Tips From the Elite in Special Finance

The arrival of a new year is a great time to take stock of your situation and re-evaluate your business, especially in your special finance department. After a tough year for all in 2008, dealers need to start fresh in 2009, and what better way to work toward success than learning from those who are already successful? From qualifying special finance customers to inventory, some of the most successful in the business recently offered a few of their best special finance practices.

For Rick Lee, sales director at Alexander Automotive in Murfreesboro, Tenn., the place to start  to ensure an efficient and profitable special finance department is inventory. “For three stores we have a centralized secondary department,” he explained. “We have a meeting once a week. We take a look at our inventory needs … we look at all of our units to make sure that they have an equity position as it relates to left-side NADA and we actually break it down by segment.” Lee makes sure the stores have a good mix of vehicles from small sedans all the way up to large SUVs and trucks. That way, he said, “whatever that product is that the customer wants, we have something within those segments that will fit that need, rather than just, ‘We’ve got you approved and here’s three cars.’”

Lee has a matrix based on not only what’s been selling, but also what vehicles are beating left-side book in each of the segments. Using that matrix, Alexander Automotive’s buyers go out and buy vehicles in whatever segments they are short on. The vehicles are also kept within certain parameters—$12,000 and under, 2005 or newer, etc. Lee wants to make sure the vehicles meet the age and mileage criteria of their different finance sources while still having enough equity to maximize each transaction for advance.

While it’s important your deals meet the requirements of your finance sources, you should also be mindful of the overall picture. Maintaining good relationships with finance sources is a top priority for Curtis Mummert, dealer principal of Buchanan Auto in Waynesboro, Penn. He believes in “taking care of the banks that are taking care of you and not taking advantage [of] or taking banks for granted.” Mummert’s managers must always pay attention to the number and types of deals they are sending to the dealership’s finance sources. “Banks are sensitive to your look-to-book. All banks are sensitive to that right now,” he said. “All my managers are on the same page whenever they talk to one of the banks; they all understand where we are.”

While most dealers want to have a variety of finance sources available, quality is often more important than quantity. With many finance companies dropping out of the game, dealers need to do what they can to get the most from finance sources still available to them. “We don’t focus on having 25 different finance sources; we look to having three or four that we do really good business with,” said Dave Andrews, owner of City Auto in Memphis, Tenn. “You make just one deal a month, it’s not going to do you any good, but if you build a relationship and you give somebody 20 deals a month … when you call, they get on the phone and they look for a way to make the deal work.”

Even if a special finance department is doing its best to cultivate and maintain relationships with finance companies, it can still sometimes be difficult to get a deal placed with and approved by the right finance source. Brent Swartz, finance director for Kelley Automotive Group, Fort Wayne, Ind., noted that centralized buying has worked well for Kelley’s dealerships. He explained that the tougher deals are sent to two credit managers whose only job is get the more difficult loans approved for Kelley’s stores.

“Any deal an F&I manager doesn’t get done, or if it’s a lower score, they get it to centralized buying, and between the two of them they decide where they’re going to send it and get it approved,” Swartz explained. “That way, you’ve got two people [who] deal with the lower-tier customers all the time looking at it.” According to him, this practice has helped Kelley Automotive increase their number of approvals since starting it a little over a year ago.

Of course, things like finance company relationships and centralized buying are of little use if a dealership cannot get customers through the door. It is critical for dealers to find ways of driving traffic to their showrooms, and there are various ways to go about the task.

Andrews works hard with his salespeople to keep them on a prospecting program. “They’ve got a lot of prospects that they don’t even know they have,” he said. He encourages salespeople to look to people they already know, like people who attend their church or people they used to work with, in order to find new customers. Andrews also mentioned that while City Auto drives much of its traffic through television advertising and the Internet, two of his other dealerships—Dover Motor Company in Covington, Tenn., and 1st Choice Auto Sales in Memphis—have gotten good results by using mailers. Dover Motor Company drives traffic using a bi-monthly direct mail piece, while 1st Choice Auto sends out about 2,000 bankruptcy mailers every month, utilizing the Pacer system and targeting one zip code at a time.

