Mananging Our Business

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!