out:

FICO credit score. FICO stands for the Fair Isaac Corp., the company that created the formula for the FICO credit score. Fair Isaac was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac.

Fair Isaac does not calculate credit scores. While Fair Isaac created the FICO formula, it does not actually use it to calculate a consumer's FICO credit score. To use the formula, one needs credit information about the consumer, and that's where the credit bureaus come in.

Three credit bureaus. The three major credit bureaus in the United States use the FICO credit score formula to calculate a consumer's FICO credit score.

Three different scores. Because each of the three major credit bureaus has slightly different information on each consumer, the FICO credit score it calculates is usually different from the others. As a result, most consumers have three different FICO credit scores.

Three scores and three names. Each of the three credit bureaus has branded its FICO credit score with a different name. Equifax calls its score the Beacon score; Experian calls its score the Experian/Fair Isaac Risk Model or Score Power; and TransUnion calls its version of the FICO credit score Empirica.

VantageScore: You may have heard of VantageScore, which is a credit score formulation created in 2006 by the three credit bureaus in an effort to compete with the official FICO credit score. VantageScore has not been widely adopted by lenders and creditors.

Clear as mud, right? Now, how do you get your credit scores? As you may know, consumers can get a free copy of their credit reports from AnnualCreditReport.com. But if you want your FICO credit score, myFICO.com is the place to go, while FreeCreditReport.com offers its own version of a credit score. Here are the details:

MyFICO.com. MyFICO.com is run by Fair Isaac and offers consumers a credit-monitoring service called Score Watch. When you sign up for a free 30-day trial of Score Watch, myFICO.com gives you a free copy of your credit report and FICO credit score as reported by Equifax. You can also purchase from myFICO.com your credit report and FICO credit score as reported by TransUnion for $15.95.

FreeCreditReport.com: Known for its snappy commercials, FreeCreditReport.com is run by Experian. It offers a credit-monitoring service called Triple Advantage Credit Monitoring. In exchange for signing up for a seven-day free trial, you'll receive a copy of your Experian credit report and a credit score from Experian that is not a FICO score.

Stop The Madness!

2009-06-26T11:33:00.000-07:00

Insanity reigns these days, or so it seems. Customers continue to make ridiculous offers or expect miraculous finance options, regardless of circumstances.

I am bombarded daily by customers who view our inventory on our website, and offer to purchase a vehicle for thousands less than we have it listed at, with the caveat that “I’m paying cash!” It seems that many consumers believe that we are so cash strapped that we will take any offer, so long as it’s in “dead presidents”. They are amazed when I graciously decline their offer, explaining that when we advertise a vehicle on our website, we list it at the lowest price we can sell it for. After all, why spend money to advertise something if you can sell it cheaper than you advertise it for?

It makes sense to me to advertise on the Internet the lowest sale price for a vehicle. The Internet allows us to reach well beyond our local marketing area, and although many of our local customers find us through our website, we sell to customers all over the US as well as the world. In the last thirty days, we sent vehicles to Tennessee, Mississippi, Maryland, and South Carolina, as well as Nigeria and the Caribbean. Our advertised prices are typically among the lowest on the web, and our out of town clients appreciate the fact that we sell vehicles at reasonable prices.

Our local clientele are the ones who tend to make ridiculous offers. I’ve had customers offer cash deals, but then not have the cash. Finance customers who can’t, or better yet, won’t prove their income. And out of state or even out of the country customers who want BHPH on a $23000 vehicle with $1000 down!

The biggest obstacle these days seems to be first time buyers with overzealous expectations. Trying to convince these customers to consider a more reasonable vehicle than a $17000 or $18000 vehicle is an obstacle we consistently have to overcome, albeit with less success than we would like to be enjoying. The “you’ll do anything to make a deal” mentality still permeates our marketplace, especially since we are the foreclosure capital of the nation! Many of our customers are past due on their mortgage, or in foreclosure, and think that lenders should overlook this fact. After all, isn't everybody in the same boat?

Once upon a time, people with bad credit felt some remorse over their situation. “Bad things happen to good people” we used to say, and customers with credit issues understood their options were limited. Many realized that there were dealerships out there that were willing and able to help them get a car, although some used tactics and techniques that were less than honorable.

Ultimately, many of the unscrupulous dealerships and there people were caught and punished, and in many instances, those folks responsible for abuses and fraud ended up in jail. Of course, the local news shows love nothing more than a car dealer or his employees getting taken away in handcuffs in front of the camera!

I wish the media would stop telling people that we dealerships are in dire straights, that we are all facing bankruptcy or about to go out of business. While some independents down here in south Florida have closed their doors, most of us are still in business and doing pretty good, if not flourishing. Is traffic down? Yes! Is it harder to get inventory? Absolutely! Are lenders tightening their standards? Without a doubt! But regardless of all these issues, we’re still selling cars and making money. And isn’t that what it’s all about?

Coming: A 3rd Wave of Foreclosures

2009-06-20T11:38:00.000-07:00

The next group of Americans to lose their homes seemed to have good credit and affordable loans. But those families have been walloped by the recession.

By Michael Brush -MSN Money

There's a simple reason you shouldn't get too excited about the "green shoots" of an economic turnaround.

In the housing market, a lot of prime mortgages are becoming subprime as a new wave of foreclosures begins to hit. Mainstream homeowners -- those previously "safe" borrowers with sound credit who have conservative, fixed-rate mortgages -- are getting into trouble at an alarming rate.

In the first quarter, the percentage of these borrowers who were behind on their mortgages or in foreclosure had doubled from a year earlier, to nearly 6%. For the first time in the housing crisis, these homeowners accounted for the largest share of new foreclosures.

Job losses are a major reason once-safe borrowers are falling into trouble. With unemployment likely to rise, the problem will only get worse. So the core challenge at the heart of our economic crunch -- a poor housing market that infects banks and the whole credit system -- is not going away soon. That's bad news for the stock market and the economy in general.

"A couple of months ago, a lot of people had hoped that the housing collapse was about over," says money manager and forecaster Gary Shilling, a well-known bear who called the housing problems early in the cycle. "But it was more hope than reality."

The 3rd wave of woe

Economists call rising delinquencies and foreclosures among prime borrowers the third wave of trouble. The first two waves were housing speculators going bust and subprime borrowers -- those with poor credit histories and some version of no-down or low-down adjustable-rate mortgages -- getting into trouble.

Mark Zandi, the chief economist for Moody's Economy.com, calls the third wave a "significant threat" to the economy. "It is gathering momentum," he says. "The problem is now well beyond subprime and deep into prime."

It will cause at least three problems that could shrivel the "green shoots":
-Mounting foreclosures among prime borrowers will destroy their credit ratings, making it tough for them to contribute to growth by spending on credit.
-Rising foreclosures will add to an already high level of housing inventory on the market, pushing down home prices even more. That will make people feel poorer, so they'll spend less. It also will tempt more people to walk away from mortgages, adding to the problem.
-Foreclosures will mean more loan losses at banks, deepening the problems in the financial system.

Investment opportunities?
How do you play this as an investor? Well, if you missed the 30%-plus move off the bottom since early March but you're still confident enough to tiptoe back in, don't do anything more than that. Average in on down days.

Better yet, wait for the market pullback that this third wave makes more likely. Shilling has a bearish forecast of a trip down to 600 for the S&P 500 Index, more than a 30% decline from recent levels of 940.
Investors confident and daring enough to short stocks -- selling borrowed stock with the hope of buying it back later at a lower price -- may find profitable targets in the housing sector and among the regional banks. Homebuilder stocks look particularly tempting; they have risen more than 50% off their March lows on hopes for a quick recovery.

Whitney Tilson, a co-portfolio manager of the Tilson Focus Fund who also spotted the housing crisis early on, was recently short KB Home, Lennar and Toll Bros. in housing. He also has bearish bets against regional banks Regions Financial, First Horizon National, Zions Bancorp and New York Community Bancorp.

The 'subprime society'
Shilling suspects many so-called prime borrowers are now going bust because, well, they really weren't so prime to begin with. The same lax standards that created a zoolike atmosphere in subprime lending infected prime mortgage lending to some degree. Many prime borrowers still stretched to qualify, and they lack the financial reserves to sustain any personal setbacks, Shilling says.

A few months of unemployment will throw them into default. The official unemployment rate stood at 8.6% in April, and many economists believe it will top 10% as the recession drags on.

How much worse will the foreclosure crunch get? Credit Suisse analyst Rod Dubitsky predicted last week that 8.1 million mortgages, or 16% of all mortgages, will go into foreclosure over the next four years. A weak economy, continued declines in home prices and rising delinquencies among prime borrowers all but ensure that foreclosures "will march steadily higher," he says.

Dubitsky thinks such a high level of foreclosures could transform the U.S. into a "subprime society." The large number of people unable to borrow because of impaired credit will keep the consumer-spending engine on low idle.

Zandi predicts that a rising number of troubled prime borrowers will keep the number of distressed mortgages aloft for at least 18 more months. He thinks the number of mortgages in default or behind by more than 30 days (the definition of distressed) will rise to 9.2% in the current quarter from 9.1% in the first quarter, then stay above 7% through most of next year.

To put that into context, from 2000 through the end of 2006, 2.7% of mortgages were distressed, on average, at any one time.

Inventory overhang
A big problem stemming from all those foreclosures will be that huge excess inventories of homes for sale will continue to push down prices, Shilling says. "As long as you have those excess inventories, you have downward pressure on prices. It is no more complicated than that," he says.

The combined inventory of new and older homes on the market remained relatively constant at about 2.5 million for many years. Now, it's officially around 4 million, but Shilling thinks it could be higher because of miscounting.

In his bearish scenario, the inventory overhang will push down home prices so much that up to 25 million homeowners will be "underwater," meaning they will owe more than their homes are worth. That would be a huge increase over recent levels of 13.5 million homeowners and bad news for the economy.

Homeowners who are underwater can't borrow against their homes to fuel a rebound. They're reluctant to spend. And they are more tempted to simply walk away from what looks like a losing prospect.

2 more waves
Bad enough? Well, this third wave of prime borrowers going bust will be followed by two more waves of credit-related problems, Tilson says:
In a fourth wave, more homeowners with "jumbo prime" loans will go into default. These are loans to buy high-end homes that once boasted price tags upward of $1 million. "All over the country, the high end is starting to tip over," says Tilson. This wave will also bring more problems with home equity loans and second mortgages on homes.
A fifth wave will carry rising defaults on commercial-real-estate and business loans.

Like Shilling, Tilson believes all of these waves of credit-related problems spell the most trouble for homebuilders and regional banks. "Homebuilders are going to face severe headwinds trying to sell homes at least for a couple of years," he says.

Regional banks will have problems because they got heavily involved in commercial-real-estate loans when they lost so much of their home-mortgage business to upstarts vying for a piece of the subprime action during the boom. Regional banks also lack the income from wealth management and trading that's helping big banks such as JPMorgan Chase earn their way out of trouble.

There are 'green shoots'
There are some glimmers of hope in all this. For one thing, homes are more affordable than ever. Mortgage rates are still extremely low by historical standards despite a recent increase. So the cost of buying a home compared with average income levels is as low as it has been in nearly three decades.

And intriguingly, a housing sector analyst who first started warning of trouble back in 2003, way ahead of most people, now predicts a reversal is at hand. Stuart Feldstein, the president of SMR Research in Hackettstown, N.J., thinks home sales and prices are turning and will be in an uptrend soon.

One problem here is that Feldstein was early -- even if impressively prescient -- the last time around.

And of course, housing affordability doesn't mean much if so many people continue to lose their jobs. Goldman Sachs Group economist Ed McKelvey doesn't expect the jobless rate to peak until after 2010 -- in a sluggish economy that he expects will grow at a paltry 2% in the second half of next year.

With economic conditions like that, no matter how cheap houses get, it'll be tough for anyone to buy them.

At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.

Dear Mr. President

2009-05-27T13:00:00.000-07:00

Below is a letter that was sent to President Obama from Larry Greeen, who is about to lose his franchise. You can send your own message to http://www.whitehouse.gov/contact/ or president@whitehouse.gov.

To: The President of the United States of America
May 16th, 2009
From: Larry Green (Concerned Citizen)

Mr. President,

I am writing you today as it is my right to share my opinion and thoughts with you, the leader of our country. The developments in the past weeks have been quite puzzling to me. Seeing you announce on public television that Chrysler LLC would file for bankruptcy is something In ever thought I would ever see our president do. To further complicate all that has been happening with the automotive industry I was in total shock to see who you had appointed to oversee the restructuring process and the lack of experience they have with automotive retail sales and
manufacturing.

If you want to learn how to raise livestock then the obvious place to start is seeking knowledge from a farmer. So why is there such a lack of experience in your appointee’s when it comes to automotive manufacturing and sales. I believe that when decisions of this magnitude are made that will have such an impact on the everyday American, we need people with proven track records advising you. Some places to find these successful people might be, The National Automobile Dealers Association,National Dealer Councils, previous CEO’s in the automotive industry, and the list goes on and on.

Now, Mr. President, I know you will probably never see this letter as your staff will intervene. But I am taking you for your word during your campaign, where you said on several occasions that you will represent we, the people! But I feel I need to send this to you with the little hope that you may indeed receive my letter.

I live in a small rural community in Brandenburg Kentucky. We received a notice letter from Chrysler yesterday stating that we are not part of their future plans. My concern is not about me, but rather the impact that the local community as well as hundreds of others across the country will feel from this outrageous, government sanctioned, protection of large corporations and unions at the expense of everyday people who elect government leaders. These leaders are elected because of their platform, ideals, abilities and concern for the American people in general. In the case of the automobile restructuring the average American has definitely taken a back seat.

What I want you to know Mr. President, is that in most cases the local automobile dealers are the community backbone in rural areas. I will share with you just a few things that we do here in Brandenburg; We provide numerous scholarships to graduating seniors every year. We are one of the largest employers in the community. We support numerous sport’s activities from little league all the way through high school.We are the number one contributor to the local Future Farmers of America.We have sent over 2000 large packages to our deployed soldiers in war zones. We assist the local Army Recruiting Command with a tutoring program that has enabled several young men and woman to enter into the military. We donate to the senior citizens in the community to give them a better quality of life. We provide assistance to local law enforcement and emergency service providers on a regular basis. We donate time,resources and money to numerous non profit organizations such as,American Red Cross, Relay for Life, American Cancer Society, Veterans Organizations, USA Cares, Association of the United States Army, Breast Cancer Awareness, Boy Scouts of America, Food Closets, Shelters, Park sand Recreation, Angle Tree, food and shelter for less fortunate people,and this list goes on and on, Mr. President.

We are also a major contributor in political contributions and are involved heavily with the democratic party. We are not unlike the typical rural dealer as I am sure you have not been briefed on what atypical dealer adds to a typical community. Mr. President, please do not allow these drastic cuts to occur until you know how they will impact on local communities.

In our dealership we have been profitable and have never, ever been a liability to Chrysler LLC. The areas they said they were going to measure, we exceeded in every category. So the question remains, why?We feel that all they did was cut numbers as they were told to do by your people. They quite simply looked at a map and tried to space their dealers 50 miles apart. The funny thing is Chrysler/Fiat thinks customers will drive the additional distance to buy their products. I hate to tell you that this is not factual at all. Most rural dealer shave loyal customers to their dealership and not the brand. In fact, we have been covered up by phone calls each and every minute since the news was published because our customers want to trade in their Chrysler products and buy Ford or Mercury. Why, because we are also a Ford-Mercury dealer and our customer base is loyal to us not the brand.That is why you need to have representation of dealers also involved in this restructuring process.

Your appointee’s are under the impression that rural dealers are a liability to Chrysler LLC. This is totally false, Mr. President and we are an example of that. We have always paid for everything that is sent to us, tools, brochures, supplies, training etc. We own our facility, we pay our employee’s, own our computer equipment and all other materials.In fact if you want the truth, we are an asset to Chrysler LLC and have made them millions of dollars in the 26 years we have been a Chrysler Dealer. I feel that our constitutional rights have been violated. Under section 8 (Powers of Congress) paragraph 4, states “to establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States”. Mr. President, there is nothing uniform in how these proceedings are being carried out.

Under Amendment 5 (Trial and Punishment, Compensation for Takings.Ratified 12/15/1791.) last paragraph, “nor be deprived of life, liberty,or property, without due process of law; nor shall private property betaken for public use, without compensation.” Cleaning out a dealerships CMA account of money that the dealer put in there (not Chrysler), is noway close to being anything short of a felony offense by Chrysler LLC,who did this just hours prior to filing for Bankruptcy. To this day we have received no compensation whatsoever. Mr. President, this is the company that our tax payers money bailed out for a short period of time.Wow what a payback.

Amendment 7 (Trial by Jury in Civil Cases Ratified 12/15/1791.) “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and in no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of common law.” It’s obvious that common law is in no way part of the present conduct of our legal process with this case.

Amendment 8 (Cruel and Unusual Punishment. Ratified 12/15/1791.) “Excessive bail shall not be required, nor excessive fines be imposed, nor cruel or unusual punishments inflicted”. How much crueler can the system be than they have been to average American people who happen to own profitable dealerships?

Amendment 11 (Judicial Limits. Ratified 2/7/1795) “The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another State, or by Citizens or Subjects of any Foreign State.” Mr. President, we are well aware of who is calling the shots in how this process is unfolding and that is by Fiat, a Foreign company. It seems that our countries laws and processes are being interpreted to take care of non US Citizens rather than very productive members of our society who are US Citizens, the car dealers.

I will close this letter by asking you, respectfully, to consider those little league kids who might not be able to play ball next year.The senior citizens around our country who may not have electric or hot meals next winter. Those children in low income households who may not have Christmas next year. The Boy Scout who might miss out on going to summer camp. The lives that may have been saved through the Red Cross,Cancer Society and Breast Awareness. The Veterans programs that might be affected. And so much more! I don’t know about you, but this really bothers me. I urge you, Mr. President to please do the right thing and take care of our own!

Sincerely,

Larry D. Green
(270) 422-4901

The Nation’s Biggest Car Scam

2009-05-05T15:06:00.000-07:00

May 4: In what police say is the biggest auto scam going on right now, crooks are taking advantage of people who are buying used cars. NBC’s Jeff Rossen reports.

http://today.msnbc.msn.com/id/26184891/vp/30557788#30557788

And Then There Were ....

2009-04-30T10:57:00.000-07:00

Just posted on AppOne's credit portal:

"Due to current market conditions, AmeriCredit will no longer be accepting credit applications after April 30th. Any AmeriCredit approvals issued through April 30th will be funded as usual."

One by one, sub prime lenders are falling by the wayside. It's like a sub prime pandemic; the only question left to ask is "Who's next?".

This morning I was talking to my sales force and asked them if anyone was afraid of catching swine flu. They all agreed that the risk here in south Florida was minimal, at worst, and none of them was concerned about getting sick. But if you watched the news this morning, we're all doomed! Vice President Biden said he would NOT travel by plane or subway, and recommended staying away from crowded places! CDC official tell us not to travel to Mexico, and countries and states, cities and counties are shutting down public places to avoid a swine flu pandemic.

Let's all duct tape our doors and windows and not venture outside until we get the all clear!

No, don't get me wrong. There is always a concern for health and well being. We should all take precautions against getting ill, as well as spreading anything around. But perception is the reality in our society, and if the news tells us it's a pandemic, we believe it with the utmost enthusiasm. The news tells American consumers that the auto industry is going bankkrupt, and they stop buying cars. They tell us that there's not money to lend, so banks stop lending. The tell us that things are bad, and they just get worse. Maybe it's time to find some good news to report?

I'm sure this is an oversimplification of things, but then again, it's just my opinion.

Why Banks (Still) Aren't Lending

2009-04-23T09:39:00.000-07:00

Taxpayers want bailed-out banks to make loans and goose the economy. But given the depths of the economic mess, that's the last thing the banks should do.

By David Weidner, MarketWatch

Banks need to stop the charade, ignore the political and public pressure and admit they're not lending. It's not because they don't want to, but because it's bad business.

Don't think so? Take this pop quiz. Bank of America posted smashing first-quarter profits and its chief executive, Ken Lewis, said the Charlotte, N.C., company is lending as if the good times never ended. So, in the bank's conference call, which of the following statements did Lewis make?
A. "Credit is bad, and we believe credit is going to get worse before it will eventually stabilize and improve."
B. "Even our internal economists are a little at odds as to the timing (of the recovery), with some seeing recovery earlier (than year's-end)."
C. "We believe unemployment won't peak until next year at somewhere in the high single digits."
D. All of the above.
E. None of the above.

For a CEO whose bank is lending as if it's 2006, you might be surprised that the Lewis who proclaims to be bullish on loans is bearish on the economy. The answer is D.

There's only one problem. No bank CEO can reconcile more lending with a deteriorating economy -- especially one in which economic conditions are the worst they've been in generations. But that's exactly the claim the bank chief is making.

Lewis described a deep recession that's going to be here for months. Still, Bank of America touts that it's "helping" homeowners and small businesses with new loans. It claims to have added 45,000 customers and provided them credit. The reality, however, is less impressive: Bank of America loaned $183 billion during the quarter, up just 1.6% from the last quarter of 2008, when lending took a big dive industry wide.

This isn't to single out Bank of America. All of the major big banks, including Wells Fargo, JPMorgan Chase and Citigroup have been doing the credit double-talk that goes something like this: These are terrible conditions to be lending in, but we're lending in them without risk.

If those claims sound a little too good to be true, it's because they are. Almost all the big banks that have taken cash from the Troubled Asset Relief Program have curtailed lending, according to The Wall Street Journal.

One of the intentions behind TARP was for it to be a kind of stimulus program made through the banks. After plugging holes on each bank's balance sheet, the TARP cash was supposed to flow into new mortgages, auto loans, credit card lines and corporate lending. Six months later, it's fair to say TARP money has helped prop up some banks, but it hasn't flowed into the consumer credit markets the way the framers intended.

Now, critics have argued that the banks should be loaning this money to help stimulate the economy. Companies need credit to expand and hire, they say, and consumers need credit to buy products and help feed the economy.

In almost any other economy, this would be true, but not at a time when an overextension of credit created the recession we are fighting. Credit cycles, by definition, are periods where banks overextend credit and then pull back to correct the imbalance. If the government forces banks to lend to at-risk borrowers, we're going to aggravate an already dire credit picture and require more government intervention.

You can easily see how lending to home buyers not worthy of credit would fuel the nation's housing woes and create more housing problems, but what about the loans most people assume are helpful to the economy: small-business loans?

It turns out that existing small-business loans are defaulting at an alarming rate. More than 4.4% of small-business loans were in 30-day default, up from 3.48% a year ago. And 1.29% were delinquent 90 days, up from 1.04% a year earlier, while 0.63% were 180 days delinquent, double the rate a year ago, according to PayNet, a small-business payment network.

It doesn't matter what type of loan; lending into an economic downturn is an invitation to trouble.
Some of the biggest US banks posted first-quarter profits that skeptics assert are based more on accounting gimmicks than healthy operations.

The steep rise in defaults and nonperforming loans suggests that the economy will make it hard for banks to simultaneously set aside reserves and lend more money out. Small businesses will lay off workers before they start missing loan payments, and the unemployed can't pay off their credit cards and car loan payments.

Taxpayers fuming about the banks' unwillingness to loan government money into the system might reconsider, given that the banks are actually being prudent with taxpayer cash. Now that banks have been backstopped by the Federal Reserve and Treasury Department, they have less incentive to scrutinize credit. The risk of bad loans has been shouldered by Washington.

Banks have made a lot of missteps in the financial crisis -- overreaching with credit, misusing taxpayer cash, imposing punitive interest costs on consumers, being insensitive -- but reining in credit is not one of them.

So, when Lewis and his counterparts at competing banks brag about how much lending they're doing, take it with a grain of salt. In most cases, this is posturing by CEOs looking to fend off criticism they're not doing enough to help the economy.

What critics fail to acknowledge is that we all benefit from banks adhering to lending standards. When that doesn't happen, we get financial collapses that compare to the darkest times in our history.

10 Hints to Give Your Customers to Help Them Get a Car Loan

2009-04-06T13:49:00.000-07:00

1.Know your credit score. - Get a copy of your credit report. Don't act surprised at your credit issues, or deny them.

2. Have an explanation for your credit issues. - Don’t be apologetic. Bad things happen to good people. Be specific about any problems or crisis that caused your problem. Let the bank know about any major upheaval in your life that may have led to your problems such as an illness or a natural disaster, like Katrina, or 9-11.Make sure that you can substantiate your claim

3. Don’t lie about anything on the credit app. - Lenders will turn reject your loan if they find you lied to them

4. Know your income. - Make sure you can prove what you make. Have your proof readily available. Make sure you know your GROSS income, before taxes, that you can prove.

