New FICO Score to be More Understanding

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

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

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

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...

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!

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

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?

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

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

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

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

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

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!

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)!

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!

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

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?

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?