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DEALERSTRONGGreg Goebel, CEO
“The Special Finance department is the most
misunderstood profit center and opportunity in a
traditional dealership.” -Greg
Goebel
Why?
Because … It is the largest profit center that
is typically NOT broken out separately on an auto dealer’s
financial statement.Sales and gross profits are buried
inside the info for the new and used car departments, as well as
the new and used F&I departments.
THERE IS NO SIMPLE WAY TO MEASURE IT, AND THEREFORE,
NO SIMPLE WAY TO MANAGE IT!
“What is Special Finance?”
Define it in Order to Measure it.
Any customer, who arrives at the dealership via Special Finance marketing (mailer, third-party SF lead, SF website, etc.), regardless of where they are financed.
Any customer financed via a Special Finance company or program. For full spectrum banks, any program with double-digit interest rates and/or fees/discounts.
“What is Special Finance?” Define it in Order to Measure it.
Special Finance Industry Overview
Over 1M subprime auto loans per month
Thriving Industry, will continue to be through 4Q2016 and beyond.
80% of Dealers Have Tried 20% of Dealers Actively Engaged <10% of Dealers Excelling
Engage Customer
Foundation
Keys to Excel?The Ten Critical
Components
CommitmentFinance Companies
InventoryPersonnel
MarketingComplianceSystems
Sales ProcessTelephone Skills
Deal Structure
The First (and Most Important) Component
Do You Have the Commitment to Make it Work?
1
Commitment
Must have to drive all other necessary components.
Starts from the top – the dealer – and must include everyone.
Without commitment – volume and gross are limited at best.
Why is Commitment a Problem?
Cash!
Conflict.• Comp plans• F&I manager
penalty• Sales comp
penalty
Not measured.
The Second Component
Adding the Key Finance Companies to Match with Your Customer Credit Demographics
2
Who Are Your Customers?
Know the credit demographics of who is coming to your store.
Start with the National Definition of Credit Tiers and Niches
Use National as an Example and Create with Your Existing Finance Companies
Each Dealership must Define their own. Likely Different for Every Dealer Location
Franchise Dealer Example
CB Score Range
Unique Apps
% of Total Apps Sold Del/Tier Avg. Gross
No Score 127 20% 8 4% $ 946
< 500 187 30% 7 4% $ 652
500 - 549 117 18% 5 4% $1,231
550 - 599 112 18% 6 5% $1,431
600 - 639 32 5% 4 17% $1,373
640 - 679 19 3% 8 29% $2,233
> 680 18 3% 10 56% $2,378
No Pull 21 3% 21 100% $ 889
Total 633 100% 115 13% $1,212
Working with the Finance Companies
Find companies for all credit tiers/niches
Understand they are like the sea
80%+ of volume will go to 5 – 6 companies.
Relationships are vital
The Third Component
Sourcing the Proper Inventory to Fit with the Finance Companies that Fit Your Customers.
3
Inventory Opportunities
Must fit the dealership’s credit demographics and finance companies’ serving them.Concentrate on vehicles that provide monthly payments of under $400.
Most with wholesale cost of $8,000 to $16,000
-$500 (often -$2,000+) < Wholesale Book Value
Goal: 30 day supply of units. Units = Sales
Sample Used SF Inventory Based on Credit Tiers
Tier/Niche
% of Stock
Units Max. Age
Max. ACV Avg. Mileage
MonthlyPaymentTarget
Tier No Score 20% 6 9 $10,000 64,000 $335Tier 4 30% 9 9 $7,500 70,000 $365Tier 3 18% 6 6 $11,000 60,000 $390Tier 2 18% 5 5 $13,500 55,000 $385Tier 1 14% 4 4 $20,000 50,000 $380
Total 100% 30
The Fourth Component
Hiring, Staffing and Training your Special Finance Team
4
“I have never seen a high dive by the talent ‘pool’ in the car business, because it is a really, really shallow pool.”
- Greg Goebel
Types of Department Structures
Separate Dedicated Staff in Dealership
• Typical of most operations• Start small as one-two person “department”• Pitfalls – conflict and wrong deal process
Blended Sales Floor
• Everyone works consistent process• Focus is on delivering vehicle regardless of credit• Used by highest volume dealerships
Personnel
Must Add Staff and TrainPersonnel. Absolute maximum for one person department
is usually 18 deals if responsible for all functions
Maximum number of leads/opportunities per person should be 75.
