May 2009 - Feature
Saving a Lost Art
By Randy Hoffman
Some industry experts put the blame on technology. Others
lay the blame on the reliance of scoring systems by lenders. Regardless of
where the blame should be placed, it’s clear the “art of hanging paper” is a
lost art.
It was just a few short years ago that lending institutions
had representatives visiting our dealerships on a regular basis, competing and
sometimes begging for our business. Now, under the weight of the current
economic climate, lenders are trimming staff and placing a much greater
emphasis on collections and managing defaults.
Even worse, some lenders have eliminated those monthly
visits altogether in favor of monthly phone calls. Some well-known institutions
have even gotten out of the business entirely.
Dealers are also now being conditioned to take the first
offer from the bank, without any rehash or ability to get the deal done. Banks
are getting indignant about the bureau scores appearing on the customer
applications we submit. In addition, the credit crunch has given the lending
institutions the strength to pull back, which is something they’ve tried
unsuccessfully to do in the past. This is where the artistry of hanging paper
is missed.
An Industry Without
Credit Scores
Several years ago, before bureau scores were published,
F&I managers had to learn how to read a bureau. Doing so would lead into
the customer interview, a crucial step before the advent of menu selling. The
goal of the interview was for the F&I manager to get a good understanding
of the customer’s credit, character, capacity and collateral, sometimes
referred to as the four Cs of credit.
F&I managers then created a plan on how to sell the
paper to the bank. Remember, most bankers or credit analysts did not consider
themselves as being in the car business. Like today, banks didn’t always agree
with the deals we presented. The only difference back then was there weren’t
scoring systems for them to rely on.
Most lenders had their own proprietary scoring system, which
very few people understood, including the lenders’ own credit analysts. It was
not uncommon to have an analyst declare that he or she couldn’t figure out why
a deal was scored the way it was, or state that the bank must have secretly
changed the algorithms the night before. In either case, it was up to the
F&I manager to start doing his or her job.
When beacon, FICO or bureau scores were introduced, lenders
turned to them to guide their decisions. Those arbitrary numbers were supposed
to make life easier for both the banks and the dealers, as they were supposed
to provide guidance on what deal should be bought and at what price.