Opportunities in special finance may pass many dealers by in this market, though it’s really an opportunity to serve the credit challenged. “The subprime market has not gone away, it has grown. The change in the capital markets has unquestionably changed the game. In previous times, ‘easy credit’ has masked many dealerships’ failure to have the other fundamentals in place. Those times are gone. To succeed today, dealerships must shore up their processes and the fundamentals of their special finance sales efforts,” notes Tim Shea, president of AutoLending Network, a special finance marketing and consulting firm.
Even dealerships that have great processes are taking a hit, but the hits they’re taking are not nearly as severe as they are for those without the right processes. For many, the issue begins with their definition of special finance; some define it by credit score, others by lender capability. The reality is every general manager, every dealer principal, every special finance manager, and even every salesperson has his or her own definition of the special finance customer. The most helpful definition we have found identifies the special finance customer as anybody whom the dealership suspects would not immediately get a loan through their traditional primary lender. Today’s market has changed.
“What was possible six months ago is not possible today. It is more important than ever that dealerships learn to control the sales process and help the customer land on collateral that makes sense for the lenders. They also need to work with customers to ante up a little more in terms of down payment. Doing these basics is only going to improve their lender relationships and ultimately their sales,” Shea explains. Pursuing this business can pay off, short-term and especially long-term. It is important to have special finance processes in place first, though. Those processes include having personnel dedicated to handling special finance customers, stocking some inventory that fits the special finance buyer’s buying capabilities—mostly vehicles under $20,000—and effective marketing to credit-challenged consumers.
“Dealers see more special finance customers today. The marginal customer before the current economic problems will seem un-doable to many today. They are not. Dealers must develop relationships with lenders who purchase the deeper end of the credit spectrum. They also must be willing to invest in trade-ins they once would have sent to auction so they have inventory that structures for the full spectrum of customers. Failure to establish fundamentals such as these will leave a lot of money on the floor”, Shea says. The payoff means more loyal customers. These are loyal customers; treat them right and they will show up in your service department and bring in referrals. The special finance customer is the most loyal and will produce more referrals for the dealership than any other customer.
Those who are willing to be a conduit for credit counseling advice, such as sending consumers to see FTC credit rehabilitation, will help brand their dealership for future business as many of these buyers work themselves out of their current, temporary credit problems. Some of these consumers have been special finance buyers for life; it is simply the nature of the way they handle their business. There is, however, a whole new category of special finance customer needing to buy vehicles. A year or 18 months ago they had scores north of 680, but because of the current challenges in the economy they now find themselves as credit challenged.
“The sad part is, had dealers taken a harder look at this area of the business a couple of years ago, many wouldn’t be struggling now,” Shea laments. Failure in the past, however, is not a valid reason to not pursue special finance business today. You have to be humble and be willing to do things differently than before. Times have changed. With the proper special finance processes and fundamentals in place, dealerships can sell more vehicles and create a wider base of customers. Today’s economy is creating more special finance customers everyday. The question is whether dealerships are ready to help them and reap the rewards in the process.