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

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

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!

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

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."