Dealer Data from the 2007 Special Finance Convention

At the recent 2007 Special Finance Convention, held in St. Louis, Mo., approximately one-third of the 186 registered dealer attendees opted to submit their statistical SF data. That data represents the equivalent of slightly over 29,000 annual transactions, which would easily be one of the most comprehensive studies available.

Dealership data was broken down into one of four SF volume classifications, zero to 15 sales per month, 16 to 30 sales per month, 31 to 60 sales per month, and 61 or more sales per month. Averages were created for each volume classification, and all dealers were combined to produce a set of overall averages.

After spending significant time analyzing the data, the study revealed some interesting findings, based on the average (not benchmark) monthly performance of the responding dealers. As a reminder, these numbers differ from the benchmarks, as benchmarks represent the 75th percentile rather than average. While the manner in which the data was received did not allow for true benchmark calculations, one can look at the averages of the highest volume dealers and see they are performing at or above benchmark levels in most cases.

SF Volume
Quite honestly, I was surprised at the elevated SF volume level of the responding attendees. The monthly volume ranged from zero, for a few attendees who were just starting their departments, to 481 SF deals at the top. Of the 59 respondents, the average dealer delivered 41 SF units in the month of July 2007. This volume averaged 37 percent of the dealership’s total sales volume, meaning the average dealership reporting was delivering a total of 111 new/used retail units per month. 

Not surprisingly, new vehicles, on average, made up less than 10 percent of the total monthly SF sales. To be fair, however, you must look past the raw numbers. The new/used SF mix for dealerships was heavily dependent on what franchises the selling dealers held. Suzuki and Kia dealers, for example, sell vehicles with low transaction prices, which also generally have higher customer incentives available (often used as down payments).These stores, in particular, reported as high as 61 percent of their SF sales as new vehicles. The stores’ new vehicle performance was obviously offset in the averages by the independent dealers, who obviously reported no new vehicle sales, and dealers with other franchises whose vehicles sell with higher transaction prices.

Transaction Prices and Inventory Values
The average selling price of the reporting attendees also surprised me. I was expecting something much higher, especially from all dealers reporting more than 30 SF sales per month – considering the number of new vehicles that were sold in that category..

Overall the selling price of vehicles averages $12,989 per sale. The highest group was those selling more than 60 SF units per month, with an average selling price of $14,857.

You can then begin to approximate the average wholesale cost of the dealer’s inventory by subtracting the average vehicle gross profit from the selling price, as well as an arbitrary amount ($500) for a finance company’s fee. This would mean that, overall, the average vehicle dealers were selling was held in inventory for $10,803. The range among the groups was from $9,602, for the dealers reporting the fewest SF sales per month (and nearly matched by those in the 31 to 60 sales range), up to $12,107 for the dealers in the 61+ group.

Conversion Data
Attending dealers were asked to break down their traffic between walk-ins and leads, then further break down the leads into e-leads, incoming phone calls and credit-hotline calls. 

The identified SF opportunities that walk-in to the dealership hold the highest conversion ratio of all opportunities. When adding the first time walk-ins to the referrals, repeat buyers and be-backs, the conversion rate by the average dealer was over 21 percent. While these opportunities made up just 36 percent of all the SF opportunities, the average dealer sold 26 of their 41 SF units out of this group, meaning that it accounted for over 63 percent of their total business. This dramatically underscores why it is vital to have a good process in place to identify the Red Balloons (sub-prime credit customers) from the rest of the showroom traffic.
 
Dealers selling over 60 SF units per month reported an average of 241 walk-ins per month and delivered an average of 22 percent of those opportunities.

e-Leads
When it came to e-leads, dealers reported they were receiving (on average) 97 e-leads per month, which represented a total of 60 percent of all the leads received and 29 percent of their total SF opportunities.

