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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1. Subprime Dealer Pool Continues to Shrink

The pool of qualified dealers available to serve subprime customers is getting smaller, as more dealers exit the subprime business in record numbers. There are a number of reasons for this.

First, there is the subprime “guru” effect, which involves a dealer hiring a subprime expert, buying a few leads or implementing a direct mail campaign, and delivering 10 to

15 deals a month. The problem is the dealer and general manager generally don’t spend time understanding how the guru conducts the dealership’s subprime business.

If the guru has success, chances are someone within the dealer’s management staff becomes jealous and makes it difficult for the guru to sell vehicles. The dealer stops advertising or buying the right inventory, and the next thing you know the guru is working for your competitor. Can you blame him?

Second, a guru funding problem can happen if the dealer pays the guru on delivered cars and not funded contracts. In this situation the guru can get ahead of the dealer by two to three months. When the dealer finally asks questions about the funding, the guru is gone before you can catch him since you fired him.

Thirdly, if no one is watching, your guru can commit fraud and cause you problems. We have seen dealers get asked to pay more than $100,000 in restitution for these types of issues. Some of these fraud issues include power booking cars, and bogeying pay stubs or the down payment.

Finally, lenders are tightening up. They still have money to lend, and a smaller dealer base to lend it to, which, to me, sounds like opportunity. Dealers who have the right processes in place and the right people in the store will not be out of business.

Whatever the scenario, you are out of the subprime business because you relied on that one person, while a local competitor who has the right process in place just got more profitable. There is no one to blame for this but you. As a dealer, you have to “inspect what you expect,” which results in your employees “respecting what you are inspecting.”

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2. The Growing Subprime Pool

With the subprime mortgage mess still playing out, debt levels at new highs, record home foreclosures, and unemployment rising, the amount of customers entering the subprime market has never been greater. This trend will continue throughout our lifetimes and will not decline any time soon. Think about the opportunity you are giving these customers to reestablish their credit. Treat them with respect and kindness and you will build a strong customer base, which will be loyal and send you a tremendous amount of referrals.

3. Benefits of Subprime Profit

Dealers who can attain an average of 25 additional deals per month will realize a departmental profit in excess of $400,000 per year. Take a look at the adjacent chart for a breakdown.

















4. Motivating Salespeople

There is nothing worse for salespeople than to work a deal for two or three hours only to find the customer can’t get financed. Would your salespeople like to help more than 40 percent of the buying public who have credit problems, and make 20 to 30 percent more income each month? Of course they would. However, implementing the process to do so is no easy task. It takes a tremendous amount of work and a great deal of discipline. You will be tested along the way, but if you can effectively communicate to your staff the importance of their roles and the impact they can have on the organization, it is possible to achieve long-term success in the subprime market.

Rich LaLonde is a 15-year consultant of the subprime marketplace and president of Auto Credit Express Inc. He can be reached at [email protected].

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