At onset – figure 1 person = 10 SF deals.
2nd person should add 10 additional deals
If goal = 30 units, you need 3 people in department.
2016 Benchmark Guides for Special Finance Personnel
Position Percent of SF Total Gross Profit
SF & Sales Mgmt. (Total) 13.1%
Special Finance Sales (Total) 13.4%
Special Finance Admin. 3.2%
Special Finance Other 1.6%
Total 31.3%
The Fifth Component
Marketing & Advertising
5
The Silver Bullet: It Doesn’t Exist!
2016 Advertising Benchmarks
Benchmark ad expense increased in 2015.
At $3729 total deal gross (Fr), $496 per car sold =
13.3% of GP.Independent dealers were only $488 per car
sold = 12.5% (GP of $3,892)Just launching, or in full
growth mode $575+ likely.
At benchmark, 10 additional sales require 100 additional leads or 35 additional lot ups.
Small departments should have ads drive phone traffic to department manager or BDR trained for SF calls.
Log traffic to measure your effectiveness. (Consider a call-tracking source to measure advertising effectiveness and for phone training.)
Marketing and Advertising:Important Facts
The Sixth Component
Legal & Regulatory Compliance
6
Potential Compliance Exposure
Gramm-Leach-Bliley Privacy Act
Truth-in-Lending Act, Polk v Crown
Telephone Consumer Protection Act (Texting)
Conditional Deals/ Spot Deliveries
Sale Documents
Regulation Z IssuesOFAC “Bad Guys” ListDown
Payments/Trade-insRed-Flag RulesCredit Disclosure –
Risk Based Pricing
Sources for Compliance Help
Hudson Cook
• Tom Hudson, Esq. • Hudco.com• SpotDelivery.com ($349 per year)
The Seventh Component
Systems – The Glue that Holds it All Together
7
Systems
Allows for consistent execution
Must have systems for:
• Lead management and sales activity tracking• Funding• Inventory management
Final Three Components
Now We Engage the Customer!
The Eighth Component
The Special Finance Sales Process
8
Keys to the Special Finance Sales Process
Modify the typical steps to the sale.
Disaster strikes when you show (and sell) a subprime customer a vehicle they cannot begin to qualify on.
How do you avoid disaster?
Balloons!
1. Meet & Greet
4. Vehicle Selection 5. Walk Around 6. Demo Drive 7. Trial Close 8. The Write Up 9. Silent Appraisal
10. Closing
Red/Green Balloon Sales Process
2. Qualifying Question
Delivery Delivery
Suggestions now based on Credit
The best way to lead a customer through the special finance sales process.
3. Investigate Needs
The Ninth Component
The Special Finance Telephone Process
9
Phone Process Must Mirror Floor
Incoming sales calls present same scenario.
Ideally all sub-prime credit buyers are identified quickly.
If not, salesperson misjudges customer and starts selling vehicles, prices, etc.
Call guides or scripts are best used to prevent limiting your options when the customer comes to dealership.
The Telephone: Where it All Begins!
SF usually involves the use of leads.
All leads must be worked by phone.
• eLeads or web based leads require outbound calls to set appointments• Leads generally require 7 – 8 calls to contact• Average BDC rep can handle 250 leads per mo.• Advertising usually results inbound phone calls• Significant percentage of leads don’t get called!
Outbound Calling Philosophy
The Tenth Component
Credit Interview and Deal Structure
10
The Credit Interview and Application
Rehash!
The finance company’s first call is generally their worst call!
They are making an offer to finance a customer they have never seen on inventory they hope to never see and all they have to look at is the credit bureau and what you input into their credit application!
Generally $300 - $400 of leeway on average.
Deal Structure
Know your lenders’ guidelines before you begin – “Who will buy what, and why?”
Price deal based on available advance plus down payment. (Bottoms-up)
Always get the front-end gross first.
4 Keys to Win-Win-Win Deals
Correct vehicle (Inventory)
Optimum deal structure.•Get vehicle gross first.•Maximize back end call.
Down payment. (It all goes to gross profit!)
Rehash with finance
company.
Thank You.
For More Information:
Visit http://www.dealerstrong.com/ Call our office @ 877-811-8107