Loan-by-Phone
The loan-by-phone or credit hotline leads, once a staple of Special Finance departments, showed an amazing downturn in usage. With dealers now directing their customers to apply online, rather than through touch-tone phone entry, the average responding dealer is now processing just 28 such leads per month. Conversion rates again varied greatly here, with the rates much stronger by the highest volume dealers (20 percent). While the lowest volume dealers closed but 8 percent of their leads, as a group dealers reported closing 12 percent (surprisingly 50 percent better than e-leads). In group discussions, it appeared the difference could be with the loan-by-phone leads, the customers were generally aware they were calling a specific dealership, which was not the case with most 3rd party e-leads.

Phone Leads
It seems that some people still use the old-fashioned telephone to contact the SF department; in fact, the average was 44 per month, or about 13 percent of the total opportunities. Conversion rates again varied wildly, and surprisingly, the smaller the SF volume, the higher the closing rates. The group selling zero to 15 SF units per month was closing at the benchmark rate of 17 percent. The rates fell all the way to the 7 percent mark with those dealers selling more than 60 units per month.

Total SF Leads
While dealers reported an average of 168 leads (which was exactly 50 percent of their total SF opportunities for the month), their average closing ratio for all these leads was just 9 percent. Put in another context, while the number of total opportunities was evenly divided between walk-ins and leads, the closing ratio was 61 percent versus 39 percent in favor of walk-ins. You have to find the time to get a good SF sales process set up at the desk!

As is the case with any study, tendencies or swings one direction by a certain populous of the group are generally balanced out by swings the other direction. Such was certainly the case with these dealers. While the higher volume dealers clearly outshone some of the lower volume dealers in some areas, they were balanced out by the lower volume tier. Overall, the dealers in each group averaged a closing ratio of 12 percent, which ultimately was the overall group average as well.

Personnel
The benchmark dealers average about one person in their department for every 12 SF sales. The highest volume group eclipsed that mark, by selling an average of 12.6 units per person in their department. This was 27 percent better than the lowest volume group. To sell the extra volume however, the 61+ units per month group had to work more leads. The average high volume store worked an average of 103 opportunities per month, while the next highest volume group worked just 76 leads. The higher salesperson-to-opportunity ratio apparently is a good thing, as their conversion rates averaged 11 percent.

Advertising Expenses
These dealers struggled in general to achieve benchmark advertising spending rates. While the target has risen over the last few years to a cost per sale of $307 (and 9 percent of the total deal gross profit), the responding dealers averaged 20 percent and $62 higher per sale at $369. Struggling to find the magic mix of marketing and advertising, ad spends were reported as high as $881 per unit by one dealer.

Dealers averaged spending slightly more than $16,000 to create their 336 SF opportunities, utilizing nearly all media to do so. The challenge most dealers face as they reach the upper volume levels is that they cannot find the quantity of leads necessary to deliver the traffic they need with more cost-effective opportunities like e-leads.

Direct mail still seems to be an SF department favorite, as dealers spent nearly twice as much with mail as they did with any other media. Even in the highest volume category, where individual dealers often spend tens of thousands of dollars in television, when comparing the entire category, more money was spent in mail. Indeed, if mail helped drive the substantial showroom traffic that the dealers enjoyed, it was money well spent, since the closing percentages for showroom traffic was so much higher than with leads.

I am often asked what dealers should be paying for their e-leads. The average cost for the e-leads paid by the reporting dealers was $27.75 per lead, meaning that many are choosing to take advantage of the lower cost leads sacrificing quality for quantity.

One interesting note is that of the broadcast media. Television, although more expensive per spot, was used more by the two lower volume groups than radio, and none of the groups except the highest volume group spent much on radio. The higher volume group spent over 17 percent of their ad budget on radio, where no other category spent more than 3 percent.

Summary
All in all, the data submitted by the dealers offered some telling information.  One important piece of data was the lack of tracking by some dealers. To derive the meaningful data that we have, it was necessary to purge a fair amount of data, which was so obviously misstated that it would have warped all the final averages. (For example, dealers claiming they were paying $2 per Internet lead, setting appointments and selling vehicles to 100 percent of the leads would have certainly thrown off averages.)

The bottom line is the more you measure, the more you can manage. With this data, you certainly have sufficient ways to measure your own department against meaningful numbers of others. Through it, you should be able to manage your department more efficiently and to a stronger bottom line.

Vol. 1, Issue 5