Dealerships form special finance units for consumers with shaky credit
Skip to main content
Sister Publication Links
  • Automotive News Canada
  • Automotive News Europe
  • Automotive News Mexico
  • Automotive News China
AN-LOGO-BLUE
Subscribe
  • Subscribe
  • Account
  • login
  • HOME
  • NEWS
    • Dealers
    • Automakers & Suppliers
    • News by Brand
    • Cars & Concepts
    • Shift
    • Mobility Report
    • Special Reports
    • Digital Edition Archive
    • Self-driving cars might make people sick to their stomachs
      Going Hollywood
      Q&A with Chris Bangle
      A penny for your thoughts
    • Former Intel exec to lead Mich. mobility center
      Who wants VW's MEB architecture?
      GM will launch electric bike sales in Europe
      VW seeks to tap potentially lucrative ride-sharing market
    • Dealerships owned by ex-NFL stars face collapse, litigation
      Want a luxury car? Try a Kia
      Costly lesson of tortuous legal battle: Get it in writing
      Denny Hecker: A changed man?
    • Access F&I
    • Fixed Ops Journal
    • Marketing
    • Used Cars
    • Sales
    • Best Practices
    • Dealership Buy/Sell
    • NADA
    • NADA Show
    • Automakers
    • Manufacturing
    • Suppliers
    • Regulations & Safety
    • Executives
    • Leading Woman Network
    • PACE Awards
    • CES
    • Management Briefing Seminars
    • World Congress
    • Aston Martin
    • BMW
      • Mini
      • Rolls Royce
    • Daimler
      • Mercedes Benz
      • Smart
    • Fiat Chrysler
      • Alfa Romeo
      • Chrysler
      • Dodge
      • Ferrari
      • Fiat
      • Jeep
      • Maserati
      • Ram
    • Ford
      • Lincoln
    • General Motors
      • Buick
      • Cadillac
      • Chevrolet
      • GMC
      • Holden
    • Honda
      • Acura
    • Hyundai
      • Genesis
      • Kia
    • Mazda
    • Mitsubishi
    • Nissan
      • Infiniti
    • PSA
      • Citroen
      • Opel
      • Peugeot
      • Vauxhall
    • Renault
    • Subaru
    • Suzuki
    • Tata
      • Jaguar
      • Land Rover
    • Tesla
    • Toyota
      • Lexus
    • Volkswagen
      • Audi
      • Bentley
      • Bugatti
      • Lamborghini
      • Porsche
      • Seat
      • Skoda
    • Volvo
    • (Discontinued Brands)
    • Auto Shows
      • Detroit Auto Show
      • New York Auto Show
      • Los Angeles Auto Show
      • Chicago Auto Show
      • Geneva Auto Show
      • Paris Auto Show
      • Frankfurt Auto Show
      • Toronto Auto Show
      • Tokyo Auto Show
      • Shanghai Auto Show
      • Beijing Auto Show
    • Future Product Pipeline
    • Photo Galleries
    • Car Cutaways
    • Design
  • OPINION
    • Blogs
    • Cartoons
    • Keith Crain
    • Automotive Views with Jason Stein
    • Columnists
    • Editorials
    • Letters to the Editor
    • Send us a Letter
    • Tesla introduces 'Dog Mode' to keep pets cool inside the car
      A GM investment in Rivian would send the wrong messages
      Bad policy, worse political strategy on auto tariffs
      Will Jaguar replace XE, XF sedans with a single EV?
    • Dealers need to be ready for anything
      EVs will come with economic cost
      Spend money on sales, not stores
      Put it on your bucket list
    • Feb. 15, 2019: EV startup gets Amazon, GM interest
      Jan. 4, 2019 | Bumpy road ahead for Detroit’s automakers and suppliers?
    • Bad policy, worse political strategy on auto tariffs
      Elaine Chao: A speedier path for innovation
      Industry initiatives seek to ease tech shortage, but challenges remain
      Drivers for ride-hailing services can be a prime source of fixed ops profits
    • NADA can help fight stair step incentives
      Let dealers invest in innovation, not renovations
      Hackett's vision for Ford is still a blur
      The last temptation of Elon Musk
    • Customer-centric approach set Tesla apart
      Cadillac falls short on marketing, luxury
      Thank you, Sting, for Oshawa efforts
      Deeper issues in tech shortage
  • DATA CENTER
  • VIDEO
    • AutoNews Now
    • First Shift
    • Special Video Reports
    • Weekend Drive
  • EVENTS & AWARDS
    • Events
    • Awards
    • World Congress
    • Retail Forum: NADA
    • Canada Congress
    • Marketing 360: L.A.
    • Europe Congress
    • Fixed Ops Journal Forum
    • Retail Forum: Chicago
    • Leading Women Conference Detroit
    • 100 Leading Woman
    • 40 Under 40 Retail
    • All-Stars
    • Best Dealership To Work For
    • PACE Awards
    • Rising Stars
    • Europe Rising Stars
  • JOBS
  • +MORE
    • Webinars
    • Leading Women Network
    • Custom Features
    • Classifieds
    • People on the Move
    • Newsletters
    • Contact Us
    • Media Kit
    • Ally: Do It Right
    • Guide To Economic Development
MENU
Breadcrumb
  1. Home
  2. ACCESS F&I
September 12, 2012 01:00 AM

Dealerships form special finance units for consumers with shaky credit

Amy Wilson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print

    Dealership finance director Valerie Weddermann knew that if she wanted to make the most of expanding opportunities in subprime, she needed to dedicate one person to the task.

