Road Map for Succes in Special Finance

Over the years, working with so many dealers and Special Finance departments, I have been asked countless time, what does the Road Map to Success look like? What does it take to build a successful department? There are 16 mile markers on that road. If you follow them you will arrive at your destination. They are:
 
1) Hire the “right” person – the right person for the Special Finance position needs to have these talents.
  
At least one year of successful automobile sales experience, organizational skills (on a scale of one to 10—10 being the best, should be at least a six), management skills—someone who will hold others accountable for their job duties, integrity, willingness to learn, ability to multi-task and delegate.

When it comes to the customer objections, lender objections, manager objections and, yes, dealer objections, a person who has not been successful in sales over time will likely cave and not get the job done. This person needs to have sales talent – they will be constantly selling to the banks, the customer, the sales manager and the dealer to do what they need to be successful.

Organizational skills are required to keep the mountain of stips, deal processes and requirements needed to run this department under control. Without organizational skills, regardless of the talent of this person, they will likely cap out at 20 units. In addition to the low production, your funding will likely be a nightmare.

Management skills are required since being a Special Finance manager involves more than just working leads and selling vehicles.  To manage you must be able to direct people, measure and analyze results, and both train and coach team members in order to improve their results.

Integrity is another big key. If this person changes information on an application to gain an approval from a lender, eventually the repossession grim reaper will crush your relationship with your finance sources. Dishonesty and deceitfulness with customers make for bad CSI.  The industry is too competitive in this day and age for the public to tolerate that long term.

Complacency will cost sales and lost profits. The right person must be willing to learn.  Someone who professes to know “everything” about Special Finance will never listen to outside advice nor adapt to new concepts because they “Know it all”. Advertising and training we did just three years ago is part of the stone-age now. 

The ability to multi-task is mandatory. A typical example of any five-minute time frame for many Special Finance managers would be: Work a deal for an approval; take a phone call from a lender needing a stip to fund a deal—find that deal and make a note on it to handle as soon as possible; take a call from the office manager regarding a bounced contract—make another note of what you need to do to resolve this issue; at the same time someone walks in the office asking a question about a deal they worked yesterday— “Could a car that we just traded for work?;” an urgent page comes over the intercom that the used car buyer at the auction needs your advice on a unit he is about to purchase for the Special Finance department – it has 120,000 miles on it and you probably won’t have a bank willing to finance it; the sales manager walks into the office demanding an answer on the application he sent to you five minutes ago which you have been key-punching into the computer while you doing the rest of these tasks. If this person can not multi-task, you will both be at wits end very quickly.

The ability to delegate is also required. If this person does not delegate, you will not grow beyond 30 units and most of the time they will max out at 15-20 units per month. Duties to be delegated will be covered in item 13.

I guarantee – if you put someone in the position that possesses these qualities, your work is 75% done.

2) Always ask the million-dollar question.

Before showing a customer a vehicle, or discussing payments on a vehicle, always ask them the million-dollar question: “If we make the terms agreeable, will you purchase a vehicle today?”

Be sure all decision makers are there, if not—STOP. Yes, this is sales 101. We can all go back to the basics and probably improve.  If you don’t ask this question, you’ll likely get to the point of asking for the sale and the response will be, “I am going to think about it”. The customer is really saying, “I am going down the street because I want something different than what you are showing me.” If you ask the “million-dollar question”, you can always go back and say, “But you said if we got the terms agreeable you would purchase today, what happened?” You have control to try to overcome his real objections. Without the commitment, you can still ask, but the customer did not give you a commitment, and they now have control.

3) Take a complete detailed and accurate credit application.

Don’t short change your customer by taking an incomplete credit application. The customer deserves every opportunity for a loan approval.  Every question on the credit application asks for information relevant to an approval decision.

Always provide three years of residence history and employment history. Employment history needs to be supplied with contact numbers for verification. If the applicant is a renter, always get the landlord’s contact phone number and name. If they are leasing, is it co-leased? If the rent is substantial, some lenders will allow you to split the rent amount with the co-signer on the lease.

When someone says they own their home, ask them where it is financed. If it is a land contract, get the contact information for verification on this credit reference. If there is a cell phone number available, be sure to place it on the application for ease of contacting the client.

Go over the application in detail.  Ask the client for his/her hourly wage and hours worked per week.  Also ask for a check stub with year-to-date or the year-to-date earnings if there is overtime to consider, this will give you the exact income instead guessing.

If they do not have a check stub with them, ask if the income is 1099 income or verifiable by computerized check stub with tax deductions.  You are attempting to establish what type of proof of income you have. Ask if there is additional income and how this would be verified. Is the customer getting a raise in the near future or did you recently get a raise?

Ask for creditors not listed on the credit report. Is there a buy-here pay-here account recently paid in the past? Is there a loan company paid in the past? Land contract? If the credit file is limited or really bad, can do they have a co-signor available?

If you take the time to interview your clients and ask questions like these, you will often find a small fact that will help the deal become bankable.

