The Value of Incremental Deals

Glancing in the rearview mirror and seeing if the dealerships met their goals for 2016, I find many of them fell short by sometimes as few as 40 deals.  As we all know, when a sale is lost it not only affects the sales department it also represents a loss of revenue to finance, service and parts.  We are embarking on a new year filled with new opportunities.  The shows are having huge success in attracting first time RVers to the industry.

The question become where to look for those incremental deals?  First identify the difference between the unit sales goal and the actual number of units sold for the previous year.  Some will determine the goal was missed by 40 units.  If you look at it, it can seem like an insurmountable hill to climb.  Instead, if we break that number down to a weekly number, that is something that can be achieved if you keep your eye on the unit sales in addition to the sales volume.  A 40-unit difference in an annual production equals about 3.5 deals a month. (Rounding up) That equals to one extra deal a week.

If the managers pull as a team and review the sales associates efforts a few times a week.  I think the finance team should be able to pick up those incremental deals.  The team must think outside the box, and they need customer information to make an inform decision on the best way to proceed.

If the customer’s circumstances do not fit into the normal customer profile of the traditional RV lender, then think outside the box.  Many will view non-main stream lending resources as only sub-prime outlets.  That is not the case any longer.

We all have seen people with good credit get declined due to lack of down payment, being self-employed and not enough income showing on their tax returns, yet all their payments are made on time.  Perhaps the deal is over advanced because of negative equity in the trade.  Perhaps the customer has had a real estate settlement, and traditional lenders will not touch them no matter how much money you have as an initial payment.

In dealerships, I have seen many different attitudes in the finance office, everything from “If I cannot get the deal bought, no one can.”   To “If the customer did not purchase any F&I products the manager does not make the second effort in securing the financing.”

These attitudes while not if every dealership, are still in some dealerships and they are self-serving and can cost the dealership sales and profits.

We must remember what the number one mission of the finance professional is. To review what the prime directive of the finance department is:

  • To secure the sale and protect the front end gross profit.
  • Increasing the dealership profits in an honest and ethical way.
  • Increasing the customer satisfaction with the sale.
  • Increasing customer retention.
  • To complete all the legal documentation of the sale.
  • To track the contracts in transit, and outstanding titles. The job is not done until all the paperwork is in.
  • From here the list of duties continue as the culture of the dealership dictates.

When communicating with senior management of dealerships I find, myself wondering how many deals are lost because of the personnel egos, or lack of motivation?  That is a good question, and one that should be occasionally asked by senior management.

The following are some best business practices to ensure that your dealership captures those incremental deals, that were lost last year.

  • We all realize that some people are full timers and for most lenders full time status is simply the kiss of death when it comes to securing financing. This is an area where a local credit union, who knows the customers might fill the situation.  In speaking with Mary McCarthy of Alliant FCU, she once told me the full timers have low loss ratios, and great credit.  I think our lenders should take a second and third look at this market.  For those of you thinking I agree, why have the lenders not done so prior to this?  My answer is this, when anyone lives in an RV full time the loan fundamentally changes from a retail installment contract to a mortgage.  When customers default, the lender cannot simply repossess the unit, they must go through foreclosure proceedings.  Not to mention they must have one year premium of homeowner’s insurance in an escrow account. I am sure there are other reasons, but those mentioned are the deal stoppers.

The progressive F&I professional should be proactive and develop relationships with local credit unions to fill this space, maybe even nurture a relationship with a mortgage lender.  At best, this situation will be a cash deal to the dealership.  Perhaps with an outside lien holder.

  • Let make a deal meetings…Last year did the sales manager and finance manager get together and review every write up to identify what was needed to make the deal?  Did the customer have good credit and was declined due to a high debt to income ratio?  Did the customer suffer from negative equity regarding the trade?  Was the deal so over advanced that your main stream lenders could not make the exception?  Was the customer on the right unit to meet their needs, and budget?
  • Do you have early morning meetings with the sales team, service, and parts managers to review what is going out today, is it ready? What does each department need from one another to make the delivery a success?  What is the status of every working deal?

What does the finance team need to secure an approval?  Who is the deal into for review?  How much is the deal over advanced by?  Is it into the correct lender for the circumstances?

If the customer was on the right unit, but the circumstances did not fit the mainstream RV lenders then perhaps your team needs to use a non-traditional resource.

Let’s look at what lenders look at when they are loaning large amounts of money.  They look at the net worth of the customer.  Simply put, the skinny credit applications that only have the customer name, address, social security number and a signature will not get the job done in these cases.  This is not a VIB situation.  Think back to the old days, when in a credit interview the finance manager was viewed as the banker who just happened to be in the dealership for the customer convenience.

The finance professional inquired about everything, bank accounts, saving accounts, value of the home, mortgage balance, credit card balances.  They asked if anything was going to change in their financial standing within the next 30 days, after all something could be paid off.  The customer might be purchasing a new truck.  We asked for and obtained personal financial statements, and tax returns.  The finance professionals secured proof of income before the lender asked for it.  The managers also inquired about their retirement accounts and balances.  The dealership managers were pro-active not re-active.

I find myself asking what was it that allowed that successful business practice to change.  All I can come up with is; the internet, credit bureaus, and the finance team taking the path of least resistance.  To maximize the potential of 2017, the finance team should go a bit retro.  Once again value a complete credit application with ALL the information, ask for the proof of income, and tax returns up front.  For deals that have financing that exceeds fifty- five thousand dollars ($55K) complete a personal financial statement with the customer ahead of time.  The other outside lenders will ask the customer for this documentation so do not be embarrassed to do so.  You are a lending professional, and you are helping to build a customer profile to be presented to a lender.  The more information going in, the faster the credit decision.

In this case, information is the magic to secure the sale and protect the sales department’s gross profit of the deal.

Think of it in this way, we are asking a lender to lend money sometimes twice the amount of invoice to someone the lender has never met, does not know, never will meet.  Currently, with very skinny information thinking it is all collected in a blink of an eye over the internet.  That is like asking how much water can a strainer hold?  If you were the lender my dear friends I can assure you that you would want more information about the person you are considering lending all the money to even before you pull a credit bureau.  Consider this for a moment, can you tell anyone’s net worth from looking at a credit bureau?  The answer is no, you cannot.  All you can tell from a credit bureau is most of the outstanding debt, and the customer payment history on the debt that is being reported.  There is so much more to identifying the customer’s net worth and liquidity.

The winds of change are blowing early in 2017.  The new year brings all of us increased opportunities, we must be prepared with the resources to make the incremental sales that will turn 2017 from a good year to a great year for your sales team.  I wish you all the best selling season.

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