5. Save your down payment. - More down payment means more car. Larger down payments can sometimes get a lender to view your application more favorably

6. Know what your payoff is. - If you are trading in a car with a payoff, get a ten day payoff from the lender. If you have a warranty or additional policies bought with the vehicle, find out if you can cancel them. This will lower your payoff or entitle you to a refund after the vehicle is paid off

7. Buy what you need, not what you want. - Set realistic expectations. Don’t buy more payment than you can truly afford. Rebuild your credit first, than rebuild your image later.

8. Don’t be argumentative. - Nice people get better deals than people who give sales reps a hard time

9. Don’t go from dealer to dealer. - We all deal with pretty much the same lenders, so excessive inquiries can be a reason a lender declines your application

10. Don't believe everything you hear on the news or read in the paper. - Yes, the auto industry is hurting, and some dealers are having a tough time, but that doesn't mean we're going to do anything stupid or illegal to get you a loan, nor does mean we'll take any offer you make, no matter how ridiculous it is.

Another One Bites The Dust

2009-03-25T10:30:00.000-07:00

So, today's news is that Fireside Bank is going out of the auto loan business. After 50 years in the auto finance game, Fireside, like so many others recently, could not withstand the losses they had incurred over the last few years.

I can't help but wonder who's next. AmerCredit has run into problems lately, but has managed to work through them, albeit at closing many of their offices and laying off staff. Both CitiFinancial and Capital One have laid off their local reps recently, and many other lenders have consolidated offices in an effort to cut costs. Others have cut back their expansion plans, in order to concentrate on the markets they have already entered.

As business gets more difficult, lenders become scarcer. Those that are left are looking at the business they are doing with a deliberate eye, and have become much more selective in the applications they approve, as well as considerably more conservative in the terms they offer. The old models are gone, and it sometimes seems like lenders are just as confused as we are.

Callbacks continue to amaze me, with approvals and declines making no sense. I had a customer yesterday putting down $6000, and an LTV at less than 70%, yet an "equity" lender I do business with turned down the loan because of "insufficient down payment"! Yet this morning, I get a first time buyer approved for a $350 payment, with only $2000 down. Remember the old days when a rate sheet made sense?

Entering a Brave New World

2009-03-19T09:46:00.000-07:00

Well, it’s been a month since I’ve been here, and it seems to be pretty good so far. Let me give you an update on what’s been going on lately.

Back in January, the Toyota dealership that ASKED me to come down and run their special finance department decided to undergo a “workforce reduction”. For those of you who aren’t familiar with that phraseology, what it means is “ we decided that your assistant, who we can pay less than we’re paying you, can do your job, so don’t go away mad, just go away!” Needless to say, business is off these days, but to cut personnel that don’t cost you anything because they only get paid on what they produce, well, that never made sense to me. The dealership eliminated my position as well as the special finance manager in the new car showroom. We were offered the “opportunity” to go on the floor as sales reps. He took the job. I didn’t!

So here I am, at an independent lot, as Sales/Finance Manager. We do about 30 cars a month and we’re growing, and we make nothing but money. Our average PAYABLE gross is over $2500 per unit, and while we do a good deal of buy-here-pay-here, I’ve brought on a number of new lenders, and our finance business is growing nicely. This gives me an opportunity to learn about BHPH first hand, since it’s been a good 25 year since I had my lot and things have definitely changed!

BHPH is definitely not your typical auto sales. As a manager here, I have to treat every deal as if it’s my own money. There’s a lot more to rolling a unit than collecting the down payment and watching the taillights hit the curb.

When we determine a customer is a BHPH candidate, things change in how we approach the deal. First of all, we need a minimum of 30% of the sale price down. No pick up payments, no promissory notes…its cash or dash. Down payments have to cash or certified funds, no credit cards or checks. Our terms run between 24 and 30 months, the shorter the better. Interest rate is 17% add-on, which is roughly 29.9% APR. We use rule of 78’s contracts, but there is no prepayment penalty. If the customer pays off the loan early, better for us, so we encourage this by eliminating a prepayment penalty,

Payments are setup bi-weekly, beginning 14 days from delivery. Each vehicle is equipped with a GPS device, either pre-installed before delivery, or we make an appointment for the customer to come back and have it installed. All standard stips are collected up front, POI, proof of residence in the form of a bill, as well as 3 pieces of junk mail addressed to the buyer. As dumb as that sounds, it verifies their address in a way that can’t be manufactured. Bring me the sealed envelope and we’re good to go! Phone bills as well as ten complete references are required, and insurance must be verified and faxed to us with the dealership as lien holder and loss payee before the vehicle leaves our lot.

We typically steer customers to older units in inventory. BHPH has come a long way from $1000 ACV’s that sell for $4995 with $1000 down. We stock BMW’s. Mercedes, Lexus, Jaguars, Volvos, Hondas and Toyotas to name some of the inventory we keep on hand. Yes, I have some older units, like the 97 Ford Explorer, or the 96 Cavalier, but these are for the customer who just needs wheels, and has limited down payments, typically $1000. Most of our customers can come up with $4000 or more as a down payment on the right unit.

Every deal is desked at maximum selling price, typically $3000 profit, plus all the interest that we collect. Our default rate runs pretty low, in that we have someone who calls the customer constantly to collect late payments. Yes we have a few scoundrels, but for the most part our customers seem to pay pretty well. Right now, out of 56 units in inventory, only 4 are repo’s. I try to be careful what I put out on the road BHPH wise, and I avoid problem units, like the F350 dually diesel with 100K plus miles. High risk loans shouldn’t be done on high risk vehicles, since the likelihood of payment declines as the likelihood of mechanical problems increases.

BHPH is typically the last resort in my lender portfolio. We’ll take a shorter deal if we can get a deal funded outside. After all, I’d rather let someone else handle the collections so we can concentrate on selling cars. Obviously, while we may be primarily in the collection business, we still have to sell cars.

I’m sure this is nothing new to a lot of you reading my blog. However, for you folks at franchise dealerships, as lenders tighten up or fall out of business, it’s going to be harder to do deals as time goes on. We’ve already seen it happen; I can say with a great deal of confidence that business will become a lot harder in the next 12 months. We’ve been through it before, and we’ll get through this slow down as well, but the lender landscape is going to be littered with the casualties of this crisis, and new lenders are becoming reluctant to expand into markets like Florida and Nevada, where credit seems to be taking the hardest hit.

BHPH can be a very profitable business, if done properly and with restraint. Not every customer can drive off with a vehicle. Some risks are just not worth taking. New relocated customers, unverifiable jobs or references are some of the things that disqualify a customer in my mind. If it smells fishy, best to pass the risk to someone else. This dealership has been here for 30+ years doing business the right way, and we’d like to be here 30 more!

Lessons I’ve Learned So Far in 2009:

2009-03-03T08:48:00.000-08:00

There is no such thing in a dealership as a “job well done”. You’re only as good as the last deal you delivered.
A GM can loose $250K in the used car department and still keep his job as long as he gets the sales force to sell all the old age units on the lot!
Sales people will complain about costs and packs until the GM puts a ridiculous bonus on those units, then they’ll sell every one of them.
Lowest prices on the internet bring lots of customers who buy lots of cars at lots of losses. They’ll all pay cash, and never come back to your dealership, because they typically live too far away to have ever considered your dealership before, but felt it was worth the drive to steal a unit from you. Nothing like loosing money and never getting any residual business from a customer.
Customers believe you’ll do anything, and take any offer, because the news shows keep telling them how bad our business is.
Sales Managers never want to hear they’re doing anything wrong, ethically or legally, until they’re about to get caught.
Sales people will stand and stare at you when you say no, hoping that if they look long and hard enough, the answer will change!
Never believe a GM who tells you to get to work and he’ll get you a pay plan, and never believe a GM who says, “Don’t worry, I’ll take care of you!”
It’s never a good sign when the GM calls a management meeting for 8PM on a Sunday night.
A finance director who puts all his eggs in the captive’s basket will soon find himself unable to make an omelet after so many of the marginal deals he forced on them go bad. It’s tough to build relationships with lenders these days when they know they were never the first choice, or even a top 3, for a dealership.
A GM will always choose to keep the guy who makes the least amount of money when business gets bad.
A “workforce reduction” is just a fancy way of saying “Don’t go away made, just go away!”

Lying For A Car Loan Is A Dead End

2009-01-29T10:00:00.000-08:00

This is an article that was published in the Miami Herald last weekend. It's another 'let's scare the heck of the consumer' article that seems to pop up every so often.

Posted on Sun, Jan. 25, 2009
Miami Herald.com

BY PATRICK DANNER

No job and no salary was no problem for Pat Callahan when she agreed to buy a $36,000 Ford Expedition.

Callahan, a Homestead retiree on Social Security, says the dealership persuaded her to lie on her credit application by claiming a nonexistent job.

When the finance company phoned to verify the salary, an employee of the dealer answered and pretended to be her boss, she says in a lawsuit.

Callahan got the loan, but lost the car. It was repossessed.

Mortgage brokers aren't the only ones with a propensity to fib on credit applications. Staff in dealerships' finance departments, sometimes with the customer's wink-and-nod consent, have played the same game -- with similar results, according to various auto industry insiders.

And unlike mortgage brokers, they are unregulated by the state, even though they have access to some of your most intimate financial secrets and can make a mess of your credit.

The state has considered requiring background checks and fingerprinting of car dealer employees who handle financing, but nothing is imminent, says Terry Straub, finance director for the Florida Office of Financial Regulation.

The scope of the problem is hard to gauge.

Duane Overholt, a former car dealer turned consumer advocate, runs the website StopAutoFraud.com that gathers complaints from car buyers and dealership employees.
''We have gotten more complaints from Florida than any state in the union,'' he says.

According to Moody's Economy.com, auto loan delinquencies rose 12 straight quarters in Miami-Dade County -- to just under 6 percent of all loans -- before dipping slightly in the last quarter. But the faltering economy is clearly a factor in that.

The practice of falsifying credit applications is ''widespread in the more desperate stores in our market, where they are looking for volume any way they can,'' says Craig Zinn, who own nine South Florida new-car franchises. ``It's something we are watching internally, constantly.''

He says there is a van that makes the rounds to dealerships that offers to produce phony tax forms, phone bills and pay stubs -- essential ingredients of a fudged credit form.

To simplify the deception, some dealers have the customer sign a blank credit application so the dealer can fill in the information as they please, consumer lawyers say.

Luis Lopez ended up going to court, his credit smudged, after buying a 2002 Mercedes-Benz CL500 from Auto Trend in Hallandale Beach. According to his lawsuit, which went to arbitration, the finance company first approved, then rescinded the auto loan -- after discovering the finance application included a phony W-2 form that misspelled his employer's name and inflated his annual income by $125,000.

The car was repossessed.

In a deposition last year, the dealer denied his employees were involved in the fabrication. In the end, an arbitrator awarded Lopez $2,907 -- about a third of what he sought -- plus costs. Lopez remains upset.

''I don't understand if I won the case, why I am getting peanuts back?'' says the 29-year-old Pembroke Pines man. Auto Trend's phone number is no longer in service, and its lawyer could not be reached.

David Alejandro Lopez, former finance director at Maroone Chevrolet in West Miami-Dade, is suing the dealer, alleging it routinely falsified customers' incomes so they could qualify for car loans. The dealership is owned by Fort Lauderdale's AutoNation.

Lopez claims finance managers, working under him, would either fabricate or obtain fake pay stubs, tax forms and utility bills to support the inaccurate applications. He says he got fired after rebelling against the practice.

''AutoNation did nothing about it,'' says William Amlong, a Fort Lauderdale lawyer who is representing Lopez in the whistle-blower suit in Broward Circuit Court.

In an e-mail, AutoNation spokesman Marc Cannon says the company conducted its own investigation and found no evidence to support Lopez's charges. He says Lopez was fired for ``valid reasons.''

''The company is committed to maintaining high standards of business ethics and conduct and will vigorously defend its position in this case,'' Cannon says.

Jack Tracey, executive director of the National Automotive Finance Association, which primarily represents subprime car lenders, concedes there are incidents of fraud but nothing widespread.
''When people read about it, they think it's going on all of the time,'' Tracey says. ``My experience with financing sources is that . . . if they find a dealer doing it, they just cut them off.''

George Fussell, chairman and CEO of Fort Lauderdale's Southern Auto Finance, believes the level of fraud peaked in the boom times before the auto industry hit the skids this past fall.

''Right now, all lenders have their tail between their legs and they are looking very deep into these credit applications to see if there's anything wrong, and if there's a hint of anything wrong, they're not making the loans,'' Fussell says.

Southern Auto says it does its own rigorous investigations to determine the veracity of credit applications and has discovered various wrinkles.

For instance, Fussell says a dealer might claim that it accepted a $3,000 down payment when in reality a portion of that $3,000 was fronted to the buyer by the dealer in the form of a loan. In egregiously deceitful cases, Southern Auto will make the dealer take back the loan, relieving Southern of its risk.

As for Callahan, the Homestead retiree who couldn't handle the $713 monthly payments on the Expedition, she's suing the dealer, Armstrong Ford of Homestead, over the aggravation she says she endured. The dealer did not respond to calls from The Miami Herald.

''I feel like I was pressured into something I didn't want to do,'' Callahan says. Her suit in Miami-Dade Circuit Court seeks unspecified damages.

The Expedition is gone. Today she drives a Hyundai that her daughter bought.

© 2009 Miami Herald Media Company. All Rights Reserved.http://www.miamiherald.com

Car Repo Men Had Busiest Year Ever

2009-01-09T09:13:00.000-08:00

Posted Jan 08 2009, 07:06 PM by Karen Datko
http://blogs.moneycentral.msn.com/smartspending/

Vehicle repo men were in overdrive last year, picking up a record 1.67 million cars and trucks.

According to Automotive News, that figure is from Tom Webb, chief economist at Manheim Consulting, and represents a 12% increase over 2007.

In the only bright note in this story, Webb expects an overall increase of only 5% for all of 2009, with an actual decrease in repos coming in the second six months of the year.

Other factlets from the story:

Big unsold inventories of new vehicles depressed the value of used cars, Arlena Sawyers of Automotive News reports. The Manheim Used Vehicle Value Index last year experienced the biggest annual decline of its 13-year history.
Just as the price of gas-guzzlers fell during the summer of $4 gas, they're worth more now that gas is much, much cheaper, and the value of compact cars has dropped.
Not only that, but our partner blog ConsumerAffairs.com reports that only half of the buyers of small cars feel "extremely happy" with the purchase, much lower than the average rate of new-car glee. Market research firm Mintel, which conducted the survey, speculated that small cars on the market now don't have enough amenities to satisfy many buyers.

"The transition from expensive, gas-hogging SUV to cheaper, fuel-efficient compact will feel like less of a sacrifice if the smaller car offers similar luxury features," Mintel senior analyst Mark Guarino said.

And Another One Goes Down For the Count!

2009-01-07T11:06:00.000-08:00

Seems like we're running out of lenders these days. Nuvell/National closed there doors today, giving their people 6 months severance pay or a chance to apply for a job at GMAC. Based on the agreement that GMAC had to make in order to become a bank holding company, it seems doubtful that they are in an expansion move, so I guess we'll just add a few more folks to the ranks of the unemployed.

I have friends who work for Nuvell/National, and worked for National nine years ago as their south Florida Area Sales Manager. I have tried to do business with them since I've been back in the seat, and while it hasn't been easy, we have managed to fund a couple of deals with them each month. The truth is, I've try to fund deals fund deals with every one of my lenders. I firmly believe in NOT putting all my eggs in one basket, and as such, when one lender shuts down, or tightens up, I'm not stuck without someplace else to go with a deal.

No doubt business is getting harder these days. HSBC, Triad, Wells Fargo, and now Nuvell/National have all fallen by the wayside. It started last year, when AmeriCredit and Wells Fargo upped their minimum criteria for applications, and followed by HSBC and Triad pulling out. Funding slowed down with some of my other lenders, but they warned us ahead of time, and we were prepared to ride out the rough times along side them. Lenders have long memories, and I'm confident that my patience will pay off several times over in the long run.

My friend a Nuvell/National told me yesterday that it all came down to their cost of funds, and the inability to remain profitable as that cost increased. It probably won't be the last time we hear this story. Lenders and dealers who are in a position to ride out the storm will undoubtedly came out stronger and more profitable. Hang on tight, and look for smoother waters ahead. It's all we can hope for these days!

New Threats to Credit Scores

2008-12-30T17:34:00.000-08:00

A revised FICO formula will kick in soon, and the balances you carry will matter more than ever. Luckily, little missteps will count less. Plus: How you can protect yourself.

By Liz Pulliam Weston, MSN Money

A long-delayed update to the leading credit scoring formula is rolling out in 2009, offering a few advantages to consumers -- and some serious new risks.

FICO 08, the latest version of the FICO scoring model, was initially supposed to be introduced in the fall but was delayed by lawsuits between its creator, Fair Isaac, and the nation's three main credit bureaus.

Everybody's since made up, and TransUnion will offer the new score to lenders starting in late January, with Equifax introducing it in the spring, said Craig Watts, a Fair Isaac spokesman. (Experian, the third bureau, hasn't yet announced when it will offer the score.)

Fair Isaac says the new score will do a better job of predicting defaults than the classic FICO, which is used in more than 75% of mortgage lending decisions and by 90% of the largest U.S. lenders.

But FICO 08 is even more sensitive than the classic FICO to how much of your available credit you're using. If your credit card issuer slashes your credit limit -- which is increasingly likely these days -- you could see your scores plunge, regardless of whether you carry a balance.

Another hazard: The new scoring formula responds more negatively if consumers have few open, active accounts. Because more credit card issuers are shutting down unused and unprofitable accounts that boosts the chances of damage to your scores.
3 victories for consumers

Not all the news is bad. FICO 08 offers some definite improvements for consumers in several areas, including:

Collections. The new formula ignores small collection accounts in which the original debt was less than $100. This is a big victory for consumers and one I've advocated for years, because niggling little debts -- created by unpaid library fines, forgotten parking tickets or a small medical bill that slipped through the insurance cracks -- had an outsize impact on people's scores.
Credit missteps. Fair Isaac says the new version is less punishing to those who have had a serious credit setback, such as a charge-off or repossession, as long as their other active credit accounts are all in good standing.
Authorized users. Fair Isaac initially said FICO 08 would combat potential fraud by ignoring any "authorized-user" accounts in a borrower's credit report. After a big consumer outcry and potential credit fairness issues, Fair Isaac backed off and decided some authorized-user information would be included.

Adding a spouse or child to your credit card as an authorized user has long been a good way to improve that person's credit score, because your good history with the account typically could be imported to the relative's credit file. But in 2007, credit repair companies began abusing this feature by "renting" authorized-user slots from good credit risks and selling them to strangers who wanted to boost their scores. Some of these strangers bought slots on dozens of different people's cards, boosting their scores by tens or even hundreds of points.

Lenders pressured Fair Isaac to drop authorized-user information from its calculations. But consumer advocates protested, noting that the change could punish millions of innocent parties, including spouses whose entire credit history depended on authorized-user information. Legal experts also warned that ignoring information regarding spouses on authorized credit lines could be a violation of the Equal Credit Opportunity Act.

So now Fair Isaac says the FICO 08 formula will factor in authorized-user accounts "while materially reducing potential impacts to the score," according to the company's FICO 08 marketing brochure. Fair Isaac won't disclose exactly how it does that, but speculation is that the new score will count a limited number of authorized-user accounts and ignore the rest.

Better? Worse?
Fair Isaac made another course change regarding how FICO 08 would handle "inquiries," or applications for credit. At first, the company said applying for new credit would hurt less than in the past, since initial research seemed to show that inquiries had become less predictive of future defaults. Subsequent research, though, contradicted that finding, said Watts, the company spokesman. So you still want to be cautious and apply for credit only when necessary.

But clearly, one of the biggest hazards for consumers is the credit utilization issue. As issuers slash credit limits, the gap narrows between customers' balances and their limits, which is generally bad for their credit scores.

How bad is tough to predict. A limit reduction on a single account won't necessarily trash your credit, Watts said. Because FICO scores assess a lot of data, the effect of a single factor like a credit limit reduction will depend on what other data is on the credit report and how much the line is reduced.

"The person's score could be unchanged; it could go down," Watts said. "Or in some cases, it could go up."

It's fair to say, though, that big reductions in credit limits, and reductions affecting more than one account, aren't going to be good for your scores. Credit card expert Ben Woolsey of CreditCards.com noted that issuers' credit limit reductions so far -- and the promise of more to come -- are "clearly a hazard" to consumers' scores.

Still, Fair Isaac defends the accuracy of its formulas. Watts said the company's research has so far found the credit limit reductions have affected "a relatively small population and those line reductions have been a relatively small amount for a sizable part of that population."

At the same time, he said, a "notable number" of consumers have reduced their use of revolving credit such as credit cards, which is helping to minimize any impact to their FICO scores from credit limit reductions.

"Our most recent performance study," Watts said, "indicates that the FICO score continues to appropriately rank-order consumers based on credit risk."

Different yardsticks, same strategies

Other ways to protect your scores:

Watch those balances. The less of your credit lines that you use, the better, even if you pay your balances every month. The credit bureaus and your credit scores don't distinguish between balances you pay off and those you carry month to month; the balance that's reported to the bureaus is typically the one that shows on your most recent monthly statement.
If you're in the habit of using a big portion of your credit limit -- because you travel on business or are chasing credit card rewards -- consider asking for a higher limit or using more than one card. Ideally, you'd use no more than 30% of your available limit at any time during the month; under 10% is even better.
If your credit card issuer slashes your credit limit, try to get the decision rescinded (read "Thaw out your frozen credit" for details). If that's not possible, use the card less and move at least a portion of your balance to other cards or to an installment loan. For credit scoring purposes, it's better to have small balances on a number of cards than a big balance on a single account.
Don't close accounts. Fair Isaac has made it clear that closing accounts can never help a classic FICO score and may hurt it. With FICO 08, that's even more true. You get more points for having open accounts in good standing; conversely, having a higher proportion of closed accounts can hurt you more.
Keep your accounts active. Issuers increasingly are shutting down unused accounts, which reduce your available credit and can hurt your scores. Even if your account isn't closed, though, FICO 08 doesn't like to see a bunch of unused cards -- it wants to see you actively and responsibly using a variety of credit accounts.
A simple way to keep an account active is to have a monthly bill charged to it, and then arrange for an automatic monthly payment to ensure you don't miss a due date (a single skipped payment can devastate a great credit score).
Consider an installment loan. There are two main types of credit: revolving accounts that allow you to build up and pay down balances, and installment loans that typically have fixed payments that require you to pay down your balance over time. Credit cards and lines of credit are examples of revolving accounts, while auto loans and mortgages are considered installment loans.

The FICO formula has always rewarded folks who had and successfully managed both types, which is why getting an installment loan was often recommended as a way for people with troubled credit to rehabilitate their scores. The new scoring formula is even more sensitive to the mix of credit types people have and use. In the past, people were able to get and keep very high scores using only credit cards; it's not clear if that will still be true under FICO 08.

Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
Published Dec. 29, 2008

The Truth, The Whole Truth and Maybe Nothing But The Truth!

2008-12-10T15:09:00.000-08:00

Maybe it's just here, but lately, I've run into a number of cases of customer fraud. I'm not talking about identity theft. That I can deal with. It's customers who think they can fool me and the bank!

A few examples:

One customer provides pay stubs on delivery that are over 30 days old. She sends an "updated" pay stub to us after we spot the car... the only problem is the only thing that changed on the pay stub was the date! The dollar amounts were the same as the first pay stub she gave us, but the customer cut and pasted a new date over the original one!
A customer provides a pay stub on delivery that appears to be legitimate. We package the deal and send it out for funding. The bank does a verification of employment and finds out that the customer is a part-time employee, and the pay stub he provided us is "not consistent with how he gets paid"
A customer fills out a credit application and tells us he has been at his job for over 6 years. On verification, the bank finds out "Customer was just re-hired at current job 11/24/08 after being gone for years". So much for that approval.
Three separate cases of fraudulent Social Security numbers, with one customer who could not provide the original card, but had a real good photocopy for us!

It seems as though all the press about the car business being in trouble has got some customers believing that we'll do anything for a deal. I've been approached by customers offering "bonuses" to get their loan approved. Some customers believe that we'll look the other way at indiscretions and questionable activities in order to make a deal. Others are amazed that the banks actually verify everything, and many are dumbfounded by the idea of a customer interview. I constantly have to tell my customers to make sure they answer their phone when the bank calls. Yet I still have to chase customers to get their welcome call done.

