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The Untapped Market

The bankruptcy segment is growing by leaps and bounds, and insiders say there’s a group of lenders just waiting to help dealers cash in on this niche market.

December 2010, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

Getting Dealers Prepped

As of November, more than 40 franchised dealers had signed up for the Friendly program. Davies believes that number could eclipse 100 by this month. What dealers will find, he says, is a lending market that understands that many BK customers spent most of their lives in the prime credit tier — that is, until 2007 and 2008.

“That market is growing,” he says, adding that his company is delivering approximately 26,000 discharged bankruptcies a week to subscribing dealers. “Our dealer base that is actively using our program has gone up substantially over the last eight months, and I think it has to do with lenders.”

Davies said dealers can expect to gross between $2,500 and $3,000 per sale. He adds that his service — which offer a money-back guarantee to franchised dealers if they don’t gross back 100 percent of the cost of the program — will typically deliver six to 10 car sales per month to users. “The typical dealership will see, on average, a little more than $180,000 in gross profit off our program,” he says.

Phil Long’s Winston says she’s averaging much more than $2,500 per deal, but, even at $1,500 per deal, a dealership moving 540 special finance units in a year could be looking at a very profitable department.

“Short-sightedness is very expensive,” she says. “Keep in mind the long-term effects of helping these customers, because they will tell others if you treat them right. Remember, birds of a feather flock together.”

The Right Kind of Dealer

For those who think it takes a special kind of market to be successful, Winston points to the 21 percent usury cap she contends with in Colorado. When her underwriter’s computer calls for a higher rate, she has to pay $300 per point to buy the rate down.

“You have to educate your customer. Otherwise, in some cases, you could end up with a $2,600 acquisition fee,” she says. “You need to remind them that they’re reestablishing their credit and that they may have to look at something with some rebate on it.”

Winston currently runs a program with OnlineBKmanager where a letter is sent out on her behalf every Tuesday morning. Each one of those letters carriers her signature in blue ink, so the customer knows an actual person signed it. Three weeks after the original mailer goes out, Winston will send out a second letter. Winston also sends out 5,000 to 7,500 mailers she calls her “evergreen” letter.

“Basically, with the evergreen mailer, we put a check in [our customers’] hands that says, ‘Go see Phil Long,’” says Winston. “They’ve most likely seen my personal invitations before, and now they’re being followed up with something that says, ‘No, really, here is your check, go see Diana Winston at Phil Long.’ Their calls then ring right through to my cell phone.”

Where most dealers miss the boat, she adds, is in the structure of their special finance department — particularly when it comes to payplans. “Salespeople hate special finance,” she says. “That’s because you sit down with the customer, take his or her credit application, walk up to the desk and all of a sudden that manager gets that look on his face and says, ‘You need to take that to special finance.’”

So, instead of making her position commission-based, Winston is paid a fee for her services on every deal. “I’m paid like a bank,” she says. “Now the salespeople love me because I’m not in their pocket.”

Lastly, Winston adds, “Don’t treat customers like criminals.” She says it’s important to explain to customers what the process will entail. Most importantly, special finance managers need to be able to ask for down payments.

“You have to constantly be thinking, because the market is constantly changing,” she says. “The way banks are looking at deals is changing. The main thing is to designate somebody, even if they aren’t experienced, and make sure they know all of their programs. If you don’t know what the banks are doing, there’s no way you can possibly be successful at special finance. That’s the bottom line.”


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