NEW ORLEANS — Special financing, once considered the domain of independent car dealer, now is attracting the attention of franchised dealers, according to Chris Leedom of Leedom and Associates.

“Most of the dealers who contact us with questions about special financing are franchised car dealers,” says Mr. Leedom, host of a special financing conference in New Orleans last month.

The special financing industry, serving people with spotty credit records, generates an estimated $70 billion-$100 billion in revenue and reflects approximately 12 million vehicle sales each year.

With the current state of the economy, increased layoffs and increases in personal bankruptcies, more and more customers are turning to special financing.

“Today's special finance customer is changing,” says Paul Snider, president and CEO of Credit IQ, Inc. and VOISYS Systems Corporation. “It's not always the down-and-out person who needs special financing. Now, they can be people who have had good jobs and have purchased new cars in the past. They just have problems managing their money.”

But dealers should not jump into the market blindly, warns Mr. Snider.

“Develop a sound business plan that includes specific plans for growth,” he says. “If you're just starting in the special finance industry, growing that business 50% over a specific period is very do-able.”

There are several elements to consider while developing the business plan. First: understand the nature of special financing.

“You're not selling cars,” Mr. Snider explains. “You're selling financing. You should approach it with the understanding that you're helping customers rebuild their credit.”

To combine or not

Should a dealership's special finance department and other departments be integrated or kept separate?

Greg Goebel, a Hyundai dealer in Evansville, IN and founder of, has been selling special finance since 1989. He integrated the departments when he first started. Then he separated them. Now they're integrated again.

“We've been doing this for 12 years, so my employees are well-trained in the concepts of special finance. But, in general, having a separate department is probably better,” he says.

“At the very least, you should have a dedicated special finance manager overseeing the process,” says Traci Meredith, an Ohio dealer and trainer with Leedom and Associates.

Know your market

Mr. Snider urges dealers to know average income levels for their markets. Then stock inventory accordingly.

Dealers should provide special financing customers with a choice of vehicles. Software programs help the finance manager categorize inventory by price and payment. That way, if a customer doesn't like one vehicle, the salesperson has others to show within a price range.

Providing customers with a choice helps eliminate the feeling that they're being treated like second-class citizens for having less than stellar credit.

The used-car manager and special finance manager should work together. This reduces turn time for vehicles that are slow sellers.

Pick the right lenders

Having the right third-party lenders is important. Mr. Snider suggests finding three-four lenders with whom the dealer can build strong relationships.

Dealers should look at how long the company has been in business, what type of internal support programs it offers, whether the support programs are at the local level or national levels and what back-end products they allow.

Most important: how long does it take the lender to issue checks once paperwork is received?

“It is a two-way street, however,” Mr. Snider warns. “The lenders look just as closely at the dealer.” It costs the lender typically $30-$35 to process a credit application. If the dealer is sending 100 applications, and only a few are getting approved, then the relationship is not very profitable for the lender.”

A dealership screening process to determine which customers may qualify increases chances of a loan approval.

The dealer needs to make sure the paper work is in order. Sending along loan applications that are incomplete or illegible delays the process, costing both the dealer and lender, and jeopardizing the deal.

What ads should say

Many dealers mistakenly advertise along the lines of “No money. No credit. No problem!”

But that pitch attracts people unlikely to qualify for a vehicle loan. Instead, run small ads with “Credit Rebuilding” headers. These bring in more realistic customers.

Advertising should note “minimum” requirements. Things like a minimum down payment or the need for a certain number of paycheck stubs can help weed out the unqualified.

Special Finance Loan Profile

Numbers shown represent 312,241 loans originated from January 1995 to year end 1999.
Average age of vehicle 2.25 years
Average loan payment $14,03.92
Average mileage 44,457
Average monthly income of buyer $2,486.73
% of new vs. used 82% used 18% new
Vehicle make 78% domestic 22% import
Average payment $320 to $375
Average term 55.67 months