One of the things I have done to help cut down on the brain damage is require my sales people to get a "Verification of Employment" form signed by the customer when they complete the credit application. When the customer is reluctant to sign this form, it's a heads up to a potential problem with the deal. In addition, we do a reverse look up on both the home and work numbers provided. Not surprising, we find a lot of cell phones for employers, and either get a proper number, or we don't deliver the vehicle.

It's getting harder to do business these days. Every deal counts, but only when it gets funded. It only makes sense to make sure, up front, that a deal is indeed a deal, and not a repo or rollback!

Entitlement or Priviledge?

2008-11-24T12:50:00.000-08:00

I am consistently amazed at customers who come in thinking that, despite the fact that their last vehicle was just repo'd, they want to get another loan without putting any money down. It seems that these customer believe that credit is a right, or entitlement, and that regardless of their past credit history, or lack thereof, they shouldn't have to put any money down in order to get a loan.

Well, I've done some research on this matter, and to no one's surprise, the Founding Fathers were very explicit on the rights we bestow on our citizens. Freedom of speech, religion, assembly and such were all spelled out very clearly. But no where in the Constitution could I find a reference to the right to "buy now and pay later".

I tend to believe that credit is a relatively new concept. Folks in colonial America may have had credit arrangements, but they were more likely than not between merchants and customers that knew each other first hand. Long relationships had already been established, and credit, as it was, was limited in depth and term. Small amounts for short terms, until the harvest, or the sale of a horse, or some other transaction would occur, to make good on the debt incurred. It made sense, since there was little mobility in those days, and it wasn't hard to find someone who owed you money. You rode out to their farm and asked for repayment, whether it be cash or collateral didn't matter.

Today, banks lend at more than an arms length from a customer. Few, if any of our customer actually meet the people who are loaning them the money, and so lenders look for some commitment on the part of these customers with regard to the loan. There is no "right" to credit, it is really a privilege that must be earned. Stability and ability are fine attributes in an applicant for a loan, but far too many lenders learned the hard way that, simply because a customer looks like they can afford the payment, that doesn't necessarily mean that they WILL pay them. A commitment to or "customer participation" in the loan won't insure that the payments will be made, but at least the lender knows the customer has a stake in the game. I often tell my customers that their credit challenges can be overcome with a significant commitment on their part to the transaction.

The lack of a satisfactory payment history shouldn't preclude a customer from getting a loan, it just means that they have to prove that they will actually make the payments. For too many years, auto credit was a three strike deal - regular finance, special finance, and last but not least, buy here pay here. Customers knew that they could simply stop paying on their current loan and go down the street and get another car with little problem. Lenders were flush with cash and eager to over extend credit to folks who shouldn't have gotten it. Now we all are paying the price.

There is now guaranteed right to credit. Maybe I need to right the "Credit Challenged Bill of Rights"? Kind of like the Miranda rights you hear on all those cop shows and movies. Hmmm...

What's Does It Take To Be Successful In Subprime?

2008-11-02T14:53:00.000-08:00

Yes, it's still about the relationships your dealelrship and you have with your lenders, but the lenders are getting much more cautious with their approvals. More lenders are doing upfront verifications, and even prime lenders are verifying income on some deals. Lenders are looking more closely at DTI issues, and most payments have gone from 20% PTI to 12-15%. Huge advances are also a thing of the past; I haven't seen an approval from a subprime lender over 115% since I've been back here. 110% seems to be the magic number, and even Drive, when they give a 115% advance eat it up in their fee.

I talk to my buyers only when I have something to bring to the deal, or to make sure they have all the correct information to make their decision. Many times, Dealer Track may not transmit all the income info correctly, especially on 2nd income or part time jobs.

My secret has always been to send a lender a deal they can buy. Good business is good for everyone..good for the bank, in that they can collect the loan. Good for the dealership so we sell a unit and make a profit, and good for the customer to get a vehicle they want AND can afford. The days of stuffing a customer into a deal for huge gross profits is a "once upon a time" or "remember when" deal. If I can make $2000 profit, I'm a happy camper. I only wish I could get the huge advances with all the back end products we used to get. But by sending an application structured to the lenders guidelines, I get most of my deals approved first time out. Rehash when I need to, but I don't waste the buyer's time on an unrealistic structure and expectation.

I also maximize my relations by telling the lenders upfront about problems or obstacles they might encounter when it comes to funding a deal. Cell phone bills, landlord verifications, anything that might be a problem for them is expressed upfront so there's no surprise on either end at funding.

Full spectrum lenders? A figment of your imagination, like unicorns or the Loch Ness Monster! No one is buying the "full" range of customers. The only lender I have digging deep is S.E. Toyota, and only on Toyota products. First time buyer programs have pretty much evaporated, with Drive and Summit doing these deals, but with limited advances and payments. Many lenders have increased their minimum criteria, raising income to $1600 or more, minimum 1 year on the job, minimum down payments, etc. "No money down" deals followed the unicorns out of town!

I spend time talking to my buyers and reps about their programs, and what they are looking for, not what I want. I have all the 560 and up lenders I need, the problem is the customer demographics here are way below that. My average FICO score falls below 520, with mid to high 400's the rule rather than the exception.

Foreclosure is a big problem here, and most of my lenders won't approve a customer in foreclosure. Once the foreclosure is over, however, it's open season, and I have some lenders giving decent approvals to these customers. Lately, I've seen a bunch of customers with multiple foreclosures - investors who got in way over their heads and can't get out from under now. Many of these customers knew they have credit problems, but still think they can negotiate the terms of the loans. Many leaved pissed off, only to come back a day or two later, after they realize I was honest with them, but other lenders have already sent the applications everywhere, and it's getting harder and harder to turn a decline around.

I have been talking to many deep lenders, trying to find other sources, but many have limited recourse (first 3 payments or first payment default). I had a few lenders who want us to pay them an upfront fee to sign up with them, and many of the dealer agreements I've looked at appear to be written by Chinese lawyers (lots of print that you can understand).

It'a A Jungle Out Here...and It's Getting Harder to Navigate

2008-09-23T14:39:00.000-07:00

The lead story in this week's Automotive News reads "Credit-crunched". That doesn't begin to tell the story!

Almost daily, I'm am harangued by sales people who complain about the deals they used to get done. You know, the ones where the customer can't prove their income, or the ones who only claim to credit fame is a repossession. I constantly remind them that things are different today, that getting proof of income (POI) waived, and getting a marginal customer with a high credit of $300 a $20,000 auto loan is just not happening these days. It's not that I don't want to do the deal, it's that I don't want to deliver a vehicle I know we'll have to take back in a week! Lenders are tougher and tighter these days, and while I have all the 560 and up lenders I can use, I wish there where more of the sub 520 lenders available. And then I have to explain that a higher FICO score doesn't necessarilly mean a an apporval.

Here in south Florida, the problem is probably more acute than other areas. Like California and Las Vegas, we are faced with a mounting foreclosure problem. Customers come to us in the midst of foreclosure and want a newer car, or they want to trade in a vehicle they bought 6 months ago because some sales rep told them they could trade it in after ONLY 6 months. It's hard on everyone when we have to say "No" to a customer. Many Special Finance departments appear to be "Deal Prevention Departments" This is fair from the case.

I believe that most of us doing Special Finance these days have a pretty good handle on what our lenders will buy and fund. Delivering a customer and signing papers takes little talent, the real talent lies in making a profit AND getting the deal funded. The days f jamming a deal down a lenders throat are long gone, and Special Finance managers that don't partner with their lenders will find themselves running short of lenders real quick.

My lenders know that I send them applications they can buy, and my deals go in clean and ready to fund. Maybe that's why I got a lender who had shut this dealership off after they had looked at 62 non-buyable applications the month before I got here to turn us back on. In August we funded three deals with them, and this month 5 more!

Yes it's getting harder to get deals done. Yes, lenders are fewer, and profits are getting leaner. 145% advances...I only wish I could get those on a regular basis. But making lemonade out of lemons is what I get paid for, so...

Good Business Has To Be Good For Everyone

2008-08-29T12:28:00.000-07:00

Well, it's been 2 weeks back in the seat. While I'll be the first to admit it's a different world today, I can't really say that it's that much different from what I remember. While there have been a number of lenders leaving the market (HSBC, Triad, UACC) or others that have been retreating or reluctant to expand, the lenders that are left are still buying deals. The only difference these days is that lenders are looking a lot harder at the applications they receive.

Good business has to be good for everyone. That rule has never changed. A deal has to be good for the dealer (there's a profit to be had), the customer (the payment is affordable) and the lender (the loan is collectible). If is doesn't work for any of the players, there's no sense in doing the deal.

The lenders I've spoken to lately all ask me the same question. They want to know how I decide where to send an application. That hasn't changed since I got started in Special Finance. I send the application to the lender I think will buy the deal. I make sure to know each lenders guidelines, and avoid sending an application that I know doesn't meet their basic criteria. If the income is too low, or the score to low, or it lacks the length of employment, I don't send it to a lender who has those criteria. Keeping non-complying applications from lenders that won't buy it keeps look to book in line, and builds credibility with your lenders. It makes it easier to ask for a favor when necessary, because they know you know what you're doing.

Yes, the number of sources has shrunk, and the days of easy credit and no money down are long gone. Yet the customers still expect it. The majority of my day is spent explaining to customers that simply because they look they will pay the loan, lenders know that this does not necessarily mean they will. Making the deal good for everyone is what works today. And that's the thought for today!

Changes in Attitude, Changes in Lattitude!

2008-08-21T09:43:00.000-07:00

It's been a while since I've been here, and I apologize to those of you who follow this blog. As you're reading this, I have returned to my roots in South Florida, taking a position with one of my former clients as Director of Special Finance.

After three years outside of the dealership, I decided I needed to go back inside to get a clear understanding of today's market. Everyone has been telling me that things have changed, and indeed they have, but I decided that the only way I could truly understand was to see for myself. Special Finance is a lot like skydiving... everyone knows how it's done, but only those who have actually jumped can tell you what it is like!

So, it is with that thought that I have "jumped" back in to the dealership. I had worked for this company before I decided to move to Charlotte, and when the used car director called me to ask if I knew anyone who was looking to make a move, well, as they say, timing is everything. After some careful consideration ( and a pay plan that was too good to pass up), I headed for the airport and here I am.

I'll be writing here on a regular basis, as well as in Special Finance Magazine. A view, from the front line so to speak, trying to bring a fresh perspective on what is really happening in dealership TODAY! In the meantime, I welcome your insight and comments. Send your thoughts to subrpimecoach@hotmail.com and I publish them here.

It's good to be back. I forgot how much I missed this, and look forward to sharing my stories with you. Until then, remember..."If everybody could do this, they wouldn't call it Special Finance!"

Take Time to Talk to Your Customers

2008-07-25T09:52:00.000-07:00

I've just returned from 2 weeks working with a client dealership to get their Special Finance efforts off the ground. To say it's been a challenge would be an understatement! Yeah, times are tough, lenders are tight, new vehicle sales are way down, and the used car market is all over the place. Some dealerships are sitting heavy in full size SUV's and pickups, and auction prices are sky high on economical units that are, with $4 a gallon gas, the most desirable.

Despite all that, credit challenged customers still need loans, and the vehicles that go with them. The problem, to me, seems that, while market conditions have changed dramatically, the way business is done still remains the same.

Sales people will always be sales people...motivated to make the sale, and the associated commission. To many sales people, it's a numbers game. The more folks you talk to, the better the chance you'll make a sale. Take more "ups", and sooner or later, you'll find a buyer.

Most dealerships boast of a 20% closing ratio, so the old "more is better" philosophy takes over and we find ways to flood a showroom with customers, figuring that somewhere in the crowd there's got to be a buyer or two. If we can bring in 100 folks, the numbers say we'll sell 20 units.

Truth seems to be that, if only 20 of those folks want to buy, and as NADA says, 3 out of 5 of those customers have some kind of credit problem, unless your sales staff can spot it early enough in the process, you spend a lot of time selling vehicles to folks who can't buy, even though they want to! When you finally discover this, they've already committed to buying the unit they selected while they were out on the lot with the sales rep, and unfortunately, the lenders won't qualify them for that unit.

Take some time to sit down and talk with your customers. We used to call this the "Discovery" or "Qualifying" stage of the sales process. Ask your customer for permission to sit down and gather some information about them and what they came in for. Ask them about their previous car buying experience. If it was good, why didn't they go back to the last dealership they bought from. If it was a bad experience, ask what happened. You'll probably here some horror stories about your competitors, some of which will scare the heck out of you. So far this week, I've heard tales of bait and switch, straw purchases, and possible fraud, from customers that were, to say the least, a bit upset with the last dealership they bought from.

I've also seen customers put onto $38,000 new vehicles who were no where near able to purchase such a unit. Even though the customer said they had previous financed a vehicle with a prime lender, no one bothered to ask if things had changed in her life recently. Then there was the guy who pulled up in a 24 year old car with the windows down on a 98 degree day, that tried to buy the 2003 Hummer!

It all comes down to this simple concept. Talk to your customers before you walk them out to the lot. The more your customers talks, the more you'll find out information that will help you control the process and move it in the right direction - good credit customers to the lot, and credit challenged customers to the finance office.

Look at it this way. If this helps you sell just 1 more unit a week, how much will that mean to you at the end of the month? Sounds to me like money in YOUR pocket!

Good News, Bad News

2008-07-10T07:00:00.001-07:00

According to Insure.com, smaller cars may mean bigger insurance premiums for customers. Although smaller, more fuel efficient vehicles may be more desirable by customers, the premium price they may command along with higher insurance premiums may make this choice of vehicle a poor one for subprime customers.

Knowing that insurance companies often use credit reports as one factor in determining the premium they charge a customer, subprime customers may face higher premiums regardless of the vehicle they buy. Now add the higher premium for smaller vehicles, and now you have the double whammy!

Recently, Insure.com wrote "Small cars tend to increase insurance costs because they get into more crashes," says Russ Rader, a spokesman for the Insurance Institute for Highway Safety. "There's a myth that a smaller car is more nimble and helps you avoid crashes, but smaller cars tend to have more collision losses."Of course, it's not the cars causing the accidents -- it's the people behind the wheel.

"Part of the reason is the driver," Rader says. "Smaller cars tend to be less expensive and driven by younger, higher-risk drivers. And they think they can zip around in traffic."
When auto insurers see more-frequent and more-expensive claims attached to certain vehicles, they rate policies for those vehicles accordingly. Thus if you buy a smaller car that has a history of high insurance losses, you're essentially paying for the blunders of other drivers of that vehicle model. "

Make sure that insurance premiums don't kill a deal for your customers. Be sure to discuss insurance, and have them check the premium BEFORE you contract them. There's nothing worse than having to unwind a deal because your customer can't get or afford insurance.

I Need Your Help to Figure Out the What Are the "Best" Subprime Vehicles

2008-07-01T14:04:00.000-07:00

I'm trying to compile a list of the best vehicles for Subprime. I'm looking to find out which cars, trucks, SUV's, minivans or crossovers tend to be the most popular for special finance customers, as well as which tend to be the most profitable for special finance dealers.

Please put together a list of your top 10 selling vehicles and email it to subprimecoach@hotmail.com. Submit your lists no later than July 20th, 2008, and I'll compile the results and publish them here, plus, I'll personally email everyone who responds a copy of the final list. Make sure to include your name, the dealership you represent, the location (city and state) and your position there.

Thanks for your help.

Nine In 10 People Expect Ballooning Costs To Squeeze Them Financially

2008-07-01T06:51:00.000-07:00

A recent AP/Yahoo News poll found 9 out of 10 respondents worried about how rising gas prices will effect them. Many are already cutting back on other expenses to cover the increase in the cost of a fill up. While some have gone to more economical vehicles, others are cutting back in other areas as well, switching to cheaper alternatives, or in some cases, foregoing additional expenses like summer vacations.

What was interesting in this poll was that it appears that all segments of the population are worried about their economics, and what's in store for them.

According to Alan Fram of the Associated Press, 47% of those surveyed expect higher gas costs to cause serious hardship. " Lower-income people are bearing the brunt of it. As higher prices push grocery, pizza delivery and other costs upward, just over half of those without college degrees – and about the same percentage of those earning less than $50,000 a year – are expecting serious personal financial problems to result."

Fram writes that "... significant numbers of the better-off are feeling pain, too. Four in 10 people in families earning $50,000 to $100,000 annually, and one in six earning more than that, expect serious financial hardships from rising gas costs, as do one in three college graduates...Two-thirds of those earning under $25,000 a year are cooling and heating their homes less, as are nearly six in 10 people earning more than $100,000. Just over four in 10 of the lowest earners are cutting vacation spending – only slightly likelier than those earning at least six figures to do so."

Free credit monitoring a boon to homebuyers

2008-06-30T07:02:00.000-07:00

Kenneth Harney
Charlotte Observer, 6/29/08

If you're thinking about buying a home or refinancing — even if you've got excellent credit — you may want to avail yourself of a forthcoming free service that could help you get a better mortgage rate.

Under the terms of a national class action settlement, you may qualify for six or nine months of daily monitoring of your credit file plus unrestricted access to your credit report and score. To be eligible, you need to have had any form of open credit account — a charge card, student loan, auto loan or a mortgage — at any time between Jan. 1, 1987, and this past May 28.

Eligibility expires Sept. 24.

The free monitoring services could prove especially useful for homebuyers who need to keep an eye on their credit reports in the months immediately preceding their loan applications. Any glitch, inaccurate negative information, or missing positive information in their files could depress their credit scores.

That, in turn, could make it tougher for them to obtain the best rates in today's market — where lenders are demanding higher credit scores for their standard rates, and often won't touch applicants who have low scores. For homebuyers with minimal down payments, there's a double whammy: Mortgage insurers have imposed strict new minimum credit scores for applicants with less than 20 percent down payment cash.

Here's a quick overview of the class action and how it might be valuable to you. Under the terms of a settlement agreed to by TransUnion — one of the three dominant credit repositories — you can visit a special Web site (www.listclassaction.com) or can call a toll-free number (1-866-416-3470) to register a claim.

The litigation against TransUnion dates back to 1998, when plaintiffs first charged that the company sold consumers' personal data to marketers in violation of federal law. Sixteen class action suits were consolidated into a single case.

TransUnion denied all wrongdoing, but as part of the settlement agreed to create a $75 million fund to compensate affected class members. Since the class was defined as virtually anyone who had an open credit account anytime during the past 21 years, there's a good chance you're a member.

The settlement sets up a tiered menu of remedies for you to choose from, including:

• Nine months of free credit file monitoring services if you agree not to file an individual lawsuit against TransUnion seeking damages. In addition to monitoring — where the bureau alerts you by e-mail within 24 hours of any significant change in your credit data — you can also lock your entire file so that lenders, insurance companies and others cannot access your TransUnion report without your permission.

On top of this, you can receive “unlimited daily access” to your credit report and TransUnion credit score, plus a “suite of insurance scores and a mortgage simulator service” to help you qualify for a better home loan rate. TransUnion estimates the current retail value of this option at $115.50.

• Six months of free credit monitoring, credit lock privileges and unlimited access to your credit report and score. This option, valued at $59.75, allows you to receive a possible cash payment out of the $75 million fund if any money is left over after paying lawyers' fees, notification costs, and priority payouts to named plaintiffs.

• Even if you opt to file an individual lawsuit against the company, you are still eligible to receive six months of free credit monitoring.

One downside for mortgage applicants: The credit score you receive from the settlement agreement will not be a FICO score — which is the dominant score used by mortgage lenders. It will be TransUnion's proprietary score, which may be roughly comparable to your FICO score but sometimes can differ substantially.

The key value of the settlement options is the unlimited access to your credit file, with none of the usual costs. Plus with the monitoring service, you'll be able to spot any monkey business going on in your files, such as unauthorized use of your credit cards or identity theft.

If you're serious about getting a mortgage in the months ahead, this is a rare slam-dunk.

Don't Abandon the Ship (or the Land Barge!)

2008-06-26T08:42:00.000-07:00

Auction prices and wholesale values of large vehicles are falling faster than a rock off a cliff. Full size pickup trucks and SUV's are loosing money faster than a compulsive gambler at a crap table. And the experts predict it is only going to get worse.

Ford has delayed the introduction of its '09 F150 by two months, to help dealers move existing inventories of new 08's. The June 23rd edition of Automotive News features an article on page 1 entitled " 'Like House of Cards', Used Trucks Fall." Automotive Re-marketing recently listed vehicles that had the sharpest drop in wholesale values. Is there any good news left out there?

Despite all the "bad" news, there's some good news deep within. Consumers still need larger vehicles, and dealers should not completely abandon these vehicles. Particularly in regard to sub prime customers, some of these folks need a full size pickup or SUV in order to work, and not having ANY of these vehicles on your lot could easily cost you a sale.Now I'm not saying you should stock your lot chock full of V-8's and mammoth trucks, but with these vehicles showing a tremendous spread between wholesale and NADA Trade-in, you may be able to structure deals significantly enough behind book to get a lender interested in the loan.

Lately we've seen spreads running in the thousands between Black Book and NADA trade. The opportunity is there to move some of these units, especially if you can buy them substantially behind book, which is a likely scenario these days.

Keep an open mind when it comes to the"land barges". Stock a few and you'll not only have a vehicle a customer may want and need, but the opportunity to structure a profitable and attractive deal for both the dealership AND the lender!

A New Idea for Limited Credit Customers

2008-06-12T11:32:00.000-07:00

This came to my attention just today. With the vast number of customers who have thin or limited credit files, this may help you help them build a file and either create or improve their score.

New Tech Tool Beefs Up Thin Files
Posted by Marcie Belles on May 15 2008 14:24:37 PDT, BankNet360

With so many banks tightening up lending standards, it seems unnecessary for a company to find ways to bring more people into the credit market — especially those with limited credit histories. But Payment Reporting Builds Credit is trying to do just that.

PRBC’s premise is simple: "There are two ways to look at [the credit situation]," said Corey Stone, the Annapolis, Md.-based company’s chief executive. "You can say banks want to lend to fewer people — which is not true — or you can say they want to lend with less risk."

According to Stone, there is a large population of low-risk consumers out there desperately trying to access capital, who can’t because they have "thin" credit files — or no credit at all. In fact, 20% of car-loan applications in 2007 were considered too thin to score, Stone said.

So now PRBC, which got its start in the apartment rental business and has since branched into the mortgage space, is dabbling in auto finance. So far, nearly 100 consumers have secured auto loans using information about rent, cable, insurance, and other typically unreported payments that they reported to PRBC. "Most of the bills we pay come long before we have a credit history," Stone said. "Yet they are all agreements to make regular payments."

Here’s how the system works: A consumer visits the credit bureau’s web site (www.prbc.com) and enrolls in the "Report Builder." From there, it’s up to the consumer to enter his payment history for any bills he chooses to report. After a minimum of six months, the consumer may use the report to apply for a car loan, for instance, provided he verifies the information with proof, like a stack of receipts from the water company. Customers may also opt to have online payments automatically added — and immediately verified — to their profiles. This is all the more handy, since verification is the only cost for users of the site. Users pay $5 to have their personal information verified, and between $15 and $20 to verify each payment account.

PRBC is talking to several national auto lenders about rolling out the project in the direct auto lending environment within the next four to six months, Stone said.

IN MEMORIAM - CHOOCH 10/1/93 - 6-3-08

2008-06-03T11:29:00.000-07:00

You'll probably remember Chooch as my Border Collie, the recipient of numerous credit offers and mailers from various sources. Previous post have included several examples that begged the question, "Who's reading your mail?"

We laid Chooch down this morning. Her health had slid dramatically in the last month or two, and she had lost half her weight lately. Chooch had been having difficulty walking the last few days, and had not eaten either. She had been laying in my office, or in her corner of the dining room, and this morning, we took her to the vet to see what was going on.

After examining Chooch, the vet told us that we had come to the point where a decision had to be made. We could get her appetite back, but she probably wound not be able to walk again. After much soul searching, and a good amount of tears, we decided it would be best to allow Chooch a peaceful and gracious ending to her life.

I adopted Chooch from the Broward County SPCA in Fort Lauderdale back in October of 1998. My son and I had gone to look for a dog for me, since he and his mother had gotten custody of the two dogs we had at the time. I had a border collie back in my college days, and Snoopy had lived to the ripe old age of 17 before her time had come. After looking at several dogs, I was unable to find one that I liked, and as we were walking out, I saw a sign on one of the pens that said "Choo Choo, female Border Collie". I asked the aide who was showing us the dogs where this one was, as that was exactly the kind of dog I wanted, and was told that another family was with her and preparing to adopt her. As we approached the door, in came this adorable little black and white hound, and I instantly said, "Don't put her back, I'll take her!" My son and I went out to prepare the paper work, and he picked out a bright red collar for her to wear home. Ten years later, the collar remains, with her license and tag still attached.

