Take Time to Talk to Your Customers

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

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

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

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

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!)

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

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.