Most business managers working in dealerships today have been trained to be great salespeople. They sell extended warranties, vehicle protection, insurance products on loans or leases and a myriad other aftermarket goods or services.
They have an interest in persuading a cash buyer to choose one of your dealer plan options as it makes selling aftermarket products much easier. They also have a vested interest in getting more deals approved.
The reality is more people are moving to using their lines of credit to purchase their vehicles than ever before. And why shouldn’t they with the prime interest rate under three percent?
Franchised dealers who offer low finance or lease rates have not seen such a decline on their new-vehicle transactions but have on their used. Independent used vehicle operators have experienced a similar trend.
Clearly, the lay of the land has changed and that is why dealerships need their business manager to respond to these new challenges.
Converting a cash customer who is using their line of credit to purchase a vehicle is a formidable task unless the business manager is equipped with the skills, tools and strategies required to convert them. It is likely that your finance penetration will continue to dwindle as will your business office gross profit per unit sold if it has not already.
A recent J.D. Power and Associates study reported the following results:
• Almost 70 percent of General Motors, Ford and Chrysler dealers in Canada experienced a drop in credit approvals for their customers in the past year. (June 2009)
• The study of 950 dealers found that about 30 percent expect a drop in business with captive providers in the next year.
• More than half of dealers of Asian-based brands saw a decline in approvals. Thirty percent of dealers of European brands, which generally attract higher-income customers, faced a drop in approvals.
The results illustrate the severity of the global financial meltdown and subsequent tightening of consumer credit on vehicle sales, which have plunged in the past year.
Today, most business managers simply take a credit application and click it through to their preferred lender, and, if declined, they send it off to a non-prime lender.
The good news is that, nationally, about half of those declined applications will be approved by a non-prime lending institution, but the bad news is that less than half of those approvals will not result in a delivery. Why?
The two most common reasons are that the customer will not accept a higher interest rate and the customer will not accept another vehicle that matches the payment call from the lender.
Equifax estimates that since 2004, 25 percent of the retail market does not qualify for a loan at a prime lending institution. With the credit crunch in full swing, unemployment rates setting new records and bankruptcies up almost 50 percent in many provinces, is it any wonder that the J.D. Power study confirmed what everyone suspected?
Non-prime lenders seek to approve risk if a customer has reached the trough of their credit problems. If they are still having trouble managing their credit, adding another loan will certainly not help. This is why a customer who has gone through a bankruptcy is eligible for a non-prime loan – the worst is over and the slate has been wiped clean.
Business managers need to review credit reports with customers to determine any justification, extenuating circumstances in order to prepare a better case for a lender approval. This needs to be done prior to a submission, not after!
Non-prime lenders are looking for good reasons to loan out money, but not if the risk is unwarranted. The common denominator that provides dealers with superior approval and delivery rates is that their business managers pull credit reports.
There are a couple of dozen good reasons why a business manager should pull credit reports, the best being that it allows them to show a customer why they do not qualify for lower interest rates instead of just merely telling them why.
Pulling credit reports and reviewing them with customers is a powerful selling tool. It allows a business manager to take control, look for errors/omissions and to look for resolution. This applies to declined or qualified applications to prime lenders as well.
Reviewing a credit report with a customer allows a business manager to counsel them towards recovery. Many already have a credit recovery manual to provide to their customers as a complimentary service.
This procedure allows a customer to see there is a brighter future. After all, most credit-challenged customers will want to be able to buy a home one day, look after their children’s education or just plan for retirement. Using this simple strategy, a customer is motivated to accept a higher interest rate and a vehicle they may have not originally wanted.
Pulling credit reports gets more deals approved and delivered. Why is it that most business managers do not pull credit reports?
• They believe that it is too time consuming.
• They or the dealer believes that the cost is prohibitive.
• Many business managers may be intimidated about pulling a credit report because they do not know how to read them and what benefits would be derived if they learned how to.
• Some believe it is not their duty to approve a loan or lease application.
• Many believe pulling a customer’s credit bureau will not change the outcome of a lender’s call.
With credit reports costing only about $5 on most portals, surely cost cannot be an excuse? So the reason probably lies with a business manager’s lack of knowledge.
With the changing economic times, credit line usage up, fewer lenders available and their purchasing parameters tightened because of the credit crunch, it is imperative that dealerships respond by further educating their business managers and supplying them with the tools and strategies to be more effective at capturing more finance contracts and getting more deals approved and delivered.
Hector Bosotti is a consultant and trainer for the Wye Management Group and has over 26 years of retail automotive experience. For more information on the Wye Management Group, visit www.wyemanagement.com or call 1-888-993-6468.