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Subprime: Are You In or Out?

October 2008, F&I and Showroom - Cover Story

by Rich LaLonde

Change seems to be a resonating theme this year. Both political campaigns are touting it, and it’s clear the auto industry must do the same. As a 15-year consultant of the subprime industry, I can say without hesitation that dealers not in the subprime business need to chart a new course for their business.

For dealers that are willing to become students of the subprime business and make a minor investment in the proper infrastructure, there has never been a better opportunity than today. Success, like other parts of your business, will come down to people and processes.

The brutal fact is subprime is here to stay, and if you want to be a top dealer you can’t ignore more than 40 percent of the buying public that’s slid into the subprime credit tier. So, are you in or are you out?

If you are in and want long-term success in this market, the only real strategy is to change the culture of your entire store. That means subprime needs to be integrated into your new- and used-sales departments, and each member of your team needs to understand his or her responsibilities.

Any successful big business understands the segregation of duties. Huge companies invest millions on internal audit departments to ensure these polices are carried out.

Would you allow your office manager to write the checks, make the bank deposit and reconcile the bank account? Of course not! So why do so many dealers who try subprime believe they only need to hire a subprime manager? They allow this person to buy cars, book the cars, collect the stips, sign documents and send the package off to the lender. Talk about a recipe for disaster.

Dealers who allow that to happen are clearly unwilling to change their dealership’s culture, or maybe the economic impact hasn’t affected them enough to “rock the boat.”

It could also be that someone suggested they hire a subprime manager, put him or her in an isolated office and let that person do their own thing. After all, they aren’t handling real customers, right? Unfortunately, that’s the wrong attitude to take. This is big business and it should be treated that way. You, your general manager, and the entire store need to be involved.

Success in subprime isn’t dependant on any one person or any magical advertising campaign. To achieve long-term success in subprime you must get your team aligned and involved.

Think of it this way. When your service manager leaves, do you stop servicing vehicles?

When your general sales manager leaves, do you stop selling cars? When your used-car manager leaves, do you stop taking in trades? Of course not; you have built a culture and infrastructure that is not dependant on just one employee. You need to take the same approach with subprime business. Let’s look at four reasons why you need to take the subprime market seriously.

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