4) Keep telephone conversations brief and scripted (No exceptions)

Use the “Mushroom” effect. When talking to a customer on the telephone avoid specifics. If they ask “Do you have any Ford Thunderbird on your lot?” The response—not answer—to any question should always adhere to the “mushroom rule”.  Keep them in the dark and tell them as little as possible. Your response to this question should be, we trade and purchase vehicles daily. I try to keep up with everything we have in stock, but I must admit, things have a way of hiding around here. When can you come in, during the week or on the weekend? Is morning or afternoon convenient for you? Answer a question with a question. MUSHROOM.

5) Handle every deal with a sense of urgency.

If you have a customer on the phone or in your store, the deal needs to be consummated now. Find every reason to do the deal now.

If you need stips, try to acquire them from the phone company online. If you need a trade title, have the customer sign a lost title form.  If you need an exception from the bank, just do it (within reason), most of the time, if the car is contracted, the bank will do everything in their power to keep it in their portfolio—if not there will be another hungry bank waiting to do approve that small exception for you to hold that deal together.

If you are not delivering a customer that is in your store in person that day, be very concerned. When they leave with that “be-back” dust on them, 75 percent of the time, they will purchase from your competitor. Understand that this may be your only shot—make absolutely sure you have done everything you can to get the deal done today.

6) Turn finance declines into approvals.

(Rehash, rehash, rehash, rehash…)
  
You must know the lending guidelines better than the underwriters do. If you know the gray area’s they will bend on and the guidelines by which they approve deals, you simply will get more approvals. Underwriters are human, they get training, but I have found, the better you know their guidelines, the more likely you are to get an approval. On occasion, a new underwriter would argue that they don’t do ABC program. After asking the buyer to check with their supervisor they came back with an approval. Know your programs.
  
When a finance company sends a decline with comments that means a living breathing person looked at the deal–this is good. When a live person looks at a deal, you have a chance of overcoming their objections and making it a bankable deal. If the objection is excessive obligations, for example, talk to the customer. Do they have student loans that will be forgiven totally? Is the mortgage paid off but not reporting? Did you ask for the hourly wage and hours worked to calculate income—if not it may be low. For more ideas on overcoming objections refer to Special Finance 101 “The art of rehashing” from Motion Dealer Services, or contact me at KWright@SFInsider.com.

7) Be the MASTER of overcoming objections

Objections can come in many different packages. If you are a master at overcoming objections, you are well on your way to a six figure income. Make up something if you are making no headway, what do you have to lose? The worst that can happen is you are still hearing “No”.

Hint: for item’s 6 & 7 – “NO” always means “MAYBE YES”.

You are simply overcoming objections—sink your teeth in and DON’T TAKE NO FOR AN ANSWER. Think of it as arguing with your spouse, whoever wins those arguments is, usually, the one who has mastered overcoming objections.

8) Follow-up

Follow-up is rarely done in the stores I visit. Follow-up is simple—buy or die. For Special Finance, the application that is approved but not sold should receive a phone call and a piece of mail once a month until they “buy or die”. Follow-up is a great way to increase future sales based on current data. The customer who needed to be on their job for 3 more months to qualify should be followed-up with at the end of the three months.  The customer who has filed bankruptcy but has not had the meeting of creditors should be contacted again immediately before that meeting.

9) Effective Advertising

DO NOT USE THE SILVER BULLET APPROACH... 

Advertising requires constant attention. It needs to be effective and fresh. See a suggested mix of media advertising below. If you use the silver bullet approach, that silver bullet (direct mail) may not pan out for you, and if it doesn’t then you have put all of your money on one horse. Diversify your advertising just like you do your investments. You are investing your money, expecting a return and that requires diversification. Think of advertising as fishing. If you use night crawlers, you will only catch fish that like night crawlers, if you use wax worms, you will only catch fish that like wax worms ( I know nothing about fishing, but my Dad has given me many unsolicited lessons). To reach most of the general public, your advertising should consist of many different mediums. If you do not diversify your advertising, there will be segments of the market that will never be aware of your services.
 
Infomercials and 30 second spots for television have been used for years now. The 30 second spots seem to have a 30-60 day shelf life; the infomercials should be changed monthly. They are a bit costly; however, when you spread it over six to twelve months, the cost is reasonable.
  
Have a clear message and an obvious message. All forms of media (print, television, direct mail and radio) need to clearly state you can help people who have credit blemishes otherwise it will not be effective.

Suggested Media Advertising Mix:

 Television
 News Print
 Bankruptcy mailers
 Radio
 Internet lead provider
 Internet application for your television, radio and direct mail
 News paper inserts
 Beacon score mailers

In the situation of stores with a smaller advertising budget, take the retail advertising and tag all of it a Special Finance message. With radio, television and news print covered without any additional cost, then you can focus on an Internet lead provider, bankruptcy mailer and beacon score mailers.

Remember, advertising is not always immediate—be patient! Run a good consistent mix of advertising and be relentless. With due diligence you will begin to reap the rewards within 6 months.

