December 2008 - Feature
Finance Acquisition Business Plan Strategies
By Dick Costello
It wasn't too long ago that the news of the day didn't center on billion-dollar government bailouts and a volatile stock market. How quickly things have changed. The days of selling too much vehicle to a customer with less-than-stellar credit and without a down payment are over. So what's an F&I department to do when both lenders and consumers are holding on to their money?
What's changed is lenders are not being as aggressive as they once were. Whether it was a captive finance company or an indirect source, lenders wanted the business and they were taking whatever they could get. Common sense and good business practices were not part of the equation, as the more they built their portfolios the more shareholders would bite.
So where do we go from here? Fortunately, the goals of the F&I office haven't changed — deliver as many units as possible and at a maximum profit. However, the pressure to deliver units has never been greater. Successful car salespeople know less 'ups' means selling with maximum efficiency. This places a lot of emphasis on the dealership's selling system, because higher closing ratios and average gross is the best way to overcome a down economy.
So, the principle hasn't changed, but what's at stake has. Following a good system in today's market could mean the difference between a dealership surviving and not surviving.
Creating a Finance Acquisition Business Plan
More than ever before, the competition for capturing a finance approval is as fierce as it's ever been because of the lack of lender funding. Make no mistake; you will be competing for the funding "yes" as hard as your salesperson did to make the sale. This is why having a selling system is so important.
There are three main components of a finance acquisition business plan: know your lender, know your customer, and rehash the deal. The key to making this plan successful is to do your homework, which means knowing what your lenders will approve and why. Here are four ways to do that:
1. Determine which bureau(s) your lenders use to collect information. Credit score analysis will vary depending on the particular source, which impacts the rate tier. It just makes sense to have access to the information your lender is reviewing.
2. Know your buyers. Become familiar with your lenders and have contact with them oft en. It's also important that you do this in person, as it is more difficult to say "no" to someone you like.
3. Become familiar with each lender's statistics. Getting this type of information is relatively easy these days because of the advent of lender platforms. Look-to-book data is one of several ways you are judged, but it's also a way for you to judge the lender. What you need to do is determine how the lender conditions a deal, especially since many conditioned deals are nothing more than rejections in disguise. So, if the stipulation is $10,000 down on a $15,000 unit and the customer only has $200, then you know that's not a workable condition. Reviewing look-to-book data may make the bank appear more active than it really is, but if you can dig into the numbers you'll see exactly what they're accepting. It's also important that you know your true turn-down ratio.
4. Be in tune with how each lender's portfolio is performing. Good performance will strengthen your ability to get marginal deals done. Sometimes, in a rush to get a deal with a 750 score "over the curb," you may not close deals with lower credit scores. In instances like this, you may want to consider not giving that 750 deal to a lender that takes only "A" deals. Yes, you may be sacrificing an extra half point of reserve and a few hundred dollars of extra profit that lender might have given you, but you may be able to get both deals delivered by shopping both of them around with well-performing lenders that are more likely to accept a greater range of credit ratings. Doing so could also result in a few extra thousand dollars in profit. The trick is to give yourself as much leverage as you can to get a marginal deal bought.