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Combining Special Finance and BHPH

October 2008, F&I and Showroom - Feature

by Rob Hagen

Just about anybody who’s ever sold cars has had a sales manager tell them to get on the point and catch every customer who rolled on the lot, and don’t let anyone leave. Sales managers do this with green peas for two reasons: First, new salespeople tend to be enthusiastic. They’re willing to jump through hoops for customers and listen to their manager. Second, managers want to keep the new recruits away from the more-seasoned salespeople who would rather sit around the water cooler and complain about how bad business is instead of doing something about it.

Surrendering to market forces is a bad habit. It has a tendency to carry up the management chain at many dealerships. Managers are always calling buddies at other stores to find out how bad they’re doing. We’ve all done it. “Misery loves company” is an expression that runs rampant through the car sales game.

I’ve visited numerous dealerships over the past several months. I know the instant I walk through the door whether they’re making an earnest effort to improve their numbers or just throwing money at training. All I have to do is ask one question: “How’s business?”

A new strategy

Don’t get me wrong — I know we’re in a down market, quite possibly the toughest in my 16 years in automotive retail. Benchmark grosses are down nationwide. But it could be worse. After all, plenty of dealers are still delivering cars to special finance customers. After “How’s business,” my next question for a down-in-the-dumps dealer is, “Would you rather turn a little less profit or go out of business?” Silly question, I know, but so is sitting around the water cooler.

The dealers who survive through tough times are upbeat and proactive. They’re willing to think outside the box. Look to other industries for ideas. What are other companies doing to sell their products?

One trend I have seen with successful dealers is a blurring of the line between their special finance and buy-here, pay-here (BHPH) operations. More and more dealers who want to truly maximize their efforts are moving toward a hybrid model. There are still plenty of sales to be had without BHPH, but fewer capital sources and quite a few new rules.

Case in point

My friend and client Greg Marino is the dealer principal for the Autotorium Auto Group in Manchester, N.H. He’s finding it difficult to book special finance originations in the current environment.

“We just became tired of giving away so much in fees,” he says. “We decided that if the deal met our underwriting guidelines and the profit justified it, we would hold the paper on a certain amount of our deals.”

Greg hasn’t lost sight of the fact that special finance and BHPH are two different animals, and neither should we. The only difference lies in who’s holding the paper. Another good friend of mine works as a branch manager at an established full-spectrum lender. He once told me he was in the collections business, not the lending business. Anyone can lend money. Getting it back is the hard part!

In a special finance deal, it’s the outside institution that has to collect the payments. In a BHPH deal, collections (and, inevitably, repossessions) are the dealer’s responsibility. Dealers who book enough loans often will start their own finance companies. That’s a good way to save a few bucks in taxes, but at the end of the day, the dealership is still on the hook.

Making it work

Dealers who utilize special finance lenders as well as a BHPH operation use the standard approach to subprime sales: Once they determine they have a credit-challenged customer, they gather the pertinent information and decide if they can get a deal done with an outside credit source. If so, they start the application process. If not, they carry the note themselves. Easy, right?

Maybe so, maybe not. Do you have your processes in writing? Only by standardizing that procedure can you be sure your staff is booking new loans correctly.

Joe Johnson is the general manager of Richards Honda in Baton Rouge, La. He’s a big believer in accountability, from the principal on down. “I want to be able to hold all my people accountable,” he says. “The only way to alleviate any gray areas is to have your expectations in writing.”

From prime to subprime, fleet to Internet, you have to have a proven, airtight sales process in place, and you have to stick to it. If you ask a superprime customer to fill out a credit application before allowing him to look around the lot, he’s likely to be insulted. So how do you determine which process to use? For Internet leads and fleet departments, it’s easy. On the sales floor, it can get a little cloudy.

Much of determining how to book a loan depends on your demographics and average credit scores. Do you know the average of your customers’ credit scores? Tracking numbers like that can be an eye-opening exercise. More than one dealer has told me they didn’t even have special finance customers — let alone BHPH candidates — until they realized that more than 70 percent of the credit bureau reports they ran came back with scores of 600 or less. How many customers are they sending out the door with the wrong loan, or no loan at all? How many lenders are getting a bad impression of their dealership, or no impression at all?

My recommendation here is simple. Don’t leave anything to chance!

The right staff for the right customers

Treating your customers right and earning their repeat business means putting them in the right vehicle with the right loan. Like most other aspects of your dealership’s operations, that responsibility falls to the sales team and management.

Train your salesmen to find out as early as possible what kind of loan suits each customer best. Qualifying questions such as, “How did you finance your last vehicle purchase?” or “What line of work are you in?” are a good start, but “Would you like me to find out what kind of financing incentives you qualify for?” is one of my favorites. It’s a casual question that implies a benefit and isn’t likely to offend anyone.

If the customer has good credit or has already planned to buy a loan directly or finance through their credit union, they’ll typically say “No” or “I have my own financing.” No harm done. Your salesmen should know to respond, “Great!” and then follow the prime sales process. If the customer is interested, the next step is to pull the bureau report. If you’ve got room at your store for a qualified F&I professional, hire one. Let them review the report while the salesman gets the customer interested in your inventory.

What I mean by “qualified” is someone who realizes there’s more to credit than a score. This is another pet peeve of mine. Have you ever asked your credit bureau rep to come out and do a presentation on how to read a bureau report? If not, can you be sure your team is making all the right decisions?

It’s also helpful to know which bureau your special finance lenders are utilizing. You want to be sure you’re looking at the same information they are before you ask them to buy a loan. Many of the sales managers and F&I directors are certain they know how to read between the lines of a credit report, but when tested, realize they could use a refresher course.

By simplifying and quantifying your sales process, you’ve taken the first step toward making the most of your lenders and the paper you hold yourself. To survive and thrive in a tough market, you have to grab all the opportunities that your competition is throwing away. Happy hunting!

Rob Hagen is the director of special finance development at HyperDrive Technologies in Portland, Ore. Rob is an expert in the areas

of deal structuring, lender spread and relations, and sales process implementation. E-mail him at rhagen@special-finance.com.

Comment

  1. 1. Paige [ August 10, 2015 @ 01:47PM ]

    I am looking for 2 sales employees BHPH and 1 F&I Manager for an expanding dealer in charlotte and Rock Hill. Please contact me with any resources. Let's get these candidates to work and expand our industry.

 

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