Kurt Montell is with The Montell Auto Group, consisting of a Pontiac store and a Chrysler Plymouth store in Blue Island, Illinoisthe infamous south side of Chicago. Kurt, his father Jerry and his brothers Chris and Darrin move over a hundred sub-prime units per month, constituting over 50% of their total monthly volume. Here is how they do it.
How did you get started in the business?
My father, Jerry, has been in the business for over 40 years. He started out as a salesman for a Pontiac dealer in Chicago. He was with them for 15 years and was the top salesman for Pontiac in the mid west region every single year. He worked his way up to General Manager and had an opportunity in the early 1990's to purchase a Pontiac store here in Blue Island that was selling about 25 vehicles a month. After he purchased it, within an eight-month period, he was averaging 225 units per month. Chrysler Plymouth became an opportunity for us in 1996. Again, it was a sleepy store that was doing about twenty units per month. Within a year we put the volume up to about 85 units per month.
How long have you been doing sub-prime?
We have, by accident, been doing sub-prime business since day one. Sub-prime was a much different concept back in the early 90's. Sub-prime is not necessarily a difficult thing when you are dealing with a true quality sub-prime customer who has come across bad luck which has caused their credit to deteriorate. I am speaking of those who have experienced a divorce or have lost their job or have been hurt and out of work. Where sub-prime becomes a real challenge is in the area of fraudulent activity. When you have people who choose to be sub-prime candidates because of choices they make. They choose to not pay their bills, they choose not to work or keeping a job. Or perhaps they do not have a job because they make money in other ways. That is where I think the sub-prime business has gotten challenging from both the lending and retail perspective.
How did your two stores get into the mainstream of sub-prime finance?
When we opened the Pontiac store, sub-prime was a necessary part of our business because of our demographics. We are located in the southeast side of Chicago. For that reason, it was a natural part of our business. After a year or two we realized these customers were a lucrative part of our business. Lending institutions were willing to offer large advances on used vehicles. They were allowing the aftermarket sales to take place, they were actually enhancing certain products such as credit life and disability and extended warranties. Because of the nature of the sub-prime customer, they wanted additional assurance that there were no extenuating circumstances to make the loan go bad. We put our advertising campaigns out to cater to the customer both in print and in commercials. We said "good credit, bad credit, or no credit at all, we can help." We made an active push toward advertising to the sub-prime customer.
How is your sub-prime department set up?
It is set up like a sub-prime financial institution. I have to say that I can thank two lending institutions for that and they are Long Beach Acceptance Corporation and Nuvell. We thought that we had every control in place and it was based on the physical stipulation list that was provided to us as the market started to tighten up a bit. It went from a driver's license and maybe a check stub to definitely a check stub and definitely a phone bill and proof of residency. We conformed to those aspects to assist the finance company. We consider our finance companies as our partners. They are our asset on the street until we are funded on the deal and we are partners, not just until they fund us but also through the life and length of that loan. For instance we had a situation with one of the top lenders in the country who came out with a super sub-prime department. Their lending qualifications were mostly gut feelings. If they liked the story, they would buy the deal but if someone had a name that reminded them of an old girlfriend who ditched them then they would not finance the deal. They ended up buying all this super challenged paper and I don't think they accounted for all their loss ratios for the next 24 months. They then came to us and said, "unless we get better paper from you on the standard sub-prime then we are going to have to part ways with you because your loss ratios are so terrible on these deals." We have had this happen with other secondary finance companies that admit it was their fault. We tell them now that we never want to be associated with getting anything through that should not be going through. In addition to taking physical stipulations, we got very aggressive in the actual verification. We have the finance managers or their secretary do verification over the phone. We have several different things we do too for lack of a better term, "mess up" a customer who is lying to us. I believe the lenders appreciate this. We post the results to the lenders and invite them out and run though issues. For those who took me up on this, the relationship seemed to strengthen.
How do you qualify the customer as sub-prime and how are they handled?
We have an outstanding sales management force, which I must attribute to my brothers. All of us have really good relationships with our employees and our customers. All of our salespeople are trained in dealing with customers, all customers, in the same fashion. Some might think that you can treat secondary customers with less respect or perhaps spend less time with them than a primary customer. When you look at the bottom line profit you are making more off a secondary, per car, than you are a primary. Five years ago you had more of a captive audience because there were not many dealers doing secondary. Now it is more commonplace and if that customer feels insulted he can simply go down the block and buy from another secondary dealership.
Our process is a credit application process is initiated before even the test drive takes place. We run a bureau on them and run a credit application. Our evaluation process not only takes place in the finance office, but can also take place in the tower because one of our prerequisites in hiring a sales manager is that they have prior finance experience. We want sales and finance working as a team. We pay managers as a team. We don't want finance managers to be burdened with a lot of questions. The sales managers are normally savvy with what is going on with the secondary finance companies. Once the sales manager determines he is dealing with a secondary customer, he has a good idea of the spread of companies that will cover the deal. If he doesn't, he will then communicate with the finance manager. At that point it becomes a qualification issue. What kind of car do we have to limit this customer on purchasing considering the advance ratio, debt-to-income ration, payment ratio, so forth. Now it becomes a sales issue on not necessarily selling the customer a car but which car to sell the customer.
How do you determine which car to sell them?
We used to do it manually by just knowing our inventory and values but we are now switching over to a computer based system that will interface with another software program that we will produce and are now writing ourselves.
What is the relationship between your special finance department and your new and used departments?
There is a partnership relationship between both. It is total unity.
Between the two stores how many sub-prime units do you move on a monthly basis?
One hundred thirty.
How many total units do you average on a monthly basis?
Approximately 220.
So over 50% of your total business are special finance?
Yes, definitely between 50-60%.
And this is a function of your knowing your customer in this market?
Yes, and our openness to secondary finance. I don't know if we are any more talented than the guy down the block but we Montells are here working hard to satisfy the secondary finance customer.