Finding the Right Mix

It’s difficult to ignore the bank reps who walk through your dealership’s doors every few weeks with a new program or fresh strategy designed to deliver more cars. But if you’re not careful, you could end up with more sources than you need. And they didn’t sign up to get more applications; they want more contracts so they can bolster their loan portfolio.

And you can bet look-to-book ratios will be monitored regularly. Hey, they have to keep tabs on the cost of doing business with your store. And the higher the number, the better you look to them. Even finance sources that promote no look-to-book ratios have certain expectations. And the more contracts you send them, the better responses you’ll get.

So what does the right lender mix look like? Well, let me answer that with a story a traveling evangelist shared with me after a recent sermon.

He had accepted a dinner invitation from one of the church families. And after enjoying a fine meal, the host brought him a slice of chocolate cake. Little did he know that he was being set up for a lesson the host wanted to impart on him.

After he finished the slice of cake, the host asked if he wanted another. He barely got down that second piece when she asked if he wanted a third. “Ma’am, that’s the best chocolate cake I’ve ever eaten, but too much of a good thing is just too much,” he said. She smiled and quietly replied, “Well, that’s just the way we’ve been feeling about your sermons lately.”

He got the point: Shotgunning the message quickly loses any audience. And that goes for the lender relationships we develop. Having and maintaining a good stable of finance sources is critical, but having too many and trying to satisfy each one is a losing battle.

Analyze it for yourself. Just pull those detailed reports RouteOne and Dealertrack offer and follow the numbers. Hey, knowledge is power and time is a ticking commodity in the F&I office. So the faster you can get an approval with the right advance and back-end allowances, the more time you can spend preparing for your customers.

But as we know, there’s more to auto financing than simply prime and subprime. There are many variants that run up and down the ladder. So when analyzing a credit report and deal structure, it’s important you fully understand every aspect so time isn’t wasted submitting deals.

It would be great if we had one lender that bought all our paper, but that’s not reality. That’s why it’s critical you have the right mix and resist the urge to overload your list with too many sources. I’ve been guilty of this and it’s aggravating trying to satisfy them all.

The right mix will depend on your dealer’s business model. Whether a franchised store or an independent operation, the dealer decides what market he or she wants to go after. Some operators prefer dealing with a prime or a nearprime customer base, while others like the challenge of the subprime market. There are also dealers who don’t have a preference.

Inventory is another factor to consider. And right now, high-mileage vehicles are starting to get attention from the lending community, including some prime sources. So don’t limit yourself to subprime-only lenders on those types of units.

OK, so let’s say you got it all together and your finance sources are all performing well. Approvals are quick, back-end allowances are healthy and funding is swift. Good for you! But just like the stock market ebbs and flows, lenders occasionally adjust their internal score cards. And it can be for a variety of reason, including delinquencies, high volume or even a change in culture. Whatever the case, your top lender today may be a dog in a year.

My point is you always have to keep tabs on your finance sources’ buying trends. That’s why it’s a good idea to keep your list lean, because the more business you send them, the more likely they’ll be there for you in a pinch.

Bottom line, there is no silver bullet to lender selection. And it’s not something you can learn from a training manual; you simply have to learn it for yourself. But your operation’s metrics can be a great guide. And just remember, too much of a good thing is just too much. Good luck and keep closing.

Marv Eleazer is the F&I director at Langdale Ford in Valdosta, Ga. Email him at [email protected].