Over the years, Chooch has been more of a roommate than a pet. She often slept in the other bedroom, and at times seemed to be a bit of a recluse, but always came out to say hello to a visitor. She enjoyed riding in the car, especially with the window open, and seemed to enjoy the times we took her out on the boat we had in Florida. She was never much of a swimmer, and seemed to have a distinct dislike of the water. In her later years, she would hop when she barked, and Chooch never ceased to be a delight, even lately when things weren't the best for her. She was my companion through the hard times, and I like to think that she may even have saved my sanity, giving me something to care about when nothing really mattered.

I'll be constantly reminded of Chooch, each time her name shows up on the caller ID in my office, or whenever a piece of mail comes addressed to her name. Ten years together seems to have flown by, and I will miss her terribly. God bless you Chooch, and thank you for the best years of MY life!

Another One Bites The Dust

2008-05-28T12:16:00.000-07:00

The following notice was posted on Triad Financial’s website last week

IMPORTANT DEALER NOTICE

Effective May 23, Triad Financial Corporation will cease all lending operations for its Indirect Dealer Channel. Conditions in the financial markets have been extraordinarily unstable, and have hindered our ability to adequately and cost-effectively fund future business through traditional methods, including asset-backed securitizations.

Triad has served the dealer community for more than 18 years, and values the relationships we have enjoyed with you and the customers we share. We will no longer accept new applications as of 5 p.m. today.

Triad will, however, honor existing approvals and fund eligible contracts forwarded to us through June 23. Triad will continue to operate and fund loans in its Direct-Lending Channel, RoadLoans.

On behalf of our fine team of lending professionals in our Credit & Funding Center in North Richland Hills, Texas and our highly dedicated Sales team across the United States, we would like to thank you for your business. We value the support you have shown us over the past 18 years and wish you future success.

It seems like the handwriting on the wall is becoming clearer, and not only is it getting tougher for consumers to get a loan. It’s getting tougher for the lenders to securitize their portfolios to get money to fund new deals. As the marketplace tightens up on all sides, everyone is going to take a long, hard look at the business they are in.

Lenders are going to take a long hard look at the business they get from their dealers, and how that business performs over time. Dealers that provide a good mix of business which performs at an expected level will continue to enjoy the relationships they have with lenders they deal with. Marginal deals, and dealers that provide them, will become tougher to find a home, as lenders consider whether that dealership should remain a part of their “team”.

Now, more than ever, it is critical to know how your lenders look at your dealership. What is the value your dealership has to a lender? Are you a winner or a whiner; do you work your customer and then the lender, or do you try and break a lender’s back before you even try to close a customer.

When lenders find it harder to secure funding, it all flows downhill. Until the markets rebound, and investors see the opportunity in these deeper lender portfolios, it’s going to harder on everyone involved. The days of “EZ Credit” are long gone, and customers need to realize that credit id a privilege, not an entitlement. Educate your customer on the process, what’s involved and how it works. Help them understand that it’s a different game now. You may be able to get them approved for a loan; it’s up to them to determine whether or not they can live with the terms and conditions of the approval!

It's Finally Happened...Now I've Heard It All!

2008-05-22T10:55:00.000-07:00

“Guns and Gas”Multi-line new car dealer in Butler MO gets a lot of free publicity with controversial promotion

DealersEdge Daily Headlines (5/22/2008)

Buyers of new vehicles can choose between a $250 gas card or a semi-automatic hand gun. So far 80% opt for the gun.Max Motors in Butler Missouri is a GM, Ford and Chrysler dealer offering a wide variety of new vehicle brands. The “Guns and Gas” promotion is getting him a lot of free publicity and runs through May 31.

This story is getting a lot of play on local Kansas City news stations and newspapers and also has resulted in an Associated Press report. There was no indication in any of the news reports of how successful the stunt was in producing new vehicle sales, but it certainly has been successful in putting this small-town dealer on the map. Butler is a town of about 4,200 and lies about 30 miles south of Kansas City.

The Max Motors Web site trumpets the promotion with a cartoon character holding a pistol in one hand and a gas pump nozzle in the other. Under the banner- “FREE Handgun* or Gas Card with Every Purchase” comes the sub-head reading - “We are aware of the gasoline and crime problem in America. Max Motors, the Country Dealer wants to be part of the solution and not part of the problem.” The “*” spells out that the dealership will issue a coupon with which the customer can claim their pistol after going through the necessary background checks.

Some of the more colorful quotes appearing include: “I’m telling them to get the semiautomatic because it holds more rounds,” said the dealership’s general manager Walter Moore. (from KansasCity.com) or – “Just a nice small little gun,” said dealer Steve Priest. (from a report filed by WCSH) Also from the WCSH report Moore is quoted as saying, “You’ve got car-jackings. You got innocent people being shot and killed. I figure it’s time for people to protect themselves.”

In a televised video report a representative from Max Motors commented that everyone around Butler carries guns and that when they appraise trade-ins it is not unusual at all to find multiple guns in the vehicle.

There was no mention of Chrysler’s guaranteed $2.99 gas promotion or whether or not this was the inspiration for the “Guns and Gas” promotion.

I wonder...Maybe they're planning on using their new gun to hold up a gas station!

Special Finance Dealer Survey

2008-05-21T08:53:00.000-07:00

I've added a link on the top right side of this page to a short survey. Please take a moment to click on the link and complete this 4 question survey regarding what is happening at your dealership today. Once we have the answers compiles, I will publish our findings, a try and give you all a better idea of what is going on in dealerships around the country TODAY!

We all know that the landscape for Special Finance has changed dramatically since January 1. The market is tougher, lenders are tighter, and customers are facing more challenges than ever. Take a moment to let me know what you think is happeneing at your dealership so we can help each other SURVIVE & THRIVE through these tough times. Thanks.

Two Bulls

2008-05-20T09:51:00.000-07:00

by David Preston
www.zenfinance.ca

The advertisement says “ One months profit in just four days!” How can any dealer say no to that! Imagine, 4 days to the promised land. Clean, no mess, no hassle just profit! Well if that is the case, its obvious that dealerships have missed the boat for many years then. Imagine, staying open six days a week, all month long! Hell, they could have picked 4 days a month to be open and been done with that annoying nuisance called work, and spent more time on the golf course!

Ok enough with the sarcasm you say. True, these “staffed slammer sales” do quite a bit of volume, and move some older units for the dealerships, but at what cost to your special finance department?

Assuming you have a well run efficient special finance office, you should be able to keep the fallout to a minimum if not zero. The way to do that is by having YOUR special finance manager be kept in the loop on all deals during the event. Remember, at the end of the day, when the big top is taken down and the clowns have left, it is YOUR reputation on the line. Not just the reputation that you hold so highly with your customers, but also with the lenders.

Chances are, if your sub prime department is running as it should be your special finance manager has built a solid reputation with the lenders. The kind of reputation that takes years to develop and only one deal to destroy. Its that reputation that will probably be the reason some of the “tough” deals during the sale were approved and delivered. I'm sure most would agree that damaging that reputation in order to move a few extra units over a one week period is not worth it. I'm not saying all staffed companies are going to jeopardize your store's reputation, but erring on the side of caution in this regard, will always prove to be the correct choice.

Tips to stay safe:

1- Know each and every deal that is being presented. This doesn't mean hover behind the event's finance manager watching every key stroke. But spot check from time to time as the sale goes on.

2-Try and meet each customer to ensure they were satisfied with there experience at “YOUR” store. Ask them question about the transaction and ensure that promises made can be kept. Remember, once the sales company leaves its YOUR promise.

3-Let the sales team know what will not be acceptable when it comes to paper work, deal submissions and promises made.

4- Make sure that you are dealing with a reputable company that has a good track record and consistent repeat business with other dealerships.

5- Remember the story of the two bulls standing on the hill. The little bull looked up at his dad and said “lets run down there and get us one of them cows pa!” The big bull looked down at his son and shook his head. “No son, lets walk down, and get them all!”

...however, this is just my opinion and I could be wrong. After all, I'm just the finance guy.

Fishing Season? I Don't Think So!

2008-05-16T11:59:00.000-07:00

I read a comment by Peter Salinas in the Dealer Business Journal, May 2008 that rings true to me: “Not many thought the national credit woes affecting subprime mortgage industry would come to so dramatically affect the subprime used-vehicle business as much as it has.”

Do you agree? Are you surprised as well? What to do…? What can we do – we have to act. Now is the time to manage our business better. How can we make the most of every opportunity in this changing market?Start by putting up the “No Fishing” sign in the F&I department. Stop fishing for approvals that fit the customer. Get approvals and let the customer decide if it works for them. It is up to the customer to decide which options work for them. You limit opportunities by spending so much time and effort “fishing” for the "magic" approval (the one the customer will sign on the dotted line). Keep before you the fact that 100% of the customers who don't get the opportunity to buy, can't! If the customer never gets the chance to decide whether t hey can meet the terms and conditions of a lender’s approval, regardless of whether it was what that customer originally hoped for, it is impossible to know whether or not they can. Let them find a way to meet the terms of the approval. "Get money down or a co-signer" is the common response from the sales desk, and with those words, the customer leaves and goes down the street to a competitor that gives them the "opportunity to buy". Now is the time to seize these occasions to educate the customer and help him or her to adjust expectations. Take the time to walk them through the reasons for the terms offered and help them to see how to make it work. You need to spend more time consulting your customers in this tight credit market.

Today lenders scrutinize the business they are doing and, as a result, those little green check marks on DealerTrack and Route One are popping up less frequently. You must familiarize yourself with the lenders and their programs. If you don’t know your lenders, you won’t know what they will say “yes!” to. Loan applications receive more scrutiny than ever before. Are you in the habit of throwing deals against the wall? Results will be predictable. The good finance managers know each lender and the kind of deals they approve.

Have you looked at the process from your lender’s perspective? It costs a lender money when a dealership sends them a deal that won’t work in their program. Build a relationship by knowing and partnering with the lenders who handle the paper in each tier of credit. Knowledge of what they look for will position your dealership for better success at approvals.

While considering a lender’s perspective, demonstrate appreciation for they do by sending some of the better customers along with some of the more challenging deals. Say thank you tangibly – send lunch in, send some cookies or gift baskets. Your investment into the relationship will pay off in a workable partnership.

The market is tough right now. Adjust your expectations and do things differently. You may not be able to hit the home run every time. So what should you do? Move the cars when you can! You may have to take the occasional short deal or move an old-aged unit. Cultivate better business habits while persevering and you will see results.

Myths and Misunderstanding of "Car Dealer Thinking"

2008-05-15T12:59:00.000-07:00

How did the car business become so concerned with cost per sale that it mises total available profit?

There used to be some wisdom n the age old axiom of measuring the cost of advertising per vehicle sold. However do we keep the same scorecard on our newspaper, print or electronic media (TV/Radio)? Today, with some of the tools that track phone numbers , it is possible to narrow down some of this, but how often does a dealership base their numbers on the sales force reporting back the answer to the question; “How did you hear about us?”

Until recently this would have accepted this as “normal practice”, however after recent discussions internally and with a few dealers have led to an adjustment of the paradigm.

Observation I: Putting all of the available advertising eggs into the Internet may not be the best move. According to the Cobalt Study of Dealerships for 2007, while 83% of car shoppers used the Internet to research vehicles and 79% used search engines to research dealerships, just over half (55%) of the leads a dealership receives convert into sales. The study went on to say that 90% of these customers made a deal at a dealership other than the one it was originally sent to, and 30% of the leads went unanswered!

Action Step: Have you ever “Googled” your dealership? Does the dealership name appear on consumer websites like the Ripoff Report? If a dealership is depending on the internet to fill the showroom with customers who intend to purchase a vehicle from that dealership, this may be leading to a false sense of reality.

Observation II: Is the information from the sales force is accurate regarding the marketing questions they ask? For example, unless the only marketing done is newspaper or the customer carries the paper in the door, is it possible to know if they came as a result of the newspaper? Salespeople are interested in selling cars and cashing checks, so maybe next month’s ad budget shouldn’t be based on their responses?

Action Step: Review the dealership’s advertising and see how to can add accountability to the marketing efforts being undertaken through separate 800#’s, the use of live operator call centers etc. Get verifiable email addresses from potential purchasers and customers and survey them regularly about the dealership’s ads and offerings. Consider using blind advertising as a method to increase special finance efforts.

Observation III: “Car Think” math does not always produce the right answer. Take a look at a dealership that utilized two types of lead sources with, what appear to be, widely varying results:

Traditional “Car Think” math would seem to indicate that $428 vs. $1400 cost per vehicle is a no-brainer. However if one source produces 58% higher gross profit per unit, despite the higher initial cost, maybe the math is flawed. An additional $23,500 more net profit would seem to be a more desirable result, especially if this result is consistent, month after month. The question that comes to mind is whether the goal here is to increase gross profit or produced a perceived reduction of costs? Is this a quick fix or long term plans?

Is it the cost or price of a marketing effort that a dealer should have concerns with? Price is the fee per lead; cost is something that takes into consideration time, effort, results etc. So, in order to effective measure the results of any marketing effort a dealership undertakes, measure the overall cost as well as the price of every vendor and provider you deal with. If each month in the automobile business stands on its own, then it makes sense to capitalize on money spent in previous months. Make the results of any marketing effort carry over from month to month, and the dealership can enjoy sales generated by marketing dollars that were spent in previous months.

Dealerships that succeed and thrive in this turbulent time look a little deeper to find all the information necessary to make smart marketing decisions. At the end of the day, the business of selling automobiles is much more complex than it seems to those people outside of our business. Don’t get caught relying too quickly on facts and responses that are not complete or accurate

Here We Go Again!

2008-05-09T09:41:00.000-07:00

AG Settles in Case of Deceptive Advertising

May 6, 2008 Attorney General's Office

NEWS RELEASE May 6, 2008 Jim McKenna, AAG (207) 626-8842 David Loughran, (207) 626-8577

Attorney General Steve Rowe announced today that the State has entered into a Consent Decree with Level 10 Marketing, Inc., a New Orleans corporation, and Newcastle Chrysler Dodge Jeep of Newcastle Maine. The Consent Decree, which was signed by Kennebec County Superior Court, prohibits the two companies from using unfair and deceptive advertisements or practices such as sales “vouchers” which appear to promise “$4,000 Instant Savings” when in fact such savings are not realized. Further, neither Level 10 nor Newcastle Chrysler can use promises of significant savings unless such savings can be documented, including the following:
• “Will be sacrificed for pennies on the dollar;”
• “Save up to 90% off original M.S.R.P.;”
• “Prices will be slashed for immediate liquidation;”
• “Wholesale pricing direct to the public.”

“As part of this Consent Decree, 22 consumers who purchased vehicles at the sale will each receive a refund of $550,” Rowe said.

The Attorney General’s Consumer Protection Division investigated the purchases made at the Level 10/Newcastle Chrysler sale held November 14 through November 18, 2006. It found that consumers did not receive the promised savings. “During this sale, many consumers paid non-sale prices despite promises of ‘wholesale prices’ that had allegedly been ‘slashed for immediate liquidation’” Attorney General Rowe said.

Level 10 designed the advertising flyer that was sent out in Newcastle Chrysler’s name and it also arranged for a team of salespeople to travel to Maine to deal with potential customers during the November, 2006 “sale”.

Both Level 10 and Newcastle Chrysler are now subject to a Court order that prohibits such deceptive advertising techniques in the future. Neither company admitted to any wrongdoing. Pursuant to the Court Order, both Newcastle and Level 10 must pay a civil penalty of $6,250 and refund to consumers part of the purchase price.

I am truly amazed each and every time I get one of these notices in my email. Maybe I was absent that day in Business Ethics class, when the professor spoke about good business pracitces that lead to good business. Time and time again I read about shady practices by out of state companies that come in and promise extraordinary results in a short period of time. The "staffed event" held at this dealership may not be much different than what goes on at many others; the only difference is this time, someone complained that they were misled. While we don't know how may units were sold during this "sale", nor do we know how much profit was made by the dealerhsip and the marketing comany, I do know this much - the bad press this event generated will more than likely have a negative value that far exceeds any profits made.

I've said it before, and I'll repeat myself over and over again. Before you invest money in a marketing campaign, do some research of you own. Google the company's name, check Ripoff Report.com, do your own investigating and don't rely on references the company you're planning to hire sends you. After all, who do you think you think they're going to want you to talk to?

How’s Your Vital Signs?

2008-05-09T09:06:00.000-07:00

When you visit a doctor’s office, after they get your name and your co-payment, you’re typically ushered into one exam room. A few minutes later (hopefully it’s only a few minutes), a nurse comes in and gets some basic information. She checks your pulse, temperature, blood pressure, and asks if there have been any changes in medications recently.

This assessment of your vital signs tells your doctor if there is any problem that needs immediate attention. Sometimes, even subtle changes can be indicative of something that needs further examination. Hopefully, early detection prevents anything more serious from developing.

Is it time for you to check the vital signs of your dealership? When was the last time you took a good, hard constructive look at what’s happening and make some changes to prevent more serious conditions from developing?

Many times, the most obvious vital sign that shows a problem is declining number of sold units. Lately, this is probably becoming more epidemic in dealerships than we would all like, and unfortunately, there’s no vaccine that can prevent it in a down economy. A side effect of this can be a decline in the average gross profit per sale, as dealerships look to move more units, at any cost, in a n effort to cut inventories. Manufacturers may throw incentives and rebates on slow moving units, like a vitamin shot, to help dealers feel better, for a short period of time. But, as well all know, a vitamin has little effect if only taken once,

Dealer that thrive and survive in down times know how to adapt to a changing market. They’re proactive on their approach to tough times. Many dealers reduce advertising expenditures and look for “cheaper” sources to invest their advertising dollars. Others eliminate advertising all together, figuring the same they sell the same number of units whether they advertise or not.

.In tough times, when dollars are short, spending money haphazardly is not something any of us want to do. We look at each purchase we make to insure we get the most for our money. Marketing efforts for dealerships are not different.

Recently, I met with a client who wanted to know how many customers had come into his dealership as a result of the direct mail we were doing for him. His concern was that, for the money he was spending, he didn’t feel he was getting enough “bodies walking through the door”. When I asked him how many of the customers that had responded to our mailing his dealership had sold and how much profit he had made on these sales, he said he didn’t know, but that was not as important to him as knowing how many customers had actually come in.

The response rate in his dealership was one of the highest we had seen, yet the return on investment was something this dealership did not know. Isn’t that the most vital sign of any marketing campaign? Knowing not only how much it cost, but how much profit a marketing campaign produces, how many units and at what average gross profit each produces is the most vital statistic available. It shows the “health” of your marketing efforts, and indicates where limited dollars can be best spent to produce maximum profits. After all, anyone can sell you cheap leads, but as we all heard, “You get what you pay for!”

Look carefully at what you’re spending your marketing dollars on these days. Check the “vital signs” of each marketing sources you use, and determine which ones a providing long term “healthy” benefits to your dealership, and which ones may be “snake oil” promising quick relief, but no real growth for your dealership. To grow business these days, it going to take more than a quick fix; it’s going to take a careful analysis of what can produce the ongoing results we all want, more sales and more profits!

A Common Story These Days

2008-04-30T10:35:00.000-07:00

Economy's As Solid As Fool's Gold

2008-04-25T07:23:00.000-07:00

IN MY OPINION - MARK WASHBURN
Charlotte Observer 4/16/08

Those with advanced degrees in global economics can just skip this and move on to the funny pages.

This is strictly for people who don't understand high finance and desire a cogent explanation for the recent unpleasantness affecting one of our bedrock businesses -- banking.

All the bulging foreheads are gone? Good. Now, just between us morons, here's what's what.

Q. Explain the monetary system.

Simple. It's called the "Big Wheel of Capital." Banks take your money. They lend some of it out. People pay interest. That gives banks more money. They lend more money to more people. That gives banks even more money. They take that money, call it a performance bonus, and give it to the bank's big wheels.

Q. What is the dynamic of our banks?

For years, the soundtrack of Charlotte banking has been that gobble-gobble-gobble of PacMan. Our guys snarfed up other banks. That means they showed growth. That meant people with advanced degrees in global economics bought their stocks. Stocks went up. Everyone was delirious.

Q. What's the soundtrack of Charlotte banking now?

That kerronk-kerronk of PacMan ghosts. It's actually the theme song for a bank Wachovia acquired in California named Fool's Gold West.

Q. Why was that a bad idea?

People with advanced degrees in global economics didn't notice it at first, but the housing market in California was out of control. Turns out, Fool's Gold had been loaning people like $600,000 a pop so they could afford a tent in the woods. When the tents collapsed, it turned out they weren't worth that much because under the law of emerging market economics, most people had taken to living under highway bridges.

Q. What will Wachovia do?

It will follow strict industry protocol -- lay off hundreds, then throw a fancy golf tournament.

Q. What about the recession?

There is no recession. Recession is a technical term meaning the economy shows negative growth for two consecutive quarters under a Democratic president.

Q. So the economy's good?

Excellent. Ask anybody. While the bottom has dropped out of a few minor industries -- airlines, auto-making, banking, housing, retail, newspapers, dry goods, wet goods, soggy goods and "American Idol" talent -- other key sectors of the economy are showing stunning growth, like Internet manly-man potions, bankruptcy filings and Bobcat ticket prices.

Q. Are there international implications?

Sure. People willing to cross borders clandestinely in search of better earnings will go back to Mexico.

Q. Is the situation at Wachovia serious?

Desperate. In fact, word on Tryon Street is that customers who walk in to deposit a mason jar of change will no longer be treated like puss-oozing carriers of plague.

Q. Surely there must be some good news for Wachovia.

Absolutely. Come Monday, quarterly results are due from Bank of America.

IN MY OPINION Mark Washburn

Mananging Our Business

2008-04-24T07:13:00.000-07:00

CNW: Subprime Approval Rate Hardest Hit

Special Finance eWeekly: Apr 22, 2008

Brandon, Ore. As 2008 began, dealers were already feeling the effects of the credit crunch. To add to all the predictions for new-vehicle sales to drop this year, lenders are making it harder for dealers to get those customers who do buy financed.

CNW reported that from Jan. 1 to March 20, loan applications that are eventually approved were down from a year ago. And that was the trend across all tiers, with subprime buyers being hit the hardest.

Approvals for subprime loan applications fell to 57 percent, and only 1.36 percent of all loan approvals were subprime in the first quarter of the year. For the same period last year, more than 12 percent of all loan approvals were subprime.

In addition to lower approval rates, fewer lenders are accepting applications, a trend that is causing dealers to shop multiple financial institutions when submitting an application for approval. In CNW’s research, loan applications for prime borrowers were sent to three different lenders before being accepted. Subprime applications were sent to more than five institutions to get approval.

So here's my take on this:

After spending a few days with a dealer client, I agree that we are all feeling the effects of the credit crunch. Lenders are taking a harder look at the business their doing, and those little green check marks on DealerTrack are becoming harder to find. Now is the time for all of us in the car business to manage our business better.

This means that we have to stop fishing for an approval that fits the customer. Instead, why not get an approval and let the customer decide if it works for them, We spend so much time looking for the "magic" approval, the one the customer will lay day for and sign on the dotted line, that we loose sight of the fact that 100% of the customers who don't get the opportunity to buy, can't! If you don't give the customer the opportunity to determine whether they can meet the terms and conditions of a lenders approval, regardless of how far off it may be from what that customer originally was hoping for, how do you know they won't find a way to meet those terms. "Get money down or a co-signer" is the common response from the sales desk, and with those words, the customer leaves and goes down the street to a competitor that gives them the "opportunity to buy".

After all, isn't that what the car business is all about...getting customers to buy from your dealership!

1 In 7 Worry They'll Miss Mortgage Payments

2008-04-16T08:00:00.000-07:00

ALAN FRAM - Associated Press 4/15/08

One in seven mortgage holders worry they may soon fail to make their monthly payments, and even more fret that their home's value is shrinking, according to a poll showing widespread stress from the nation's housing crisis.

In an ominous snapshot of how the sagging real estate market and sour economy are intersecting, the Associated Press-AOL Money & Finance poll also found that 60 percent said they definitely won't a buy a home in the next two years.

That was up from 53 percent who said so in an AP-AOL poll in September 2006. Only 11 percent are certain or very likely to buy soon, down from 15 percent two years ago.

In today's economic climate, even holding onto what they already have is a challenge and source of distress for significant numbers of homeowners.

Nearly three in 10 said they are concerned their home's value will decline over the next two years, while 14 percent of mortgage holders expressed worry that they might miss payments in the next six months.

While other parts of the country have suffered from big drops in housing values, Charlotte's housing market has been healthier than those of other big cities. Last month, in a national report, Charlotte was the only one of 20 cities that continued to see average sales prices rise, though at a slower pace than in the past.

