One thing credit analysts agree on is the pool of credit-challenged customers will increase in 2008. That’s why it’s imperative that dealers have the right processes in place to handle their nonprime and subprime customers. Not only will dealers need to change the mindset of their front-end departments, but they will also have to manage the expectations of these customers throughout the entire transaction.
Looking at 2006 statistics from Manheim Consulting, new- and used-vehicle loans amounted to $400 billion, with 7 percent of the borrowers falling into the 680 or above FICO range. Thirteen percent had scores between 620 and 679. The rest fell into the less-than-perfect credit range, which insiders predict will grow in 2008.
The key to maximizing the opportunities that lie in these consumer segments rests in a dealership’s front-end personnel. They must understand that mobility is critical to how these customers endure the financial challenges they face. Doing so will not only get more customers into affordable vehicles, but it will also create long-term customer relationships.
Identifying these customers before they land on a vehicle is first and most important. This will help the front-end department understand the customer’s credit situation, which allows dealership personnel to quickly target a vehicle that fits the customer’s needs. Let’s review the five critical components to handling those credit-challenged customers:
1. Early Identification
Identifying a customer’s credit situations early in the process will eliminate the disappointment and embarrassment he or she will feel when it comes time to close the deal. The key is to ask the right questions.
An easy way to be non-confrontational in identifying a customer’s credit situation is by approaching him or her with a list of the dealership’s special offers. Ask the customer if he or she is at the dealership for a special promotion. Then, tell the customer about promotions that the dealership is offering, such as incentives, clearance offers, and any information related to how your dealership can help that credit-challenged customer finance his or her next vehicle. This should be done with all customers, regardless of their credit score.
Another way to qualify customers is to ask whether they intend to trade in their current vehicle. If they do, it is highly likely that they still owe on the vehicle. This is a good time to ask them who holds the certificate of ownership for the vehicle. Knowing who the customer’s previous lender is and the customer’s relationship with that lender will tell you right away whether that customer has had problems with the lender. It will also further clue you in to the customer’s current credit situation.
2. Customer Interview
The second step to financing a subprime or nonprime customer is the interview process. Aside from providing you additional information as to why the customer fell into the poor credit situation, the interview should be used to make your customer feel more at ease about the car-buying experience. Just remember that bad things happen to good people. Approaching the interview with this mindset will make you more understanding of the customer’s situation.
Before beginning the interview, it’s important that your customer knows that you understand there are several reasons why someone has credit problems. When you’re ready for the interview, remember that the purpose of getting the customer’s story is so you can relay that information to the lenders. If a finance company understands a customer’s situation, it is more likely to finance the customer.
Once you have the customer’s story, it’s time to find out what the customer NEEDS (not wants) in a vehicle. This was a problem for 85 percent of the customers surveyed by the National Automobile Dealers Association, who said the salesperson’s failure to build rapport resulted in the customer’s needs not being met.
A good way to start the interview is to politely explain to the customer that he or she qualifies for certain vehicles under certain conditions (i.e., basic transportation). This question leads to the next step in the interview process: the credit application. It is also a good idea to ask for a paycheck stub at this point so you have a better idea of what the customer qualifies for.
3. Finding the Right Vehicle
Finding the right vehicle can be as easy as learning what the customer’s income is, as well as the down payment he or she expects to make. It is also a good idea to know the bank programs or to have a book-out sheet at your disposal. Being familiar with the dealership’s finance-friendly inventory will make your presentation easier.
When showing customers the vehicles they qualify for, it is a good idea to begin with lower-priced vehicles. From there, you can work up toward the maximum vehicle price the customer can get financed. Doing so will make the other vehicles appear more attractive to the customer. It also makes it easier to convince the customer that he or she should purchase a vehicle within his or her finance range.
4. Building Value
Another critical component of the nonprime selling process is the demonstration drive. Unfortunately, 88 percent of customers surveyed by the NADA reported dissatisfaction with this part of the transaction. This will have to change with more consumers expected to fall into the nonprime and subprime category this year.
The key is to highlight each vehicle’s financial features and benefits, concentrating on the way the vehicle will accommodate the customer’s needs. If the customer is not happy with the vehicle selection, explain that purchasing a vehicle within his or her budget will help make payments affordable for him or her. It’s also important to stress that having a good payment history on the lower-priced vehicle will make buying the next one easier.
5. Financial Interview
Always leave doubt in the customer’s mind when calling him or her back to finish the deal. If you call customers back and tell them they are approved to purchase a vehicle, they may take that information elsewhere for a different vehicle. That’s why it is important that you ask the customer to schedule a financial interview, and to ask them to bring pay stubs and other required documents in order to complete the deal.
Mike Tamas is the Vice President of Training for American Financial & Automotive Services Inc.’s Automotive Training Academy. He can be reached at [email protected].