Unless you or your customer is getting a refund, tax time isn’t the most joyous time of year. Except for those individuals who filed for bankruptcy and now have trustees holding their money to pay off debts, the vast majority of special-finance customers have historically received tax refunds. That’s why it’s critical you prepare now if you hope to cash in on what amounts to special finance’s version of Cash for Clunkers.
Considering the economic times we’ve experienced, the demographics of our customers will be a little different this year. “I think this tax season could be one of the most difficult and competitive years yet for subprime,” said Dustin Jones, finance director of Boch Honda in Boston. “Customer fear of being rejected for an auto loan is at an all-time high. Now, more than ever, families across America need their tax refund checks.”
And if you’ve been in the business for any length of time, you know that tax season always seems to come earlier with each passing year. A big driver of that is technology, which is why dealers like B.A. Nerison, owner of Wheel City Auto Sales in Sioux Falls, S.D., are getting an earlier start on tax season this time around.
“Be prepared, because it will come and go fast,” he said. “Customers are getting money sooner (via electronic filing). No longer can we count on two solid months of steady tax money.”
It’s also clear that dealers will have to compete for how that tax money is used. “Customers that are unemployed or have fallen behind on their bills will have their money spent before they even get it,” noted Nerison.
What that means is dealers will need to be a little smarter about their preparations than in past years. Consumers are struggling and dealers will have to compete with the perception that credit isn’t available.
“Preparations for this year’s tax season really started back at the end of September for us,” said Boch Honda’s Jones. “We really want to work on building the customer’s confidence and creating awareness that lending options are available. Our company is focused on meeting the customers’ needs.”
Marketing With a New Spin
Marketing is obviously an integral part of a successful tax season, as customers need to know that you are willing to work with them. However, Jones said dealers need to be cognizant of the stresses felt by consumers in this economic climate.
“Through our advertising, we want to portray that we are not looking to seize the customer’s refund check,” he said. “Instead, we want them to know that we can help them purchase a vehicle utilizing as little of the refund as possible. Taking more of a community service approach in aiding them in their purchase of a vehicle is our goal.”
It’s also important to have a firm understanding of a customer’s situation so you can properly communicate with him or her. Simply put, stress causes customers to lose sight of their goal, and in this scenario, their goal is to get a car. Dealerships like Lindsey Ford in the Washington, D.C., area, not only understand this reality, but they make sure their marketing plans reflect that awareness.
“We are taking a different approach in our advertising,” said Mark Law, finance director for the dealership. “For example, instead of doing a 20,000-piece mailer, we are mailing to 10,000 people twice to emphasize our message. Customers are embarrassed of their credit situation, especially people who have never had bad credit. You need to earn their trust first and we feel like that is best accomplished with a consistent message that we are here to help.”
Dealers also should consider other marketing strategies and mediums to relay their message, such as mining your customer database to create an e-mail campaign. Not only can you reach a large number of your customers, but you can do so rather inexpensively. Additionally, companies that offer these types of services will e-mail your customers several times to ensure a good response, so take advantage of what’s available.
Going to the Source
Another good strategy is to locate every tax service company within proximity of your dealership. Just make sure to have your flyers or brochures available so they can distribute those to their customers. And if bird dogs are allowed in your state, make sure to offer something to these companies for referring customers to you. This is a strategy that Al Serra Chevrolet in Colorado Spring, Colo., has employed for years.
“We set up referral sources with the local Jackson Hewitt, Liberty Tax Service, and H&R Block, as well as local independent tax preparation companies,” said A.J. Ager, the dealership’s finance director. “We pay their tax preparers commissions whenever they can get one of their customers to visit us.”
Another good marketing idea is to sign up with an online tax preparation company. They usually have marketing materials they can provide you, as they make their money off the refunds they prepare. That means the cost to the dealer is usually minimal.
“We are signing up for TaxMax so we can offer customers that walk in the door or are in our database a refund service,” said Ager. “Plus, they have a program that allows us to file a customer’s refund based on their last check stub of the year, and they have great marketing signs that we put up all over our lot.”