In one of the worst housing markets in the country, one nervous homeowner is Daniel Gallego, a warehouse worker in Stockton, Calif., who said he may have to sell his house at a big loss.

"We may have to move in with my wife's parents or my parents," said Gallego, 30, who has two young children. "I could pay off some debt, then we could rent, and maybe buy another house in a few years."

He said the rising cost of gasoline and other expenses have made his adjustable rate mortgage unaffordable. Because he doesn't expect his home's value to recover soon, he said he may be better off moving now before his rates rise.

One in 10 have adjustable rate mortgages, half the number who said so two years ago. These mortgages generally start at a low interest rate and are later adjusted to market conditions -- which has often meant steep, unaffordable boosts that have forced many to refinance or even lose their homes.

The growing reluctance to dip into the housing market seems to stem partly from worry that housing prices will continue falling -- good if you're buying a house but bad if you have to sell one.

The number envisioning falling prices in their area has grown to one in four, while four in 10 think prices will rise, a decrease from two years ago. Expectations for rising prices are highest in the South, with Westerners likeliest to predict they will drop.

"This is a great time to buy, but not necessarily to sell," said Robert Jackson, who lives in a two-bedroom house in Ferguson, Mo., with his wife and four young children. He said he would love to purchase a larger home but can't because even if he found a buyer, he would probably lose thousands on his house, which he bought less than two years ago.

"We're just going to have to slap a Band-Aid on it and stay here until the market gets a little bit better," said Jackson, 30.

The poll also found:
• The biggest worriers are those expecting to buy soon. Of that group, 43 percent fret that their home's value will drop in the next two years, compared with 25 percent of those not expecting to buy soon.
• Fifty-nine percent think now is a good time to buy.
• Half think this is a tough time for first-time buyers, an increase from two years ago. Nearly two-thirds think it's harder for first-home buyers than it was five years ago.

About the poll
The AP-AOL Money & Finance poll was conducted March 24-April 3 by Abt SRBI Inc. It involved telephone interviews with 1,002 adults nationwide, for whom the margin of sampling error is plus or minus 3.1 percentage points.

Included were interviews with 769 homeowners, for whom the sampling margin of error is plus or minus 3.5 percentage points. The margin of sampling error for other subgroups was larger.

My 2 Cents on the Credit Crisis

2008-04-10T09:41:00.001-07:00

Every one seems to have an answer to the “credit crisis” we are facing today. Some folks want to tighten up credit policy. Some want to make lenders more accountable, some want the federal government to intercede and establish stringent rules and regulations to prevent this “subprime meltdown” from ever happening again.

That’s all fine and dandy, buy none of it goes to solving the problem first and foremost on most of the public’s mind these days…”What about me? What is going to happen to my_______________?” Just fill in the blank with whatever asset you might think of. After all, isn’t almost everything at risk these days?

My personal feeling is that we must be do something to protect the core investment that most consumers have made in their homes, vehicles, and their lives in general. Repossession or foreclosure, charge offs and relentless, unsuccessful collection attempts do nothing to preserve the integrity of the economy as we know it. Foreclosed homes sit vacant and fall into disrepair, and often sell at a significant and substantial loss for the creditor holding the loan on the property. Forced sales lower prices, and, in turn, lower the values of the surrounding properties. This in turn can cause additional foreclosures when property values decline to the point where it becomes pointless to continue to pay on a home no longer worth anywhere close to the mortgage balance.

Repossessed vehicles produce significant losses for lenders, when they are sold at auction to recover as much of the outstanding balance as possible. The remaining balance becomes an often uncollectible debt, as a consumer has little reason to pay off a debt on an vehicle they no longer have. The only ones who profit are the collection agencies who continually buy and resell these debts, often for pennies on the dollar.

My point is very simple. Instead of writing off a mortgage, auto loan or charge card as uncollectible, lenders might want to consider preserving the balance and foregoing the profit from the interest THEY PROBABLY WON’T EVER COLLECT WHEN THE DEBT GOES BAD! Why not consider restructuring the loan to make it affordable to the debtor to continue to pay. If there is going to be a significant loss when the debt goes sour, why not restructure the debt to the amount that may be recoverable and keep the collateral producing some income or interest or profit, instead of producing the inevitable loss.

Now, I’m not saying that all debts should be reworked, but maybe, in those cases where a debtor has an ability to make payments, why not restructure a loan to make it affordable? In cases where there is no chance of repayment, well, that’s another story. But why not work to preserve principle, and forgo profit where profiut is clearly unachievable? After all, if the likelihood of repayment never really existed in the first place, was the profit anything more than a phantom, a wisp in the wind that never really had a chance to materialize? To me, the idea of preserving the principle amount of the collateral works in everybody’s best interest.

Mr. President, Mr. Bernanke, members of Congress, lenders, creditors, and bankers alike - we all want to believe there is a solution out there somewhere that doesn’t mean financial doom for all of us. Let’s find a way to preserve the things we have all worked so hard for – our homes, our cars, our and our children’s futures – instead of just writing them off!

That’s my 2 cents…

What's next?

2008-04-09T12:07:00.000-07:00

Slipping Scores

2008-04-08T07:32:00.000-07:00

(from Auto Finance News, 3/3/08)

Credit scores are sliding fast. In just a single month, deteriorations in average risk scores among car buyers nationwide are noticeable, according to data from Experian Automotive. The maps below color-code risk scores for October and November 2007, the most recent months for which

data was available. Average scores in California, for instance,dropped to the 676-to-691 range in November, from 700-to-702 a month earlier. Some Northeast states realized 15-to-20-point declines in average scores. Call it the Color of Credit.

Lenders Ease Throttle on Car Loans

2008-04-03T10:56:00.000-07:00

by Eleanor Laise - The Wall Street Journal, Apr. 2, 2008

The credit crunch, having knocked around the American home, is now rolling into the garage.

Even as the Federal Reserve slashes interest rates, it's getting tough for many consumers to find attractive terms on auto loans. Many lenders are making fewer loans and instituting stricter standards on loans they do approve, often requiring higher credit scores, making smaller loans and demanding bigger down payments. GMAC Financial Services tightened lending standards three times last year and firms like AmeriCredit Corp. and Sovereign Bancorp Inc. have recently raised the minimum credit score required for borrowers to avoid an automatic rejection of their car-loan application.

Where you live can make a difference. Some lenders are applying especially tough standards for borrowers in states hard-hit by the housing crisis, such as California and Nevada.

While "subprime" borrowers with poor credit will bear the brunt of the shifting lending standards, even "prime" borrowers with good credit may be affected by some changes. And some consumers may not be able to get a car loan at all. This year through March 20, about 90 percent of auto-loan applications from prime borrowers were approved, down from 92.5 percent for the same period last year, according to CNW Research, which tracks consumer spending. Among subprime applications, 57 percent have been approved this year, down from 68 percent early last year. Loan applications for all types of borrowers are also being sent to a greater number of financial institutions before being approved, according to CNW.

When Michael Staggs, 36 years old, of Spring Hill, Fla., set out to buy a 2006 Dodge Dakota truck last month, he was looking for an auto loan with an interest rate below 10 percent and monthly payments between $250 and $300. But Mr. Staggs, an engineer for a telecom company who says his credit isn't bad, but not great, didn't get the terms he was banking on. He put down $1,500, and his $14,000, 72-month loan came with $298 monthly payments and a 13.5 percent rate. "That's a lot higher than I wanted," he says.

Borrowers hoping to get attractive terms on a car loan should do some spadework before heading to a dealership. First, get a copy of your credit report and have any errors corrected. Then, shop around local banks, credit unions and online for pre-approval on an auto loan. Having secured the best rate you can find, head to the car lot and ask the dealer to beat that rate. "You want an offer in your back pocket because that gives you maximum flexibility when you're weighing dealer offers," says Greg McBride, senior financial analyst at Bankrate.com.

Lenders are tightening standards as more cash-strapped consumers become delinquent on their auto loans. Delinquencies hit a 10-year high in January, according to Fitch Ratings, though they declined slightly in February. Also, many auto loans are bundled into securities to be sold, but the credit turmoil has caused investors to lose their appetite for these securities. That leaves lenders with less money to lend.

The changes come at a time when many consumers have fewer options for financing a car purchase. Many people with good credit in recent years have financed a car purchase by tapping their home equity, but that source of cash is also drying up as home values drop.

In addition, a growing number of consumers are "upside down" on their current auto loan, meaning they owe more on the loan than the vehicle is worth. Among people who traded in a vehicle in February, 27 percent were upside down on their loan, up from 24 percent in October according to Edmunds.com, an automotive Web site. On average, they owed nearly $4,400 more than their car's value, a record high.

Not all borrowers will see tougher terms. In some cases, lenders are "being more generous and creative for prime consumers because they want to attract (them)," says Jesse Toprak, executive director, industry analysis at Edmunds.com. The average rate on a prime five-year new car loan is now 7.2 percent, according to Bankrate.com, down from 7.7 percent before the Fed started cutting rates in September.

But some borrowers may find they can't get as large a loan as they'd like. Whereas lenders in recent years have made loans substantially exceeding the car's worth - a common practice in the era of easy credit - some are now keeping loan amounts closer to the vehicle's value.

AmeriCredit last year reduced this "loan-to-value" ratio that it allows for subprime loans. Jon Garcia, finance manager at a Toyota dealership in Janesville, Wis., says he's seeing subprime lenders supply only 85 percent to 90 percent of the car's book value, down from as much as 140 percent previously. The changes are preventing customers from buying the cars they want and have cut the dealership's sales to customers with blemished credit by about 10 percent, relative to last year, Mr. Garcia says.
Indeed, terms are getting especially tough for subprime borrowers. At GMAC, 12 percent of new loans booked in North America in 2006 and 2007 were nonprime, but that figure dropped to 9 percent in December. Capital One Financial Corp. has stopped originating loans for the riskiest segment of subprime borrowers, according to a recent presentation by Chief Executive Rich Fairbank. J.P. Morgan Chase & Co.'s Chase Auto Finance recently stopped originating subprime loans longer than 72 months. The firm also boosted by 10 points the credit score required of subprime customers borrowing more than 110 percent of the car's value. "We're trying to lend to people who will be able to pay us back," says Thomas Kelly, a Chase spokesman.

Even borrowers with good credit may find tougher loan terms if they live in areas where home prices are dropping. Chase Auto Finance has tightened lending standards across the country, but they're "even tighter in places with declining home values," Mr. Kelly says. Falling home values generally reduce borrowers' financial resources and may hurt their ability to make loan payments. Chase is requiring more collateral on longer-term loans in "high risk" states like Arizona, California and Nevada. Sovereign in January stopped originating auto loans in the Southwest and Southeast and now limits its auto lending to the Northeast. The Southwest and Southeast "were experiencing more challenges" and "the housing market was a big driver of those challenges," says Tom Nadeau, president of consumer lending at Sovereign.

In states that have been hard-hit by the housing crisis, auto-loan approval rates have dropped more dramatically than the nationwide rate. This year through March 20, 86 percent of California prime auto-loan applications were approved, down from 94 percent for the same period last year, while 84 percent of Florida prime auto-loan applications were approved, down from 90 percent a year earlier, according to CNW Research.

Fannie Mae Tightens Rules for Mortgages

2008-04-02T14:14:00.000-07:00

By JAMES R. HAGERTY- The Wall Street Journal - April 2, 2008

Fannie Mae announced a new round of tightening in its standards for home mortgages it buys or guarantees.

The government-sponsored provider of funding for home loans told lenders Monday it will require a minimum credit score of 580 for most loans it buys on an individual basis. Credit scores, which range from 300 to 850, are designed to measure borrowers' likelihood of repaying loans. In the past, Fannie had no minimum score. The company said it will still acquire loans with lower credit scores in certain circumstances.

Among other changes announced to lenders, Fannie also said it will increase the period needed for borrowers to "re-establish" their credit history after a foreclosure to five years from four years. Fannie said it would allow shorter recovery periods for borrowers with "documented extenuating circumstances" that caused the foreclosure.

Separately, Fannie last week told loan servicers -- companies that collect loan payments -- that they can increase their forbearance period on delinquent borrowers to as much as six months from four months to allow more time to seek alternatives to foreclosure. Fannie hopes that move will reduce the number of loans on which it needs to recognize losses, though it may be only delaying the pain in some cases.

In response to growing default-related losses, Fannie and its main rival, Freddie Mac, have tightened their loan standards and added fees for riskier types of loans in a series of steps announced over the past few months. Those moves have raised costs for borrowers and drawn protests from some politicians and home builders.

Buy-Here, Pay-Here May Grow

2008-04-01T07:20:00.000-07:00

Arlena Sawyers - asawyers@crain.com
Automotive News 3/31/08

Home foreclosures. Vanishing jobs. Even good credit histories are at risk. As the economy worsens, people who once had good credit may be unable to get car loans through traditional sources. But one consumer's loss might be a gain to a buy-here, pay-here dealer, industry experts say.

"This is going to be a pretty good growth year for any dealer that's in the buy-here, pay-here business,” predicts Mike Unn, president of the National Independent Automobile Dealers Association. About 1,000 of the association's 20,000 members are franchise dealers who operate standalone used-car lots. Some people, he says, "can't get credit anywhere else."

Buy-here, pay-here dealerships sell older, higher-mileage vehicles to people with bad credit. The dealerships hold the loans and assume the entire risk. They charge interest rates of 25 percent or more, depending on state usury laws. 50 far, there's scant evidence that dealers are having problems obtaining credit for their customers. That could change.

Ken Shilson is president of the National Alliance of Buy-Here, Pay-Here Dealers, an organization representing 10,000 dealers in the United States. He says buy-here, pay-here business may pick up, but not until about a year to 18 months from now.

Last year in Florida, some buy-here, pay-here stores suffered as many of their traditional customers - construction workers in the housing industry-lost their jobs, Shilson says. Now, those same stores are seeing an increase in business from consumers who lost their homes and good credit standing in the home mortgage mess.

Shilson predicts that as other parts of the country are hit by the deep downturn in real estate that has plagued Florida for more than a year, buy-here, pay-here dealers will see their business grow.

"People who are losing their homes are not our customers now," Shilson says. 'The traditional buy-here, pay-here customer rents. He doesn't own a home. All those losing their homes are new customers.”

Beware 'Credit Repair' Scams

2008-03-31T07:01:00.000-07:00

Here's what to look out for when you're checking firms online

By ILYCE GUNK Tribune Media Services

Every day, thousands of people type the words "credit repair" into Internet search engines. Thousands more type in phrases like "bad credit" or "bad credit repair."

Figuring out how to repair credit is on the minds of home buyers, sellers and owners who've realized that having stellar credit provides financial options that simply aren't available to those with low scores.

Unfortunately, some of the Web sites that come up in a search for "credit repair" can do more harm than good. They're scams.
The typical credit repair scam works in one of a couple of different ways.

There is the promise that your credit history will be wiped clean. And you'll be asked for a large payment upfront, sometimes as much as $1,000 to $1,500.

In one typical scam, the credit repair organization will tell you that you'll get a new Social Security number. Since the Social Security number is new, it won't have any blemishes on it and your credit will be perfect.

Unfortunately, the Social Security Administration (SSA) almost never gives out new Social Security numbers - even to people who have legitimately had their number stolen and used over and over again.

Another common scam is to dispute all of the negative information on your credit history.

A credit reporting bureau must investigate all disputes within 30 days. If the bureau can confirm the negative information, it stays on your report. If it can't confirm it, the information is pulled off your credit history.

But here's the key: While the information is being disputed, it temporarily disappears from your credit history. So, your credit history looks perfect, even though it isn't. At the end of the 30 days, the credit repair company will dispute all of the charges again.

7 Steps to Take After Bankruptcy

2008-03-28T11:52:00.000-07:00

Many bankruptcy attorneys like to call a Chapter 7 bankruptcy a "fresh start" bankruptcy. In a way, it is a fresh start -- you do get to eliminate a great deal of debt.

However, the reality of being bankrupt is not fresh at all. "Bankrupt" is a word with a strong negative connotation. It's often unfair, but there is a widespread perception that if you've gone bankrupt, you've done something wrong.

The truth is that you will need to start working immediately to truly have a positive, healthy life after bankruptcy. Follow these seven steps to give yourself a true fresh start:

1. Reaffirm your car debt.
If you own a car and are still making payments, make sure you sign a reaffirmation agreement with the car lender. A reaffirmation means that you intend to keep the vehicle and continue making payments. If you fail to make payments, your car can be repossessed and sold (with you liable for any deficiency). Signing this agreement is an act of good faith and will give you more leeway with your lender.

Remember: Do not reaffirm the debt if you intend to surrender the vehicle. You will be financially liable for the balance and will not have a car to show for it.

2. Establish new credit lines.
You need to re-establish credit as soon as possible. Most traditional banks and credit card companies will probably not approve you. However, some banks will allow you to deposit money into a savings account and issue a credit card attached to that account. This is called a secured credit card. Another possibility is a passport loan. This is when you deposit money into a savings account, borrow that money and pay the interest each month.

Neither of these options is great; they are, however, crucial. You see, you will have to do something like this eventually in order to be eligible for a credit card with a traditional bank. Getting started early is far, far better for you in the long term.

3. Clean up your credit report.
Make sure all three credit bureaus -- Equifax, Experian and TransUnion -- show that your debts have been "discharged in bankruptcy."

This is important because you want the trade lines (accounts) to accurately reflect that they have been eliminated.

4. Never co-sign for anyone.
If you have just filed bankruptcy you will not be able to eliminate debt in a Chapter 7 for eight years. Therefore, any co-signed loan that goes bad will very likely result in a judgment against you.

The risk is simply not worth the reward. You may not receive an option to co-sign for a few years after filing, but when the option becomes available, you must avoid it.

5. Never intentionally carry a credit card balance.
I know, this feels almost impossible. However, in a world where many of us live paycheck to paycheck, the extra money used to pay credit card balances is often the straw that breaks the camel's back. Remember, 85% to 90% of all bankruptcy filers do so because of incurring costs from loss of employment, illness or divorce. If you don't have a balance, should something terrible happen, you will have the financial cushion to help you cope.

It's not your imagination -- there is a squeeze on the middle class. MSN Money's Liz Pulliam Weston explains how it's possible for anyone to get in the middle class -- and stay there.
It's a tough habit to get into, but paying your balances each month is a great way to save money and provide for yourself in case of emergency. If you are faced with a balance, do everything in your power to stop using the card and pay on the balance until paid off.

6. Have a story prepared.
Some people are deadbeats. Some people ran up their credit cards to support a drug habit. You need to make sure others understand that you are not one of these people, that you have legitimate reasons for filing. You want to have a specific reason -- to be stated in less than 20 seconds -- that says why you filed bankruptcy.

More often than not, you will find people more willing to work with you when you have been honest, they see in your face your remorse and they understand that your reason for filing was something out of your control.

7. Stay positive.
Even if you tend to be a negative person, you need to believe that you can get on with life and recover from bankruptcy. I have seen people who are so psychologically devastated after filing bankruptcy that they do not re-establish their credit for years. The result is that it takes them five to 10 years to begin improving their credit score when it only needs to take two years. Please avoid the ostrich approach to life after bankruptcy in which you stick your head in the sand and hope things work out. You must take the aggressive approach, knowing that you will encounter rejection but eventually find success. If you work hard and start immediately, you will soon reach a point where your credit will be strong.

This article was reported and written by Justin Harelik for Bankrate.com.

Thought for Today...

2008-03-28T06:58:00.000-07:00

Paycheck Pressure

2008-03-26T09:12:00.000-07:00

by Shella Deni, Elizabeth Flech - AP

As the U.S. economy slows, wages can't keep up with inflation, which means less spending power for already troubled consumers. According to the Bureau of Labor Statistics, inflation-adjusted weekly wages in the past four months fell for about 80 percent of workers in non-managerial production and services jobs.

From November through January consumer prices, excluding food and energy, rose at an annual rate of 3.1 percent, according to the Labor Department-higher than the Federal Reserve's unofficial comfort zone of 1 percent to 2 percent. Costs for medical care, education, clothing, and airline fares are dropping, while oil, wheat, soybeans and corn futures have been trading near all-time highs. A Tuesday report showed wholesale inflation for goods bought by producers jumped by 1 percent in January, more than double the increase economists were expecting.

The rise in prices is "a sustained hit on consumers' real incomes and, hence, on their ability to spend on other goods and services," writes High Frequency Economics chief U.S. economist Ian Shepherdson.

For the Federal Reserve, concerns about the sluggish health of the economy have overtaken worries about soaring prices. The central bank cut interest rates five times in the past five months. Lower interest rates typically contribute to inflation, and the Fed recently raised its inflation expectations for the year. Economists anticipate another rate cut at the bank's March 18 meeting.

Consumer spending, which is closely finked to job security and expectations of healthy wage growth, is the single most Important contributor to U.S. gross domestic product and constitutes more than two-thirds of the nation's output, notes National Retail Federation chief economist Rosalind Wells. "Average workers have been faced with erosion in their spending power,· she notes, which is bad for the broader economy and for already struggling retailers.

A Tuesday conference Board Consumer Confidence Index reading dropped to 75 for February, far below a projected reading of 83. Bear Steams economist John Ryding notes the survey indicated a sharp drop in consumers' assessment of labor market conditions in the month. The decline in consumer confidence, including the drop in consumers' assessment of the labor market, has a recession- like feel to it: he writes.

FICO 08 - Understanding the “New” Credit Scores

2008-03-18T08:57:00.000-07:00

FICO 08 is coming! FICO 08 is coming! Ready or not, the method which credit bureaus use to determine credit scores is about to change.

Fair Isaac and Co. is introducing FICO 08, an improved scoring model designed to help lenders make a more accurate assessment of risk when accessing applicants. In light of increasing levels of delinquencies, as well as declining recovery values (the amount a lender is able to recover after a reposed vehicle is sold at auction), lenders have been looking for a better model to predict the likelihood of a loan default. According to Fair Isaac, FICO 08 should help lenders reduce their default rates by 5-15%

The fundamental elements that FICO evaluates in computing a credit score will remain largely look and feel the same. Lenders and creditors will continue to look at:

• Payment history: Has the consumer consistently paid their accounts on time in accordance with the terms of their loan or credit arrangement?
• Available credit: What is the total amount of credit currently available to the consumer?
• Credit utilization: How much of the total credit available is currently being used?
• Credit balances: What is the total of current and delinquent account balances?
• Depth of credit: How long is the person’s credit history and what is the mix of credit types?
• Recent credit: How many recently opened credit accounts and credit inquiries are on file?

What will change is how the new scoring system views these elements. FICO 08 will more finely “slice and dice” information, and will do a better job separating the good risks from the bad ones, particularly with regard to subprime borrowers. By dividing the population into 12 segments (8 for “good” credit and 4 for “bad”) instead of the current 10, FICO 08 hopes to make the scoring system more accurate, and lower the risk of assigning a consumer to the wrong segment.

Additionally, FICO 08 will better identify young or thin credit files, who may now have high scores even though they have relatively few accounts, many recently opened. Consumers actively seeking new credit will be more easily identified, allowing creditors to more accurately gauge the potential risk in granting too many new accounts at once.

The major differences will be in how FICO 08 looks at credit files. More points will be given to consumers who maintain a variety of credit, such as a credit card or revolving account, as well as an installment loan or mortgage. This, accord to Fair Isaac, shows that the consumer can manage multiple payments on different kinds of accounts. Additionally, FICO 08 will penalize borrowers who use a high percentage of their available credit. Accounts at or near their limits will generate a lower score for consumers.

The way that FICO 08 will treat delinquent credit will be different as well. It will be harder on “repeat offenders”, those consumers who are consistently delinquent on their accounts, as opposed to those with only an occasional slip up. Consumers who have a number of accounts currently past due will be viewed harsher than a consumer with only one account delinquent, with other accounts current or up to date. A consumer with only one derogatory or delinquent account won’t be dinged as hard as someone who has a number of accounts past due, and in fact, may generate a higher score for a consumer in arrears in one account who also has a number of accounts in good standing. However, FICO 08 will draw a greater distinction for serious delinquencies over 90 days late. Multiple delinquent accounts could significantly lower a consumer’s score.

Perhaps the most significant change coming is that FICO 08 will no longer consider “authorized users” in computing a credit score. This is in response to curtail the use of “credit sharing”, where a creditor with a low score is added to an account of a non-related consumer in an effort to boost the first consumer’s score. In effect, authorized users with no credit history of their own could see their credit score disappear.

