Interview – Secrets To Successful Financing
Though we may have used the age-old technique of pulling you into the article with the headline, there’s really no secret. The “secret” to successful financing at dealerships is loyalty and long-term relationships in both directions—to your financing sources and to your customers.
Offering financing is kind of like the fable of the tortoise and the hare: Perseverance wins the race. The dealerships that patiently accommodate their customers and stick with financing sources through good and bad will end up the winners, according to our financing experts.
Before getting into he finer points of persevering in financing, it is important to review why offering finance to your customers if valuable to your business.
“Truck financing is similar to auto financing—it is a natural extension of the dealership and an integral part of providing service to customers,” said Tim Henebry, president, PACCAR Financial Corp. “To be successful in today’s highly-competitive market, a truck dealer must provide a complete package to his customers or risk losing the customer. “Financing often influences a customer’s buying decision, especially when the market conditions are working against them.”
Now is one of those times when capital available to small operators, specifically, is limited at best. Some financial sources contacted for this article are no longer providing financing for the trucking industry or else they consider it a minute part of their overall business, The situation has changed dramatically since the heyday of the 1990s when financing sources were readily available.
“There are a lot fewer financing sources available to the customer,” said Dan Clark, managing director, transportation financial group, CitiCapital. “That means this is a value-added service that is needed and one that dealerships can offer. If dealerships don’t offer it, they are going to lose out to the competition.”
Customers benefit from you providing financing through convenience-convenience of doing the paperwork at your facility, convenience of speed of sale and the convenience of feeling safe with their financing source.
“Customers appreciate being able to do business in a few hours time,” Clark said. “They want to do business with someone who can turn the approval around fast enough and can provide documentation so the delivery can be made in time. In emergency situations, that time period can be within one to two hours.
In addition, being one on one with the customer, you know their needs and ability to make the financing payments. Clark used this example: If the customer is buying a dump truck for use in the southeast portion of the United Stated, you can see that historically, February and March are wet seasons in that area. So it may make sense to offer skipped payments in those months to closely reflect their expected cash flow.
“You need to thoroughly understand the customer’s business to know the type of payment he can afford,” he said. “Make sure they are OK on the payment side, and then structure the transaction to meet their needs.”
By focusing on a long-term relationship with a customer instead of looking at what you can get today, you are ensuring a long, prosperous financing business for your dealership.
Offering financing to your customers ensures their satisfaction and repeat business. And as Henebry pointed out, it’s much more cost effective to retain and service existing customers than to recapture a lost customer who received a highly competitive package offered by a dealership down the street.
“Financing provides dealers with an opportunity to develop an incremental source of revenue and profits,” Henebry said.
Along with profits, you also gain control. “It’s a tremendous convenience to both parties,” Said Jan Kelly, president, Kelly Enterprises, who consults and trains dealerships on finance and insurance issues. “Dealers can control the sale and get the funding expedited for the customer.”
With these numerous benefits, offering financing to customers is a win-win situation. Here are a few tips from industry experts on how best to handle financing.
Loyalty counts: Similar to marriage vows, the relationship between you and your financing sources should last through good and bad times.
“We always say we are there in good times and bad, and likewise, we expect our dealer partners to do the same,” Clark said. “Don’t just come to us when other sources dry up and go away, it’s important to align yourselves with people who will be around 15 years from now.”
Many dealers went to companies with seemingly deep pockets who were anxious to enter the transportation industry in the late 1990’s, only to find they didn’t have much allegiance when the industry’s capital got tight. In order to get allegiance, you have to give it when times are good.
“Look for a lending source that is committed to the industry and your dealership,” Henebry said. “You must have a reliable source of financing that will weather the cyclical nature of the transportation industry and not dry up during the bad times.”
To build loyalty and stability, spend time finding the right sources for your business and then develop a long-term relationship with those sources. Check into the source’s history. Make sure they are invested in the heavy-duty trucking industry and understand the equipment and nature of the industry, Henebry added.
Have More Than One Source: Having more than one source of financing is imperative to your financing success. You cannot do such an important part of your business with no safety net.
“find two sources and keep a good flow of business going to both sources,” Clark said. “I’d like to have all the business, but all dealers should have a predominant and secondary source and provide business to both entities. Don’t just use one for the other’s rejects. That’s very short sighted because you don’t know what’s going to happen down the road.”
There are a few lending categories you can look to-independent, captive, a local bank and yourself.
Independent companies usually have a focus on the heavy-duty trucking industry but also service other industries.
Many independent finance companies have scaled back their involvement in the trucking industry or exited the market in the recent past because of the economic climate.
“Most of the independents back in the 1990’s have gone out of business or discontinued working with transportation equipment,” Clark said. “In 1998, you had five to six independents to look at, now that isn’t the case and this has become an issue for some dealers.”
Captive finance companies, or the OEM finance companies, have traditionally been the primary finance source because they are structured to assure dealers have a financing source. To better assist dealers, many captives companies have expanded their financing options.
By going through a captive finance company as a dealer, your profit on the sale will lie in the reserve, the spread in percentage points.
“Dealers need to have a relationship on the truck side with the captive,” Clark said. “ten they need to look outside for alternatives. That avenue provides them with the coverage and security of partnering up with people who will be in the business long term.”
Clark added that in the trailer business, it isn’t as clear out. There is not a lot of market for an alternative source in the trailer business so Clark suggested relying on a dependable independent source and then looking for a local back as a secondary source.
Banks, preferably local ones, with which you can build a relationship, are the third option. Choose a bank that wants to work with you and wants you as a customer. Just as you want your customers to feel wanted, you should expect the same from your lender.
“Work with a lending office that wants to make loans, that want to communica