Dealers pump subprime sales with Web leads
LaLonde: Surging demand for leads
Photo credit: DAVID BARKHOLZ
DETROIT -- Dealers are gobbling up finance leads generated by Web sites that help many subprime car shoppers determine what they can afford.
Auto Credit Express, a major supplier of subprime finance leads, is enjoying strong demand, said Rich LaLonde, president of Auto Credit Express and owner of two Kia dealerships, all in suburban Detroit.
"There's a bigger pool of customers and lenders," LaLonde said.
Finance leads, mainly generated by subprime borrowers, fell out of favor during the recession as subprime car loans dried up, he said.
But demand for them is surging today, LaLonde said. Auto Credit Express, of Auburn Hills, Mich., is sending about 100,000 finance leads to dealers per month or about one in four nationally, he said.
They cost dealers on average about $24 apiece, similar to traditional new-car leads sold by lead aggregators such as Autobytel and Dealix.
A finance lead is obtained when car shoppers, usually with damaged credit, search online first to see what they can borrow. Web sites that can give a quick assessment by crunching debt and income information include car.com, autocreditexpress.com, carsdirect.com and carloan.com.
In the course of getting borrowing information, the shopper provides contact information, which results in a lead that dealers can follow up on.
Subprime loans on the rise
"With the right staff, subprime buyers can provide healthy incremental sales volume," said Don Campbell, president of lead provider Detroit Trading Co.
LaLonde said finance leads have become an important part of monthly sales at his two Detroit-area dealerships: Summit Place Kia-Waterford and Summit Place Kia-Mount Clemens.
In July, 38 of 100 new and used vehicles sold at the two stores combined were to subprime customers, LaLonde, 54, said.
"Some dealers want subprime customers to come through the back door," LaLonde said. "Our approach is different. People with subprime credit want to buy a car, and we want to sell them one."
In the second quarter one in four car loans was subprime, according to Experian Automotive. The prime category starts at a credit score of 680 on the company's Scorex-Plus scale.
Experian Automotive's study showed that loans to subprime car buyers rose 14 percent in the second quarter over the same period of 2011.
LaLonde said about 1,000 dealerships of the nearly 18,000 nationally buy finance leads from Auto Credit Express. His Kia dealerships number among the 1,000.
LaLonde estimates that only a fraction of all dealerships nationwide, perhaps 2,500, emphasize selling to buyers with less than prime credit. It takes a store specialist and relationships with subprime lenders to make it work, LaLonde said. But it's well worth the time.
"We know 32 percent [of finance-lead prospects] will buy a car within 60 days after the lead date," he said.
At his two stores, vehicle sales to subprime buyers generate a gross profit per vehicle of about $3,000 vs. $2,200 on prime buyers, he said.
Used and new vehicles
Subprime customers most often buy used vehicles. At LaLonde's Kia stores, 33 of 60 used vehicles sold in July were to people with subprime credit, while five of 40 new vehicles were financed through subprime loans.
Suzuki of Wichita, though, relies heavily on subprime credit for new-car sales, said dealer principal Scott Pitman. More than half of a store-record 309 new and used vehicles sold in June were from finance leads, he said. Suzuki of Wichita is the nation's top-selling Suzuki dealership.
LaLonde said dealerships can make money selling to subprime buyers by treating them with the same respect as any other customer and doing a good job of buying the used vehicles that subprime customers predominantly buy.
"You make your money when you buy the cars right," LaLonde said.
Subprime lenders typically require a fee from the dealer ranging between $25 and $2,000 per loan for the extra risk of loaning money to a person with credit problems. That fee makes it crucial to dealers to buy used vehicles at low prices, he said.
His two Kia stores focus on subprime sales to those with so-called good-bad credit rather than bad-bad credit, LaLonde said.
A good-bad credit customer typically has one significant event that damaged his or her credit, such as a divorce, lost job or catastrophic medical claim, he said.
He avoids chronic credit abusers who have their properties repossessed or are evicted -- people, LaLonde said, "who never licked a stamp."
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