As menu selling becomes more and more predominant in dealerships today, and dealers strive for 100 percent utilization due to compliance concerns, the question that is arising is: How do we handle the nonprime customer?

Nonprime customers are those individuals whose credit score is south of 700. Everybody seems to define it a little bit differently, but generally, we are talking somewhere in the high 500s to low-to-mid 600s. Go below that, and you enter the world of subprime (which is another challenge altogether).

Total Payment Buyers Can Be a Challenge

The major challenge that nonprime customers present to a finance manager is twofold: One, they are total payment buyers, and two, they are not in total control of their buying decision. The bank is going to be involved, and there is going to be a cap on their payment. This is going to present a problem when the customer was brought to the business office already maxed out on their payment call because the sales tower put them in absolutely the most expensive car they could find.

An additional negative factor is that due to their less-than-perfect credit history, nonprime customers are going to have a higher interest rate to deal with. This also impinges upon their already restricted monthly payment maximum and eliminates potential money to buy products.

To overcome these challenges you will need an advanced electronic menu that allows you instantly “what if” and recalculate different scenarios. There is no way that a paper menu can handle this situation effectively.

Your menu is going to have to have sufficient rollback capabilities such that you can work under the restriction of a payment cap and still find room to sell the customer some product. Your system also will need to be able to protect a minimum level of profitability per product.

If you have the proper advanced electronic menu, then all that selling to a nonprime customer entails is a little creativity and some simple math.

Use An Electronic Menu

To Sell F&I Products

An example will work best to show you how this works. Let’s say that your nonprime customer was presented to you in the F&I office trying to buy a $14,499 used vehicle. The bank approved him for a max payment of $400 at 9.9 percent and a 48-month term. His base payment (before any product) is $375.26, or $24.74 less than the max cap. What do you do?

As you can see from the rollback field under the Basic column, you need to find $141.81 in order to sell this nonprime customer the extended service contract. With the suggested retail selling price of $1,115, the simplest thing to do is subtract the $141.81 from the SRP of $1,115 and sell the service contract for $973.19. This is a perfect solution as long as the $973.19 figure is not below dealer cost or a set minimum profit standard. Make sure that your menu protects your profitability when doing rollbacks.

That one was pretty easy. What if you want to get a little more aggressive? Looking at the rollback field under the Economy column you need to find $731.81 in order to sell this customer the extended service contract as well as the automotive theft protection policy. You can’t deduct the full $731.81 from the service contract as you would go below cost. However, you can take the service contract down to the minimum acceptable profit level ($750 in this case) and then take the remainder out of the theft protection and sell that for $223.19. This results in the pre-approved bank call of $400 with approximately $300 worth of back-end profit that you wouldn’t have otherwise. Clearly not the biggest deal anyone has ever seen, but with approximately 60 percent of the population falling into the nonprime and subprime categories, what percentage of your business does this represent? It adds up if you can get an additional $300 PVR.

Again, this is only possible if you have a system that will accurately and rapidly present you with these options. If an F&I manager has to do this by hand, take out the rate sheets to figure cost and a minimum acceptable profit level, and attempt to present two different scenarios to the customer, etc., it will never happen. It will take too long, look too disjointed, and let’s be realistic, the nonprime customer is already uncomfortable in the F&I office because he doesn’t have perfect credit. A lot of paper shuffling and nine-key calculating will only scare him off and result in a deal with no product sold.


Consider Selling Products

Without Financing Them

Sometimes there is just no room left whatsoever. The customer is capped at $400 and the tower has lowered the price of the car in order to get the deal done at $400 per month. He has extracted every last bit of cash down possible from the customer, and your F&I manager is looking at a delivery where you will make nothing. Now what?

Take a step back and look at what vehicle the customer is buying. Odds are there are some aftermarket items that can be put on that vehicle. Now they can’t be financed, but I’m willing to bet that your nonprime prospect has a credit card with $400 or $500 of available limit left.

