Over the last two years, a tremendous number of formerly prime credit customers have been adversely affected by the shaky economic status of our country. You need not look any further than the United States’ average credit score, which is down almost 50 points from where it was only four years ago. This will cause a dramatic shift in our industry and it will change the way many dealers handle their customers.
Consider the example of a customer whose last two vehicles were luxury cars but recently went through a foreclosure. Yes, he’s a special finance customer, but his needs were shaped by better financial times. He’s not likely to call an 800 number and submit all of his personal information. He will also definitely balk at an 18 percent annual percentage rate (APR). He also is not likely to develop a taste for the traditional special finance vehicle. In fact, he will probably look for the type of vehicle he’s accustomed to — or better!
Every dealership in the country must be prepared to assist this new type of credit-challenged customer. Making that adaptation will be critical to minimizing the number of opportunities your dealership will miss due to credit issues.
Credit Counselors Needed
Now, don’t get me wrong, I’m not saying you should immediately adopt the traditional subprime process and demand a credit application for every customer who walks through your door. You do, however, need to have a plan in place for this now-common scenario of a customer who drops in, goes through the entire process with your top salesman, commits to the deal and then says, “Is a foreclosure a bad thing when it comes to buying a car?” What now, right?
First, remember that your customer is swimming in the subprime credit pool for the first time. That means he’s likely to be an informed buyer who has never had a problem obtaining financing. The idea of being turned down is foreign to him and he expects to be treated like he always has been. How do you handle this combustible situation? Become a therapist to your customer. Here are some pointers:
• Diffuse the Situation: Your customer is not going to understand why qualifying for an auto loan is suddenly such a big deal. Take the time to walk customers through their credit report and explain what prospective lenders will see.
• Share Resources: Purchase or create a resource book that shows customers tips on how to rebuild their credit. Spending an extra few minutes with a customer will make a big difference.
• Verify Accuracy: Make sure the credit issues belong to your customer. The Federal Trade Commission estimates that as many as 9 million Americans fall victim to some form of identity theft each year. In your resource book, have templates of dispute letters that you can give customers, as well as contact information for all three major credit bureaus.
• Listen and Learn: There is a story behind every derogatory item on the bureau. Find out what happened and ask what they are doing to resolve their situation.
Once the therapy session is over, you will need to have lenders lined up to buy the contract. How is your relationship with your captive lender? Which of your noncaptives are most likely to buy deeper for you? For some dealers, it’s a local or regional bank or credit union. Whoever it is, you need to make sure this relationship is strong!
The days of bank reps taking us to a nice steak lunch are, for the most part, over. So why not initiate the lunch date yourself? Call your buyers up and ask them to lunch. I dare say that most dealers will reimburse you for a lunch with your No. 1 lender.
Remember, this is a relationship and you need to treat it like one. Wine and dine if necessary, listen when possible, and always be there for support. Have you ever asked your top lender what your delinquency rate is? How many first-pay defaults you have had? Those questions are traditionally raised with strictly prime credit outlets, but ask those questions of your buyers some time. They will appreciate you taking notice because these are factors that affect their paychecks.
And if you haven’t heard, rehashing is back! Rehashing deals was one of my favorite duties, as nothing gets the blood flowing like being told “No” when you know there is a “Yes” to be found. In my own F&I days, my motto was always, “No” means “Not yet.”
Going back to the scenario previously discussed, let’s say you have learned all you can about your customer’s situation, but your lender turns the deal down. No car guy worth his salt will take “No” for an answer if he believes in his customer. You have to fight for your customers — remember, they’re writing your paychecks. Take a stand, relate their story and tell it in such a compelling manner that your lender has no choice but to approve the deal.
Dramatics aside, there will be times when the lender’s answer is still negative. Now, what I am going to say here may hurt a little — and, in all honesty, it hurts me a little just typing it — but you may have to send the customer to their own bank or credit union. No finance manager wants to do that, but sometimes it’s the only viable option.
I was always taught that my No. 1 goal as a finance manager was to make sure the customer buys the car. I thought for sure it would have been to sell a service contract on every deal, but I was wrong. You’re in charge of protecting the interest of your customer and your dealership, even if it occasionally hurts your profit per retail unit.
After thoroughly studying the credit bureau, I am sure you will notice some places the customer has done a significant amount of business. Get them on the phone, blow the dust off the fax machine and send them a buyer’s order.
Ralph Waldo Emerson once said, “Nothing great was ever accomplished without enthusiasm.” In the finance office, I like to say, “Nothing great was ever accomplished without taking a chance.” You have already been told “No,” so what’s the worst that can happen? If you spend a little extra time working for your customer, it might just pay off.
Sidebar: Do You Know How to Read a Credit Bureau?
It may seem like a silly question, but it is absolutely imperative that you can read a credit bureau like your morning sports page. I am not talking about seeing a credit score and making a decision. I mean truly understanding all the timelines and codes in a credit bureau. Call your bureau rep and ask him or her to visit your dealership to train you on how to read a bureau. This will be free, they will be happy to do it and you might learn something. Get your entire management team on the same education level in this regard so you can all be experts.
Rob Hagen is the founder of Houston-based SpecialFinanceCoach.com and Next Generation Dealer Services. He can be reached at [email protected].