Do You Have An Internet Strategy For Your Sub Prime Department?
By Steve Hall
The Internet is still a relatively new concept to most dealers. Some of the nation's largest dealer groups are just starting to develop an e-commerce strategy. Most people would think we are light years away from incorporating the sub prime customer in our e-commerce business plan. However, light years in the Internet world is only a few months in our traditional dealer world. As with most traditional bricks and mortar businesses, the customer is way ahead of our industry and waiting to take advantage of the services that our industry will offer to them. This is why some of these Internet companies are experiencing growth rates that were at one time thought to be unattainable. A recent report I read stated that over 40% of the people use the Internet before purchasing a new car. This number is expected to increase to over 80% by the year 2003. Considering 40-45% of the total population (even higher is some regions) will only qualify for sub prime financing, this tells me that there is a big opportunity to reach sub prime customers. The Internet has several advantages that will make it attractive to sub prime customers.
First of all, it is a way they can visit the "virtual showrooms" of dealers and shop for cars without going through the embarrassing and humiliating processes of selecing a car, only to find out the dealer does not even have a car that fits their need or budget. The Internet also offers the sub prime customer the ability to research what cars are available, what types of financing they qualify for, and what dealers have the right car and financing for their budget. This allows them to save time, money, and embarrassment. I believe you will see more and more sub prime customers moving to the web for these reasons.
Secondly, the growth rate of the Internet is much faster than the growth rate of television, radio or computer. In fact, the Internet took only 3 years to attract 50 million users whereas radio took 50 years, television took over 35 years, and computers took over 10 years to acquire 50 million users. The Internet will eventually replace the television as the primary advertising source. This will be a result of the fast migration of the population to the Internet.
Finally, sub prime lenders will be developing their own Internet strategies to make it attractive for their customers. You will see more and more sub prime customers applying for and obtaining credit over the Internet. Thus when they walk into your showroom, many of them may be pre-approved and ready to deliver. Raising money on Wall Street has been very tough for many sub prime lenders, but you can bet they are ready to lend for e-commerce ventures. This will create more aggressive sub prime programs and make the Internet the place for sub prime financing.
The Internet will not sell one more car. However, it will change the distribution of which dealers are selling the cars. Dealers who choose to develop an Internet strategy that neglects 40-45% of the population will find themselves losing out to dealers who are proactive in their e-commerce strategy, consider all the possibilities, and set up the right processes to handle all Internet customers on an individual basis. Remember that these are the same customers you have always had, they just have more information and with that, they have different expectations. I hope that when you develop your e-commerce strategy you incorporate the right processes and procedures to handle sub prime customers. If done successfully, it can increase your business as much as 25-30% without adding any additional resources to your current program.
Steve Hall is President / CEO of Custom Finance Services, a leading provider of subprime management services, inventory management systems, and lender relationships throughout the Mid-Atlantic region.shall@dealeronline.com
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