It wasn't too long ago that the news of the day didn't center on billion-dollar government bailouts and a volatile stock market. How quickly things have changed. The days of selling too much vehicle to a customer with less-than-stellar credit and without a down payment are over. So what's an F&I department to do when both lenders and consumers are holding on to their money?

What's changed is lenders are not being as aggressive as they once were. Whether it was a captive finance company or an indirect source, lenders wanted the business and they were taking whatever they could get. Common sense and good business practices were not part of the equation, as the more they built their portfolios the more shareholders would bite.

So where do we go from here? Fortunately, the goals of the F&I office haven't changed — deliver as many units as possible and at a maximum profit. However, the pressure to deliver units has never been greater. Successful car salespeople know less 'ups' means selling with maximum efficiency. This places a lot of emphasis on the dealership's selling system, because higher closing ratios and average gross is the best way to overcome a down economy.

So, the principle hasn't changed, but what's at stake has. Following a good system in today's market could mean the difference between a dealership surviving and not surviving.

Creating a Finance Acquisition Business Plan

More than ever before, the competition for capturing a finance approval is as fierce as it's ever been because of the lack of lender funding. Make no mistake; you will be competing for the funding "yes" as hard as your salesperson did to make the sale. This is why having a selling system is so important.

There are three main components of a finance acquisition business plan: know your lender, know your customer, and rehash the deal. The key to making this plan successful is to do your homework, which means knowing what your lenders will approve and why. Here are four ways to do that:

1. Determine which bureau(s) your lenders use to collect information. Credit score analysis will vary depending on the particular source, which impacts the rate tier. It just makes sense to have access to the information your lender is reviewing.

2. Know your buyers. Become familiar with your lenders and have contact with them oft en. It's also important that you do this in person, as it is more difficult to say "no" to someone you like.

3. Become familiar with each lender's statistics. Getting this type of information is relatively easy these days because of the advent of lender platforms. Look-to-book data is one of several ways you are judged, but it's also a way for you to judge the lender. What you need to do is determine how the lender conditions a deal, especially since many conditioned deals are nothing more than rejections in disguise. So, if the stipulation is $10,000 down on a $15,000 unit and the customer only has $200, then you know that's not a workable condition. Reviewing look-to-book data may make the bank appear more active than it really is, but if you can dig into the numbers you'll see exactly what they're accepting. It's also important that you know your true turn-down ratio.

4. Be in tune with how each lender's portfolio is performing. Good performance will strengthen your ability to get marginal deals done. Sometimes, in a rush to get a deal with a 750 score "over the curb," you may not close deals with lower credit scores. In instances like this, you may want to consider not giving that 750 deal to a lender that takes only "A" deals. Yes, you may be sacrificing an extra half point of reserve and a few hundred dollars of extra profit that lender might have given you, but you may be able to get both deals delivered by shopping both of them around with well-performing lenders that are more likely to accept a greater range of credit ratings. Doing so could also result in a few extra thousand dollars in profit. The trick is to give yourself as much leverage as you can to get a marginal deal bought.

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Knowing the Customer

In times like today, knowing the customer is the most important part of an F&I manager's job. Not only does this ensure your lenders are getting the appropriate information, but it also helps when you have to go to bat for your customer. Here’s what you need to do:

1. Review the credit application and the credit bureau report with the customer before sending it to the bank. In many sales systems, a salesperson on the floor takes the application or has the customer
complete it. This is not the best alternative, but a necessary one for certain dealerships or for high-volume stores. Regardless of how it's done and by whom, it is imperative that the information is correct. Items such as gross or net pay income, overtime, or monthly or weekly bill payments will impact the customer's finance score and, ultimately, your buy rate.

2. Respond to negatives. There may be a reasonable explanation for blemishes in a customer's credit report, such as a recent illness, identity theft or a short-term layoff. These types of blemishes may be the explanations a lender needs to qualify a car buyer with less-than-perfect credit. Get the story upfront and have the customer provide the supporting data necessary to build your case. Just make sure to submit that information with the customer's application. Pay stubs and tax returns may look better to a lender if a letter explaining the blemishes on their credit report is included. Remember, it is harder to change the lender’s mind once an application is rejected.

Rehashing the Deal

There are two goals you need to shoot for when rehashing a deal — get the deal done and secure the best deal. Let's explore the four ways to achieve that.

1. Work to get all (rejected) deals conditioned. No matter what the stipulation is, it is still better than a complete turndown. It also gives you a starting point for future negotiations. It's key that you ask the lender to justify its position. Ask probing questions until you understand the lender’s position.

2. Choose your battles. Some deals are dead before they ever get to you. Just because the customer said "yes," doesn't mean he or she is worth ruining your rapport or veracity with the lender. Some deals are just dead on arrival.

3. Secure the best deal. You may think the job is done once you receive a "yes" from a lender, but it's not. You should be asking yourself whether you can get better terms by making one more call to the lender. You won't know until you check. A halfpoint better buy rate can mean hundreds of dollars in reserve. Make the call.

4. Know the 5 Cs. The 5 Cs of credit worthiness are character, capacity, credit history, collateral and conditions. If you focus on the 5 Cs before having a discussion with your lenders, you may be able to get a more comprehensive picture of the customer’s credit history. Doing so could also increase your chances of getting the deal done.

Dick Costello is a national finance and insurance executive for Zurich’s Programs and Direct Markets business unit. He can be reached at dick.costello@bobit.com.