A Few Critical SF Components

“I'm not going to tell you again!” My mother would scream something about cleaning my room after the third day of things walking out of it all on their own. “Thank God!” would always be my response, followed by disciplinary action that most kids would write a book about these days! I could be told over and over again about how things just needed to be done, and I would never take the time to actually do it. Why? Well, because I had better things to do like go on hiking trips, go bicycle riding, play basketball—anything but what needed to be done. 

We are no longer in the stage of the auto industry where actions like this are an option. We have to get good at subprime or simply get out. With a higher and higher percentage of consumers entering this segment of the business, we simply have to learn these processes or find a new line of work.

During my career, I have overseen the start-up of special finance departments from coast to coast and I’ve learned that some things remain the same no matter how much the industry changes. Solid principles to build your special finance department rarely change.

I thought about a woman we spoke with at the store I'm currently doing some training in. She scored a 404 and hadn't licked a stamp in quite a while, but insisted she needed a car big enough to transport her nanny with her. That's right, a nanny. We luckily had just the vehicle for her. Now, at least her nanny has a great ride. We put this deal together using four of the elements that must be paramount in every dealership to have a successful special finance department.

1. Inventory – We had the right inventory in every segment. This is what some people miss first and foremost. We all understand the definition of a special finance unit—2004 model year or newer, under 60,000 miles, on the lot between $7,000 and $13,000, and back of your respective book at least $500. However, I have seen many dealers take that definition and stock a 30 day-supply for their department, all SUVs and zero cars. We create a matrix of all segments of vehicles, set our goals and create an order to buy weekly. Start by segmenting your vehicles into small sedans, mid-size sedans, large sedans, minivans, etc. Then, look at what you have on your lot that meets the definition and where you are light so you can create an “order to buy” using that information. I would review this at least once a week to make sure you have the vehicles you need to be successful.

2. Proper financial institution portfolio – We had the right bank at the right time. As we all know, right now a 404 score is not an easy deal to get bought. We got this particular car deal by knowing where and when to send this deal and how it needed to look to make it attractive. We knew the answers to the questions they would ask before they asked them, the customer was available for a customer interview and we were able to move forward because we did not waste any time with a financial institution they knew would not be interested. We went straight to the person that we knew would listen to the customer’s story and appreciated the way we took care of our portfolio. The relationship we had built with this financial institution prior to this deal was paramount in getting the deal purchased.

3. Proper deal structure – You should know exactly what a deal will need to look like for the computer system of the finance company to not automatically decline it. You must know enough about how finance companies’ internal score cards work in order to determine if you will be able to get a deal past the first step in the process. If you have the chance to talk to someone about the deal, your chances of approval are obviously much higher. One frustrating thing I see more and more is a finance manager simply waiting. Pick up the phone and call to ask for the approval. Don't wait for one. I will be on the phone with the bank before I hit the submit button. This is and has always been a “right now” business, and we have to focus on getting this deal done right now. It’s also important to know the difference among lines three, five and seven on a deal structure. It's one of the most basic things I train, but amazingly enough it’s a concept that isn't easily understood by some of the most seasoned finance professionals. Where does the financial institution put the money? Where is their advance percentage calculated, and in what ways can we “play” with that number and make it a win-win situation for both us and the financial institution?

4. Proper sales process – A special finance customer needs to be worked differently than a regular credit customer. SF customers need to understand why their choices may be limited due to their credit. Doing a proper credit and customer interview prior to showing a vehicle and negotiating is crucial in making sure the customer understands that their current credit situation does in fact limit what we can or cannot do. They also need to understand at the end of the credit interview, prior to discussing any numbers, that they will pay a higher interest rate than they may be used to. They also need to understand that the financial institution has strict limitations on the vehicle they can purchase. Closing a SF deal is so much easier with this firm understanding.

While there are many other core elements that come into play on SF deals, I believe these are paramount. They have to work and they have to work within a process that is so seamless it flows naturally from one point to the next.

The day has come when we can't ignore the SF customer any longer. We will learn special finance or we will go away, unfortunately. Special finance isn't much different than what you’re doing now, but you do have to learn how to handle the customer and the financial institution. Learn these core concepts and move forward with your success. Had any of those concepts mentioned above not been in place, the car deal for the woman with a 404 score and a nanny would have never been realized. Any step missed in this process could and would have been catastrophic for that particular deal. The point is, there is a process; it has to be worked the same way every time without fail.

It's time to get in the special finance game, but make sure you do it with all the right gear on and show up to play!