Subprime Goes Online

The stories of the demise of the web as a retailing tool (mine included) were grossly exaggerated I learned at a conference on Special Finance and Buy-Here Pay-Here.

Once a year, Chris Leedom, the guru of these areas, hosts a program on cutting-edge retail finance.

The usual suspects always show up, of course, but a healthy measure of new wolves were scratching around in search of new hunting grounds in the aftermath of 9/11, the decline of the stock market, the impending war in Iraq and other disruptions that have mucked up our marketplace.

For those who have been under a rock for the last few years, Special Finance has edged out the Internet in the long list of emerging markets just beyond the horizon of straight-up car sales. The din of “when bad things happen to good people,” and “bad credit, no problem” are the hunting call of the new Turks who are feasting on fat gross profits made possible by aggressive banks with beefed up collection departments.

Special Finance is possible by the reality that a few flaws in a shopper's credit history support the fairness of a premium rate (typically 500 or 600 basis points over the norm). Typically, that premium creates more than enough spread for the bank and the dealer to cover the downside, which is, not surprisingly, that many of these folks are not good people to whom bad things happened. They are bad people. Staying on the right side of the line between profit and loss is knowing which people are which, plus a healthy margin for error.

While in Las Vegas with Leedom, I found myself bumping into companies that were marketing to, trolling for, and selling off Special Finance Internet leads.

It was like going back a few years to when the aisles at the NADA convention were dotted with dot-com barkers calling on dealers who might like to sell cars to new-age customers shopping on the World Wide Web. Only this time the customers were the credit-challenged getting a second chance from new-age F&I managers dubbed Special Finance managers and finance companies willing to take a chance that not everyone with credit problems is a deadbeat.

I signed up with two companies hawking challenged-credit leads pulled from the Internet. An hour later I was speaking to my Special Finance manager about closing ratios that we might expect from the appointments that were possible sales. I was salivating. But like when I first fished the 'Net for third-party referrals, I was suspicious.

After all, historically lower-end customers have been absent from the Internet. Early on, highly qualified, hard bargainers cyber-surfed. They had good credit and knew it.

Before, it was hard if not impossible to find mid-range online customers with flawed but bankable credit.

Nonetheless, things have changed for the better. Even before I returned home from the conference, I had over 40 leads and had already delivered a car. I'm now studying how these customers are using their computers, what services they're connected through and when they're finding time to shop.

My findings are still too sketchy, unscientific and uncontrolled, but there is significant consistency in the fact that many credit-challenged people with Internet access at work are using those high-speed connections to take an occasional personal detour from “work” to shop the web for cars and credit. When they do, a whole new market segment finds its way to my showroom and yours.

The result is that my once robust $100,000-a-month dealership Internet department is once again alive. This time its potential is bigger than ever.

Peter Brandow is a 25-year veteran dealer with stores in Pennsylvania and New Jersey.