Proper Deal Structure & Rehash Techniques

I am often asked questions about deal structure and rehashing deals. Usually something along the lines of “should I send the deal to the lender at max call or higher, or should I send the deal in for less than I really want, then call and rehash?” The answer, in typical attorney terms, is “it depends”. Let’s analyze how this breaks down.

I know several high-profile dealerships that send the deal to the lender structured for less than max call. When the call comes back from the lender, these dealerships immediately pick up the phone and try to rehash to the structure they really want.

Successful stores actually rehash every deal every time. I find it interesting that even when a deal does come across at maximum structure, these stores still call and work the lender. Let’s face it; you can’t get it if you don’t ask. The strategy behind sending a deal across at less than max call is simply to get an approval. Once the approval comes, it is easier to call and talk to a live person about the strength of the deal, and get the deal structured exactly where you want.

Most systems of lenders today are on an automated approval/decline system. This is where the computer structures the deal with an approval or denial. Some lenders are utilizing systems where once the computer turns a deal down, the actual loan officer can’t override the decision and the deal stays in denial status. With this in mind, send the deal at terms less than the maximum call, with no extras, and a good down payment. Utilizing this process gives you a better chance of talking to a live body and getting the deal put together.

The other scenario is to send the deal across at the max call available, or even higher, and let the lender condition the deal. The idea here is to ask for all you can and let the lender cut you back. This has been the mainstay of our industry for over a decade. Shoot for the stars, and you may land on the moon. The lender wants the deal and will try to condition it so they can keep it together. With this ideology, you know you’ve asked for it all and then some.

The downside of this program is more and more lenders are adopting fully-automated systems. In fact, I spoke to a dealer recently with two locations across the street from each other. At Location A, a customer entered the store and the dealership sent the deal off, asking for the stars. It came back as a big decline.

The customer then went to the store across the road, Location B (operating under a different name), and the deal was bought. The SF director at location A, with whom I was speaking, called the lender to see what the problem was. He was told the fully-automated system declined the deal, and they had no authority to override the system.

In this instance, the second location sent the deal across at 80 percent of max call, got the deal bought, rehashed it, and landed a three-pounder. This was a bit of an expensive lesson for the SF director I was visiting with. He assured me he will send the deals across at lower levels in the future and work at rehashing the deal structure once he has an approval.

Both methods have pros and cons, but more and more dealerships are adopting the first strategy of getting the deals bought then rehashing every time. I recently spoke with several lenders who feel like a dealership prepared to rehash the deal will get a better call.

Let me emphasize this point again, as I feel it is really important: lenders actually admit, that when a dealership is willing to take the time to call and rehash  a deal with them, these same lenders will give them a better call the majority of the time. The old saying, “the squeaky wheel gets the grease” applies here.

Now, before we put the cart ahead of the horse, please allow me to elaborate on other items lenders discussed. There is a line in the rehash process that can be crossed and frequently is. Don’t cross this line! The idea in working a lender is to point out the strengths on the deal. Be honest with your lenders; they are really your teammates in business. Explain why the deal is a good one. While dealers need the lenders, the lenders also need the dealers.

In this business, we all need to work together and help each other. Don’t try to make this a one-way street, where the lender is slighted or beat-up on a continual basis. This a short term philosophy. If the line is crossed on a continual basis, the bridge will eventually be burned, and you will have one less lender on your team.

Instead, keep only six to eight good lenders on board, feeding the deals to them alone. If you keep more than this, you are not developing solid relationships. Lenders crave these relationships more than the dealership does. Think about it the last time you took time out of your day to go pick up the lender and take them to lunch. Lenders need and want our block of business, but they also want a two-way street that is truly “relationship” lending.

The facts are in front of us, and they are simple to see. The successful dealerships are getting deals bought with a lower deal structure, calling to rehash every deal and building relationships with a select number of lenders. This is the recipe for success in the Special Finance arena.