Consumers who are accessed as a “lower” risk under FICO 08 may start to get better terms from creditors. A consumer deemed to be a “higher” risk under the new scoring system may find less than favorable terms, or may find it tougher to even get credit. Consumers who occasionally mess up, have a good mix of credit types, with a single delinquent account may actually see their credit scores rise, while consumers who consistently mess up, have balances at or near their credit limits, are 90 days late on multiple accounts or have authorized user accounts in their file, may see their credit scores drop. Additionally, FICO 08 will not “ding” a credit score for multiple related credit inquiries. A consumer shopping for a mortgage or an auto loan who applies to multiple lenders will not see their score drop because of the inquiries.

SO, when will FICO 08 come into play? Experian is expected to begin using the FICO 08 in the first quarter of 2008, while TransUnion believes they will be ready by the second quarter of 2008. At this time, Equifax has declined to offer FICO 08 due to litigation regarding “VantageScore”, which is a joint venture, started by all three bureaus in 2006, to compete with Fair Isaac's FICO scoring system. The lawsuit, filed by Fair Isaac, is based on unfair and anti-competitive practices which are meant to harm the FICO brand. The legal action has caused Equifax’s relationship with Fair Isaac to remain "strained" until the lawsuit is resolved, says David Rubinger, Equifax spokesman, as quoted in the December 19th, 2007 edition of the Wall Street Journal,

Regardless of when FICO 08 is implemented, consumers may not see a significant difference in their scores. According to Tom Quinn, Vice President of Global Scoring Solutions for Fair Isaac, as quoted in the December 19th, 2007 edition of the Wall Street Journal, "Overall, more consumers will see their FICO scores go up slightly than will see their scores drop."

Why it's a great time to buy a car

2008-03-07T12:39:00.000-08:00

This is when your credit record matters. You have great scores? Car loans are cheap, and carmakers are eager to deal. Bad scores? You'll pay and pay.

By Liz Pulliam Weston - MSN Money

If you plan to get a car loan this year, you'll find a tale of two markets:

Folks with untarnished credit will find good rates, eager lenders and some amazing deals as increasingly desperate car manufacturers try to revive sagging sales.

Folks with troubled credit will find higher rates, increased scrutiny and warier lenders, but they won't face anything like the trouble they'd experience if they were shopping for a mortgage.

As the credit crunch has spread through lending markets, some pundits have proposed that auto loans could be the scene of the next subprime implosion. The idea is that loose lending standards combined with increasingly strapped borrowers could lead to a spike in defaults and a crackdown by lenders, making it tougher for consumers -- especially those with troubled credit -- to get new loans.

That's certainly what's happened among mortgage and home equity lenders, as I wrote in "A homebuyer's market? Hardly" and "Lenders cut off the home-equity tap."

And you don't have to look far for ominous signs in auto lending. Until now, auto lenders moved vehicles off the dealer lots by:

- Stretching out loan terms. As I wrote in "The real reason you're broke," more than 80% of car loans are for terms longer than four years. The average loan term has grown from just under 55 months in 1990 to more than 64 months today. Longer loans allow consumers to buy more-expensive cars but virtually ensure that they pay more interest and stay "underwater" on the loan (owing more than the vehicle is worth) for years.

- Approving bigger loans. The average amount financed in December was $29,062, up 20% from the 2005 average of $24,133. Median household incomes barely grew at all during the same period.

- Encouraging "upside down" owners to roll negative equity into new loans. Haven't finished paying off your last car? No problem. Dealerships are so eager to sell you another one, they encourage you to roll your debt into a new loan, putting you further upside down. Roughly one out of four -- 26.3% -- cars that are financed include debt rolled over from a previous vehicle, according to vehicle research site Edmunds.com. In February, Edmunds said, the average amount of negative equity in these deals was $4,369. These loans cost consumers more because interest rates are higher to reflect the fact that a good chunk of the loan is unsecured. They also put lenders at risk because whatever they cleared from a repossession wouldn't repay the loan.

- Reaching out to borrowers with more-troubled credit. To make more loans, auto lending experts say, mainstream lenders began approving loans for people with increasingly blotched credit reports. Interest rates for these folks were often 10 percentage points higher, or more, than for those with good credit to reflect the extra risks of default.

It's bad but not that bad

In an economic slowdown, you'd expect all these factors to contribute to a higher default rate. And they have.

Standard & Poor's reported in January that delinquencies on auto loans sold to investors were climbing across the board, including on loans made to people with the best credit. (Loans made to folks with so-called prime credit, defined in the auto industry as FICO scores of 680 and above, represent about 70% of all auto loans.)

The number of prime loans that were more than 30 days overdue was up 18%, Standard & Poor's analysts said, and had exceeded the previous high reached in 2001, during a recession.
The numbers could get worse, the analysts warned, because of the housing mess. Prime borrowers were more likely than subprime ones to be homeowners and thus affected by mortgages with resetting payments.

Scary, right? Except the higher delinquency rate the analysts are warning about is 2.06%, compared with 1.75% on earlier loans.

Delinquency rates for loans made to folks with "nonprime" credit (FICO scores of 620 to 680) are still under 5%, while 30-day delinquencies for subprime credit (FICOs under 620) are under 8%, S&P figures show. Higher than in the past, yes, but still below 2001 rates.

Although some industry experts are predicting more defaults and repossessions this year, "it's still peanuts," said Ralph Ebersole, the director of automotive consulting for Cars.com. "It's not like things were in the last real recession, in '91 and '92."

Aim is not just to finance but to sell

Even if defaults do skyrocket, it's hard to imagine the auto lending market seizing up the way the mortgage market has. Auto lending differs from mortgage lending in many ways: The amounts at risk are much lower, for one thing, and the bulk of loans are made by lenders that have a vested interest in encouraging sales.

These lenders, called captive finance companies, are arms of the car manufacturers: GMAC, Ford Motor Credit, American Honda Finance, Toyota Motor Credit, etc.

"If they're not flexible enough to lend to people," said Jesse Toprak, the director of pricing and market analysis at Edmunds.com, "they're not fulfilling their function, which is to help the dealerships sell cars."

As delinquencies have increased, lenders -- captive and otherwise -- have focused more attention on snaring good-credit customers with low rates. They're still making loans to people with less-than-perfect credit, Toprak said, but their rates tend to be higher than in the past, and they may require more money down.

What lenders offer, though, can vary from moment to moment, with the captive lenders being the most erratic, Toprak said.

"One month, as long as you qualify for any financing, you'll get the 0% rate," Toprak said. "The next month, only (the best) credit gets the 0% rate. Everybody else has to pay the regular rate."

So how can you make sure you get the best possible deal? Here's your game plan:

- Polish your credit scores. The better your scores, the better the deals. The fastest way to boost your FICOs is to pay down credit card balances, pay bills on time and dispute any serious errors to get them off your credit reports. You're entitled to one free copy of each of your three credit reports from Annualcreditreport.com; scores derived from those reports aren't free, but you can purchase FICO scores for all three bureaus from MyFico.com.

- Do your homework. Research cars and current incentives, such as low-rate financing, cash back or leasing deals, using sites such as MSN Autos, Edmunds.com, Cars.com and Consumer Reports. (Consumer Reports offers unlimited new-car reports, which include detailed pricing information and reviews, for $39.) And here's my take: Although manufacturers are offering some eye-popping deals on leases right now, keep in mind that buying and keeping your car for 10 years or more makes the most financial sense. Only people who are saving enough for retirement and for their kids' college educations, who have fat emergency funds and who still have money to burn should consider leasing as an alternative to buying a new car every three or four years.

-Figure out what you can really afford. No car is a bargain if it upends your financial life. My take: Don't finance a car for longer than four years, try to put 20% down to make sure you always have some equity in the vehicle, and be wary of payments that eat up more than 10% of your gross income.

- Get approved elsewhere for the loan. Credit unions, banks and online sites such as E-Loan typically offer the best rates. (You can compare rates nationwide here.) Applying for a loan doesn't mean you have to take the money, Toprak said, but it does lock in a rate that you can then take to a dealership. "You're getting an idea of your market value," he said.

- Ask the dealership to beat the rate. You'll want to first negotiate all other aspects of the deal, including the price of the car and the value of your trade-in. Only then do you bring out your lender's rate and ask the dealership to do better. The dealership often has access to "a slightly better wholesale rate" that could knock a quarter of a percentage point off your rate. If so, you can take the dealer financing; if not, go to the lender that has already approved you and get a cashier's check to buy the car.

Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
Published March 6, 2008

Entering the Repossession Lane

2008-03-07T08:38:00.000-08:00

Default rate soars on auto loans in pattern likened to mortgage crisis

By Jenn Abelson, Globe Staff March 7, 2008

When lenders sent a tow truck to repossess his silver 2001 Lincoln LS last month, Myles Chilcot eagerly handed over the keys.

Last year, Chilcot, 21, bought the $15,000 car - a sweet ride with tinted windows and custom chrome rims, and a loan with $370 monthly payments that he could not afford on his $12 hourly wage at Home Depot. By the fall, facing mounting credit-card debt, student loans, and rent, he stopped paying the car bills.

"I ran around smiling for 20 minutes when they took the car away," Chilcot said. "It was a relief."

It is also an increasingly common story as more Americans, under growing economic pressure, are deciding to surrender their rides rather than the roofs over their heads: The rate of auto-loan defaults recently reached a 10-year high of 3.4 percent. And one local auction company saw repossessions nearly triple last month compared with a year ago.

As with the subprime-loan crisis that has caused waves of home foreclosures, trouble has been brewing with car loans for years. As the economy boomed, lenders made it easy for shoppers to buy cars they couldn't afford by stretching their loan payments to five or six years, which more than doubled the total of Americans' auto-loan balances over the past decade to $772 billion from $282 billion in 1998. As with home buyers, lenders relaxed standards for car buyers such as Chilcot, who had blemished credit and put no money down.

With oil prices skyrocketing and the economy in a downturn, consumers are looking to downsize to cheaper, more fuel-efficient models, and reduce their payments. And many - even those with good credit and lower interest rates - are finding they can't afford to sell their vehicles because they have more left to pay off than their cars are worth. Lenders, meanwhile, are writing off billions of dollars in defaulted loans, and some analysts worry this could escalate to a foreclosure crisis on wheels.

"The suddenness with which we saw repossessions hit the market at the beginning of the year has been unusual and appears to reflect not only the general economic slowdown, but some spillover from the mortgage crisis," said Tom Kontos, chief economist at Adesa Inc., which runs 58 car auctions across North America. "With folks getting resets on adjustable-rate mortgages, it forces many people to decide whether to default on their home loan or default on their car loan. When they have that kind of choice, predictably, they gravitate toward defaulting on car loan."

Nationwide, repossessions are up about 15 percent so far this year, Kontos said. At North Shore Auto Auction in Ipswich, repossessions almost tripled in February to 125 vehicles, with gas-guzzling sport utility vehicles, pickup trucks, and vans being turned over more quickly than cars at a rate of two to one. As homeowners get squeezed by rising mortgage payments, contractors are also feeling the pinch as people cut back on home-improvement projects, leading to a glut of repossessed pickups, according to Frank Iovanella, president of North Shore Auto Auction.

For two years, Carole Beausoleil, 58, of Southbridge has been trying to get rid of a black pickup, a 2003 Chevy Silverado the family bought in 2004. Beausoleil says the family was pressured by the dealer into costly add-ons the members quickly regretted, such as LoJack and an extended warranty. These services added thousands to the $21,900 sticker price and pushed up the monthly car bill to $465.

Beausoleil fell behind on payments in 2006 and debated allowing the lender to repossess the car. She reconsidered because she didn't want to ruin her credit and her husband needed the vehicle for work. Instead, they tried to downsize to a less expensive, more fuel-efficient model. But they have been unable to because they owe $13,000, and lenders told Beausoleil the truck's value has shrunk to $10,000.

"We got swindled and overpriced. It was a mistake, and now it's too late," Beausoleil said.
Beausoleil, who is trying to pay off other debts, including overdue credit card, gas, and electric bills, says she plans to use the anticipated federal tax rebate this spring to help make up the $3,000 difference so the family can finally get rid of the truck.

Lenders, meanwhile, are cracking down. GMAC Financial Services, the country's largest auto-finance operator, recently tightened its underwriting standards to authorize fewer subprime loans and also increased its collection force to work with customers who are late on auto payments. During the last two quarters of 2007, the riskiest subprime borrowers had interest rates of about 15 percent for their auto loans, while borrowers with top credit ratings carried car loans with 5.7 percent interest rates, according to J.D. Power and Associates' Power Information Network, a market research firm.

Jack Tracey, executive director of the National Automobile Finance Association, the trade group that represents subprime lenders, said, "The nonprime auto-financing industry is very important for the economy because it provides many economically disadvantaged consumers with the ability to own a car and have the ability to hold a job where they need to commute to work."

But the most recent data available from a member survey showed that delinquencies on subprime loans jumped to 11.6 percent, up from 6.8 percent.

"Just as in the subprime mortgage industry, car dealers have been giving consumers with less-than-prime credit ratings car loans with rates and payments they can't afford," said Yvonne Rosmarin, a consumer-protection lawyer in Arlington.

Some industry analysts do not expect the problems within the auto industry to reach the crisis level of the mortgage industry. Lenders can more quickly recover, in many cases, because vehicle repossessions can occur within 90 days after a loan is past due, while home foreclosures can take up to a year. Still, some lenders, like Eastern Bank, which have seen an increase in repossessions, are taking a hit at auction, getting at least 10 percent less than last year for larger vehicles.

That means the problems for consumers may not end when their repossessed cars are towed away. They still may owe money if the lender sells the car for less than the balance owed. Moreover, the repossession typically stays on consumers' credit reports for up to seven years.
Chilcot, who recently had his car repossessed, had initially intended to purchase an $8,000 Nissan Altima, but he couldn't get a loan to cover the vehicle because it had too many miles. He knew he had bad credit, so when a loan offer was approved instead for the $15,000 Lincoln, Chilcot seized on what he thought was a good deal - even though it came with a 18-percent interest rate.

Since his car was taken away, Chilcot has started walking to work at his new job - as a car salesman at a dealership in Plymouth.

When asked whether he tries to caution people against buying a car they can't afford based on his recent experience, Chilcot chuckled: "Not really. You become pretty shameless pretty quick when the paycheck comes."

Jenn Abelson can be reached at abelson@globe.com.

Why you shouldn't ask to pull credit before the customer comes in…

2008-02-26T11:12:00.000-08:00

‘You’ve just won a new car’ – well maybe not

A Beckley West Virginia dealership started to hear from local residents calling to claim their prize. The only problem- there is no prize. (12/11/2007)

Last Friday, Hometown Subaru-Kia started to receive telephone calls from local residents calling to make arrangements to pick up the brand new Kia they were promised through a phone call from someone named “Bethany Lucas”, according to a report in The Register-Herald. One man actually showed up at the dealership ready to claim his “prize” and drive it home.

In what appears to be an identity theft scheme, these calls are placed telling the unsuspecting targets of their prize. Along with congratulations for their good fortune, the caller tells them that they are to bring two forms of identification and proof of insurance to their local Kia dealership in order to claim their prize.

The article does not describe in detail how more personal information is extracted during the call, but it is not hard to imagine that the caller offers to get the paperwork started for them in advance of their visit to the dealership.

The dealership and local officials are warning the public not to fall for the scam and under no circumstances should they surrender any personal details over the phone.

Prejudging, pre-qualifying, pre-screening… no matter what you call it, it’s “cherry-picking”

2008-02-19T07:09:00.000-08:00

Looking at leads, many dealerships routinely assess the quality of that lead before any contact effort begins. Looking at the application submitted by this lead, many dealerships decide, unilaterally, that the customer cannot buy, yet alone finance a vehicle for any number of reasons. Income appears insufficient, short job time, severe negative equity, whatever the reason, this customer is often either contacted only once, with limited or no result, or just discarded with no contact at all!

When you prejudge or pre-screen an application, you are making a decision for a customer you know little, if anything, about. Many times, the application that you see does not reflect the complete story. There may be mitigating circumstances you cannot know without conducting a complete interview. Additional income, co-signers, or any other number of solutions may present themselves once you open a dialogue with this customer. But, since we are typically creatures driven to the path of least resistance and greatest success, many sales people look for reasons not to call all their leads, focusing on those leads which they perceive, they have the greatest chance of selling.

We measure success in sales by the size of our commission check. I’ll admit, I’m no different than any one else when it comes to my desire to earn a living. When I’m asked how much I want to make in any given year by an employer, my typical response is “So much that your hand shakes when you sign my check”! But in order to achieve that goal, I have realized that it takes a greater effort, looking deeper for those opportunities that my competitors may not want to pursue because they’re “too hard” or “too distant” to produce a quick, easy commission.

In Subprime, this becomes all the more important when looking at, and working, your leads. Pulling credit before the customer comes in can foreclose your efforts with that customer. Making ANY kind of decision without getting the whole story, IN PERSON, leaves you likely limping badly when you realize that you shot yourself in the foot by not working this lead to the max. This is especially true when you finally decide to follow up this lead, only to find out that they have already purchased a vehicle from a competitor. Doesn’t it suck to pay for someone else’s sale?

Every lead is a sale waiting to happen. It’s up to you to discover the story and make it happen. There are lenders out there that are still buying those deeper deals, despite the current economic conditions. You simply have to find the right combination of unit, payment and down payment to get a lender interested. Every customer deserves the opportunity to get a loan through your dealership. It’s up to you to secure an approval; it’s up to your customer to meet the terms and conditions of that approval. Prejudging, pre-qualifying, or pre-screening to determine which ones you are going to pursue and could leave you missing a significant number of additional sales each month. Since your dealership probably has already paid for these leads, why not work ALL of them, with equal interest and intensity, to maximize your commission check each month? “Cherry picking” belongs in orchids, not dealerships!

Are you looking for a B12 shot or a multi-vitamin?

2008-02-18T11:03:00.001-08:00

Every now and again, I talk to a general manager who tells me he just signed for a staffed event to help boost his month. Many times, a dealership turns to these “sales” in an effort to give a quick shot in the arm to a month that may not be setting any records. But some dealerships turn to these “events” with increasing frequency.

Not long a go, I was at a dealership training a BDC guy who was given the task of calling subprime leads generated from direct mail. That same day, the dealership was running an “event”, complete with vacation certificate giveaways. As luck would have it, the box with the vacation certificates was placed in the BDC guy’s office, and every few minutes, the event coordinator would come in a grab one to give to a customer. This went on for most of the day.

I finally had to ask the coordinator how many certificates he had given out. “Loads! We’ve had a great response to our promotion!” was his reply, as he ran out to give another certificate away. My next question was to the GM.

“So how many cars have you sold so far?” I asked, innocently enough, figuring with all the traffic, he must be having a great day. “Only 2, and one wasn’t from the promotion”, he responded, and I could hear from the tone of his voice, he wasn’t very happy. “We’ve given out a ton of vacation certificates, but most of the people coming in are coming just to get the vacation. They register, get their certificate, and leave.”

Years ago, I did a sale with a company that, instead of giving away gifts, gave away five silver dollars! They discovered it was easier to simply ask the customer if they had come to the dealership to buy a car or just get their five silver dollars. It was cheaper to give away $5 to these customers than find a premium, buy it, ship it to the dealership, and hope they had enough to give away. After all, don’t most of your employees end up with the mini boom boxes, golf umbrellas and MP3 players you gave away?

My point it this…if you’re looking for a quick fix, a staffed event will probably do just that – bring traffic into your dealership. While you may sell a lot of units in a short period of time, you may end up paying dearly for that “boost”, as much as 50% of the profit generated. And you’re typically stuck cleaning up the mess left behind! If your doing this because you feel you need to bring in the "gunslingers" becasue your sales staff is weak and can't close enough deals, what happens when these guys leave? How's the morale of the sales department when, with all the traffic, only a few, if any of YOUR sales people had the chance to make a sale?

Like a B12 shot form your doctor, you may feel pretty good in the short run. But eventually, you’re still stuck with the same problem that had you feeling poorly to begin with. Why not look for the multi-vitamin you can take everyday, to help you feel better and get healthy? Look for a long term solution, like a blind, targeted direct mail program, and you’ll get consistently great results month in and month out. Look to properly train your sales force. Take the misdirected process and practices that prevent them from closing more deals and retool them for success!

Misdirected Process Can Miss an Opportunity

2008-02-11T09:25:00.000-08:00

Saturday I went over to Carmax to get a "buy" figure for my car. I thought it would be a relatively simple process, since all their advertising boasts this fact. It seemed a reasonable assumption that I could drive in, get my car looked at, get their figure and decide whether or not I wanted to sell it to them. After all, their website says "Although CarMax will buy any car, only about half will ever make it to one of our stores for sale to the public. Only cars that pass our rigorous inspection get reconditioned and sold on our lots. Cars that don't meet our high-quality standards are sold at major wholesale auctions."

I drove to the Carmax location ON THE OTHER SIDE OF TOWN to get my vehicle appraised. I walked into the showroom, and asked a staff member, seated at a central podium, how to go about the appraisal process. He directed me to a young lady sitting at a computer terminal, who would take my information and begin the process. Before I had walked two steps towards her, I was intercepted by a sales associated, who said he could get me started. I gave him my keys and then he proceeded to launch into his standard sales presentation. I explained that:

1. I just wanted an appraisal on my vehicle
2.I was not in the market to purchase a vehicle
3.I was familiar with Carmax since I was in the auto business

When I asked if I could simply get my vehicle appraised without having to go through their entire presentation, I was empathically told “NO!” Needless to say, I grabbed my keys and left.

What happened here was typical of what occurs every day, in not only auto dealerships, but most retail businesses. The staff failed to access the customer they had. By following set of misdirected procedures, they assumed I was willing to go through the whole, long-winded presentation, despite the fact that I told them the specific purpose of my visit, which was not to buy a car! The result of this misdirection is that I left, and will more than likely never go back, nor will I ever recommend anyone to go to Carmax.

Customer service begins when the customer enters your establishment, not when they buy your product. Many auto dealerships fail to recognize this fact. Sales forces are drilled to fulfill a single objective, which is to sell a car. But, more often than not, while this objective is a possibility, you have to earn the right to earn the business. Learning to understand how this business must be transacted is critical to earning that right. Treating every customer the same, regardless of the buying situation of that customer, can be business suicide! Embracing practices and procedures simply because “that’s how it’s always been done” fails to recognize that subprime customers must be worked in a different manner than customers with good credit. A business practice that embraces one or the other, without understanding how to determine which customer you have, will fail to produce the desired results. Asking non-offensive, non-confrontational questions can help determine what kind of customer you have. A question as simple as “Are you looking for a particular type of vehicle, or just good, dependable transportation?” can tell you what you’ve got right up front. This allows you to determine what process to follow. Misdirected processes often lead to missed sales.

3 Reasons Why FICO 08 Will Not Happen

2008-02-11T09:21:00.000-08:00

By Ted J Stearns

With all the hubbub surrounding FICO 08, we thought we owed it to our readers to separate the truth from the myth. This is Fair Isaac's "answer" to the problem of authorized users and other complications with the credit score world. It is a software program to be used by all three credit bureaus to weed out authorized users and prevent their scores from being accepted by lenders as "legitimate." It also aims to do much more that could put millions of credit card users in financial jeopardy. Fair Isaac, who incidentally own Experian, said that Experian would begin implementing the new software in September with the other two agencies to follow sometime next year. Well, September has come and gone and no changes have been made. Apparently it has been easier for critics to confuse the public, than to actually implement the software.

Even amid all the controversy surrounding the purchase of trade lines, experts in the business have good reason to believe itwill never happen. Here are three legitimate reasons why FICO 08 won't happen:

1. It is not in the interest of any of the three credit agencies to promote or support the use of FICO 08.
If it is implemented, the agencies would report the exact same credit score for each individual. Presently, each agency comes up with the score through different means; Experian uses 'Fair Isaac Version2, TransUnion uses Emperica 95 and Equifax uses Beacon 5.0, providing three different scores from which lenders take the middle. If FICO 08 is used, all three agencies will come up with the same score. This would ultimately negate the need for three agencies, when one would be sufficient.

Craig Watts, a spokesman for Fair Isaac said regarding the proposed release of FICO 08, "Adopting the FICO blueprint to get the maximum benefit for each repository is difficult because each uses unique data. When we update the FICO score we need to do that individually with each credit reporting agency." Implementing this new software is apparently much more complicated, which may explain why no one has yet begun using it.

