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Confessions of a Subprime Lender

March 2008, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

It’d be easy to dedicate this entire editorial to all the recession talk. It’d definitely be a good read, but would it help?

I’m sure you’ve all read your fair share of stories about the “R” word. One more surely wouldn’t help. So, rather than bring the doom, I thought it might be better to focus on ways you can weather the gloom.

The idea actually came from a recent topic posted on our F&I forum, entitled, “Confessions of a Subprime Lender.” The individual behind the post identified himself only as an assistant branch manager for a subprime auto lender in the state of Florida. Now, I couldn’t reach him but let me paraphrase what he wrote.


First off, the post’s author said the primary mentality of a buyer is to make sure the deal is right for the bank. Second, the buyer has to be concerned about whether the bank can get its car back if the loan goes bad. And for those of you who think banks don’t understand the complex and often tense relationship between F&I and sales, think again. In fact, most buyers, the insider said, will tell the F&I manager exactly what they need to get the deal bought in hopes of relieving some of that tension.

This mystery buyer also admitted that he focuses more on the customer’s stability, ability and willingness to pay rather than the beacon score. Why? Because there are so many variables that go into determining that score.

As for how to get a deal bought, the author offered several suggestions, such as always providing accurate information on items such as time on the job, address and income. He also suggested that F&I managers provide structure and collateral information.

What really piqued my interest were his recommendations for rehashing a deal. He said never argue or be demanding with the buyer. Instead, he said F&I managers can go a long way by simply being happy and positive on the phone. He also said F&I managers should not be afraid to work with their banks the same way they work with their customers.

“I love it when a dealer calls to rehash a deal with me because that means they are thinking about me and want to send the deal my way,” he wrote.

He also said F&I managers should try to appeal to the buyer’s emotional side by simply saying, “Hey Mr. Buyer, I have a wife and kids that have to eat, too.”

And if a deal is going nowhere, the mystery buyer recommends telling the buyer to look at the dealership’s account rather than the deal. In other words, let the buyer know how much your dealership supports his or her efforts. His main point is to simply sell the deal by providing the buyer with every reason why he or she should buy it, whether it’s touting the down payment, collateral or a low loan-to-value (LTV) ratio. And if a customer puts down $10,000, don’t be afraid to tell the buyer, “I have 10,000 reasons why you should do the deal, but I’ll give you one: Anyone who puts down this much of a down payment wants the car and plans on keeping it.”

However, in some cases, our mystery buyer warned, having a bigger down payment isn’t always the answer. When that happens, he recommends considering less fees, more term or less rate. He also said that if an F&I manager is currently at 120 percent of the LTV and needs to get to 140 percent, ask for 160 percent. His last recommendation was to never accept a trust deed. “Force the bank to buy,” he said.

Now, isn’t that better than telling you that Global Insight warned on Jan. 24 that the chances of us heading into a mild recession and the chances of us being in one then were over 50 percent? Would it have helped to know that the California Motor Car Dealers Association reported that new-vehicle and light-truck registrations hit their lowest point last year since 1999? Probably not. What about knowing that sales estimates for 2008 show a 4- to 5-percent decrease?

Now, if my editorial did take that slant, I’d also tell you that the automotive industry had its best years following the last two recessions. But I’d also warn that the triggers are a lot different this time around, as noted by Global Insight’s George Magliano.

“I don’t think we’re going to be able to get the results we touted in 2002 when GM led the way with ‘Keeping America Rolling,’” he said. “There’s a lot of weakness in the economy. Oil prices are higher. And we lived through an era here where incentives were used at unimaginable levels.”

What I will tell you is that most recession scenarios I’ve seen point to a perfect storm in a positive sense by 2009, when pent-up demand for a new vehicle is expected to get the best of consumers.

In the short-term, I just want to say that anything subprime is having a tough time these days, as noted by the Consumer Bankers Association and the NAF Association. Unfortunately, Wall Street, which many of our nonprime finance companies rely on for securitization, had a bad reaction to the subprime mortgage debacle. That’s why I thought the angle I took this month was more appropriate. Hopefully it helped. One last thing, please sign up for our F&I forum. Heck, look at what I found.





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