Subprime Can Be Divine

I am not surprised by the number of dealers not interested in marketing to the subprime customer.

After all, it is hard work. All of the stipulations, less per-car gross, longer time to fund a contract. There is a long list of reasons not to do it. I have been managing a subprime department for more than a year, and the frustrations are never-ending. 

That said, there is a large boat docked outside your dealership and if you don’t jump on it now, you are going to miss it. 

Subprime is not what it used to be. It is not buy-here, pay-here. It is not marketing to jobless deadbeats, milking the system. Subprime is marketing to a different customer, one this industry has not seen in such numbers in a long time.

Subprime is marketing to the should-be 700 Club. A credit score at that level typically, but not always, gets a consumer out of the subprime caste. But it is no secret that over the past three years, the economy sucker-punched a lot of people, knocking down their credit scores. 

Many upper-middle-class families were left with little to nothing. Their credit scores suffered due to modified mortgages, foreclosures, bankruptcies and stock losses.

These are good people done wrong and they comprise a market we need to acknowledge.

Subprime is not automatically defined as a credit score below 600. I have seen 700 scores I would consider subprime, and 550 scores that received a prime- interest rate.

We are looking not so much at credit scores anymore, but rather at the story behind the score.

Expand your financing sources and change up your advertising. This is a way to grow sales 10% to 20%.

Start with some of the larger lending institutions. If you are finding holes in lining up lenders, look more locally. Credit unions are a great way to secure financing.  Many subprime customers are members of local credit unions. 

Dealerships should dedicate specific staffers to this venture, as it requires patience and attention to detail. It will not happen overnight, but it will happen once the word spreads that you are the place to go for financing.

If you are a store selling 50 cars a month, expect that to increase to 60 to 70. If you are a 200-car store, expect deliveries to increase to 230 to 260.

The details and nuances of subprime lending are plentiful. I am happy to discuss what I know with anyone who is willing to ask.

(Chris Cochran is Finance Director of the Haddad Motor Group in Massachusetts. He can be reached at 413-212-7342 or [email protected].)