You may or may not be surprised to hear that the fastest
growing segment in consumer credit today is the Sub Prime
consumer, those with a FICO score of 625 or less.
The credit profile of the average consumer has changed over
the years and unblemished credit histories are more
difficult to find.
The credit history profile in 2005 in broken down as
follows: 40 % of consumers have had an account that is 30
days delinquent. 30 % of consumers have had an account that
is 60 days delinquent. 23 % of consumers have had an account
that is 90 days delinquent. 20 % of consumers have had an
account that was closed due to default.
I recently asked Bob Blackburn of the Auto Lending Network
to profile the credit scores of my home town of Louisville
Kentucky. The results were much different than I expected:
57 % of credit scores in Louisville were above 600, leaving
43% of the credit scores below 600, clearly in the sub prime
category.
The fact is that in your dealership you have a better than 1
in 3 chance that the next up on your lot will be a "B" tier
or less customer, whether or not you have advertised
specifically for them. The question is, when the customer
enters your dealership will they be handled correctly and
drive home in one of your cars, or go to your competition
and drive one of their cars home?
We need to learn a whole new set of skills to properly
handle today's dealership customers. Mangers and Salespeople
in today's dealership must identify a customer's credit
worthiness quickly. They must realize that the "A - B" tier
customers are buying a "car", "C - D" tier customers are
"buying" a "loan" and Buy Here-Pay Here customers are in the
collections category.
"C-D" tier customers are forcing us into the loan
origination business. These customers must be identified and
handled accordingly. These consumers must be sold a car that
fits your lenders guidelines and call backs. If the reverse
is happening and you are forcing the car to qualify for a
customer's call back then you are needlessly cutting your
gross or losing sales.
The sub prime customer has been identified in your
dealership... now what? Do you have a Sales staff that can
correctly and compliantly sell to a sub prime customer? Do
you have vehicles that can qualify for a sub prime call
back? The most common question I get from car dealers is how
do you find a top notch and honest secondary Sales Manager?
The best way to find your new Special Finance Manager is for
you to do a phone interview with all your customers that
were turn downs ... anyone that could not be delivered in
one of your vehicles.
The phone interview of these lost customers should provide
you with the following information: 1) Where did those
customers that you lost go to buy a car? 2) Who was the
Special Finance Manager that was able to get these customers
delivered?
These are the Managers that are making gross profits on your
customers. If you are smart, and you are, you will steal
them. Hiring these people will give you a known commodity
and you will be hiring winners with a proven track record.
How often does that happen?
The secondary information you will gather through these
follow up phone calls is: 1) Are the vehicles you stock what
customers want? 2) Do we have enough qualifying cars in our
inventory to make deals?
The answers to these questions will be a direct reflection
of your Used Car Manager's understanding of what vehicles
are needed to deliver a secondary customer. Your Used Car
Manager must stock the lot with vehicles that will qualify
for sub prime lending.
Dealership's with a high volume of sub prime customers but
few sub prime deliveries clearly has an inventory problem.
This is a problem that must be dealt with immediately!
The sub prime customer is also a used car customer which
means they have all the legal rights of your prime
customers, and the same rules for Compliance must be
followed. The legal profession realizes that the sub prime
customers are treated poorly in some dealerships and have
even started advertising specifically for these sub prime
customers. The fact is that a sub prime car deal is still a
car deal and should be treated as such - short cuts here may
be inviting disaster!
The more sub prime customers you get approved, the more used
cars you will deliver... and let's face it, no one ever
complains that they delivered "too many" used cars. I
promise you that if you spend some time getting educated
about sub prime operations and you are involved in your
Special Finance Department on a daily basis, you will find
why it is called "SPECIAL!"
In the next news letter I will reveal the elements of a
truly great Special Finance Department.
Michael Finnan is a Regional Sales Manager for The Guardian
Warranty Corporation and the former National Sales Trainer
for Universal Underwriter's Group. Mike has authored course
materials and delivered training for the NADA Dealer
Candidate Academy and Northwood University and was selected
as one of F&I Management & Technology Magazine's 2004 "Who's
Who". Mike has spoken at the F&I Conference and Expo in Las
Vegas, was a participant/speaker on the Association of
Finance and Insurance Professional's Compliance Thursday
Video Instruction series and has been published in F&I
Management & Technology magazine.
You can reach Mike via email at MIKEFGWC@aol.com or via
telephone at 502-220-3733
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