Q:What is your background in the automobile industry and what is your position?
Dwain:I have been in the retail automobile business 3 1/2 years. I have been in sub-prime a little over half of that time.
Q:How is your sub-prime department set up within the dealership?
Dwain:There are three of us. We have our own department that is separate from the other departments in the dealership. Once we determine the customer is sub-prime, we decide which car would fit the customer best. We really do everything off the inventory list. We are different from most sub-prime departments in that we control the entire deal. Before, the used car department penciled the deal. We have shown a steady increase. Before, we were averaging about 75 cars per month. We sold 85 last month. We are involved in the deal from the very get-go. This has increased our gross. We averaged about $4,200 last month on those 85 units. Our front-end gross is always over $3,000 and back-end is usually around $1,000.
Q:Have you noticed any friction at your store between your sub-prime people and your regular finance people and salespeople?
Dwain:There is not a lot of animosity at our store. Our salespeople get paid differently than if they sold to a prime customer. They split the gross and they are on a reasonable commission structure.
Q:What is the T/O (turnover) procedure once it is determined that a customer is sub-prime?
Dwain: Our salespeople are pretty sharp when they suspect that a customer is a candidate for special finance. They immediately obtain permission from the customer to pull a credit report and the deal is worked from the special finance department in much the same way one would be worked from the sales desk. The special finance manager determines from the strength or weakness of the credit report what lender should be used and then we structure a vehicle that we believe the lender will buy and the customer will enjoy owning. Once this has been accomplished, the salesperson demos and sells the vehicle in much the same way as they would a prime customer. All of our salespeople are trained to sell both prime and sub-prime customers alike.
Q:To what do you attribute your good gross numbers?
Dwain: I believe that the reason our gross profit in the special finance department is as high as it is can only be attributed to the entire dealership working as a team. Our used car managers buy inventory that not only has appeal, but that is far enough back of book that even with the fees that the sub-prime lenders charge, there is still room for good profit. Also, our salespeople work the sub-prime customer with the same diligence and respect that they would if the customer walked in with a suitcase of cash. Our special finance managers carefully evaluate every deal on a case by case basis and determine the lender that will buy the customer based on credit, then determine the most profitable vehicle in inventory to sell and if there is any room left in the deal we will offer the customer an extended warranty.
Q:How do you target your sub-prime customers?
Dwain:We advertise with an 1-800 number in the paper that allows our customer to fill out an application over the phone. Les also has his phone number in there. We get a lot of results with the "1-800 get a yes" ad.
Q:What vehicle do you find to be the best for sub-prime?
Dwain:The Contour and the Taurus seem to be the best. The payments are not outrageous on them.
Q: What do your payments usually run?
Dwain:Between $375 and $425 most of the time.
Q: Which lenders do you use on a regular basis?
Dwain:Household, Auto One, Nuvelle, CFC and Capitol.
Q: Why these five lenders?
Dwain:Because their programs cover the broad spectrum of what we do. We have built a good relationship with each of them.
Q: When you send your lender the proper paperwork, how long does it take for you to get funded?
Dwain:If I send them the paperwork on Monday I expect to have the check on Thursday night.
Q: Do any of them interview the customer?
Dwain: Most of them do either up front or later on.
Q: Do you coach your customer and let them know that the lender may be calling them?
Dwain:Yes.
Q: Have you ever had a problem with fraud?
Dwain: I have never seen anything here. I guess we are fortunate.
Q: What advice would you give to a general manager or dealer principle who is thinking of putting a sub-prime department together?
Dwain: Hire experience.
Q: Where do you find that experience?
Dwain: You have to hire them from somewhere else.
Q: What advice would you give a dealer wanting to grow their special finance department?
Dwain: Number one, make sure the entire dealership understands the profitability of the special finance department. It's not a redheaded stepchild but a very important part of any successful auto dealer's business. Number two, have a portfolio of lenders that will allow the dealership the ability to offer financing assistance to as wide a clientele as possible, from the first-time buyer with little or no credit experience and short employment history who needs reliable transportation to the doctor who has filed a Chapter 7 that makes 150k a year and wants a brand new loaded Expedition. Number three, ensure that there is ample inventory available to generate the volume that you would like to produce. You can't sell what you don't have and by nature the sub-prime customer will buy from the first dealer who says, "You are approved and you can drive this vehicle home today." Number four, target some of your advertising directly to the sub-prime customer in addition to the teasers most dealers place in their used cars ads. Use media like 1-800-GET A YES, an interactive medium in which a computer takes the customer's credit application 24 hours a day 7 days a week. Direct mail is also very effective in bringing in sub-prime clientele. Lastly, train your salespeople so they know and understand how to deal with a sub-prime customer. Most deals are lost by an inexperienced salesperson or a salesperson who will not or has no desire to work a sub-prime deal. The famous line every salesperson has used"They were flakes, boss."
Q: What do you think the future holds for sub-prime finance?
Dwain: With all of the lenders that are going under, one of the things would be the larger captives coming out with programs that will fill the voids. In addition, more and more customers are falling into the area known to the industry as special finance customers and the dealers that do not put forth a strong effort to implement a solid special finance department into their dealerships will suffer a profit drought like there was when gas prices skyrocketed and there were acres of gas guzzlers sitting on the back 40.
Mark A. Hafner is the Director of Special Projects for Adtel International, Inc. If you have specific questions or require more information about this subject, please check the appropriate box on the reader response form on page 3. mhafner@dealeronline.com