In 1991, when special finance departments were not as prevalent as they are today, especially in franchise dealerships, I was calling on a Pontiac dealership in the Dallas/Fort Worth area that was very successful with its standard business.

While trying to point out that there were probably many more credit-challenged customers in the market than prime-credit customers, the dealer principal told me that he just didn’t need to deal with Hell’s Angels as customers.

I promptly pointed out to him that if he went up on his roof and surveyed the residences that were in sight — and there were a lot of them — that a very large percentage of those residents were being rejected by his dealership. Despite thinking that their money was green on one side and gray on the other, their money was really just like a prime credit customer’s.

Furthermore, they were fine, upstanding people who had just had some situation that adversely affected their credit. We did eventually sign that dealership and it has gone on to become quite an effective nonprime marketer.

Since that time, the sophistication in marketing to the nonprime segment and the manner in which these customers are treated has improved dramatically. Most dealerships that have a special finance department no longer have it situated in a trailer out back.

I remember a full-page ad placed in Automotive News many years ago that referred to subprime customers as roaches and had the image of an actual cockroach over the ad. Irrespective of the written content, the message was loud and obnoxious. Thankfully, that company failed shortly following that ad. We don’t hear those terms used to the degree that they were. I believe that most dealerships have learned that customers from this segment deserve more respect and are profitable business.

Nonprime Represents Major Segment of Market

Most data sources peg the size of this segment at around $200 billion in sales annually. Admittedly, that includes buy-here, pay-here, as well as some casual sales, but the majority of these customers buy their vehicles the traditional way, through a franchise or independent dealership. So what are the benefits?

1. More volume for your dealership — many well-run special finance departments contribute 50 or more additional sales per month per store.

2. Higher gross margins — published statistics suggest grosses of $3,800 or higher per unit. Some dealerships are averaging closer to $4,400 per unit. Compare that to the $1,100 or so that NADA says is average on new-car sales.

3. Customers who are treated with dignity are appreciative and, if you make it a priority in your dealership, are quite likely to develop some loyalty to your dealership and return for future purchases. On a more immediate note, they will refer their friends and relatives, hopefully resulting in more sales, more referrals, etc.

4. The opportunity to sell reasonable back-end products, such as extended service contracts, GAP and credit life, is very good.

5. There are a sufficient number of quality finance companies available that are happy to work with dealerships that have set up special finance departments. The programs vary in their detail, but generally offer competitive advances, rate participation, fast application and funding turnaround. So, what’s the hold-up?

Generally, the most difficult part of setting up a department is finding the right personnel. The special finance manager has to be a person who can show empathy with customers, offer professional courtesy, has knowledge of finance alternatives and demonstrates ethical behavior. [PAGEBREAK]There is always the temptation to gild the lily, that is, to encourage the customer to overstate facts on the credit application. This is short-term thinking and will not pay off in the long run. Developing a relationship of trust between your special finance manager and the finance companies is critical to the special finance department’s success. Creativity in deal structuring is important, and ferreting information from the applicant to accurately reflect his credit standing is also critical.

Develop a Process to Identify Customers Early

Many dealerships do not rely on specific advertising to “other than prime credit” customers, rather, identifying them in the sales and F&I process, and referring them to the special finance department when a credit score of less than some number is discovered. I suggest that the sales staff attempt to find out early on if there are any credit issues so that the customer can be professionally turned over to the special finance manager prior to having his expectations set too high. The customer’s perception of his credit situation should be determined prior to settling on a particular vehicle.

If it turns out that a customer cannot be financed (a situation that might be overcome with a sufficiently large down payment) then there is still an opportunity for the dealership to develop a future loyal customer by treating them with respect and courtesy. For example, a valuable service to someone in this situation is to have credit improvement education available for the customer to show him that the dealership is seriously interested in helping him into another vehicle in the future. If you do not have anything available, the least you can do is to refer the customer to such Web sites as,,,,

ucation.html,, etc. Many such Web sites can be found by entering “credit education” in Google, Yahoo or one of the other Web search engines. Take a few minutes to explain to customers how they can improve their credit score and therefore return to the dealership in a few months in a better position to obtain financing.

If your dealership has not developed a good system for accommodating credit-challenged customers, you are missing out on a lot of sales and profit. It is worth the time, effort and expense to develop this department to its fullest. There are many resources available to help you, including this magazine and its advertisers. Another source is the National Automotive Finance Association, Get in the business, do it correctly and you will be rewarded. n

Jim Bass is executive vice president of Drivers Select and chairman of the National Automotive Finance (NAF) Association. He was the founder and CEO of Inc., a pioneer online subprime finance company. Prior to that, he was founder, president and COO of Auto One Acceptance Corp., a nationally licensed subprime vehicle financing company.