Is a Deep-Buying Finance Company Required?

Over the past couple years, we’ve had a ton of phone calls and e-mails from dealerships across the country asking questions regarding subprime finance sources, and it’s almost always some variation of this question: Which finance companies are buying deep?

The easy thing for us to do would be to just give the name of the finance companies that we consider to be buying deep. The problem with that is even when we recommend a company, it’s really never about who is buying deep. The most important question dealers should be asking is: Are we prepared?

The other questions should be more along these lines:

• Does the manager desking these deals really know the guidelines of all your subprime finance companies?

• Does the manager desking these deals really know how to structure a win-win deal for the dealership and the subprime finance company?

• Does your dealership have the right inventory for the companies you’re trying to send deals to?

• Does the manager desking/funding these deals have a great relationship with your subprime buyers/funders?

If you didn’t answer a resounding yes to all four of those questions, you’re probably not prepared, and it really won’t matter which finance companies are buying deep because until you are prepared, nobody will be buying deep enough to help you.

Here are some quick tips:

If your desk manager doesn’t know the guidelines of all your subprime finance companies or even if you’re just not sure that they do, you should call your bank rep/buyer and ask them come in to fully explain how they buy deals, what they like to see and what they don’t like. This will be some of the best free advice you can ask for and all you have to do is call and listen. This will also go a long way in building a great relationship with your finance sources because they want you to know their programs inside and out.

It’s not very often that you will get anyone in the car business to admit when they don’t know something. If you’re not sure whether your desk manager knows how to structure a win-win deal for the dealership and the subprime finance company, you should get them the training they need immediately. Likewise, if you’re a desk manager who doesn’t completely understand special finance, you should want the training as it will only make you a more valuable asset to your dealership. The highest-paid professional athletes have specialized coaches and trainers to help them continually improve their skills. Shouldn’t you and your team have the same? The special finance customer base is growing at a rapid pace and this can be a huge part of your used car sales volume and gross profit if your dealership is prepared.
When buying inventory for your special finance department, you should keep these things in mind.

• Bank Guidelines: If the bank won’t buy it, you won’t sell it!

• Gross Profit: Find the vehicles that you can buy the farthest back of book because big profits equal happy dealerships.

• Customer Needs: Try to stock vehicles that will be appealing to your customers; low mileage and dependability are a great start!

• Customer Wants: Experience tells us that special finance customers, like most people, will want more car than they can actually afford. However, if your process is effective, you will make them understand that the finance companies have the ultimate say in what they can and can’t buy.

I recently spoke with Monte Montgomery, regional sales manager of Santander Consumer USA, regarding this topic, and he pointed out some very interesting facts. Mr. Montgomery stated, “The dealerships who really take the time to completely understand what we buy are the very same dealerships that are still selling a lot of used cars.” I doubt this is just a coincidence. He went on to explain, “There are still plenty of dealerships out there submitting deals that don’t fit into our guidelines, and they do it because they just don’t know what we buy and that’s a shame. In our near-prime platform, not many dealerships even realize that we are going up to 65 percent DTI because they aren’t taking the time to learn all of our programs.”

How much more effective would your special finance (or pre-owned) department be if they knew the Santander Auto Finance (near-prime program) and Drive (subprime program) guidelines inside and out? My guess is that you could pencil in another two to three deals every month without much effort. I hear that a lot of desk managers don’t like to do “Drive deals” because the fees seem too high. However, if you structure the deal correctly, get some cash down and have the customer in the right car, you will make a profitable deal. I doubt anyone at the dealership will be upset with you for paying what seems like a high fee to sell a used car for profit to a customer who would have otherwise been sent to your competition! financing your near-prime and subprime deals, you are missing deals and losing money!

04/07/10