On June 18th and 19th, over 500 dealers, managers, lenders and other sub-prime industry participants attended a special finance seminar and trade show, put on by Dealer Marketing Services, entitled, ³Maximizing your Profit Potential in Special Finance.² Some of the most salient items and issues discussed are as follows:
Lenders predict more shakeout and consolidation to occur as lenders get bigger and more efficient. Consensus is what will continue to grow, but with fewer players. Six of the nation¹s biggest and most profitable special finance lenders were represented on a panel discussing the current and future state of the industry. Participants included Jim Bass, President of Auto One Acceptance Corporation, Ed Pettit, National Sales Manager of Triad Financial, Bob Nelson, CEO of First American Acceptance Corporation, Tony Fiduk, Vice President of Household Automotive Finance, Jim Pollak of Tranex Credit Corporation and Duane Kaylor of California Bancorp System. Highlights of the panel discussion included: € Very large national banks are buying up the previous independent sub-prime finance companies, freeing these companies from the task of constantly raising money, but at the same time imposing a new and more stringent set of standards and controls € To lower the processing costs of an application, more and more special finance lenders are turning to some form of credit scoring. None of the panel members thought credit scoring could ever handle 100% of applications, but some thought it could be used to approve or decline up to 40% of applications with the rest needing an analyst to review and decide € The panel stressed the need for a dealer to choose three to four lenders and get to know their credit programs to avoid ³shotgunning² a deal to multiple lenders. They stressed lenders needed to strive to obtain a 10% application-to-funding ratio to hold down costs. Dealers sending in 100 applications and only funding one to two contracts with a lender run a substantial risk of being cancelled by that lender. € Minimum income requirements average 1,500 a month, and a cosigner generally would not help unless it was a spouse. € Most lenders on the panel did offer a first time buyer program and most offered some type of rate participation as well on some tiers € Most lenders are moving to a multi-tiered program to handle a broad range of different customer
Dealerships continue to set records for special finance profits, but stress the need for a separate department and specially trained salespeople. Dealers and managers from five dealerships which have some of the most profitable special finance departments in the country, were represented on a panel discussion. Panel members included: 1. Nick Reinhart, President of Reinhart Ford in Ephrata, PA. Nick is in a small town of less than 10,000 people but sells over 70 special finance deals a month at over $3,000 average gross. 2. Ron Boukair, President of Performance Pontiac-Nissan in Syracuse, NY. Ron is averaging 220 retail units a month - 25% of his volume comes from special finance and 40% of his gross! 3. John Arthur, General Manager of McKinney Dodge-Chrysler-Plymouth in Easley, SC. The store is brand new, but went from zero special finance deals to over fifty in just two months. 4. Steve Hall, Director of Special Finance for Passport Auto Group in Alexandria, VA. sells 130 retail used cars at Nissan dealership, 110 of which are special finance. 5. Helmi Felfel, General Manager of Harrelson Mazda in Charlotte, NC. Helmi¹s group took over the store just a few months ago when it was averaging a less than 90 total retail. In May it sold 293 units, of which 150 were special finance.
Highlights of the panel discussion included: € Average gross profit for a special finance deal was over $2,800 per vehicle, about 40% higher than a conventional deal € Three of the dealers were getting the majority of their special finance leads by using television, especially infomercial, and the other two used direct mail as their main advertising source € All the dealerships stressed the importance of maintaining a separate department. Ron Boukair said his dealership allows all salespeople to sell special finance customers and the increase in special finance sales where offset by the decrease in the rest of this retail business as the salespeople went after the higher gross deals. When he separated departments his total sales went up by almost 50 units per month immediately. € The dealers were selling approximately 85% late model used vehicles and 15% new vehicles. € All the dealers on the panel had been using computerized systems to work all their special finance deals as well as assisting in managing the entire department. They all reported their average gross profits increased after automating by as much as $1,000 per vehicle.