How to Make It Work Better

CHICAGO — Inadequate communications from lenders and incomplete paperwork from dealers are frustrations on both sides of sub-prime lending, say participants at a National Automotive Finance Assn. Conference here.

Dealers want financing companies' upper management to communicate more with them, says John Bening, president of the Bening Automotive Group, based in Missouri and Illinois.

“Communication is one of our biggest challenges,” he says. “I would like to see more communication from the senior managers at the lending companies with me and my general managers — not just have their sales reps communicating with my finance managers.”

Some dealers say they'd like lenders to tell them of the changes in credit standards before they happen. For dealers selling to sub-prime customers, getting deals approved is difficult, even from lenders whose main business is funding these loans. Each lender has its own standards and those standards can change from one month to the next.

Dealers will spend large amounts of money advertising to certain customers only to find the lender is tightening its credit standards. Not only is the advertising money wasted, customer satisfaction becomes an issue when customers can't get approved.

While it would be desirable for lenders to share future strategy with dealers, it's not always possible. “Credit underwriting standards do evolve as the economy changes,” says Brent West, vice president for Triad Financial Corp. And often, lenders change their credit standards quicker than dealers change their advertising strategies.

Better communication also can help the dealer understand the inner workings of the lending institution. Knowing who to call, and being able to call an executive at the lending firm can cut down on some of the frustration, say conference attendees.

Bening cites a situation where the underwriter for one deal approved the loan. But it was rejected when the paperwork reached the funding department.

“The funding and underwriting departments were in different areas of the country,” Bening notes. “It was frustrating having the deal approved, then denied. It took me three days to straighten out the situation.”

Joseph Lescota, chairman of automotive marketing for Northwood University, agrees better communication would help.

“The lender needs to get to know the dealer principal and general manager and even the used car manager,” he says. “Most of the conversation is with the finance manager who has no responsibility for inventory management or sales. They don't have the big picture.”

The dealership can make better decisions on which cars to buy at the auction and order from the OEM if it understands the lending practices of the credit companies.

Dealers aren't the only ones complaining. The credit companies say dealers can help the process with better paperwork. “It's one of our biggest sources of frustration,” says West. “Between 85% and 90% of the paperwork coming from dealers is incomplete.”

Paperwork has to be returned to the dealership to be filled out correctly. This slows the funding process. Poor paperwork also affects portfolio performance, notes West. “We have noticed the loan portfolios perform better for those dealers whose paperwork comes in clean most of the time.”

One thing dealers can do is hire an assistant for the special finance manager to check the paperwork before it's sent to the lender. “Dealers should probably put a structure in place in the special finance department,” says Keith Wieseman, vice president for Dealer Diversified LLC.

“Many dealers don't realize the special finance manager is in just as sensitive a position as the prime finance manager is,” West says. Poor paperwork can indicate there are problems in other areas in the sub-prime department. And that increases the legal exposure for the dealer.

“The dealer should provide the same compliance training for the special finance managers that the prime managers receive,” West suggests.

And there is the problem of dealers sending high-risk paper to the credit companies but fudging on the details to get it funded.

“We've been in dealerships exchanging high fives, laughing, ‘Can you believe Triad just bought that deal?’” says Wiesman. “That can be fun for a while, but it's going to catch up to you. Dealers and lenders have to share the same agenda.”

Bening says, “This relationship can't be ‘dealer vs. lender.’ We are partners in this.”

He says relationships are getting better among the people he deals with. “We're all young guys in our 40's and will be around for a while. We're not going to be screwing each other.”