2. It would be detrimental to the millions of families facing foreclosure.
With the real estate market taking a dive and countless people facing foreclosure (due mainly to lenders and their "creative loan option"), to prevent these same Americans from boosting their credit score through trade lines in order to refinance and get a loan they can afford, would send countless families into foreclosure and our economy spinning out of control. Experts know that lenders and Wall Street banks have attempted to push this program forward as they have the most to lose by people purchasing trade lines and refinancing into affordable loans that they can pay. A loan at a lower rate means hundreds of dollars in the borrowers pockets every month and not the banks'. Even Presidential candidates have remarked that Wall St. banks have stepped up lobbying over the issue of sub-prime lending as underwriting practices have come under scrutiny. They don't want legislation that would ultimately protect the consumer despite recent moves to do so. This is why FICO 08 is their only hope, to continue to line their pockets at the expense of homeowners and to avoid greater speculation regarding their abusive lending practices.

3. FICO 08 could bring legal action against Fair Isaac.
Another aspect of FICO 08 is to redistribute credit users into 12 new categories effecting millions of people, many negatively. With the new categories, everyone will shift somewhat and even a slight change downward could mean the difference between a great and a poor credit score. This shift could ultimately cost a consumer hundreds of dollars a month on a mortgage. Experts say that women are more likely to be ill effected as they are often "authorized users" on their husband's credit cards. The shift would bring down the average score of a couple seeking a loan, hurting their chances of qualifying for one they can afford. All that said, legal experts predict a civil action lawsuit on the horizon for Fair Isaac. Not ignorant of this possibility, it is unlikely that they would be willing to risk great financial risk and negative press over a software program, especially if it fails to benefit all three credit bureaus.

In addition to these reasons, the fact that none of the credit agencies have yet to implement the system, leads market experts to agree that it simply may not happen. Despite what the critics have to say about the acceptance of trade lines and Fair Isaac's full-fledged marketing campaign to confuse and mislead the public to think the loophole has closed, the remains open. So where does that leave us as a business restoring hope to financially troubled families? Where does this leave you as a consumer trying to keep your home? Trade lines are still the best and fastest method to boost your credit score in 30-45 days, refinance, keep your home and experience financial stability.

Ted Stearns, owner of TradeLine Solutions, a San Diego based credit aide company, is not a newcomer to the world of finance. His experience began as an options and futures broker with Currency Trading International about 12 years ago. Since then he has been a financial advisor who hosted a live radio show on AM 1000 KCEO for four years, educating callers and listeners on stocks, bonds and various investments. Over the last five years he has delved into the nationwide mortgage business informing both clients and lenders alike in the arena of purchasing and refinancing.

With all former experience as his guide, he has come into the world of trade lines to help clients better their financial situation. Able to glean from the perspective of both lender and client, he has the unique ability to see the need of the purchaser and meet it head on.

Lower-Priced, Higher-Mileage Used Cars Still Diamond in Rough

2008-02-08T06:34:00.000-08:00

By Richard Greene, AR NewsMagazine Editor February 07, 2008

ATLANTA — As the general economy continues to erode, Manheim's chief economist did find a significant bright spot that has major implications for used-car operations. The demand for lower-priced, higher-mileage units presently remains strong, Tom Webb pointed out in his monthly market evaluation. "Despite the overall softness in the market, lower-priced units (less than $5,000) showed no significant weakening of pricing, even with considerably higher volumes being offered," Webb explained. "Some of this strength extended up into the subprime repossession and end-of-service commercial fleet markets, which generally have average transactions prices in the $7,000 to $8,000 range," he added.

But for the most part, Webb's analysis of market conditions was rather bleak. Reflecting reduced floor traffic, lower closing rate and tighter retail financing market experienced by most dealers, wholesale used vehicle prices fell for the fourth consecutive month in January, according to Webb. The prices are on a mix, mileage and seasonally adjusted basis, he indicated. Webb reported that the Manheim Used Vehicle Value Index reading registered at 109.1 for the month, which he said represented a 3.7-percent decrease from the prior January. "Although incentive activity rose in January, and looks to increase again in February, aggregate new-vehicle inventory counts remain low," he noted. Webb pointed to several overarching economic concerns in his monthly report.

— The labor market weakened further. "Initial jobless claims surged in late January and non-farm payrolls posted their first monthly decline since August of 2003," Webb said. "Signs suggest that job growth will remain soft, at best, for several months."

— Credit conditions tightened. "It is nigh impossible to get healthy job gains as long as the credit markets continue to restrict availability," Webb explained. "Rates don't matter if it only means being turned down for a 5-percent loan rather than being turned down for 7-percent loan." Webb noted that the Federal Reserve Board's Survey of Senior Loan Officers in January revealed that more than half of all banks have tightened credit standards for prime mortgages and that more then three-fourths have tightened for non-traditional or subprime mortgages. "The net percentage of banks raising standards for consumer installment loans increased to one-third, up from one-fourth in the October survey," he said. "It was the highest percentage of banks reporting tighter consumer credit standards in more than a decade. And the tightening has also extended to commercial loans."

— New vehicle sales dropped in January, as did inventory levels. "Although the seasonally adjusted annual rate of new-vehicle sales slipped to just 15.2 million in January, production cuts continued to whittle at inventory levels," Webb observed. "Although incentive activity did (and will continue to) increase, low inventory counts mean that manufacturers have been able to target monies to specific models and/or regions of the country. "As such, the negative impact on late-model used vehicle residuals has also been selective," he added.

— All market classes of used vehicles register year-over-year price declines. "SUVs, pickups and sports cars are down the most (more than 5 percent), while compact and midsize cars are down the least (less than 2.5 percent," Webb said.

I Love It When a Plan Comes Together!

2008-01-31T10:53:00.001-08:00

I was out in the field last week, working with a dealer client to improve his subprime sales. The GM had just let his lead subprime manager go, and wasn’t 100% sure of the guy he hung onto. When I got there Monday morning, the GM and I sat down and reviewed what he saw as the problems and what he hope to accomplish while I was there.

As I listened to him, I realized that many of his concerns were probably pretty common. He felt a frustration that his subprime department had not done that many “deep” deals, what he called “true secondary business”, in the last few months. He felt his subprime department was not being aggressive enough and were afraid to spot a deal. 90% of the subprime business his dealership had done had gone to near-prime lenders. ” To me that’s the cake walk of paper and we’ve been missing deals.”

We talked about the lack of confidence his sales force had in the subprime department. The sales force typically viewed customers with credit issues as “another lost cause”, and tended to walk away from these customers because the subprime department couldn’t get an approval for them. The GM was indeed frustrated with the money he had been spending on his subprime department, and in reality, I couldn’t blame him!

My first order of business was to sit down with the remaining Subprime manager and figure out what he thought was wrong. Turns out, he was the back-up, and the guy who left was the lead, who did not want to do the deeper paper deals. Those marginal customers were largely ignored because he didn’t want to have to do that much work! We changed that in a hurry, once I showed them how much profit was available in those tougher deals.

Next I talked to the person calling the subprime leads the GM was buying. She complained that many customers didn’t want to come to the dealership unless they knew they were approved. Once she understood that her only job was to set the appointment, things began to click. By deferring all the questions and concerns these customers may have had to the Credit Manager, who could address them when he called to confirm the customer’s appointment, the number of set appointments soared! And once we got the customers into the dealership, the rest was easy!

The sales force, frustrated by the previous lack of effort by the subprime department, suddenly saw an aggressive, anxious manger wanting to help them. Old customer files, some resurrected from 6- 8 months ago, were looked at in a new light, and approvals were forthcoming. The Subprime manager called every lender to let them know that a “new marshal” was running the department, and he wasn’t afraid of those tougher credit customers. A more aggressive approach with the lenders yielded better approvals, and the credit analyst’s knew things were going top be different at this dealership from now on. Marginal deals were being worked with a renewed vigor, and instead of salesman bringing in another “lost cause”, they were now looking for a way to get a customer approved for a loan. The subprime manager now began to understand that, if he could get an approval from a lender, even it wasn’t the exact approval he was looking for, the customer’s application was approved. The customer could decide whether they could meet the terms and conditions of the lender’s approval!

To make a long story short, by the time I left on Friday, the dealership had delivered 8 subprime deals, for a total gross profit of over $22,000. Not bad, even with Monday being a mail holiday and snow storm on Tuesday that pretty much shut everything down for the day!

The moral of the story here is that subprime is all about perceptions. How you see subprime customers, how they see the dealership’s attitude to subprime, how the dealership views subprime, and how the lenders view the dealership. Once everyone had a clear vision of what could be done, everything started to click. As the GM said to me as I was getting ready to head to the airport to head home, “The showroom is hoping, and we didn’t have to give out Wal-Mart gift cards!”

Nothing like a good success story to make my day!

“Subprime” Voted 2007 Word of the Year by American Dialect Society

2008-01-25T09:47:00.000-08:00

Jan 07, 2008 Chicago — In its 18th annual words of the year vote, the American Dialect Society voted “subprime” as the Word of the Year. As ADS defines it, subprime is an adjective used to describe a risky or less-than-ideal loan, mortgage or investment. Subprime was also winner of a brand-new 2007 category for real estate words, a category which reflects the preoccupation of the press and public for the past year with a deepening mortgage crisis.

Presiding at the Jan. 4 voting session were ADS Executive Secretary Allan Metcalf of McMurray College and Professor Wayne Glowka, Dean of Arts and Humanities of Reinhardt College, chair of the New Words Committee of the American Dialect Society. Wayne edits the column “Among the New Words” in the society’s quarterly journal American Speech.

“When you have investment companies losing billions of dollars over something like bundled subprime loans, then you have to consider whether it’s important,” Professor Glowka said. “You probably also want to think about paying off that third mortgage.” Word of the Year is interpreted in its broader sense as “vocabulary item”—not just words but phrases. The words or phrases do not have to be brand-new, but they have to be newly prominent or notable in the past year, in the manner of Time magazine’s Person of the Year.

The vote is the longest-running such vote anywhere, the only one not tied to commercial interests, and the word-of-the-year event up to which all others lead. It is fully informed by the members’ expertise in the study of words, but it is far from a solemn occasion. Members in the 118-year-old organization include linguists, lexicographers, etymologists, grammarians, historians, researchers, writers, authors, editors, professors, university students, and independent scholars. In conducting the vote, they act in fun and do not pretend to be officially inducting words into the English language. Instead they are highlighting that language change is normal, ongoing and entertaining.

In a companion vote, sibling organization the American Name Society voted “Betray Us” as Name of the Year for 2007 in its fourth annual contest. Other notable recognitions included the Most Useful “green,” designating environmental concern; the Most Creative word in Googelganger, which describes a person who put his or her name into Google’s search engine; and “Happy Kwanhanamas” was deemed Most Unnecessary, as it is intended as a “happy holiday” greeting that covers religious holidays Kwanza, Hanukkah and Christmas

Selling Value to Your Subprime Customers

2008-01-16T09:44:00.000-08:00

I tend to think that the one thing that universally seems to motivate people are pictures of Washington, Lincoln, Hamilton, Jackson, Grant and Franklin. These are the guys that appear on our money.

Value is what a customer looks for. Build value in what you can do for them. In Subprime, the value is more than just getting a vehicle. There is substantial value in a customer’s ability to rebuild their credit. You have to show them how credit problems can affect not only their auto loan but may also have an impact on their:

• Car insurance - Some companies base auto insurance premiums on credit scores.
• Cell phones - Providers increasingly rely on credit scores to sort the good risks from the bad credit.
• Elective medical procedures – Some doctors pull credit to see if you qualify for the monthly payment plan.
• Employment –Many companies will check credit before they decide to hire a candidate.
• Education – Low credit scores can disqualify applicants for university and federally funded student loans.
• Housing - Rental property owners may reject tenant applications with poor credit scores.
• Marriage - You can't marry your way out of a bad FICO rating. A married couple does not get a combined credit score.
• Utilities - Slow credit indications may require a sizable security deposit before utility service can be established

Many customers don’t realize that bad credit can affect almost every aspect of their life. What’s the value in helping them fix it? How many “presidential portraits” can they save by improving their credit? We probably are talking about hundreds, if not thousands of dollars, in their pockets.

Forbes Magazine lists the 10 Best and 10 Worst Selling Models for 2007

2008-01-15T09:40:00.000-08:00

The Forbes lists are based on sales reported from January through October 2007 and are compared to sales from the same period in 2006.

In the columns below the models are listed in the order found in the Forbes Magazine article. Next to each is the number of units reported sold for 10 months of 2007. The percentage up or down is the comparison of those reported sales with the same period in 2006.

2007 Best Selling Models:
1. Ford F-Series 588,952 -12.5%
2. Chev Silverado 526,575 -2.4%
3. Toyota Camry 398,868 +6.4%
4. Honda Accord 332,815 +10.2%
5. Toyota Corolla 317,796 -4.0%
6. Honda Civic 278,764 +2.2%
7. Chev Impala 270,504 +12.6%
8. Nissan Altima 239,800 +26.6%
9. Dodge Ram 214,569 -29.3%
10. Honda CR-V 184,003 +34.9%

2007 Worst Selling Models:
1. Cadillac XLR 1,525 -42.7%
2. Mazda B-Series 2,363 -35.3%
3. Isuzu Ascender 2,523 -40.3%
4. Jaguar X-Type 2,599 -44.2%
5. Jaguar S-Type 2,973 -44.3%
6. Audi A8/S8 3,092 -27.2%
7. Porsche Boxer 3,148 -21.5%
8. Lexus SC430 3,311 -33.2%
9. Isuzu i290/370 3,575 +21.1%
10. Jaguar XJ 3,637 -11.2%

Researchers Explain Why Subprime Loans Default

2008-01-10T09:36:00.000-08:00

by Jennifer Reed, Editor, Subprime Auto Finance News, January 10, 2008

CAMBRIDGE, Mass. — A recent report from the National Bureau of Economic Research analyzed the trends of subprime auto defaults at a large U.S. financial institution The data taken into account during the analysis included applications and sales from June 2001 through December 2004. This information was combined with records of loan payments, defaults and recoveries through April 2006.

"This gives us information on the characteristics of potential customers, the terms of the consummated transactions and gives the resulting loan outcomes," officials indicated. "We have additional data on the loan terms being offered at any given time as a function of credit score, and inventory data that allows us to observe the acquisition cost of each car, the amount spent to recondition it and the list price on the lot," they continued.

Overall, the researchers said there were more than 50,000 applications in the sample period. The average applicant was in his mid-30s with the monthly household income of $2,411. "Just over one-third of applicants purchase a car," the writers reported. "The average buyer has a somewhat higher income and somewhat better credit characteristics than the average applicant. In particular, the company assigns each applicant a credit category, which we partition into high, medium and low risk. The applicant pool is 26 percent low risk and 29 percent high risk, while the corresponding percentages for the poof of buyers are 35 and 17. Furthermore, the officials pointed out, "A typical car, and most are around three to five years old, costs around $6,000 to bring to the lot. The average sale price is just under $11,000 (negotiated price rather than list price). The average down payment is a bit less than $1,000, so after taxes and fees, the average loan size is similar to the sales price."

As many would suspect, researchers indicate that many purchasers would rather put down less of a down payment instead of more. "Forty-four percent make exactly the minimum down payment, which varies with the buyer's credit category, but is typically between $400 and $1,000. Some buyers do make down payments that are substantially above the required minimum, but the number is small. Less than 10 percent of buyers make down payments that exceed the required down payment," according to the report.

Moreover, the paper discovered that more than 85 percent of the loans had an annual interest rate of more than 20 percent, with about half of the loans showing the state-mandated maximum APR. Researchers highlighted that the most states, according to the data, had a standard 30-percent cap. "Our data ends before the last payments are due on some loans, but of the loans with uncensored payment periods, only 39 percent are repaid in full.

Moreover, loans that do default tend to default quickly," the analyzers found. In fact, they said, "Nearly half of the defaults occur before a quarter of the payments have been made, that is, within 10 months."

Another commonly known trend identified in the paper was the fact that demand for subprime auto loans tend to occur in a certain season, closely around the time tax rebates are released. "Overall, demand is almost 50 percent higher during tax rebate season than during other parts of the year. This seasonal effect substantially varies with household income and with the number of dependents, closely mirroring the federal earned income tax credit schedule," officials said. According to the report, applications are 23 percent more common in February than in other months, with the approval rate coming in at 40 percent, as opposed to 33 percent during the rest of the year. "These seasonal patterns cannot be attributed to sales or other changes in the firm's offers. In fact, required down payments are almost $150 higher in February, averaging across applicants in our data, than in other months of the year," the paper said. "Indeed, we initially thought these patterns indicated a data problem until the company pointed out that prospective buyers receive their tax rebates this time of year," officials mentioned.

Breaking it down further, the analysts discovered that households with monthly incomes below $1,500 and at least two dependents, meaning the rebate could be about $4,000, the number of applications doubles during February, with the number of purchases tripling. On the other hand, for households with incomes above $3,500 and no dependents, meaning the rebate is likely zero, the number of applications and purchases shows no increase whatsoever. "About 65 percent of February purchasers make a down payment above the required minimum, compared to 54 percent in the rest of the year," writers said. "Moreover, we estimate that after controlling for transaction characteristics, the desired down payment of a February buyer is about $300 higher than that of the average buyer. This is an enormous effect given that the average down payment is under $1,000.

"Second, we find that the demand is highly responsive to changes in minimum down payments. A $100 increase in the required down payment, holding car prices fixed, reduced demand by 7 percent. In contrast, generating the same reduction in demand requires an increase in car prices of close to $1,000." The paper found that a $1,000 increase in loan size ramps up the rate of default by more than 16 percent. "This alone provides a rationale for limiting loan sizes because the expected revenue from a loan is not monotonically increasing in the size of the loan. We find that borrowers who are observably at high risk of default are precisely the borrowers who desire the largest loans," the researchers described.

"The company we study assigns buyers into a small number of credit categories. We estimate that all else equal, a buyer in the worst category wants to borrow around $200 more than a buyer in the best category, and is more than twice more likely to default given equally sized loans," they pointed out. The analysts found that risk-based pricing can only help a lender within "observably different risk groups."

"We also look for, and find, evidence of adverse selection within risk groups driven by unobservable characteristics. Specifically, we estimate that a buyer who pays an extra $1,000 down for unobservable reasons will be 8 percent less likely to default than one who does not given identical cars and equivalent loan liabilities," the writer explained.

Offering a word of caution, the paper highlights, "So, while there are limits to what we can conclude with data from a single lender, we think that our results highlight the empirical relevance of informational models of consumer credit markets."

Returning to the company at hand, the officials said, "Almost all buyers finance a large fraction of their purchase with a loan that extends over a period of several years. What makes the company an unusual window into consumer borrowing is its customer population." More specifically, the customers are generally low-income workers, and most are subprime borrowers. Fewer than half of the company's applicants display a FICO score above 500, the paper noted. Furthermore, given the low credit quality of many of the applicants, researchers indicated that the company has invested heavily in proprietary credit-scoring technology.

Turning to another fact, researchers wrote, "Within credit category, buyers who have higher incomes, have bank accounts, do not live with their parents and have higher raw credit scores are all less likely to default. However, the fact that these characteristics predict default and are not directly priced does not necessarily imply a serious adverse selection problem in financing choices. "For example, buyers who live with their parents tend to make larger down payments, but have a greater likelihood of default later

Have Your Special Finance Leads Been Around the Block?

2008-01-09T09:30:00.000-08:00

by Jim Wagner.

As you probably know, special finance leads have become big business. The other day I was talking to someone very involved in the automotive lead business who told me that there are over 1.5 million leads generated every month. That, he believes, is a conservative number. Four or five years ago there were only a handful of players in the auto lead business. Now there are over two dozen.

A side effect of this expansion is that marketing firms not primarily associated with automotive leads are entering the space. They are generating leads that are not necessarily genuine auto shoppers, but consumers who are initially interested in other products. These leads are being disseminated on the wholesale market. With the average cost of leads currently over $20, it pays to learn how to distinguish genuine auto shoppers and leads from people not primarily looking for auto loans. How do you go about doing so? In an article you’ll never find in a trade magazine, we’re going to tell you how.

The Wholesale Lead Network

Most of the leads that you’ve been purchasing are generated when a consumer starts searching for alternate finance options on the internet. Most of the time, these shoppers will use a search engine, such as Google, and use keywords like “auto loan” or “car finance“. Special finance lead generators pay big money to ensure that their landing pages, like the one below, come up high on the page when these terms are submitted.

If your lead provider is sending 100% of these leads to you, then you’re getting what you were promised. Of course, you’re not going to close every one of these leads, but at least you’re getting your money’s worth.

Wholesale Leads and Coregistration

When you sign a contract with a lead generator and ask for 150 leads a month, his goal is to organically produce these leads on his own landing pages. Let’s call him Generator A. However, he may have several dealerships in your area. Or, you may exist in a lead scarce market. If that’s the case, and he does not have enough “inventory”, then he’s going to look to the wholesale market for more leads to meet your demand.

Generator A will have pre-arranged partnerships, let’s say with Generator B and Generator C, where he can buy leads when his inventory runs out or sell when he has excess leads. This takes place automatically, so nobody feels the difference. As long as he’s done his homework about his wholesale partners and has investigated their lead quality, everyone wins. He gets the supply he needs and you are a happy paying customer.

However, the demand for leads has put pressure on everybody to source more and more volume. Let’s say, responding to this demand, A decides to start two new partnerships, with Generators D and E. Let’s also assume that D is in the payday loan business, and E is in the prepaid credit card business. Those leads are going to perform differently than the others because they are not organic auto shoppers. How does D and E generate auto leads if they are not in the auto business? Through a process called coregistration.

Coregistration

Coregistration is a common tactic online marketers use to generate many leads from a single customer. Simply put, a coreg lead is generated when a consumer, interested in a particular offer or product (such as the payday and credit card examples) is asked to “opt in” on related offers. If they agree, and choose “auto loans”, then a special finance lead is generated, sent through the wholesale network, and sold as a special finance lead to a dealership.

Before you panic and call your lead generator, understand that not all coreg leads are the same. For example, a consumer who subscribes to a free credit report service in order to prepare for an automobile purchase is a genuine auto shopper. This lead will perform as well as any other. I would feel good about buying these leads.

How can you ensure that the leads you buy are genuine auto buyers? How do you protect your close rate and maximize your return on investment? Unfortunately, there is no simple answer. You’re going to have to do your homework.

New FICO Score to be More Understanding

2007-12-27T09:29:00.000-08:00

New FICO Score to be More UnderstandingDec 26, 2007 Consumers caught in the subprime mortgage crisis may find some relief with Fair Isaac’s new FICO 08. Aside from providing a more accurate risk assessment of consumer credit, the new formula also aims to reward customers for keep other credit accounts up to date.

“The main thing we tried to do with the score was to make sure it was in tune with current consumer behaviors,” said Fair Isaac’s Craig Watts. “We changed the formula to improve the predictiveness.”

The new formula takes into account consumer credit behaviors in all credit areas rather than focusing on accounts that have gone delinquent. Now, consumers who’ve fallen behind on one account could be rewarded for remaining in good standing with other credit accounts.

“If a person has a repossession or foreclosure on their credit score today, that casts a shadow over everything else. They are scored along with other people with serious delinquencies,” explained Watts. “But this new formula looks at not just serious delinquencies, but also at whether consumers have other accounts with positive credit histories. The consumer’s score is not penalized as much for serious delinquencies that are uncommon to his or her credit behavior.”

Although a consumer’s credit standing will vary from lender to lender, the new formula may present more opportunities for F&I managers to get consumer loans bought.

“Our expectation is that lenders will reduce the amounts of defaults on loans by 5 to 15 percent in certain demographic groups. It really helps with consumers who already have serious credit problems, those who are new to credit and those who are seeking credit.”

The Tax Man Cometh…Only He Might Be A Little Late This Year

2007-12-10T09:27:00.000-08:00

Late changes to the alternative minimum tax (AMT) provision of the IRS Rules could leave refunds delayed or worse. The AMT was originally intended for the wealthy few when it was created nearly 40 years ago. But because Congress never indexed for inflation the amount of income exempt from AMT and because it disallows a lot of popular tax breaks, tens of millions of middle-class taxpayers could get hit.

Early filers may be forced to submit amended returns in order to comply with any changes. The IRS needs at least seven weeks to analyze any changes in the tax laws, write the necessary software codes and test it. In addition, the IRS needs time to notify all tax professional and others affected. As such, IRS deputy commissioner Richard Spires has warned of a significant backlog in processing returns, as well as the ensuing confusion for taxpayers.

“There are a lot of people that file early and a lot of people that rely on getting those refund checks in that early February time frame,” Mr. Spires said in an interview. “If we’re not able to process those returns for them, we believe it will have a significant impact on them.”

New 1040 and 1040A tax booklets and instructions have already been printed. But 12 related tax forms, including one for the AMT and others for a variety of tax credits, must be revised and put through a new printing cycle if Congress approves new legislation. The credits include those for education expenses and for child and dependent care expenses.