Swartz, too, reported success with targeting bankruptcy customers to drive traffic. They work from information in the local and regional newspapers and set up their own bankruptcy mailers. An initial letter is sent out as soon as someone files a bankruptcy; however, Swartz said they usually don’t see much occur after the initial letter, but the follow-up letter yields a higher response.

In conjunction with that mail program, they have also put together a brochure for bankruptcy customers explaining their three-phase program for rebuilding credit. The brochure, which is used for walk-in bankruptcy customers as well, educates customers about what they can expect from their car-buying experience immediately following a bankruptcy and how Kelley’s program can help them rebuild their credit. “That program seems to be working for us,” said Swartz. “We’re getting a very positive response from it.”

Randy Shirkey of Integrity Auto Group in Defiance, Ohio, stated that while Integrity has had past success in targeting open bankruptcies with mailers, they were turning more to the Internet as a way to drive traffic. Specifically, they have been focusing more energy toward SEM and the dealership’s Web site. “We’ve found that it’s been a great avenue for application traffic,” said Shirkey. “Ninety percent of people that buy a car go online to research. Whether they’re good credit or bad credit, it doesn’t matter, so we’re trying to fish where the fish are.”

Generating leads is important, but it’s all for naught if a dealer fails to get those leads through the door. Chris Kahrs, general sales manager of John Amato Hyundai Mazda in Milwaukee, Wisc., said the BDC at John Amato follows a specific word track for setting appointments. “Our numbers decreased and appointment shows decreased as soon as we went away from those,” he admitted.

Follow-up is done regardless of whether the prospect becomes a customer or not. “We follow up with them regularly,” said Kahrs. “The day after, if they did not buy, they get a phone call and then … [another call] two weeks after that. And then after that two-week phone call … we usually put it out a month or two months and follow up again.” Kahrs said it pays off; they have been able to bring many prospects back into the dealership through regular follow-up, giving them a second chance to turn that prospect into a special finance customer.

Not all special finance customers show up at a dealership by appointment, and most won’t simply walk up to a salesperson and introduce themselves as someone with poor credit. That’s why most dealers would probably agree that identifying and qualifying special finance customers early in the sales process is extremely important.

“When a customer comes in, we ask them the finance question, if they’re here to establish or re-establish credit, and if they are we get them in the Promax system right away and get finance involved in the deal early on,” Kahrs said.

Lee agreed. “We try to identify very early in the sales process … if we have a secondary customer or a primary customer, and then if it’s secondary, we just take them down the secondary path,” he said. “We get them immediately in and do a customer interview … and then give it to our secondary managers so that they can get the best callback [and] select the type of cars the customer wants within the segment.”

Michael Anthony, special finance manager for VanDevere, Inc. in Akron, Ohio, stated that, before taking the customer out to look at cars, “We go over everything on the credit application, making sure things are correct, as in job time, dollar amount that they make per month, find out if their mortgages are up-to-date, things like that, things that might bite us in the butt afterwards.” He also said he thought it was important to have the customer complete their own application, rather than having the salesperson complete it for them. That way, he explained, there’s only one place to look in the case of a discrepancy.

 “Just be smart,” Anthony advised. “It’s not a bad thing to find out that a customer doesn’t make enough money to qualify … I would rather know something up front than to have a car out on the road for a week to find out the bank’s not going to fund it because the customer said he makes $5,000 and only makes $2,000, so we need to know in advance. Just do smart deals.”

Those who are successful in special finance know blind luck and gut instinct are not effective in their special finance department, and that there must always be a plan for gauging the success of these different practices. That’s why tracking is considered by many dealers to be a best practice in itself. In order to achieve top performance from a special finance department, numbers must be tracked and results measured. Dealers must be able to spend more time and money on what works and do away with what doesn’t. Shirkey regarded tracking as an essential practice for his department. “We know where every dollar generated comes from, and you’ve got to really focus on putting the money where it’s working. Track everything.”

Mummert agreed, adding that tracking ensures the performance of special finance personnel as well. “We measure everything—leads to appointments to shows to solds,” said Mummert. “Everybody has their individual goals which are based on the department goals. It holds everybody in the department individually accountable to the team.”