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2 days ago I wrote a blog post on cash for clunkers entitled “Cash for Clunkers”… Most likely a clunker. After reading the bill cover to cover 3 times I was amazed at the number of holes in this thing. I listed 7 major holes in the bill that were seriously detrimental to dealers. As I do with many posts that have to do with OEM’s or Automotive and the Government I sent it to my good friend Cliff Banks at Wards Dealer Business to review before I posted it. Cliff is by far the most connected individual in the business and I can always count on him to keep me on the right path for the dealership, as he believes as I do that dealers are the Key to an automotive turn around not a speed bump between the OEM and the customer. Cliff asked me not to post until he could check a few things with NHTSA. Surprisingly NHTSA was very receptive and it appears that at least 5 of the holes will be addressed before the July 24th deadline…hopefully.
As you can tell I did not post the original but here are 5 things your dealership needs to do to capitalize on “Cash for Clunkers”
1. The biggest problem your dealership will face with this bill is CREDIT. The people that are driving around in a $500 beater are in that beater for a reason, and it aint because they are being frugal.
a. Get with your captive lender and establish 2 other back-up lenders and start laying down some ground rules that you will work with them to enforce so they can feel comfortable in buying deeper. They official line we are hearing from most captives and banks is that they will be keeping their consistent buying policies. Below are a few standards you can set with lenders to help them get over that.
i. Establish a price range to credit score matrix that will help the lender feel more comfortable that these loans will perform below is an example one. Give these to your salespeople so they know what cars to take the customers to when they come in. These is nothing harder than moving a customer down from what they want to buy, people will generally pay more for what they want, and most time more than they can afford.
2. Get cars in the above price range make sure you have a good selection. If you only have a few the customer will go elsewhere…if you think you own them because you “Got them done” think again.
3. Establish rules for applying the Cash for Clunkers credit to the equity in the car with your lender. Not rules that have the dealership making nothing but rules to let the lender know you're not going to try to rip the head off of every customer that walks though the door on this thing an you're working in partnership with the lender for the good of them, you and the customer.
a. Look at loan to value between 80% to 85%.
4. Establish rules for max payment to income.
a. Comfort range for most customers and lenders is between 15% and 20% of monthly gross.
b. Establish rules for debt to income
c. Again a good rule of thumb here is 60% and 80%
5. Establish rules for stability
a. Min. 1 yr. job
b. Min. 1 yr. residence
c. Verifiable references
DON’T MAKE THE LENDER HAVE TO THINK…send the deal in with all verifiable information above.
1. Check stub
2. Utility bill
Structure the deal right going in and make it easy for them to make a decision. PLEASE…PLEASE verify all of this for yourself BEFORE you send it to your lender. A war is won by many battles and lost by one, it will only take one time for these things not to check out before your lender has to check everything you send to them then it becomes easier to turn the deal down than it does to approve it.
Last note I will leave you with and it’s a biggy so read… there still are some tax questions here. It appears from what I have read in this bill that the credit is a dealership income taxable thing, watch. I believe this will change as I don’t think any of us will be taking this as profit. And finally if you are going to try to beat the market and do this now before all the rules are established “roll those bones” DON’T SCRAP THE CAR.
Hope this helps.