The Industry's Leading Source For F&I, Sales And Technology

Mad Marv

The Subprime Effect

Subprime financing is coming back in a big way. Is your dealership ready? His Madness breaks down several different options to help your dealership cash in.

September 14, 2012

Today’s subprime customer is feeling a little more empowered these days, mostly because finance sources are loosening their restrictions. It’s a good thing for the industry, as the subprime market was one of the main reasons industry sales approached 17 million units in those years prior to the Great Recession. Problem is, not every dealership is equipped to handle this customer segment. So, let’s take a look at a few  ways your store can address the subprime customer.

Option 1: A Dedicated Process
I’ve read or heard all of the guidance on how to establish a subprime process and it makes sense: Stock the right inventory without listed prices and develop relationships with key lenders to match customers to the right deals. Designated inventory like this will always be a work in progress since some cars are more financeable than others. Mileage and vehicle age are major considerations. Our rule of thumb is stay away from vehicles with odometers that are approaching the century mark, and vehicles produced when President Bill Clinton was in office.

Inventory, however, is only part of the right formula. Strong leadership also is critical, as is a defined sales process that addresses customer concerns without making them feel embarrassed about their situation.  Salespeople who have been trained in handling subprime deals know how to direct customers to the right vehicle. They realize the credit aspect of the sale must be addressed upfront so the customer will be handled with care.

Option 2: A Single Process
Just because your dealership doesn’t have a dedicated subprime department or the dealer is unwilling to invest in a separate facility, doesn’t mean you can’t capture your share of the market. But it will require work and dedication on your part.

If you don’t already have a good list of lenders catering to the subprime segment, DealerTrack should be able to provide a list of active subprime sources in your area. And the more lenders you have the better your chances are of getting a deal approved, so get them signed up. Just make sure you familiarize yourself with their various guidelines and rules.

Your people will also require coaching on how to handle subprime customers. The good news is most customers with credit issues will let the salesperson know right away to avoid embarrassment later on. They may even offer to give their credit info to get prequalified. For those who aren’t so forthcoming, you need to pull their credit early on so you can have a brief chat with them about their situation before you have the salesperson direct them to the right vehicle or vehicles. This is the process we employ here at Langdale Ford. And from my experience, subprime customers appreciate the fact that we put them through the same process we put our prime customers through.

Boy, I remember the days when subprime financing was relegated to Dewey Cheatem & Howe loan company. I would gather all the information from the customer, then call around to all their credit lines and submit the deal to those guys. Interest rates were in the 30 percent range for 24 months, and the customer had to pledge his or her first child as additional collateral. But the lending market is returning with a vengeance. Lenders are popping up on a daily basis. Even prime sources have subprime lending arms these days, and they’re staking their claim in the market’s rebirth.

The main reason why you want to tap into this market is because these credit-challenged customers won’t always be in their current situation. And many of these customers once had credit scores well north of 700, but they suffered mightily during the Great Recession.  For some, their fall into the lower credit spectrums was a first, so coming into a dealership and getting told their rate is going to be in the teens is a sobering experience. How you handle your customers from that point on will be the key to your success.

Listen, customers — no matter their credit situation — want to feel important and valued. And since we finance managers are entrusted to handle their financial needs, let’s be certain they get the same message from us that they got when they had an 800 credit score. That means we must be prepared to suggest an alternative vehicle if the finance source won’t take the deal. If the customer won’t budge, then we need to be prepared to explain the parameters to buy that vehicle. Just make sure you make them feel like they’re the most important customer you’ll see that day.


  1. 1. Bill [ September 21, 2012 @ 06:04AM ]

    This is madness. Sell a 45k car to someone who qualifies for a 20K car. This is what created the mess we are in now. Is this another Obummer idea?????????

  2. 2. Mad Marv [ September 21, 2012 @ 07:00AM ]

    Help me follow your thought process, Bill. I don't advocate trying to cram a customer into a vehicle they can't qualify for. Just because someone has suffered a financial setback doesn't mean they should be ignored by the credit industry. I totally agree that some lenders are all about volume and have done some pretty crazy things in the past but most of what I'm seeing are responsible approvals. How does President Obama figure into this equation?

  3. 3. Steve C [ September 22, 2012 @ 03:23AM ]

    I believe what has been advocated is stocking the right inventory so that you are able to cater to the needs of the credit-challenged. Currently over 45% of the population has a credit score under 550. As a dealer you have to make a choice, either you find a way to sell and finance cars to this segment of the population or you don't. If you wanted to sell cars to high income individuals with top tier credit scores you would stock high ticket inventory, salespeople would be wearing suits and ties and customers would be sipping cappucinos in the showroom. All Mad Marv is suggesting is if you make a decision to try and capture the lower credit tier customers then you should carry the right inventory and set yourself and your staff up with the knowledge needed to best help this growing market.The choice is always yours, just don't sit around bitching about the lack of qualified customers when you have done nothing to cater to their needs.

  4. 4. Steve M [ October 03, 2012 @ 10:31AM ]

    Great advise. We have been doing this for years now and I have to say 40-50% of my customers i see in a month are in the alt lending category. Sometimes, they are more appreciative and profitable than someone who is "north of 700"

  5. 5. bobby esma [ October 04, 2012 @ 01:21PM ]

    I’d have to agree!
    There must be a system to follow when it comes to less the then perfect credit!
    I think there are a few key points that a subprime manager needs to follow to be able to get the right gross, have the customer be happy and most importantly have the customer be back to them down the road!
    it’s not hard to gross someone 10K and have them not be able to get refinanced! (That’s not good business)
    id rather help someone 3 times in 3 years... make my 10K to 15K over all have the same costumer that keeps on coming back and send me lots of referrals!
    Having the right inventory is KEY! When its all said and done we all want to make money! More often then not, the people with bad credit don’t have that much money to put down to make the payment call or ect…..
    Like Marv said, you must have the right inventory and the right relationship to the lenders to be able to get the deals going green! A approval is no good if you don’t have a car that fits! That’s just time wated!

  6. 6. Art [ October 04, 2012 @ 07:06PM ]

    GPS has made all of this possible

Comment On This Story

Email: (Email will not be displayed.)  
Comment: (Maximum 2000 characters)  
Leave this field empty:
* Please note that comments may be moderated.

Author Bio

Marv Eleazer

Finance Director

Marv is no insider. He’s an actual F&I manager with more than 20 years of experience. Get his from-the-trenches take on the industry every month at

» More