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Dennis Wagner

Dennis Wagner Owner/CEO

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Sub-Prime Automotive Finance is Back - Is Your Dealership Ready?

fb6e92dd5b0962b4b913910dc6049ded.jpg?t=1Credit bureau analysts found that sub-prime auto loans in March came in at $13.1 billion, marking an 8.8-percent increase year-over-year, and it is only expected to grow stronger. Equifax had to go back to March 2007 to find a figure that high. That’s when the market generated $12.5 billion in sub-prime paper in a single month. - See more via Sub-Prime Auto Finance News: Sub-Prime Auto Loan Totals

 

 

Do you have the right people and inventory in place to take advantage of the record number of Sub-Prime Finance buyers that are flocking to market? There are billions of dollars at stake. Let's see with a quick assessment.

 

What is the most profitable department in your dealership? If you did not answer with your Sub-Prime finance department then you have some things to work on. Your gross profit per unit sold on a Sub-Prime finance deal should be substantially higher if you have the right people and inventory. Lets get started.

 

People:

 

Have your salespeople been properly trained to qualify a Sub-Prime customer?  

 

They must be ready, willing and able to ask the tough questions, in a professional manner, in order to get the information the desk needs to land the customer on the correct vehicle the first time. There is nothing more frustrating than working a customer for two hours only to find out that you are on the wrong vehicle. It can be as simple as asking the customer where they financed their last vehicle, but you have to ask the question. If this is not done correctly you can kiss your gross profit goodbye, and you rarely get a second chance due to the super competitive Sub-Prime finance market. 

 

I highly recommend daily role playing and a weekly training session to keep your sales force sharp. Your sales force is your front line of offense when dealing with Sub-Prime customers, and must be trained to handle every Sub-Prime customer in the same professional manner to develop a successful process. They should touch the desk early and often (Key Check), and experts strongly suggest that a manager gets involved in the deal as early as possible. We can go over this again and again, but the fact remains that if you don't properly train your salespeople to handle sub-prime customers then you only have yourself to blame. That's like sending a bull fighter into battle blindfolded with their hands tied behind their backs. They have little to no chance of success.

 

 

Are your sales managers properly trained to handle your Sub-Prime customers?

 

Let's face it, In today's market with well over 40% of consumers needing Sub-Prime financing in order to purchase a vehicle, your sales managers must be able to read a credit bureau just like reading a book. In fact, if your managers are properly trained, every credit application/credit bureau tells a different story. They must be able to build that story into a clear road to the sale. They should know in a matter of minutes which banks will or will not approve the customer, what the customers DTI (Debt To Income) ratio is now, what the maximum PTI (Payment To Income) will be, the maximum LTV (Loan To Value) the lender will allow, and a list of three to five vehicles that the customer qualifies for at a maximum gross profit. I find it very beneficial to give the salesperson a couple of vehicles to show the customer while you work your magic with the lenders. It keeps your customers mind occupied and begins to pave the way for the road to the sale. Your CRM/DMS systems will help you build the road to the sale, and maximize the profit, but only if you know how to use it.

 

The sales manager/general sales manager positions have evolved drastically into more of a hybrid position in most stores where they are required to be more than just a sales manager. They should also know both Prime & Sub-Prime finance inside and out, be more than efficient with your CRM and DMS systems, and if they aren't, they are costing you deals and money. After all, in order for a sales manger or general sales manger to be qualified to properly lead a sales force they first should have been a finance manager long enough to learn all the F&I ins and outs, lender programs and hopefully developed relationships with those lenders, Right? Right! That is the single biggest difference between a lender approving or declining that late Saturday deal with a 500 beacon that makes $2,000 a month, but has a repossession 18 months ago and a Chapter 7 BK rolled into a Chapter 13. It's about relationships and experience.

 

 

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Inventory:

 

In a perfect world you will have a constantly revolving 100 pre-owned units that are all two grand back of clean NADA Trade In value, have 75,000 miles or less and they all meet your lenders guidelines. That's in a perfect world. Here in the real world, the most important thing is to have a good variety of vehicles with 75,000 or less miles, a total cost (including pack, service and any other add-ons) below clean NADA Trade In value, and an average total cost of near $10,000. When you look at your Sub-Prime finance inventory as a whole this formula will allow you to make the maximum gross profit while meeting your lenders guidelines considering the average Sub-Prime finance loan is a little over $17,000 according to Equifax.

 

This is not an exact formula because every customer and every deal is different, but it is a proven, and time-tested formula that has made thousands of dealerships across the country billions and billions of dollars in profit.

 

I realize we all do things in a slightly different manner, and I am eager to hear about some of your dealerships processes that work. There are dozens of ways to do the exact same thing. Share the wealth and have a great week!

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