What does this mean for auto dealers? Typically, taxpayers who expect refunds tend to file earlier than others. For tax year 2006, 103 million filers out of 135 million got refunds averaging $2,259 Consumers who traditionally rely on their tax return money for down payments may be forced to wait for their returns longer than usual. The rush of customers who file early to receive quick refunds may be delayed until the IRS sorts this all out.

Appropriate Subprime Inventory

2007-11-30T09:24:00.000-08:00

A far too common objection heard when discussing Special Finance is, “We just don’t have any Subprime inventory!” or “All our used cars are out of the book!” By far the most difficult part of special finance can be to get the “right vehicles”. The list seems to change daily.

Obviously, any vehicle that can be obtained “behind book” is the right vehicle. Current year program cars, which can be sold from like invoice, are good units to have. Typically, the best vehicles are trade-ins, since these are the units you tend to own best. Keep in mind that SFI vehicles don’t have to be movie stars. If they run good, this can overcome some objections to minor imperfections (a dent or a ding) and if done correctly, Special Finance is about selling the loan, not selling the vehicle, Sell the concept of rebuilding credit. Qualify for a loan and then get a car!

The ideal vehicle is 3-4 years old, with less than 50,000 miles. Look for family type vehicles, i.e. 4 door sedans, SUV’s and minivans. Base pickups are good units as well. Stay away from the high lines and sports cars. These have limited appeal and tend to be tough to insure. Remember that the cost of insurance can make or break a deal – and the down payment for full coverage may have to come out of the gross. Don’t necessarily overlook the need to have some older, higher mileage units on the lot. These units don’t need the full reconditioning but need to be safe and functional. They are perfect for those deeper lenders as well as customers who simply need basic transportation. Create a “Credit Corral” to supplement standard Sub prime inventory. These are units that might typically be wholesaled but, with a minimal shop investment, can be made saleable and turn what might be a wholesale loss into retail profit. This can result in a few extra units sold each month.

Be flexible. Having a wide spectrum of used cars is a safe bet. The worst scenario is to have an approval without a vehicle to show. Make sure there is an adequate amount of used car inventory on the lot. As a general of thumb is a sales-to-inventory ratio of 2:1. For example having 60 vehicles available for sale is typically what is needed to sell 30 subprime units. Keep a good mix of vehicles on the lot to have the ability to land the right cars on customers.

Make sure the Used Car Manager knows what’s hot and what’s not with lenders. Certain vehicles may be restricted (limited advance) or ineligible (unable to finance) with a particular lender. Keep the used car manager up to date on model year change-over as well (when the lender considers current year models to be 1 year old and so on down the line.) The Used Car Manager is the inventory lifeline. Take a short deal on a 60+ day old unit every now and then, especially on a short deal, to help level out the used car inventory.

Check the lot everyday for new arrivals. Used Car Managers should lets the Special Finance department know what was bought or traded for in the last few days. Book out every retail unit to determine which ones have the best loan to value. (Loan to value or LTV is the cost of the unit versus the book value.) A unit with a strong book has a loan value significantly higher than its cost, which generates higher profit or allows the absorption of negative equity or high discount fees. Remember that, while most lenders use NADA trade for their book values, some lenders use Kelly Blue Book for their valuations.. Be careful not to “power book” a vehicle (add options that are not on the vehicle). Lenders may verify the equipment with the customer during their interview, and will seek to chargeback any over-booking they find.

Many dealerships have software to book out inventory. Dealer Track and Route One both have modules available for this purpose. Keep a binder on your desk, with a sheet for each vehicle on the lot that is “retail ready”; these sheets can be used as part of the funding packages. Update this book daily, removing sold or wholesaled units and adding in fresh trade-ins or purchased units. There’s nothing worse than structuring a deal on a unit that is no longer on the lot. In addition, by having the inventory booked out in advance, it is easy to find which units have the greatest markup potential which helps overcome major negative equity for a customer as well as turn substantial profits.

Don’t be afraid of new vehicles in a franchised dealership. Vehicles with substantial dealer cash (not consumer rebates, but money paid by the manufacturer directly to the dealership if it meets sales objectives on a particular model) may allow a structure on a new car deal which makes it very attractive to a lender. Use any manufacture’s rebate as part of the down payment. Often, with a minimal customer down payment, a deal can be structured at 80% loan-to-value (the amount of the loan versus the invoice of the vehicle), which is that magic number which gets a lender’s attention. Keep up to date on incentives, as they may get better as the month goes on.

Mailing Lists and Pre-approved Credit

2007-11-15T09:20:00.000-08:00

In the days of direct marketing, businesses prepared a single mail piece, sent it to virtually everyone, then waited for consumers to buy. Today, most companies develop a description of their ideal customers and then tailor unique sales offers to fit those customers’ needs. This approach is called target marketing.

The right mailing list helps a business reach only those consumers who are likely to be most interested in its products and services. Target marketing reduces “junk” mail – advertising mail that does not relate to their interests or needs.

By eliminating consumers who don’t fit a specific description, a company can mail fewer but more effective offers.

How consumers get on a mailing list

There are three main ways a name might get on a mailing list:

1. Magazines, credit card companies, clubs and organizations, charities, manufacturers, and retailers make lists of their subscribers, customers, members, and donors available to other businesses for a rental fee.

2. Companies purchase information from various public and private sources to develop consumer databases for specific marketing purposes. These companies are called list compilers. Nearly everyone’s name appears on compiled lists.

3. Credit reporting agencies (including Experian), under legally specified conditions, provide lists of creditworthy consumers for companies to offer credit. These are called prescreened lists.

Why consumers receive pre-selected credit offers

From a credit grantor’s perspective, prescreening is a cost-effective way to secure new customers who are most likely to use credit wisely and repay their debts on time. It allows a credit grantor to define an “ideal” consumer, decide how much credit to give that potential customer, and then send a pre-selected offer to thousands or even millions of consumers who match this description.

If a consumer receives a pre-selected credit offer, all that has to be done to accept it is sign and provide a few other limited pieces of information. The responding consumer will be given a line of credit provided they still meet the predetermined criteria. However, the federal Fair Credit Reporting Act allows creditors to review credit history when a consumer accepts the offer. If the consumer no longer meets the criteria, the application may be denied.

Protecting consumer rights

The entire process of ordering lists, generating mailing labels and sending offers to consumers is automated by the use of computer tapes and computer processing. Large numbers of names – from a few thousand to many million – are processed at one time.

Marketers don’t review individual records. In fact, they rarely even see consumer names. Third-party companies generally print mailing labels, attach them to the advertising mail and take the mail to the Post OfficeTM.

The prescreening process contains additional consumer protections:

- Consumer credit information is summarized and coded for confidentiality.

- Federal guidelines require that consumers who are selected by the prescreening process receive a “firm offer” of credit or insurance.

- Federal law requires credit grantors to extend credit in a fair and consistent manner. They cannot consider such factors as your sex, marital status, race or religion.

When You Think Your Leads Are Terrible, Remember This...

2007-10-30T09:18:00.000-07:00

The quality of these leads hasn't changed. It's the circumstances these people face that is different.

The subprime mortgage crisis effects subprime customers the most! Many of them are "victims" of these subprime mortgage loans and are unsure of what their mortgage payment will be when their rate goes up!

These same people that were banking on the equity in their home continuing to rise and many took out equity lines or second mortgages and now don't have the equity left to support these loans.

The housing market is down, and many of the people who work in it are feeling the pain. The construction worker, carpenter, framer, electrician, plumber, etc. all were riding high when the new housing market was in full swing. Now, many of them, if they are still employed, have gone from 70-80 hour weeks making big overtime to 40 or less hours a week with no overtime. Income is way off, so many of them don't have down payments available.

Remind yourself that now is when you can really shine. Most finance guys would walk away from this market because it's too hard to do the business. Don’t be one of them

Beware of Who Is Selling for YOU!

2007-10-28T09:16:00.000-07:00

This showed up in my inbox this morning. Seems like I get something like this on a regular basis!

State reaches settlement with Washington car dealer and ad agency over deceptive marketing

Dealer group was accused of using a series of deceptive tactics to lure customers (10/30/2007)

The Washington Attorney General’s Office announced settlements with a car dealer and an out-of-state advertising firm accused of using deceptive promotions to sell cars.

The settlements resolve a civil lawsuit filed against Bruce Titus Automotive Group and Level 10 Marketing, based in Slidell, La. The defendants did not admit any wrongdoing but agreed to pay civil penalties and comply with injunctive provisions concerning their marketing practices.

The Attorney General’s Office alleged the defendants advertised cars without disclosing all terms, including stating how many vehicles were available at a specific price, that they suggested that financing could be guaranteed regardless of a consumer’s credit history, and used “simulated checks” and contest promotions that could mislead consumers. Those actions violated at least three of Washington’s consumer protection laws.

According to the complaint, the defendants sent ads that offered misleading prices and made it appear that the cars were substantially discounted. They also allegedly charged undisclosed fees and advertised vehicle lease and financing terms without all mandated disclosures. Some promotions were sent in envelopes labeled “OPEN IMMEDIATELY – TIME DATED MATERIAL” that resembled official certified mail. Other mailers looked like checks and included the words “PAY TO THE ORDER OF” but were actually ads. And some vehicle ads included statements such as “credit problems – no problem.”

The dealership group will pay $5,000 in civil penalties plus $30,000 in attorneys’ fees and legal costs. Level 10 will pay $15,000 in attorneys’ fees and legal costs. They also agreed to pay $10,000 in civil penalties, which will be suspended provided they comply with the settlement terms.

More often that not, out of state marketing companies don't seem to know your laws. Google any lead generator or marketing company's name followed by the word "lawsuit" and see what you get, before you sign up. Attorney generals throughout the country are cracking down on "deceptive marketing practices" by out of state companies holding staffed events or doing mailers for automobile dealerships.

PIN Reports Days-to-Turn for 2005 Used Models

2007-10-26T09:13:00.000-07:00

By Jennifer Reed, SubPrime Auto Finance News Editor October 29, 2007

WESTLAKE VILLAGE, Calif. — When looking at how quickly 2005 model-year vehicles are selling at stores, Power Information Network saw an interesting trend come to light.

"The fastest-turning used 2005 model-year vehicles bear one clear similarity with the fastest-turning new vehicles: Both groups are dominated by imports," officials indicated.

Reviewing 12 used vehicles with the lowest turn rate, PIN discovered that 11 were foreign brands. All imports covered Toyota, Nissan or Honda models, executives highlighted.

"Also, 10 of the 12 models are light trucks but in contrast to new-vehicle trends, only one of the fastest-turning used trucks (Murano) is a crossover," officials said.

10 Fast-Turning 2005 Models Include:
Toyota Sequoia: 26 days
Nissan Armada: 26 days
Dodge Sprinter: 28 days
Honda Odyssey: 29 days
Infiniti QX56: 30 days
Toyota Sienna: 31 days
Toyota Tacoma: 31 days
Nissan Murano: 31 days
Toyota 4Runner: 32 days
Infiniti G35: 32 days
Nissan Titan: 32 days
Lexus ES Series: 32 days

According to the company, data was gathered Jan. 1 though Oct. 21. Additionally, officials noted that more than 10 models were included because of ties. Results were based on sales at franchised dealerships.

Who’s reading your mail?

2007-10-21T09:10:00.000-07:00

I’d like to introduce you to a member of my family. Her name is Chooch, and she’s 14 years old. She doesn’t work, does not have a driver’s license or a Social Security number, and as far as I know, has no credit file.

Let me start out by explaining something. My home phone number is listed in Directory Assistance under Chooch’s name. If you haven’t figured it out by now, Chooch is my border collie. That’s right…my dog! I do this so, when someone calls my home during dinner and asks to speak to Chooch, I know it’s a telemarketer. So far, Chooch has gotten calls for magazines, insurance and political contributions.

But recently, something new has started to happen. Chooch has been pre-approved for credit cards, real estate auctions and most importantly, she started to receive mailers from auto dealers!

One of the credit mailers Chooch recieved!

So, who’s reading your mail? Do you really know who your mail campaign goes to? Direct mail is not cheap, as we all know, and unless your piece is being opened and read by real consumers who need an auto loan, how effective can it be? In order to maximize the effectiveness of your advertising dollars in today’s market, you need to be sure that your marketing efforts are precise. After all, advertising dollars are limited, and, just like you teach your sales people, you have to sell value in order to sell your product.

Offering easy credit to customer with good credit is like trying to sell a compact to a family with six kids. It might work, but in reality, it’s going to be a hard sell. Make sure that the mailer you buy maximizes its impact on customers who truly need your credit offer. Using blind, targeted mail, with a genuine offer of credit, produces customers who want your help, not the gift or gimmick it offers. After all, how many gifts did your last mailer give out versus the number of cars it sold?

Maximizing YOUR Results

2007-10-15T09:08:00.000-07:00

The question is "Out of the last ten potential customers that came in for a car, how many left without one?" Conservatively, dealerships are losing at least one Special Finance deal a day or 25-30 deals a month. An analysis of the lost opportunities enables a dealership to correct the processes that are losing these customers. With re-training in proper Special Finance processes a dealer can go from being simply average and frustrated in their Special Finance efforts to solidly and consistently successful.

What does that mean in real money? By recapturing the lost opportunities at $3,000 average gross per deal, an additional $75,000-90,000 in gross profit is added simply by correcting existing mistakes. By using a consistent process, we can look to add 18-22 additional units a month. This means, with a $3,000 average gross, consistent process adds $54,000-60,000 a month. Combining that with the customers recaptured from lost lot traffic, it is reasonable to add another $129,000-150,000 a month to the bottom line. That is $1,548,000-1,800,000 a year in a market that most dealerships are largely ignoring.

TOP TEN REASONS YOUR LENDER SHOULD BUY THIS DEAL

2007-10-05T09:06:00.000-07:00

10. IF YOU COULD ONLY SEE THESE PEOPLE, YOU’D BUY THEM
9. YOU’VE GOT TO HELP ME, IT’S THE OLDEST CAR ON MY LOT!
8. LOOK AT IT THIS WAY, HE CAN’T FILE BANKRUPTCY FOR ANOTHER SEVEN YEARS. 7. WHEN’S THE LAST TIME I ASKED YOU FOR A FAVOR?
6. YOU SHOULD ONLY HOPE THIS GUY GOES BAD, YOU’LL MAKE MONEY ON THE REPO!
5. NO, HE’S NOT A GYPSY – HE’S A ROOFER.
4. YOU DON’T WANT ME TO HAVE TO CALL YOUR BOSS, DO YOU?
3. COME ON, THIS GUY KNOWS THE OWNER.
2. YOU HAVE TO HELP ME; THE CAR’S ALREADY BEEN ON THE ROAD FOR TWO WEEKS!

AND THE NUMBER 1 REASON WHY THEY SHOULD BUY THIS DEAL…

OK – BUT THE REPO WASN’T WITH YOU!!!

Good Special Finance Managers Are Marketing Specialists First

2007-10-01T09:03:00.000-07:00

Published by Jim Wagner April 14th, 2007 in strategy.

I’ve always believed that the most successful special finance managers are marketing specialists first. They look to find channels of business in every area possible. In addition to the traditional areas of marketing, like print and radio advertising and even internet leads, they’re constantly looking for new ways to drive more customers into their departments.

Here are two innovative ways to add incremental business to your department. If you execute consistently on them and have average traffic, these two tips can earn your department another $450,000 a year. That’s worth five minutes of your time, right? Read on.

Market to Your Customer’s References

When you’re looking at an approval from one of your subprime lenders, you probably love it when proof of income, residence and references are waived. I can understand your excitement over the first two items because they’re a pain to collect. But, if I were you, I’d be collecting ten references on each customer, regardless of whether or not it’s a requirement of your bank. I’d also be having your salespeople collect them up front, before you start trying to get them approved. That way you have them for approved customers and your turndowned customers. You’re going to talk to five times more people that you don’t approve, right?

References are great leads. They probably share the same demographic as the customer who gave them to you. Some of them are family members. Others are friends. If you treat all customers with respect and fairness, they’re going to spread the word to the people they interact with, the same people they gave you as references.

Every day, you should be sending out letters to each of the references you’ve collected from. Your call center or business development center could also give them a call. If you use a CRM tool be sure to load these leads into the system under the specific category of references so you can track your close rate.

Whichever approach you plan to take, your efforts to market to and close the references you collect can make you real money. If you talk to 100 people a month, and you collect ten references on each, that’s 1,000 good leads to work on. Even if you only close 1%, you’re going to see another 10 units a month. At 2,500 a copy, by thinking smart, you’ve made another $25,000 a month and $300,000 a year. Even if you don’t talk to that many people, I promise you’ll find substantial success and incremental profit by using this method.

Follow Up With Your Turned Down Customers

Every bad credit customer you finance today probably could not be financed at one point in the recent past. Not too long ago they might have had open bankruptcies, recent reposessions, slow credit, an open judgement, or even mistakes on their credit file. Most special finance managers shake the hand of the turned down customer, tell them they’re sorry they couldn’t help them out, and move on to the next. Into the dead deal file goes your customer to be forgotten forever.

If you’re doing that, stop today. For every customer you get financed, there are at least five more that you did not. Why not take ten minutes or so to consult with your customer and help them put together a plan that will help them get back on track. Here’s an article I wrote on repairing bad credit. Feel free to print off the article. Or, use your own experience to talk to them about credit repair. Print off a checklist of credit repair methods with your contact info on it. If you do that, you’ll earn their loyalty.

When they’re qualified to buy a car in a year or so, you’ll be the first person they call. Do this with enough customers, and you’ll be moving your department to the next level. Plus you’ll be building your reputation.

If you’re a store delivering 25 special finance customers a month, you’re probably talking to about 100 customers who you could not finance. That’s 1200 a year. Even if you eventually close only 5% of those customers, you’re talking a lifetime value of over $150,000 per year on your turned down customers!

There. I’ve shown you how your department can make another $450,000 a year in profit. I don’t know your payplan, but based on even the weakest you’re going to increase your standard of living.

If you’re a special finance manager who wants more success, remember: you’re a marketing manager first.

Doing the Math

2007-09-19T09:03:00.000-07:00

Following up on unsold leads is like money in the bank. Take your blinders off and see the future. If you only manage to get 20% of your leads to turn into appointments, how many future opportunities does that leave you? If you only close 20% of your appointments, how many prospects does that leave you to follow up? And don’t forget the references that your customer’s provide. How many personal references does your dealership get from each subprime customer that comes into your dealership and completes a credit application? Isn’t each of them a future opportunity as well? Ask you customers if you can mention their name when you call these folks. Remind them that, even if they don’t buy a vehicle from you today, they can still refer customers to your dealership and get referral fee or “bird dog” for each one that buys a vehicle. Keep it personal, and soon the only place these folks will send their friends, family, co-workers, fellow church members, golf buddies, anybody they know, to buy a vehicle from is your dealership. Do the math and you’ll see how, with a little personal touch, you can sell a lot more vehicles!

Personally Speaking

2007-09-17T09:02:00.000-07:00

The problem with some Special Finance Managers is that we tend to wear blinders. More often than not, we view a deal as “now or never”. The philosophy de jure is “If I don’t close them now, someone else will later.” We loose sight of the fact that every customer can’t be closed the first time around. We get caught up in the idea of an immediate sale, and never see future opportunities.

Every lead I get is a potential sale. Successful subprime dealers understand this, and realize that just because you can’t close the deal today it doesn’t mean you might not sell them tomorrow. Customers can’t buy for a variety of reasons – insufficient down payment, insufficient income, new job, new to the area; the list goes on and on. Whatever the reason, one thing is for sure. Whatever is holding them back today is bound to change in the future. Maybe there’s a raise on the horizon. A cosigner suddenly appears. The tax return check comes in the mail. Whatever the obstacle, if you keep in touch with that lead, when he’s able to buy, your dealership will be the first one he calls!

2007-09-11T09:00:00.000-07:00

by Christopher Blackburn

So the G.M. says, “We got this big event coming up this month! I love it because they bring guys in and all I have to do is stand to the side and they do all the work!” Does that mean that for the other 26 days of the month he do nothing? This guy was excited because at the last event they did 22 units in 4 days. The way I understand the math on most of these things is that they bring a group of guys in so they can take half your profit. They earned $100,000 and you only get $50,000. Not only that, but how long are they going to be able to advertise for “The Big Event” before their list of names to mail to gets stale?

Now, approach #2…you sell 22 cars in the month and get to keep your $50,000 and their $50,000. So, the guy that stood to the side (yea, stood, as in past tense, as in he should no longer be there) and lost your extra $50,000, should have considered an alternative method. Have a steady flow of leads every week so that your dedicated special finance staff can get into a rhythm. They need to learn how to sell the loan and establish long-term relationships with these potential customers. Who would have know working backwards would work so well for moving ahead.

When it comes to those Big Events, try to resist the temptation to pay another company half your profits. Oh, and keep your legal cost in mind!

These leads &%^$#@@ (leave something to be desired)!

2007-09-06T08:52:00.000-07:00

Depending on who you speak to regarding Special Finance, there are either too many leads or not enough quality leads to work. The difference here is one of perception. How you determine your lead quality will ultimately determine whether you have a subprime “deal or no deal”.

If you see your leads as too many, you might want to consider how efficiently you are working your leads. Who do you have making your calls? Are they really calling every lead to secure an appointment, or are they rushing through each call without truly committing the customer to that appointment? Are they trying to sell a vehicle to each customer they contact, or are they trying to secure an appointment? If you are handing out leads to your sales force, are you sure that they are making every effort to contact these leads, or are they making just a token effort to appease you?

I Have All the Business I Can Handle!

2007-09-04T08:58:00.000-07:00

by Christopher Blackburn

Do you really think you have all the Subprime that you can handle. Does this mean you don’t want to sell anymore cars to the special finance market? Are you truly seeing all the customers you could ever want?

At last check, the car business was designed to sell cars. Granted, there are a bunch of guys that stand out front filling the silver container with paper wrapped cotton. In almost every dealership, there is a least one guy that would love to sell more cars. More than likely it is one of the guys out front right now.

The real point, whether they know it or not, if you think that you “have all you can handle”, you probably don’t know how to handle it at all!

Have you ever tried to hold 12 ounces of soda in your hands without using the can? They call it a spill. Yea you can probably drink a little of it out of your palm but the truth is that you probably missed 11 ounces. Now, if you use the right container to hold the soda—a can—then you will be able to drink all 12 ounces.

Now the correlation. Some dealers sell some Subprime vehicles, but they only drink 1 ounce of success. Then there are those dealers that get to drink all 12 ounces. Capturing every possible deal out of your special finance business is the point of the business itself. If there is only one customer a day that leaves without a loan for a vehicle, then you have already lost 25-30 units a month. Based on my experience, one a day is a good day.

How Do You Approach Your Customers

2007-09-02T08:56:00.000-07:00

Taking a proactive approach to the subprime sales process can make a big difference in your bottom line. By settling the credit issues up front, you help set the customer’s expectation to reality. Avoid the “no sale” or short deal you’re forced into taking. Have your sales people once again explain the concept your dealership embraces. Keep your customers in the “credit decision” mode. Emphasize your dealership’s role as a credit counselor, trying to help them rebuild their credit. Doing this accomplishes several things:

• First of all, it tells the customer that your dealership is genuinely concerned and trying to help him.

• This gives your customer a chance to explain away their credit problems. Bad things happen to good people, and lenders try to understand that. A serious catastrophic medical event can bankrupt a family faster than anything else. This is much different from the guy who just went out on a “credit bender”, overdosed on easy credit, and just financed himself right into the ground.

• It reconfirms the credit issues that got the customer here in the first place. This sets the stage for later negotiations, legitimizing the higher rates they may have to pay.

• It helps set customer expectations where you need them – firmly in the reality mode. It gets the customer away from the “product decision” and focused on the “credit decision”.

Are You Too Busy to do Special Finance?

2007-09-01T08:55:00.000-07:00

No matter how you look at it, to be truly successful in subprime, you need to have dedicated personnel responsible for it. Sales people who are handling primary customers as well will more than likely opt to deal with these “easier” customers, avoiding what they perceive as too much work for too little money. If you have your primary F&I managers dealing with subprime, you’re probably “stepping over dollars to pick up nickels.” Some F&I managers tend to be overly intimidated by subprime. There’s too much math involved, what with maximum advances, PTI, DTI and all the rest of the alphabet soup associated with subprime Finance. Your subprime deals probably end up with minimal front-end grosses but phenomenal back end penetration and profits. Why? Because that’s where they get paid from, so where do their loyalties lie? Keep in mind that, with subprime, front-end gross (profit on the actual sale of the vehicle) is dollar for dollar, i.e. you get 100% of the profit directly to your store. Back end profits (MBI’s, GAP, A&H, Life,) only make you 40-50% on the dollar. And it may be subject to charge-backs. Where do you want your money going?