This issue I will provide some industry benchmarks specific to the sub-prime finance department. For the past two years, NCM collected data from over 400 dealers participating in our special finance industry study. From this data we have established benchmarks for performance in the special finance department. To the best of our knowledge, this study represents the largest compilation of dealer operating results specific to sub-prime finance ever available.
First let me define the term "benchmark" as it relates to our study. Our benchmarks are not averages of the data collected. The benchmarks identified below represent performance equal to the 75th percentile of all dealers within our study. Or, stated differently, the results indicated below are equaled or exceeded by the top twenty five percent of dealers in our sampling. These results are representative of some of the better special finance departments around the country.
First, let's examine some benchmarks for profitability. The benchmark for average gross profit per retail sale is $2,153. This is defined as front-end gross profit after any buy fees, discount or dealer reserves. The F&I benchmark per retail sale is $541. These two benchmarks when added together indicate an average profit per retail sale of $2,694. The average retail sale price per vehicle sold for these transactions is $12,359.
Now as we examine this data you might ask what is a dealership's opportunity for sub-prime finance transactions. Based on our study we surmise that approximately 32% of dealers offer some type of sub-prime finance alternative. Of dealers offering sub-prime financing, the average retail sale per month is 23 units. If we apply the $2,694 benchmark for front and back end profit per deal to the average volume of 23 units, we observe an average profit potential of $61,962.
How do you capitalize on this opportunity? In my opinion, the answer lies in your personnel. Of the dealers experiencing continued success in the special finance department, well trained, knowledgeable personnel is a common denominator. Some dealers make brief entries into the sub-prime market but soon exit due to lack of qualified personnel. Those that prevail and profit from this segment of the market are able to develop and cultivate employees who follow a learning curve that proves succesful.
We will present additional benchmarks for sales and expenses within the special finance department at the 1999 National Special Finance and Buy-here Pay-here Conference in Las Vegas on September 12-14, 1999 at the MGM Grand Hotel. This event is the largest industry event which is open to all dealers, lenders, and vendors serving this segment of the industry. You can gather information on anything from sub-prime finance to the return of buy-here pay-here at this event. Look for extensive benchmarks and special study averages offered at a workshop during this event.
Next month we will discuss risk and exposure created by the current round of dealer agreements being offered by sub-prime lenders. As I travel around the country, this is certainly a growing hot topic. We will identify some key "land mines" and review how you go about avoiding some of these issues.
Until then - Good Luck and see you in Las Vegas at the conference!
Christopher M. Leedom is a Professional Twenty Group Moderator with NCM Associates of Overland Park, Kansas. He is a recognized industry expert on sub-prime finance and is the Chairman and Founder of NCM's National Special Finance and Buy-here Pay-here Conference.