Forget the Score: Transparent F&I Process is the Key

Do FICO scores mean anything anymore? Kyle Madsen, business manager at Del Amo Motorsports in Redondo Beach, Calif., asks that question every time he has to rehash a deal for a customer with a 680 FICO score. “It’s not even about FICO scores anymore,” he says. “I’m just chipping away, hoping that people come in with good credit or tax money.”

As if on cue, a salesperson walks into his cubicle to inquire about a deal. As he searches through his paperwork, Madsen reminds the sales guy to collect the customer’s proof of income. “Tell him that’s the only way it can go,” he says, pointing to the paperwork.

“Half our deals are being shot down,” Madsen says. “People who qualify for better rates, we’re having to send them to our subprime lenders.”

Rearranging motorcycles just outside of Madsen’s office is Marcos Cortez, a salesman who’s been with the dealership for two and a half years. With the store located right off one of the busiest freeways in Southern California, Cortez says getting customers in the door isn’t the problem. Financing them, however, is.

“We have to work with six out of 10 customers to get them financed,” he says. “We either have to send them to a subprime lender or get a bigger down payment.”

Unfortunately, a credit score is no longer the single indicator of a consumer’s creditworthiness. In fact, relying on credit scores alone is why the credit markets have virtually slowed to a standstill. Heck, even Fair Isaac, the maker of the FICO score, has revamped its scoring system to better reflect the risk involved in originating a loan.

Basically, lenders are reviewing everything. They’re looking at regional data to see how loans originated in your area are performing. They’re also looking at what type of job your customer has. In fact, I read somewhere that lenders are weary of financing people working in the real-estate market or in the auto industry. And here’s the real kicker: Lenders are also looking at how loans originated at your store are performing.

See, lenders are no longer focused on market share or volume. They’re more concerned about collections, and preserving capital and liquidity. And that won’t change until finance companies find a new funding mechanism. See, your inability to get customers financed is the result of the asset-backed securitization market’s collapse. That’s where most finance companies sell their loan portfolios to raise capital. Problem is, investors are no longer buying, which means they can’t get funding, and neither can you.

So what does that all mean? Well, it means your lenders are your new customers. And this new customer base is tired of losing money on garbage deals, for example deals loaded with imaginary parts and accessories or ones showing inflated incomes.

This is a customer who will be very selective when it comes to the dealership with which it partners. What it’s looking for are dealers with transparent F&I processes, ones that safeguard both the lender and the customer from an irresponsible deal.

I know most of you have grown up in this industry with the belief that compliance doesn’t make money. Unfortunately, that’s not the case anymore. Lenders are looking at every deal as a representation of your dealership’s F&I processes. In other words, don’t send your lenders garbage deals you know don’t work. You know what they’re buying, so send them a good mix. Send them deals that show you’ve gone to great lengths to get as much down payment as possible.

Whether you like it or not, today’s market is becoming one where the lenders are going to be playing a more dominant role. That’s why you need to know where you stand on 30-, 60- and 90-day delinquencies, as well as losses and repossessions. The dealers who weather this economic storm will be the ones who view each deal in terms of what’s best for the lender and the customer. And the more comfortable lenders are with you, the more they’ll be willing to take some chances.