Will Your Special Finance Department Need Life Support?

Perform an Annual Checkup Before Peak Special Finance Season Arrives

For ages, health professionals have encouraged individuals to get annual physicals. They are to ensure you are in good health or to detect problems early so that they may be treated with simple changes like diet or exercise, as opposed to invasive or radical efforts. I doubt if many people look forward to the experience of being stuck, poked, prodded and x-rayed, particularly if they already feel good. It seems to be a waste of time, effort and money. The thing is—and I can speak from personal experience—you can feel just fine, but have some very bad things going on that if you address early on, can keep your life on track. It makes you thank your lucky stars you didn’t postpone the dreaded appointment.

Your special finance department may not be as important as your personal health, but to many dealerships, it is essential to the overall health of the business. In many cases, without the gross profit generated by the special finance department, the bottom line would be very red. If that is the case, an annual assessment of the health (and plans) of the department is vital. Is the department and dealership still poised for optimum success? With the new year and the peak subprime season just around the corner, this is the time to make sure all components are in place and functioning. With that, I offer the checklist that follows.

Commitment
Is the dealership still committed to SF? Regardless of who is leading the SF effort, are they properly trained? Are all other variable operations managers supportive of the department and its efforts? Are your compensation plans for all the departments working in harmony, so that one side or the other (SF manager or prime F&I) doesn’t have to lose in order for the other side to win? Is the used vehicle manager and/or buyer on board in order to ensure the proper inventory is in stock?

Inventory
Do you know how to stock the proper amount of SF inventory for each credit tier? Perform a credit bureau analysis to determine the credit demographics of your store. Then, use those demographics to determine your store’s credit tiers, and assign your available finance companies to those tiers. With that information, you can break down SF inventory purchasing by tier. Do you have a 30-day supply of vehicles that are a minimum of $500 behind the appropriate guide books and at the necessary inventory cost to support the income levels for each credit tier?

Personnel
Do you have a regular training program in place on how to handle the subprime credit customer? Based on the number of opportunities (leads, calls and walk-ins), do you have enough properly trained personnel to ensure all leads are worked to their fullest extent? Whether it is one person or a team of people, are they trained to work a common plan in harmony with the rest of the sales floor? If more people are necessary, do you have a plan to hire, train and retain them before any marketing money is wasted?

Finance Companies
Have you taken inventory of all the banks, finance companies and credit unions available to you in the market (via CrossSell, AutoCountUSA or DMV reports) and determined if you have all the necessary relationships in place? Are those relationships healthy? Consider those companies  you’ve done business with for some time. When was the last time you had a meaningful conversation with someone in management about the performance of your dealership’s paper and their expectations of your dealership’s performance? If there were warning signs due to poor performing loans, have you mapped out a satisfactory plan with those finance sources to ensure the relationship will stay mutually beneficial?

Telephone Skills
Have you recently mystery-shopped via phone all personnel involved in a SF deal, whether that be receptionist, salesperson, call center, SF manager, or higher? This can be very telling. With so many of the opportunities in SF first involving phone contact, does your phone process ensure each lead or call is invited into the dealership in a professional and upbeat manner? When was the last time you really spent time training on phone skills? Are you continually reviewing the call flow and call guides to ensure the proper presentation is given at the proper time? Do you have measures in place to be able to track the call activities (number of leads, number of appointments set, number of appointments that show, and number of sales from these leads) to determine who needs additional training and in which area it needs to take place?

Sales Process
Is your dealership’s sales team properly trained to either use qualifying questions or available technology to quickly and inoffensively determine whether a customer is prime, subprime or even BHPH before a vehicle is suggested or presented? Do you have a process in place that allows you to track the total number of sales opportunities and red balloons (SF credit customers) a salesperson has? More importantly, do you track by salesperson how many red balloons were improperly shown a vehicle they could not possibly qualify for before they were determined to be a red balloon (indicating a need for more training)?

Deal Structure
Do you have a system or software in place that allows you to quickly determine the maximum advance offered by a particular finance company to allow you to direct a customer to the most appropriate vehicles for their credit and financial situation? Is everyone who is involved with pricing and negotiating the deal fully trained on how to work a deal backwards in order to calculate the maximum selling price, based on its available advance from the optimum finance source?

Marketing and Advertising
Do you have a way to accurately measure the traffic created from your advertising spend in order to determine your ROI? Have you forecasted your SF sales and gross profit for the first quarter of 2010 and set your marketing budget accordingly, based on a percentage of gross profit or a cost per SF vehicle sold? Have you put together a plan that is based on the money you will have available and seasonal events or occasions in your particular market? Are you consistently branding your SF efforts across all media? Have you reviewed the performance of your lead providers over the last 90 days to calculate the cost per sale of each provider to determine where you should spend more or less money? Have you considered a separate stand-alone credit Web site for subprime credit customers? If you are actually advertising as opposed to buying leads, does your message stand out and make you different and memorable, or is it the same as everyone else’s?

Compliance
Do you subscribe to, read and regularly train from your state association’s compliance newsletters? Do you subscribe to, read and train from Tom Hudson’s Spot Delivery newsletter? Have you done a simple document review by reading every line of every contract used in a SF deal to ensure they say what you want them to and don’t contradict themselves or one another? When was the last time you had your documents reviewed by an attorney familiar with consumer law to ensure all new laws and regulations have been complied with? Do you have your Red Flags Rule, Safeguarding Rules, and Privacy Rules policies in place and do you regularly provide training on them?

Systems
Do you have systems in place to ensure the consistent execution of the rest of your plan? Do you have a system in place to quickly identify the spread of a vehicle (appropriate guide book value minus your inventory cost) within an inventory cost range? Do you have a system in place to track and manage all the sales opportunities that you receive? Do you have a system in place to collect and manage e-mail addresses from every customer you work?

Are your checklists and processes up to date to ensure that you are getting your contracts funded at benchmark pace and are always receiving all the expected funds? Do you have a process in place that ensures you are able to analyze the data you collect on a daily, weekly and monthly basis to determine your ROI and make necessary adjustments, no matter how busy the department is?

The process of going through this list of questions about the components necessary to achieve success in Special Finance is no different than the process a medical doctor uses to analyze your health. If you are able to satisfactorily check off the answers to these questions, you should be able to move ahead into 2010 with the confidence that your SF department is as healthy as can be and will continue to function as a significant contributor to your dealership’s bottom line.

Until next month,
Great selling!