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Special Finance®

Dealer Profile: Experience Required

February 2009, F&I and Showroom - Feature

by Tariq Kamal

Like many other F&I professionals, Tom Miller started his career in automotive retail by working long hours on the lot. For a competent salesman with a head for numbers, it was only a matter of time before he moved over to the F&I desk. He was promoted to finance manager at Magic Ford in Valencia, Calif., north of Los Angeles, where he learned the basics before the dealership went out of business in the midst of the mid-’90s downturn.

After a short stint at another Ford dealership, Miller found a new home at Team Chevrolet in Pasadena, where he also found a new twist on F&I: a dedicated special finance department.

“I worked with a man named Jim Jenkins,” Miller recalls. “He ran the special finance office, and he introduced me to the subprime credit market. Back then, the main players on the lending side were Triad, HSBC, AmeriCredit … all with their own guidelines, all looking for a certain credit profile.”

By dedicating himself to special finance on a full-time basis, Miller was able to master an aspect of vehicle sales that many other dealerships were just discovering.

“At the time, subprime was a minor part of most dealerships,” he says. “I wanted to become a student of special finance. I got good at matching profiles to lenders, and I started to develop a reputation among the bank reps. It got to the point where I had a deal 80 percent done just by looking at the credit report.”

Miller’s next challenge was to create a special finance department from scratch. He got his chance at Community Chevrolet in nearby Burbank, where he discovered a file cabinet full of deals that had been rejected by nonprime and prime lenders.

“I started digging through the drawers and calling the customers the dealership thought they couldn’t help. It wasn’t long before I was booking 40 to 50 deals a month. I was able to convince the general manager to give me a budget to advertise directly to the subprime market, and it really took off from there.”

With his reputation as a special finance wiz growing, Miller was recruited by Toyota of Hollywood, where he would spend three years refining his closing process and turning in solid numbers. With 10 years of special finance under his belt, it was time for something new: subprime sales at a luxury-brand store.

Where luxury and special finance meet

From the street, Thomas Acura in Covina, Calif., looks like most high-end dealerships: clean, sleek and futuristic. Rows of shiny new TLs and RSXs are lined up outside the blue-and-gray exterior. To the west, several more rows of pristine late-model, pre-owned units make up the attached used-car lot.

What makes Thomas Acura different is the collective experience of four generations of automotive dealers. The dealership’s general manager, Ian Thomas, describes himself as a man who was born with gasoline in his veins.

“My great-grandfather, Cecil LaRue Thomas, got into the car business after working as a blacksmith,” he says. “He and my grandfather started selling Studebakers in 1932, when a lot of car dealers worked out of gas stations. The business grew and they sold Oldsmobiles, then Lincolns, then they operated a Cadillac dealership in downtown Los Angeles. My grandfather’s collection of classic Cadillacs was actually larger than General Motors’ collection.”

Thomas’ father, Gerald Thomas, bought Covina Acura in 1988, when Japanese luxury brands were still something of a novelty. Within a year, he had moved the dealership to its current location and dissolved the Cadillac franchise.

“It certainly was a risk,” Thomas says. “Mercedes-Benz and BMW were the established luxury brands, and my grandfather had always been a ‘Buy American’ kind of guy.”

The same sales slump that led to the closing of Tom Miller’s first employer threatened the Acura store.

“Back then, we only offered the Integra and the Legend,” Thomas says. “The mid-’90s was a tough time to survive on two models.”

Thomas Acura persevered and grew with increasing demand for Honda’s luxury line. But as the effects of the current economic and credit crises took hold, Ian Thomas began looking for new ways to reach more customers and keep the metal moving.

“Subprime is part of what we do,” Thomas says, “but it’s not big enough. That’s why we brought Tom in. He’s the special finance guy.”

The perfect score

“It’s a combination of factors,” Miller explains. “It’s no longer just a matter of matching the bureau score to the lender and the program. It was around 2003 or 2004 that lenders started adopting the score-card approach. They were beginning to realize that all those deals they were writing weren’t performing so well, so they developed these computer programs that added up points — points for time at residence, points for time at current job — it can get complicated, but it still comes down to finding the right loan for each customer.”

Finding those loans requires maintaining mutually beneficial relationships with the right lenders, which just happens to be Miller’s specialty.

“Guidelines change,” he says. “Yes, the lenders publish the changes every couple of months, but that’s only part of it. I’m in constant contact with my reps, especially when deals don’t get bought. I’ll also call other special finance managers I know and ask, ‘Who’s buying deep for you?’”

Miller has found that for every lender that disappears or stops buying, a new financing source will emerge.

“Around the same time Triad and HSBC started to tighten up, other lenders emerged,” Miller says. “ACC [Automotive Credit Corp.] and Capital One really came through for us. The credit unions never used to be too interested in subprime, but they’re not trying to recover from the fallout that the banks are dealing with. They’re willing to take more chances right now, maybe take a look at a 640 bureau. If you consider that today’s definition of ‘subprime’ is closer to 620-650 than sub-600, that strategy fits right into what we’re trying to do.”

Inventory insights

Once he has a clear picture of a customer’s credit profile and financing options, Miller’s next objective is finding the right car. Not surprisingly, many of his customers want the vehicle first and the loan second.

“I do what I can to make the customer understand their profile from the bank’s perspective,” Miller says. “I’ll say, ‘I can get you financed, but on a different car with a different payment.’ I’ll tell them this may be only a temporary solution, and if they make their payments on time, they can come right back and trade it out when the time is right.

“Meanwhile, we stock these beautiful used units — ’07s and ’08s, most of them still under warranty. If we can get them far enough back of book and either move them in 90 days or get the money back at auction, we’ll be just fine.”

And what about the credit-challenged customer who comes to Thomas Acura for a flashy new ride and won’t settle for anything less?

“If vanity is your chief focus,” Miller says, “I probably can’t help you.”

Marketing for success

After more than 75 years in vehicle sales, the Thomas family has tried a number of marketing strategies. Ian Thomas says that, for now, increasing the dealership’s online presence is their main objective.

“We were the first Acura store in California to sign up with ClickMotive, which is one of Acura’s preferred providers,” he says. “The manufacturer tells us that 70- to 80 percent of Acura shoppers start their search online. We’ve got the Website bringing in leads, and all our sales consultants are responsible for following up.”

Also aiding the company’s profit margins is its service department, which includes a manager, two writers and seven Acura-certified technicians. The seven-bay shop runs the entire length of the back of the building. It’s mostly hidden from the street, but easy to find online.

“If you are within 20 miles of the dealership and enter practically any relevant Acura search term on Google, MSN, Yahoo!, etc., you’ll find Thomas Acura,” Thomas says. “In the current climate, fixed operations are becoming increasingly important.”

Miller supplements the Internet traffic with an old standby: direct mail.

“Mailers are also a good way to go right now,” he says. “They make it easy. I can tell my provider we want everybody in a certain credit demographic or coming off a fresh bankruptcy within a 15-mile radius, and that’s who we’ll get.”

Focus on the future

With the help of Miller and the rest of the Thomas Acura team, Ian Thomas says the dealership will still be on solid ground when the market and the economy improve.

“I was in a 20 Group with a Honda dealer who pointed out that more than half of Americans have impaired credit,” Thomas says. “He said, ‘If you’re not in special finance, you’re only half in the used-car business,’ and he was right. We’re counting on Tom to help get us the rest of the way there.”

For his part, Miller says he’ll continue to leverage his years of experience against a constantly changing market.

“Whether it’s a bank or a credit union, when it comes to special finance, they’re making their decisions based on the profile and the presentation,” he says. “The deal depends on the character behind the credit report.”

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