5 for Subprime Success

Properly sold — subprime business is handled completely backwards (do the financing, then pick a vehicle) from your prime business and should be separated from it.

This staff “owns” subprime and “smells the money.” They are trained for it and paid solely off the sales from subprime, which brings accountability.

They know your lender's programs and niches and how to control the customer to maximize gross profit.

Proper mix of sub-prime lenders that purchase contracts covering the full spectrum of “B through D” paper. Typically dealerships should be working with six to 10 lenders, including some “deep” lenders with higher discount fees.

No one lender will buy it all, but securing every possible approval is necessary to maximize profit for the department.

Your staff must properly manage lender relationships including Look to Book (submissions cost lenders money), Time to Fund, bank fees and more.

Driven by the average income in your market. Vehicles should be inventoried to match not only customers' income and budgetary constraints, but also lenders' underwriting guidelines.

Most subprime customers need to purchase used vehicles due to budget limitations. Vehicles need to be purchased far enough “behind book” to afford discount fees and yet still enjoy significant profit.

Typically, they are program or auction vehicles, not retail trade-ins. Current-year program cars (“like new” invoice) create some of your best opportunities. Some new vehicles with factory rebates also structure well.

A central log to track the dealership's subprime traffic and separate it from your prime traffic.

Ability to capture and keep customers involved solely in a credit decision until you are ready to move them to a product decision.

Processes and systems to work the customer: initial callbacks, scheduling appointments, prioritizing workflow, interviews, income verification and more

For every 100 workable leads, you should be presenting 50% of them to your lenders. Of the 50% of those, you should be seeing an approval rate of 50%. Of the net 25% approved, you should deliver between 40-60%, resulting in a net 10%-15% delivery ratio.

Desking software helps structure deals and maximize profits.

John Q Public: TV, print, inserts, radio, billboards to reach the whole market.

Targeted direct-mail advertising pre-screens prospects based on actual credit filters and improves subprime metrics

Both work well. Lead quality and quantity are variables that need to be balanced to match your dealership's capacity and optimize your return on investment.

Goal is to gain market share and, where and when possible, to sell across franchise lines to do so.