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Mad Marv

Proper Deal Structure Moves Mountains

His Madness has a simple but powerful piece of advice for newbie F&I managers and those struggling to adapt to the way finance sources are rating credit-challenged car buyers.

March 12, 2018

Things have certainly changed quite a bit since I started in F&I. Back then, the job was far simpler and, quite frankly, a lot of fun. There were no menus, FICO scores, or laser printers. We simply developed great relationships with bank buyers. But then along came tighter regulations, increased paperwork, and the internet. Overnight, it seemed the job slowed to a crawl.

I started out at a General Motors store, where our primary finance source was General Motors Acceptance Corp. (GMAC). As I recall, it only had four tiers of approval levels: A, B, C, and D. You could pretty much write off any pending deals in the D column unless it was below invoice or current book values. In fact, they weren’t very keen on approving many deals above MSRP.

"So what do I mean by proper structure? Well, it simply means working a deal with the right balance of trade equity and cash down so the deal makes good sense from a risk standpoint. Finance sources will quickly tell you the more of these two investments the customer has in the deal — especially the latter — the better your chances are of getting a good call."

However, they were pretty good at working with you to make deals fit into better tiers. And since my GMAC office was right across the highway from our store, getting to know the buyers and processors was the key to my success.

I can’t say enough about those banker relationships. In fact, they often relied on our judgment in their decisions. And that trust went a long way in making deals happen and, to some degree, it still does.

See, a lot of what I learned back then was the importance of lender guidelines. What may have been a straight-up approval at one bank could be a turndown at another. And while that is still true today, most finance companies use similar approval guidelines when considering a deal.

In fact, you can just about predict which banks will approve a deal based on past experience. Sure, we all get surprised sometimes. But one thing I’ve learned in my years doing this is the best chance of getting a deal bought — especially for credit-challenged customers — is proper structure.

So what do I mean by proper structure? Well, it simply means working a deal with the right balance of trade equity and cash down so the deal makes good sense from a risk standpoint. Finance sources will quickly tell you the more of these two investments the customer has in the deal — especially the latter — the better your chances are of getting a good call.

Good desk managers understand this. They make every attempt to structure deals properly to improve their chance of a good approval the first time. In turn, a smart salesperson works customers on the right car and diligently asks for cash.

A recent customer fell for a low-mileage 2011 Ford Ranger. He had a zero credit score. The salesperson worked him for cash down to get as close to book value as he could. I finally persuaded a finance source to take the deal at a high interest rate. We had to pay a hefty acquisition fee and agree to a shorter term. With no back-end products, it wasn’t a tasty deal for F&I, but it was a deal we didn’t have when we started.

Here are a few other things to consider that will increase the odds in your favor:

• Switchback: Have a Plan B in the form of a similar car that might book out better. Dealertrack’s SalesMaker function will help.
• Co-X: A qualified cosigner can sometimes be the difference between a deal or waiting for the next up. The risk factors diminish when you add some help.
• Show me the money: Even though the customer has filled out the credit application, it never hurts to ask if there is more documentable income.
• Less is more: If you were the bank, how much risk would you assign to this customer? Offering a shorter term can sometimes improve your odds. Banks have all sorts of algorithms they apply to determine the probability of repayment, and the length of the contract is high on those calculations.

These are just a few ideas to help you improve your game. You might be surprised how many more deals can be put together with just a little work and forethought. Good luck and keep closing!

Marv Eleazer is the F&I director at Langdale Ford in Valdosta, Ga.
Email him at marv.eleazer@bobit.com.

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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 fi-magazine.com.

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