Cindy Christensen, general manager at Herbie’s Auto Sales in Greeley, Colo., said marketing to today’s troubled consumer may require a bigger commitment on the part of dealers. “We offer to match customers’ down payments up to $1,000,” she said. “We have a lot of repeat and referral business, and we make sure that our database of customers knows that we are willing to work with them. The cash incentive is our way of showing them our commitment to them.”
Playing the Inventory Game
Equally important to one’s marketing efforts is one’s strategy for attaining the proper inventory. This is an area that you need to start planning for before the first of the year. Auction prices drop every year during late November and December, but spike back up in January as dealers decrease their inventories for year-end. Smart special-finance dealers will capitalize on this so they can load up with inventory that they will own back of left book.
“We start looking for tax season inventory in December when nobody else is looking for cars,” said Al Serra Chevrolet’s Ager. “This usually translates into us owning cars for a $1,000 or so less than if we wait until January.”
Understanding that money is made when vehicles are purchased, not sold, Al Serra Chevrolet scours Websites like Craigslist for people looking to sell their cars for “Christmas cash.”
“This is especially helpful in stocking up our buy-here, pay-here inventory,” Ager said.
Eric Fishbein, special finance director for Conicelli Auto Group in Pennsylvania, agrees that inventory is a huge part of a dealer’s success during tax season. “It is important to stock a good selection of inexpensive vehicles for your tougher deals,” he said. “Don’t forget $3,000 down gives you 30 percent equity on a $10,000 car, but only 15 percent on a $20,000 car.”
Firm Up Lender Relations
The last critical ingredient to your tax season strategy is making sure your lender relationships are intact and healthy. The key is to have a proper lender spread, because it’s important to have different lenders that buy all tiers of credit (prime, near prime, subprime, equity and niches) so you can capitalize on every opportunity that walks through the doors.
Tax season is also a good time to evaluate your lenders and contact them to make sure your portfolios are performing well. In fact, calling your buyers to ask them about your portfolio delinquencies will go a long way in strengthening your relationship. And relationship is the word to remember, because you need your lender and they need you.
Especially with the limited capital in the current market, dealers who have strong portfolios will be the ones who get favors. That’s why it’s important that dealers also consider taking buyers out to lunch for a change. Remember, expense accounts for these bank reps have decreased considerably, so why not take them out for a bite to eat and solidify those relationships.
“Tax season is an important time of year to make sure your lender relationships are strong because you’ll be sending them an increase in business and you’ll be asking for a few more favors to get harder deals done,” noted Marc Danner, finance manager at the Rhode Island-based Tracy Chevrolet.
For those dealers in the dealer-controlled finance business, it is especially crucial that one sticks to his or her underwriting fundamentals. “We will stretch on deals during tax time if the customer has a big down payment, but we try to minimize the exceptions,” said Wheel City’s Nerison. “In the past, these decisions have led to increased delinquencies. We manage these deals in collections with a shorter leash. If you do have to repo one, at least the bigger down payment decreases the loss we take.”
Tax season has always been a great time to be in the special finance business, especially if you don’t mind working long hours. It can be a big increase in business. And in this economy, we all need to take advantage of every opportunity that comes along.
Rob Hagen is the founder of SpecialFinanceCoach.com, a Houston-based consulting firm specializing in department setup and growth. He can be reached at [email protected].
Sidebar: Did You Know?
Preparing for a successful tax season is definitely important, but did you know there’s a federal incentive for your customer to buy now. Due to the American Recovery and Reinvestment Act of 2009, customers who purchased new vehicles may be entitled to a special tax deduction when they file their 2009 federal tax returns next year. Below are seven facts you need to share with your customer:
1. State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
2. Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.
3. Purchases must occur after Feb. 16, 2009 and before Jan. 1, 2010.
4. This deduction can be taken regardless of whether or not you itemize other deductions on your tax return.
5. Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.
6. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
7. The deduction may not be taken on 2008 tax returns.