The Challenge of the New Millennium
The Challenge of the New Millennium With the advent of the New Year upon us we will be faced with new challenges. The most pressing challenge will be placing the quality of loans we are dealing with. With the economy so brisk, one would expect to see a good grade of credit scores. In reality, the quality of paper in most markets has declined.
The reason for the decline varies. For some, personal financial demands have exceeded available family funds because of job changes, early retirement, underinsured health issues, death or divorce. For others, financial woes occur due to a lack of financial responsibility.
Credit card debt is at an all-time high. Many people simply do not have the cash reserve to fall back upon during times of financial stress. When the stress reaches a crisis point, the credit rating can suffer.
The sub-prime lender market is in a constant state of flux. Industry publications have reported that 50% of the public has some type of credit glitch dating from 1995 to the present. The New Year predicts that figure predicted to increase to 70%. If the prediction unfolds, this special finance operation will become mainstream finance business.
Building lender relationships is becoming paramount. Now is the time to strengthen those relationships. Honesty, integrity, and ethics always count.
We need to recognize that most sub-prime lenders verify everything about the deal prior to funding. Lender personnel conduct a telephone interview with the client. They verify credit information, the vehicle, and equipment. The professional business manager will present a complete CASE to the lender for review.
Credit history: The professional business manager will completely and directly check the customer’s past credit references. They will verify “the story” and the current status of the account.
Ability: The customer must be able and willing to repay the new obligation. In our society, dependable transportation is a requirement, not a luxury. The payment must be affordable; the vehicle must be reliable. The aftermarket products, important as they are, must not overload the loan.
Stability: Lenders require a minimum of five years’ residence, five years’ work history, and five complete references. Many also require telephone bills and/or proof of income and proof of insurance.
Equity: We need to ask the client for a down payment. The most successful loans are short term and equity-based. The more equity the client has in the vehicle, the more forgiving of past credit sins the lender can be.
Tom Downer, F&I Director of the Fletcher Jones Auto Group in Las Vegas, oversees one of the most successful special finance departments in the West. They can track every special finance deal to four additional sales within the dealership group. This is in part due to the deals being set up right from the beginning.
Pam Carter, a special finance manager in Toledo, Ohio takes the extra step. She makes time to counsel her customers during the credit interview process.
Unfortunately, many dealerships “shot gun” deals for their sub-prime loans. This practice should be reviewed and changed. Shot gunning deals simply increases the lender’s cost of doing business. It weakens the relationship between the dealership and the lender.
Excessive inquiries can make a credit score drop by as many as fifty points in some cases. The professional sales business manager knows the guidelines of their lending sources and has experienced the results of having additional credit bureaus run on customers who currently have a low credit score.
You can strengthen your lender relationships by sending complete deals for review and submitting complete funding packages. One lender recently disclosed to me that 65% of their funding packages from dealership were incomplete. The expense of calls and faxes to dealerships requesting missing documentation are a tremendous burden to lenders.
In order to shorten your funding time, the sales business manager should package the deals for lenders. This process should be completed prior to turning the deal to the accounting office. This way, the package is sure to be complete, and all the office copies will be in the file. Faster funding equates to increased cash flow and a lower cost of business for the lender. Clearly a win-win for all parties.
The more paper you place with a lender, the deeper the credit they will be able to buy. With lenders, as with any business, loyalty means a lot. Our lenders are our partners in future profits. We should evaluate our current business practices and be prepared to make the adjustments necessary to streamline the workload and increase efficiency.
Our financial future depends upon strong, cooperative lender relationships. In the current marketplace, mergers and acquisitions have decreased the number of dealerships and lenders. We need to work together to achieve our prime directive: Secure the Sale – Protect the Sales Department Profit – Increase Customer Retention – Increase Customer Satisfaction – Increase Dealership Profitability – and Increase Cash Flow. Working as a team we can achieve our goal. The roaring 2000’s will then, indeed, be profitable for us all.