Capitalizing on the non-prime customer

How many sales opportunities are you missing when a customer has a negative credit rating? Does your dealership offer financing alternatives to these customers? Do you know how to profit from alternative finance programs?

Call it non-prime, secondary finance, special finance or sub-prime.

Whatever term you use, your dealership is probably seeing a significant number of buyers in the "credit challenged" category.

Based on national surveys, it is estimated that approximately 32% of auto dealerships offer some type of sub-prime financing alternatives.

Depending on whose number you believe, it is estimated that between 35 to 50% of all car buyers are credit challenged.

Although we are in a time of great economic growth, the sub-prime segment of the market is growing at a rapid pace.

Two of the biggest contributors are the number of personal bankruptcy filings, and the over extension of credit.

Despite financial woes, these individuals still need dependable transportation and financing alternatives.

Many dealers are unsure or have had a negative experience when trying to capitalize on the sub-prime finance market.

For dealers who establish the proper procedures and process, this can be a very profitable department within the dealership.

Successful dealers in this segment of the market are typically able to develop and manage strategies in six key areas. These six key areas require a well-thought out plan to provide the foundation for a profitable department.

These six key areas must be evaluated and managed on a daily basis. Our ASTN training program will address, in detail, these six areas. The content of these programs is as follows:

1. Organizational Structure of the Department - Often the success of a special finance department is directly linked to staffing and organization structure. There are some common denominators among dealerships selling 20 or more sub-prime finance units per month. This segment will provide detailed insight that will help you identify the necessary staffing approach based on the volume level you want to achieve. Additionally we will identify the priorities or job description of each position. This is the first step to a profitable operation.

2. Establishing and Managing Lender Relationships - Once we have the proper personnel selected, we must identify potential lenders that will finance our credit-challenged customer. To do this we must be able to identify a lender's niche. We will review the three tiers of the sub-prime business and discuss how to identify a potential lender's target market. We will also review how to investigate a lender to minimize the risk of potential funding problems.

3. Selecting and Procuring Inventory - With the personnel and lenders in place, we now need some vehicles to sell. Identifying inventory that meets the criteria set forth in lender programs is very critical and is the basis for profitability. We will review how to determine what inventory to sell. What criteria must be followed when purchasing these units? What vehicles should you avoid purchasing for sub-prime finance programs? Where do you find these units?

4. Structuring a Deal for Maximum Profit - Many dealers fail to maximize the profitability of a sub-prime transaction. The increased risk of a sub-prime transaction can be offset with increased profit if structured properly. We will review how to structure a sub-prime deal. What are the keys to the desking process? What are benchmarks for profitability based on industry data? This segment will identify the profitability of the special finance department.

5. Marketing your Program - How do you market to the credit-challenged customer? What works in today's market? We will discuss the pros and cons of virtually every advertising medium in use for this customer.

6. Compliance Issues: Minimizing Risk - While this segment of the auto business can be profitable, it is not without risk. We will discuss the key compliance issues you must be aware of. More importantly we will identify processes to minimize these risks. This segment also addresses some key legal issues unique to sub-prime finance in clear laymen terms. This segment will help your controller or CFO review lender agreements and minimize risk.

Chris Leedom is a Professional Twenty Group moderator and is a partner with NCM Associates.