Your dealership probably should have a dedicated subprime operation. What that will look like will vary from dealership to dealership, depending on a number of factors.
Those include: training, the maturity of your sales force and the percentage of sub-prime sales to total sales.
In dealerships with large subprime volume, the effort may involve the entire sales and finance staff. In other dealerships, it may be as simple as a dedicated number of sales representatives.
What does not vary is that these customers should be handled through a different sales process than prime customers.
Let's first consider the market surrounding your dealership and why you should even focus on these fundamentals. Within a 30-mile radius of most dealerships, an analysis of credit scores shows that approximately 50% of the residents have credit scores of 640 or less.
The subprime market share is too large and profitable for most dealerships to ignore. Because of the dispersion of credit scores today, practically every dealership is to some degree in the subprime business.
Are you “re-actively” or “pro-actively” pursuing sub-prime business? How are you handling those customers?
Re-active business comes from a lot traffic. For most dealerships, a significant percentage of their lot traffic is subprime. To be pro-active means you advertise for or pursue subprime customers. The challenge of many dealerships, particularly those who only re-actively or minimally pursue subprime, is that they work their subprime prospects incorrectly.
Properly sold, subprime business is handled completely backwards from your prime business and should be separated from it.
Our normal habit in the sales process is to meet, greet, ask discovery questions, engage our prospects in a product decision and then discuss price and financing. If those prospects fall in the half of our population that is “prime” we have acted correctly. If however, they fall in that percentage of business that is “subprime,” we have not.
Two problems arise if we fail to follow this procedure. First, our subprime closing ratio suffers. How many times have you had a prospect land on a vehicle only to learn he or she is credit challenged? You may succeed in ultimately getting that person approved with a subprime lender, but there's a problem if the payment structure calls for a used vehicle, not a new SUV that's been landed on.
It is difficult to move that customer once the expectation is set. Landing subprime prospects on “finance-appropriate” vehicles first will improve your closing ratio.
A second problem arising from prematurely allowing subprime prospects to engage in product decisions is that gross profit will suffer. Often just to make a sale, we force ourselves into taking a small-gross deal. By working our prospects first through the credit process, and then engaging in “finance appropriate” product decisions, we will also increase gross profit.
To excel in subprime sales necessitates working your prospects “backwards” through the sales cycle: meet, greet, discovery and credit. Credit and the customer's capacity to repay a loan then will determine a payment plan that is “finance-appropriate” to product decisions.
For most sales teams, it is difficult to go back and forth between prime and subprime processes. That is why most dealerships benefit from a separate department or dedicated staff to handle subprime.
Remember these fundamentals are building blocks. Perfecting the basics will help your team excel in subprime sales. E-mail me if you'd like a checklist of best practices to supercharge your subprime sales and profits.
Tim Shea is president of Great Direct Concepts, a subprime consulting firm to auto dealers. Reach him at [email protected] and 800-430 5484.
