Dealerships Use Internet for Subprime

Of the 8,992 vehicles the Earnhardt Auto Centers sold online in 2005, 2,333 were out of the special-finance department, dubbed “Mr. Ed.”

With those numbers the Earnhardt group placed four dealerships on this year's Ward's e-Dealer 100 ranking.

“We think we may be the biggest in the country,” Kevin Murphy, special finance director for the Arizona-based dealer group, says of his operation.

One reason for the large number of sales in the subprime category is that many Arizona residents fall into it. As many as 60%, according to one credit-reporting agency, says Murphy, who has been doing special finance for the Earnhardts since 1992.

There are estimates that 50% of all car buyers nationally could be considered subprime.

Still, few dealers are jumping on board because it is a difficult market to do well, says Mike Gargano, general manager for Autobytel Inc.'s subprime division, Car.com.

The rewards are great, says Murphy — if you know what you're doing.

“We see approximately 15% of franchise dealers have a strong presence in special finance,” he says. “Our high-volume dealer groups tell us 5%-10% of their stores are playing in the space.”

According to Josh Evans, a vice president for CarsDirect, subprime generated a lot of interest at this year's National Automobile Dealers Assn. convention.

“Dealers are aware of it, but they don't always double back to it,” he says of subprime. “It's a tough business. But the Internet is a move toward a more efficient and cost-effective way to market and sell to customers in that category.”

Earnhardt also is successful in the market because it is one of only a few dealerships to have figured out that special finance customers find the Internet an attractive way to shop.

Many such customers prefer to remain anonymous as they search, says Evans. He suggests dealers make sure they have content rich websites that answer the customers' questions and yet allow to remain unkown until they feel comfortable to interact with the dealer.

“Many of them do like to hide behind a computer,” Murphy says. “But at some point, they have to come out.”

Murphy, in order to capture more of that business, bought 46,250 special finance leads from 18 different providers in 2005, with most of them coming from CarsDirect, Earnhardt's biggest supplier. Other providers include Autobytel's Car.com, CarLoan.com, DriverLoans.com and CyberLeads.com.

“The big thing for us is what some of the third-party vendors are doing,” Murphy says. “They have found a way to get an awful lot business to us dealers.”

It is a growing business. Recently, Autobytel announced that, along with Car.com, it had sent its 2-millionth special finance lead to dealers.

Other companies, such as Cars.com will be launching a special finance product later this year.

Meanwhile, Autotrader.com has included special finance as one of the criteria dealers can list in its Find a Dealer section, just launched last month on its website.

There is a downside, as more companies are going after the subprime customer, Murphy says. Costs have increased while the effectiveness has dropped.

“We do spend a lot of money,” he admits. “Our cost-per-sale was $200. Now it's at $508.”

That will not continue this year, Murphy says. The group will be more circumspect in where it buys its leads.

He attributes that to an increase in the number of duplicate leads, which make up at least 30% of all the leads he buys.

“We try to watch that, but it gets very complicated,” Murphy says. “We are aligned with some strong providers, but there probably are a few that need to pad their revenue.”

In many ways, the process for handling a special-finance customer online is similar to how a regular Internet customer is managed, Murphy says.

“The same principles apply,” agrees Gargano. “It's a timely response, with consistent and meaningful messaging that sells the dealer's financing capabilities, along with the right inventory at the right price. That goes a long way to building loyalty with the consumer.”

For the Earnhardt group, Murphy says the message is: “We are the biggest, nicest, baddest, coolest place to buy a car. Whatever it takes — we're the place to go.

“The biggest marketing pitch is that we can help our customers rebuild their credit. We're very careful about the lenders we partner with. There are some here that charge 35% interest rates, but we don't use them. It doesn't help the customer. That's one reason we have such a big repeat business.”

The process begins the way in which each customer is treated. “First, we have to assume the credit application is incomplete most of the time,” says Murphy. “And even though we know there are problems with their credit, we have to work every customer as if they are perfect.”

Earnhardt has 6,000 vehicles from which special-finance customers can choose. The Mr. Ed department consists of 63 employees that rotate among six of the Earnhardt's eight stores. And there is a center that helps set appointments.

The financing center follows up each lead with three to five phone calls daily for seven days. There also are e-mails every day for seven days. After that, an e-mail auto responder sends out messages periodically for 90 days.

Murphy says the company had included streaming video with e-mails but stopped because many customers don't have broadband computer capability.

It can be tough to connect, says Murphy. Many shoppers are online just to surf and end up sending a lead.

Others may just want the free iPod they can win from a third-party lead provider if they send a lead.

Evans says this is the busiest time of the year in the special-finance departments because customers like using the tax returns as down payments.

Earnhardt Auto Centers At a Glance

Total Online Sales: 8,992

New: 5,247

Used: 3,745

Online Subprime Sales: 2,333

Total Group Sales New and Used: 39,251

Dealerships on the Ward's e-Dealer 100:

Primary Lead Sources: Autobytel, AutoUSA, Cars.com, Dealix, IMotors, Jumpstart

Lead Management System: Autobytel's AVV (WebControl)

Website vendor: Designed and hosted in-house

CRM Tool: DealerSocket