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Nonprime Customers Need A Menu, Too

October 2006, F&I and Showroom - Feature

by Robert M. Steenbergh - Also by this author

As menu selling becomes more and more predominant in dealerships today, and dealers strive for 100 percent utilization due to compliance concerns, the question that is arising is: How do we handle the nonprime customer?

Nonprime customers are those individuals whose credit score is south of 700. Everybody seems to define it a little bit differently, but generally, we are talking somewhere in the high 500s to low-to-mid 600s. Go below that, and you enter the world of subprime (which is another challenge altogether).

Total Payment Buyers Can Be a Challenge

The major challenge that nonprime customers present to a finance manager is twofold: One, they are total payment buyers, and two, they are not in total control of their buying decision. The bank is going to be involved, and there is going to be a cap on their payment. This is going to present a problem when the customer was brought to the business office already maxed out on their payment call because the sales tower put them in absolutely the most expensive car they could find.

An additional negative factor is that due to their less-than-perfect credit history, nonprime customers are going to have a higher interest rate to deal with. This also impinges upon their already restricted monthly payment maximum and eliminates potential money to buy products.

To overcome these challenges you will need an advanced electronic menu that allows you instantly “what if” and recalculate different scenarios. There is no way that a paper menu can handle this situation effectively.

Your menu is going to have to have sufficient rollback capabilities such that you can work under the restriction of a payment cap and still find room to sell the customer some product. Your system also will need to be able to protect a minimum level of profitability per product.

If you have the proper advanced electronic menu, then all that selling to a nonprime customer entails is a little creativity and some simple math.

Use An Electronic Menu

To Sell F&I Products

An example will work best to show you how this works. Let’s say that your nonprime customer was presented to you in the F&I office trying to buy a $14,499 used vehicle. The bank approved him for a max payment of $400 at 9.9 percent and a 48-month term. His base payment (before any product) is $375.26, or $24.74 less than the max cap. What do you do?

As you can see from the rollback field under the Basic column, you need to find $141.81 in order to sell this nonprime customer the extended service contract. With the suggested retail selling price of $1,115, the simplest thing to do is subtract the $141.81 from the SRP of $1,115 and sell the service contract for $973.19. This is a perfect solution as long as the $973.19 figure is not below dealer cost or a set minimum profit standard. Make sure that your menu protects your profitability when doing rollbacks.

That one was pretty easy. What if you want to get a little more aggressive? Looking at the rollback field under the Economy column you need to find $731.81 in order to sell this customer the extended service contract as well as the automotive theft protection policy. You can’t deduct the full $731.81 from the service contract as you would go below cost. However, you can take the service contract down to the minimum acceptable profit level ($750 in this case) and then take the remainder out of the theft protection and sell that for $223.19. This results in the pre-approved bank call of $400 with approximately $300 worth of back-end profit that you wouldn’t have otherwise. Clearly not the biggest deal anyone has ever seen, but with approximately 60 percent of the population falling into the nonprime and subprime categories, what percentage of your business does this represent? It adds up if you can get an additional $300 PVR.

Again, this is only possible if you have a system that will accurately and rapidly present you with these options. If an F&I manager has to do this by hand, take out the rate sheets to figure cost and a minimum acceptable profit level, and attempt to present two different scenarios to the customer, etc., it will never happen. It will take too long, look too disjointed, and let’s be realistic, the nonprime customer is already uncomfortable in the F&I office because he doesn’t have perfect credit. A lot of paper shuffling and nine-key calculating will only scare him off and result in a deal with no product sold.

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