LAS VEGAS – Scott Vickery, finance director at Brown and Brown Chevrolet in Mesa, AZ, dislikes automated loan systems that flatly reject auto financing for dealership customers with credit issues.
“It’s a thorn in my side,” he says.
He’s not against progress and realizes automated processes, using predictive algorithms, offer important attributes of modern commerce: efficiency and speed.
But he and other dealership personnel say lenders’ computerized accept-decline systems – despite programmers attempts to cover various credit scenarios – sometimes are too quick to say no to dealership customers with special circumstances.
There is little recourse when that happens.
“We can’t rehash system turndowns,” Vickery says. “I know it’s costly to have an analyst review every deal, but how much more business might be gained from that?”
Terse automated declines can leave dealership finance directors wondering what went wrong.
“If we’re not allowed to walk through the park together and discuss a turndown, I won’t always understand why particular deals are rejected,” Vickery says.
David Kelly, finance director at Easterns Automotive Group in McLean, VA, agrees.
“I would love more information on turndowns,” he says. “I need a way to know which way to go.”
He and Vickery are among dealership managers attending a recent Auto Finance Summit here. Discussions include the challenges of arranging subprime and non-prime auto loans, as well as dealerships’ relations with lenders that sometimes are leery of such financing.
Some lenders more than others (and sometimes too often) stress the human touch through face-to face contacts with dealers, says Mark King, general manager of Roy Robinson Chevrolet in Marysville, WA.
“We have some lender representatives that we never see, some we see once in a while and some that show up too much,” King says. “They ask how we are doing and what they can do to help.
“But dealers are looking at ‘How do I get this deal financed?’ and a field rep can’t do the deal,” he says. They can, however, call up the lender and say, ‘Hey, help this guy out.’ Field reps aren’t buyers, but they are liaisons. We need to figure out how to work together.”
Of the 85 lenders he works with, 10% get 90% of his store’s business, King says. “I understand you can’t buy every loan deal from a dealership.”
Like Vickery, King prefers dealing directly with lenders, not their automated systems.
“I don’t want to communicate with lenders via a computer any more than I want to hear from my spouse via a computer,” King says. “I want to hear them tell me what is going on.”
There’s a certain finality once an automated system declines a loan, he says. “(Loan) buyers’ hands are tied because of the system. They have no authority to overturn it.”
But when it comes to human vs. machine, King says many dealers have learned to structure loan applications so they “squeak by the auto decline.”
Vickery says he has learned to package low- and high-risk loans, then ask a lender to approve the lot.
“I’ll put one subprime deal with two prime deals and one near-prime,” he says.
Lenders need to be open to buying loans of varying risks, because “anyone can buy a Beacon score of 670 and above,” he says.
Vickery adds: “If you are going to be a full-spectrum lender, you have to turn the system decline off. If I send you 150 (credit) applications and you turn down 35 because you don’t want that business, that’s going to give me heartburn.”
It works both ways, King says. “A lender should be able to say, ‘Hey, we bought this much last month.’ If they are buying the bad, they should get some of the good.”
Funding riskier loans offers no silver lining for banks, says Joseph Pendergast, group vice president-operations manager for Chevy Chase Bank.
But because of dealer demands and other factors, “we’ll have no choice but to go down deeper,” he says.
Even so, lenders only can venture so deep into subprime, especially with so many financial firms reeling from the effects of the subprime mortgage crisis.
“The relationship (between dealers and lenders) can become strained in a tighter (lending) environment,” says Alexander Keechle, senior vice president-loan originations for Drive Financial Services.
He adds: “Financial companies can’t accept any greater losses, so we can’t be squeezed.”