Financing More Deals Through Technology
By Gary Mitchell
Whether they know it or not, every dealership has a special finance department. Before you turn the page thinking, "I'm not interested in dealing with that type of customer," think about this: what do you do with that customer who gets turned town by your prime lender(s)? For most dealerships, it means that the F&I manager starts a long tedious process of trying to find a car that the customer can afford and a lender willing to take a chance. I've seen F&I managers going through the inventory printout with their highlighter in hand, making a list for the salesperson to take back to the customer. Then the F&I manager pulls out his "black binder" of rate sheets and terms from those lenders who offered to take a look at any leftovers.
There are over 250 lenders actively offering finance programs for these "hard to finance" customers. Each lender has approximately 4-5 levels, or tiers, with at least 5-10 different program options. Trying to keep up with all the different variations of lender programs, as well as their complicated rate sheets, is virtually impossible. You have to compare the rate sheets to the customer's credit score and interview results to see which lender will potentially extend credit and what program to use. Then you have to compare all of that information against all of your vehicle inventories to try and find the most profitable deals. You also must structure and package the deal according to the lender's specific guidelines in order to get maximum funding and complete the deal. No wonder your F&I manager looks so stressed!
Can special finance software make this job easier, even if you don't have a dedicated department? Most special finance software available today gathers customer information or import 800 leads and runs a credit bureau. They then allow the computer to compare the customer's credit history, as well as their debt-to-income ratio against all of their lender criteria to pre-qualify the customer on specific programs (tiers) and to get a max payment by each lender. Once the program and max payment is determined, the system then analyzes inventory to find the most profitable deals to offer to the customer. The software then structures the deal per the lender's criteria and electronically submits it to the lender for approval or call back. This process only takes a few minutes, compared to hours the manual way. More customers can now be handled in a shorter period of time with greater accuracy and control. For those dealers with a special finance department, this means better productivity and more deals.
One of the major Ford dealers in the country calls it their "custom finance" department. Each year at NADA, the dealer's main focus is to find ways to increase their sales and revenue in a very competitive market. The standard for used car to new car sales is a 1:1 ratio. Today, the average franchise dealer is selling two new cars for every used car sold (2:1 ratio). Dealers are constantly looking for ways to improve their ratios because their actual fixed costs such as facilities, power, administration, payroll, etc., do not increase-allowing for a much higher net profit. Basically, when a dealer increases the same-store sales, the net profit per additional unit increases by as much as 75%. If you have already incurred the expense to get these customers to the lot, why not expend a little more effort to sell them a car? Special finance software enables you to handle these customers without increasing your fixed expenses. By leveraging on the technology and your existing staff, you can sell more cars - at a higher gross profit. In addition, should you decide to add a "custom finance" department - you're ready. Success in secondary finance is as simple as taking the first step to helping your poor F&I manager in the process!
Gary Mitchell is vice president of sales and marketing of Wizard Finance Systems, Inc. gmitchell@dealeronline.com
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