For the average American consumer, the holiday season is one of long lines and credit-limit increases. For auto dealers, it signals a sales boom that arrives about a month after Santa’s sleigh. That’s because January is tax time, and every year, more and more taxpayers are taking advantage of early-refund programs and electronic filing — and they’re filing onto your lot to pick out their own presents: new vehicles for a new year.
Because this very special time of year offers so much promise, especially in these troubled economic times, you don’t want to leave anything to chance. It’s time to make a list and check it twice! But where to start?
Know your subprime lenders
With the way lenders have come and gone over the past year, you have to reposition your dealership with the kind of lender spread that will allow you to handle any credit challenge that walks through your doors. This is important any time of year, but nothing spoils the post-Christmas spirit like refunding a customer’s down payment. By establishing and maintaining relationships with the right lenders, you’ll ensure delivery on every deal.
One subprime lender that has weathered the storm is Crescent Bank of Metairie, La. Crescent sometimes gets a bad rap for being an equity lender. But having done business with them for many years, I know how to make their program work, and so do their dealer clients. What I like about Crescent’s program is that it gives dealers the chance to talk to a living, breathing buyer who has the ability to actually make decisions. I recently spoke with one of their executives, Jeff Owens, and asked him what they’re doing to get ready for an increased flow of applications.
“Our buyers know that this time of year is not the time to take vacation,” he said. “This is always our busiest time of the year, and we try to make sure our customer service to our dealers does not slip. We’re also making sure that our funding department is ready to go and adequately staffed.”
As with many other aspects of subprime sales, dealers and lenders experience the same highs and lows. Take Jeff’s advice and get ready for an incline!
The next item on your list should be your inventory. Prices on used cars typically go down before the first of the year, then jump back up immediately afterward. Dealers who have the cash to do it should be stocking up on special finance units.
What is the ideal special finance unit? Whatever you can buy! I don’t get stuck on any particular manufacturers when looking for inventory. I want vehicles that I can buy back-of-book for between $7,000 and $10,000. They should be big enough for a family, and they should have some curb appeal and basic power equipment. Compacts, old body styles, and stripped models will make the job of landing a customer on a vehicle much more difficult.
I’m not saying these vehicles don’t ever work, but the days of telling customers you are their only chance of getting approved are over. Even as many of your competitors have shut their doors, the dealers who are left are all in the special finance business, at least to some extent.
Another price group that works well — especially if you do some buy-here, pay-here — is the under-$5,000 actual cash value (ACV) vehicles. These are often hard to find at the auction, but by planning ahead, you can start to hang onto trades that you may otherwise send to wholesale.
Christian Stogner is a sales manager at All Star Automotive in Baton Rouge, La., and he’s been in the game long enough to stay ahead of the annual cycles.
“Every year, around the end of October, we quit wholesaling any vehicle that’s mechanically sound,” he says. “By the time customers start getting their tax money, we usually have 40 to 50 cars that we can sell for cash or hold the note. We’ll run them through the shop, make sure they’re safe, change the oil, give them a good detail and line them up in the cash corral.”
One last thing to remember about inventory is that it’s important to know the demographics of your customer base. If you have a higher-than-average median income walking in, it’s OK to buy units that are a little more expensive. You may still want to stay under $13,000, but statistics show that the majority of lenders are cashing contracts that have a payment around $400 per month, on average.
OK, you have the right lenders and the right inventory; now all you need is customers. So where do you find them?
Mining the market
When tax time comes, it’s extra important to try to think outside the box. You won’t see bigger down payments the rest of the year. Even novice special finance dealers can hang most of this paper. Cindy Christianson, general manager of Herbies Auto Sales in Greeley, Colo., characterizes this time of year as a “treasure hunt.”
“We’re diving deep into our sold customer base,” she says. “Our buy-here, pay-here portfolio is where we try to create our own business and not leave it to chance.”
That’s easy enough for a dealership with the kind of longevity and outstanding customer care that Herbies displays. If I were writing a customer service article, I would spend a lot of time talking about Herbies. But I’m not, so let’s talk about something every dealership can do: Make up some fliers and drop them off at your local tax preparation offices. Offer anybody in the office a spiff if they send someone to you that buys a car.
Another idea is to enlist the help of a tax preparation service in the dealership. Nowhere is this used more effectively than at Seattle’s Pierre Money Mart.
“We’ve been using an online tax preparation service for the last six years,” says Curt Bush, the company’s general manager. “This way, we get first crack at the customer’s refund, even before they do. Starting in December, we advertise this service hard. We offer to pay for the filing. It’s important to remember people can use their last check stub to file for rapid refunds, so you need to be prepared as early as possible.”
The last item to check off your list is your processes. These are obviously important any time of year, but the holiday season is a good time for a re-evaluation. I recommend doing it every December, so that any changes that need to be made are done before the tax season gets into full swing.
How effective is your lead-handling process? Any leads are good leads as long as they are worked properly. Calling leads early and often ensures contact with the customer. Send e-mails as well, if you have the address. When working third-party leads, a lot of customers will prefer to communicate by e-mail until you’ve established some level of trust.
It’s important to realize the psychology of an Internet lead. Special finance customers are under stress because they’ve been turned down in the past and may still have credit issues. “Stress” can be defined as a force that can distort something’s true shape or form. Customers can lose sight of their objectives.
To get them focused and into a vehicle (and a loan), ask yourself some key questions about your sales process. How are you working customers in the showroom? Are you showing them vehicles first, or are you gathering information upfront? This is especially important if you really want to move the needle in special finance. It is critical that you pre-qualify customers first. You only want to show them vehicles that you both know they can get approved for.
I recommend completing a needs-analysis sheet and a five-line credit application. The salesperson should take this information to the desk with any stips the customer may have on them. While at the desk, ask your customers to fill out a reference sheet. (If nothing else, you’ll get six to 10 references for your database!) The sales manager can pull the bureau and make a credit decision. Then he or she will be in a position to recommend vehicles.
With the proper lenders, inventory, marketing plan and processes, you can take full advantage of our most profitable time of the year: tax season! 2008 has been a rough year for a lot of people, but January, February and March 2009 should soften the blows landed in the previous year. Merry Christmas, and a happy tax season!
Rob Hagen is the director of special finance development at HyperDrive Technologies in Portland, Ore. He is an expert in the areasof deal structuring, lender spread and relations, and sales process implementation. E-mail him at [email protected].