10) Inventory

Inventory is a significant mile marker on the sub prime market road. The national monthly payment average for a Special Finance loan is $350 per month. Your majority of your sub prime inventory should consist of vehicles in this payment range. To be in this payment range, it is not necessary to watch miles, but the amount financed and the term you can get approved for a particular vehicle. It is also a good idea to keep a mix of vehicles that appeal to various customers.  Here is a good mix to use:

Department unit volume (10) x 1.5 units in inventory=15 units

  Let’s say you keep 30 cars specifically for Special Finance.
  The mix of units you would need to keep is:
  3 SUV’s (4x2 and 5-speed)
  4 Small Trucks (4 cylinder, 5-speed) 4x4 and 4x2
  3 Base Full Size Trucks (6 cylinder, 5-speed) 4x4 and 4x2
  4 Base Vans
  5 $200 to $250 monthly payment cars
  5 Mid size cars (i.e. Taurus, Malibu, Mitsubishi Galant)
  3 Full size cars (i.e. Impala, Bonneville, Maxima, Camry)
  3  $250 to $350 sporty cars

You will also sell from your regular inventory, but this will allow the tough deals to have a good selection to pick from. You will also get conventional retail deals out of this inventory.

A rule of thumb to use when purchasing Special Finance inventory is to buy it at least $1,000 back of NADA average trade after you deduct/add for options, miles and deduct for any potential repairs and reconditioning costs.

  Net NADA Average Trade
  - $1,000 (Minimum)
  - Estimated cost of repairs and reconditioning

Mileage table for figuring payments:
Miles  Suggested maximum ACV

< 50,000   $13,000

  50,000   $11,000

  60,000   $10,000

  70,000   $ 8,000

< 80,000   $ 8,000

  90,000 to 100,000 plus  $ 6,000

To give the Special Finance department a good selection of vehicles to work with, purchase vehicles based on the above mileage and maximum dollar ranges.  This is not an exact guide! Each vehicle must meet mileage and value restrictions as well as be at least $1000 under adjusted NADA trade value.

11) Use technology to maximize time usage

Remember the days when we did not have a printer and computer to print loan documentation and the mountain of paperwork we are required to do? We had to hand-write all of these forms. I used to set aside an hour to complete a set of loan documents and transfer forms.  Today, we do it in 10 minutes. Without technology, we could not grow our departments. Dealerships need a good desking tool for Special Finance. Desking software takes the customer’s purchase structure and payment requirements then matches every unit in inventory to the lenders parameters on loan to value, rate and term within seconds. Without this technology, a Special Finance department is faced with hand booking every vehicle in stock and trying to match the customer to finance parameters and the best inventory to maximize gross while meeting the customer’s needs.  Without desking software, customers leave the dealership frustrated after spending several hours searching inventory then go to the dealer down the street that utilizes one that gives them options and has them on the road with signed contracts in hand in 30 minutes. DON’T BE PENNY WISE AND DOLLAR FOOLISH—give this department a desking tool that works.
 

12) Track your performance

See Exhibit A for sample form

We see variations in performance numbers from one dealer to the next, but there is consistency from one successful dealer to the next. If you track your department’s performance, it is easy to see where issues may need to be addressed or what might have been more effective. Always look at the black and white numbers; they will not lie to you. If the Special Finance department is getting 100 applications per month and they are only delivering 10 cars, you have some issues somewhere. The issues could range from weak closing, to inventory, to bad lead sources to handling the telephone calls improperly. When you track the numbers, you know when there is an issue. A smoke and mirrors show is not necessary, just good old fashioned due diligence to figure out what the real culprit of your low sales closures are. 

13) Delegate

Delegating job duties is a important mile marker on your road to success. Clerical duties should be the first thing you delegate to and “assistant”.  These mundane chores will tie a talented Special Finance person down, not allowing them to focus on what makes everyone happy—making more deals and consequently more money.

14) Let the second face handle the customer

One of the first lesson’s I learned as a sales manager was that I could hold more gross if I let the sales people handle the customer through to the last pass. My grosses doubled when I pulled out of the process until we were all in (or so the customer thought). Don’t underestimate the second face ability to hold gross and close a higher percentage.

15) Hold Gross Profit

In Special Finance we cringe when a sales person prices a car. Just the other day, I was training in a store where the sales person had priced the vehicle we were selling to the Special Finance manager (thank goodness not the customer). The selling price was $10,995 per the sales person, however  the lender approved the line three advance of 115% plus tax, title and license—that raised the maximum selling price to $11,655—leaving $600 on the table. We closed the customer on the higher price, but if the price had been quoted, that $600 would have been a figment of my imagination. DO NOT PRICE YOUR INVENTORY until you know how the deal needs to be structured. This will give you the opportunity to sell off line three advances, which will usually add to your profit and consequently, you will probably be working payments. Isn’t that the way we have been taught?

16) Attend a training class twice per year

I love going into a new store, I know even a green pea will stumble on something I never knew and teach me something. Get outside exposure – even one thing learned will help you put another deal together. If you have a sharp Special Finance person, invest in training to further their knowledge.  Exposure to outside ideas and education will challenge your staff and improve your department’s performance.