The Secret to SF Inventory

Déjà vu, all over again. At least once a year, good times or bad, the discussion arises concerning what is the ideal inventory for special finance. I’ve been doing this for more than 20 years, and the answer is always the same: “Sell financing, not inventory.”

Valuable time and dollars are lost by paying too much attention to makes and models and too little attention to closing the subprime customer.

I am a proponent of designing your SF inventory around your top three subprime finance companies’ guidelines. Are you listening out there in back-of-book land? If your top subprime buyers only go up to 60 months financing on 2006 and newer with less than 80,000 miles, why would you get excited about owning a 2005 Whatever, with 81,000 miles, $3,000 back of book?

Be a good math student. Crunch the numbers. Set your SF inventory at the highest yield versus cost. Spend as little time and effort as possible on what is hot in the market. However, do not assume that what is cheapest in the market is the way to go either. If the cheapie doesn’t fit your finance company, leave it alone. If what’s hot doesn’t fit your profit goal with your SF company, leave it alone. Find a solid middle ground and live with it.

Our top SF vehicles, right now, are 2008, two-wheel drive crossovers and SUVs. Why? It seems, at least here in Kansas, every SF customer wants a 4-by-4 SUV. Well, as I tell each of my customers, “Welcome to the Mick Jagger School of Special Finance, where you can’t always get what you want, but sometimes, you get what you need.” It may not be a 4-by-4, but it is a great SUV that will serve their needs for years to come. We can also buy base two-wheel drive2-by-4 SUV’s a little back of book. There you have it, the perfect solution. It’s a vehicle people will enjoy without feeling that they settled for something less, and it’s a vehicle that we bought back of wholesale.

The even simpler philosophy is, newer, four-door, and under $300 per month. With $1,000 down, 75 percent of your SF inventory should be priced to be $299 a month for 60 months. Your special finance customer may want a Honda Accord. An hour later, if you are selling financing first as you should be, they are leaving with a huge smile on their face in their new 2008 Kia Optima!

We are still buying inventory online. We scour the auctions, nationwide, looking for the right stuff. It’s always there; some days are easier than others.

Let’s review:

1. Rule number one in SF inventory is to sell financing first.

2. Stock inventory for your top finance companies, not for your customers.

3. Seventy-five percent of inventory should be 2006 or newer and four-door.

4. Keep monthly payments under $300.

Remember, inventory is only as profitable as the deal structure allows it to be. Big hint—your SF buyers and computers turn down 50 percent of deals submitted due to bad structure.

See you in the trenches.