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

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

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

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:

1. There is no such thing in a dealership as a “job well done”. You’re only as good as the last deal you delivered.
2. 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!
3. 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.
4. 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.
5. Customers believe you’ll do anything, and take any offer, because the news shows keep telling them how bad our business is.
6. Sales Managers never want to hear they’re doing anything wrong, ethically or legally, until they’re about to get caught.
7. 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!
8. 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!”
9. It’s never a good sign when the GM calls a management meeting for 8PM on a Sunday night.
10. 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.
11. A GM will always choose to keep the guy who makes the least amount of money when business gets bad.
12. 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

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

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!

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!