The process here again is relatively simple. Every customer needs to be presented a menu. This includes cash customers as well as customers such as the nonprime customer who cannot finance any product. That is compliance 101.

So, knowing that this customer has no room in the payment, present him with a cash menu that only shows aftermarket products and accessories. These can be everything from pin striping to radar detectors and DVD players. Present four packages of accessory options in the same manner that a perfect credit customer would get four packages of product options.

Here again is where an advanced electronic menu is critical. The odds are that the customer will not pick a pre-selected package, but rather opt for one accessory or a unique combination. Your menu will need to be able to quickly and accurately create an a la carte or custom menu based upon that consumer’s specific selection.

Scribbling all over what you have already printed out is not an option and, in fact, could become a liability. Anything that could confuse or mislead a consumer is potentially actionable. A new clean electronic menu needs to be generated and signed by the consumer.

Bi-Weekly Payments Can

Be a Viable Option

A long time ago the mortgage industry figured out that if you paid your home loan every two weeks as opposed to once a month, you would, in effect, make 13 months of payments per year (26 bi-weekly payments per year equals 13 months). That same good math applies to an auto loan and can be a powerful tool to sell additional product to the nonprime and subprime customer. Here’s how it works:

Nonprime customer No. 2 comes in on the same $14,499 vehicle capped at 48 months and 11.9 percent APR. His base payment with no product is $389.96 and you can’t roll back enough out of the service contract in order to add it to the deal.

However, as you can see, by contracting the customer on a 52-month contract and utilizing bi-weekly payments, nonprime customer No. 2 will be paying $197.12 every two weeks (10 months of the year $5.76 less than his $400 cap) and due to the interest savings, though he has a contracted term of 52 months, his loan will actually be paid off in 47 months — shorter than the term that he was initially approved for and wants to keep.

This customer has gone from payment and term limitations making him a no-product sale to a customer that paid SRP for an extended service contract and generated a dealership commission for enrolling him in the bi-weekly program. He went from $0 to $500-$600 PVR in the 60 seconds it took to utilize an electronic menu with integrated bi-weekly payments. Once again, the advanced electronic menu is the only means to this end.

Most nonprime lenders will allow this. Why? Because it has been statistically proven that consumers who pay more frequently default less. Add that to the fact that the consumer’s account is paid via ACH and this is a big win for the lender as well as the dealer. Credit unions have been doing it for years.

There are numerous benefits of a bi-weekly payment service for nonprime customers in addition to affording them the ability to have the extended service contract. For one, there is no pre-approval process. All the customer requires is a car loan and a bank account. Secondly, the fact that more frequent payments are being made means that the customer is creating equity in the vehicle faster, which leads to shorter trade cycles.

And finally, the fact that the consumer is having his account automatically and consistently paid on time means that the odds are when he comes back to your dealership again, his credit is going to have improved. This is a very powerful tool that is being under-utilized in the market today.

The key factor in dealing with nonprime customers is that they need to be dealt with like they are as good as your best 750 credit score customer. People with damaged credit know that they have it, and probably have been declined for credit cards or other car loans. Maybe by the time they get to the F&I office they’ve had to lessen the vehicle they are purchasing two or three times just to qualify. The bottom line is that by the time they get to you, they are anxious and apprehensive. That is not a bad thing. This is an opportunity to make a customer for life and the best source of referrals that you could have.

How? It’s simple: Treat them with respect. Present them with their F&I or accessory options using an advanced electronic menu that will create a very professional and first-class presentation. Offer them a bi-weekly payment service that will assist them in improving their credit situation. It doesn’t take any more time to treat them better than your competitor probably did. And if you do that, they will remember you as the one person who didn’t take advantage of them, and they will tell that to anyone who will listen. What could be better than that? Especially from a customer whom you were able to make a respectable profit on.

Robert M. Steenbergh, Esq., ([email protected]) is co-CEO of MenuVantage, ( Prior to founding MenuVantage, Robert was president of Wizard Finance Systems, a subprime software company acquired by LeaseLink whose systems are still in use nationwide today.