Selling Online to Sub-Prime Customers
By Steve Hall
I have never understood the philosophy behind trying to get a sub-prime customer approved over the phone before you even meet him. What difference does it make if you can get a customer approved with your lenders if they never show up to your dealership? I have seen many salespeople take a five-line application with bare minimum information and send it to a lender for approval. This creates a whole list of problems. First of all, the customer's credit has to be strong enough to get approved based solely on his credit file because you got only a minimal amount of information. We also know only about 60% of these customers will show up and the average store closes only 2530% of those customers who do show up. Thus, a lender is working a deal that the dealer has less than a 20% chance of closing. This sort of activity on the part of the dealer creates a substantially lower operating efficiency with that dealer, thus diminishing the relationship between the lender and dealer. Most lenders will admit they work much harder to make deals for dealers who have high efficiency levels because they have a higher probability of making the loan.
Secondly, when you take an application over the phone, you are never able to get as much information from a customer as you can sitting down face to face and conducting an extensive credit interview. Face to face, you are able to identify such matters as relevant work histories, job gaps, verification of income, residence and employment, complete co-signer information and credit that does not show up on credit reports. All of this extra information you discover in an onsite interview will make the difference in winning or losing those borderline deals. Lenders look for three main things: (1) stability (2) ability to repay the loan (3) willingness to repay the loan. More often than not, a simple phone application does not reveal all the details necessary to get the maximum chance of approval, as well as identify all the obstacles necessary to overcome in order to obtain funding. Unfortunately, in this type of business, a credit approval does not always mean you have a fundable deal. In fact, I have spoken with lenders that have as high as a 10% voidance ratio, which means 1 out of every 10 deals is voided and returned to the dealer because it did not meet the necessary funding requirements. Common reasons for this include the inability to prove income as stated on the application, gaps in employment history, and proof of residency being accurate or current on payments.
The third reason never to try to approve a person over the phone is that you usually end up having your salespeople make credit decisions on customers instead of your finance manager. Often, salespeople get lazy and refuse to work a customer when they think there is a low probability of getting them financed or if it requires a lot of follow-up work to close the deal. Many salespeople feel it is easier to take as many phone calls as possible and spend little time actually working with credit-impaired customers. This requires the dealer to spend more advertising dollars and waste valuable dollars prejudging customers.
Let your salespeople focus on getting the customer into the showroom while your finance manager is spending his time credit-interviewing and qualifying the customer. Your finance manager is on the phone every day with lenders and understands what information the lenders need and how to obtain that information. Your salespeople specialize in getting the person landed on the car they qualify for. Do not try to switch these roles by having your salespeople work as finance managers in attempting to get people approved over the phone.
Finally, when you do get a person approved over the phone, you have now given him a starting point at which to start shopping rates, terms and other conditions. The customer who once thought he could never get approved on a new car now thinks he may have many other options and needs to "shop around." These are customers who will shop around until they find a dealer that is focused on getting them in to their dealership where they can take delivery.
What is the solution for increasing your sales? You need to understand that you cannot sell a car over the phone. Therefore, you need to implement the correct procedures that utilize the phone as a tool for driving traffic into your showroom. It is important to qualify the individual enough that you have his contact information to confirm the appointment or reschedule it if he fails to show the first time. It is also important that you let the customer know that you specialize in helping good people who have had credit problems in the past. Let him know that he "qualifies" for one of your programs based on the limited information he has given you, but to secure a loan, he needs to come in and meet with one of your credit analysts to verify the information and select a vehicle of his choice. This tells the customer there is a high probability that you will be delivering him a new car, but he has to show up in order to complete the approval process. You must also let him know that, due to the high level of response and success of your programs, you work by appointment only and he must be on time. Then let them know that, in order to take immediate delivery, he will need to bring in the documents your lenders require.
It is important that you have your management team track the performance of each salesperson to see how effective he is at getting appointments to show. Set standards for each salesperson in the following categories: (1) number of phone-ups (2) number of appointments set (3) number of appointments posted (3) number of sales (4) number of referrals from sold customers (each customer has to fill out a list of 46 references who are potential referral customers). However, this becomes an effective tool only if you get your management team to follow through and measure these numbers on a weekly basis. Salespeople will not track these numbers if they realize your managers are not enforcing them.
Steve Hall is CEO of PriceDrive.com, the leading provider of B2B Web-based applications that help automobile dealers manage and turn their used vehicle inventory more efficiently. He is founder and chairman of Custom Finance Services (CFS), a management and consulting company that develops and manages sub-prime finance departments for automotive dealers. shall@dealeronline.com