    She came to that determination after a year and a half of struggles, she says. Without a specialist devoted to subprime, the dealership, Rosner Toyota of Stafford in Stafford, Va., missed sales. A credit-challenged shopper coming to the store typically would start with a salesperson and then be turned over to a finance manager more accustomed to handling prime customers.

    The result? All too often, the deal would be turned down by the lender receiving the loan application, and the customer would walk out the door with no car. Having an expert who is persuasive with shoppers and knows the ins and outs of lenders' subprime programs would change that outcome for the better, Weddermann says.

    "There are people who say, 'I know [which lender] will do this,' and we have not been equipped with that," Weddermann says. "Nor have we been equipped with the volume. It's so difficult if you don't have the volume to get anyone to help you, to do you a favor."

    But the opportunities are ripe.

    Lenders are increasingly saying yes to credit-challenged customers. During the first quarter of 2012, vehicle loans to subprime borrowers increased by 11 percent, according to Experian Automotive. Nearly two-thirds of respondents to an unscientific Automotive News survey said their subprime business has increased in the past year.

    Photo

    Tracey: Big customer pool

    Special finance: A primer

    Developing and running a special finance department takes savvy. Here are some tips.

    Do:

    • Study your market and develop a solid business plan.

    • Find someone with empathy for the credit-challenged customer.

    • Sign up additional lenders for a total of 5 to 10.

    • Stay close to your lenders and ask quarterly whether the portfolio you're providing meets their criteria.

    • Stay on top of customers and stress the importance of providing certain paperwork such as proof of income, phone bills and bank statements.

    • Actively market, using available software that automates your vehicle listings on mediums such as Craigslist. Such software can include customized payment info and buzz phrases that appeal to subprime buyers.

    • Get buy-in from your used-car manager.

    • Tailor inventory to the models customers are after and banks are willing to fund.

    • Seek less desirable makes and models that you can buy for under book value.

    • Research your state laws and be aware of any challenges they present.

    Don't:

    • Ask your most important, long-term lender to take your riskiest loans.

    • Act skeptical or disapproving with the customer.

    • Be jaded and assume you know what deals will get rejected. With today's intense competition, you might find a lender for even the toughest deals.

    • Be stuck on putting the customer in a certain car. You may have to talk him into another car on which you know financing can be arranged.

    • Stop after one lender rejection; try to save the sale by changing cars or repackaging the deal.

    Source: F&I personnel, dealership advisers

    "If a dealer is not in the nonprime automotive financing space today, they should be," says Jack Tracey, executive director of the National Automotive Finance Association, a trade group representing finance companies.

    Funding for subprime loans has improved dramatically in the past 18 months, Tracey says. Big lenders who pulled out during the recession are back in the market with a vengeance.

    Dealerships have more lenders to choose from, more competitive terms, lower interest rates and less stringent underwriting to deal with, he says. And the pool of potential customers is big.

    Weddermann's market is no exception. Though Stafford is an affluent area, many residents suffered job losses and foreclosures during the recession, she says. A lot have steady income again, but their credit scores have suffered. Too, the dealership is near Marine Corps Base Quantico and a population of young Marines with limited credit histories or blemishes on their records.

    Rosner Toyota of Stafford will be better able to capture their business going forward, anticipates Weddermann, a 24-year veteran in dealership finance. In June, she hired Michael Jordan, a former colleague and eight-year sales veteran, to launch the dealership's special finance department. It will mostly handle used vehicles, but some subprime buyers qualify for new vehicles.

    Photo

    Valerie Weddermann hired Michael Jordan in June to set up a special finance unit at her Virginia store. And she's starting to see traction, she says. “We're getting people in the door that we didn't before.”

    Jordan is learning the finance end of the business. He already has the ability to direct customers without turning them off, Weddermann says. That's important in special finance because shoppers many times have to be steered toward a vehicle that's easier to finance.

    He also is building relationships with lenders. The dealership has added three finance companies to its roster. Jordan is tasked with getting more leads in the door and handling most of the sales and financing process.

    Though it's too early to report numbers, Weddermann says, she saw traction in August.

    "There were certainly people going by the wayside before," she says. "We're getting people in the door that we didn't before."

    Other dealers and finance directors are seeking the same upside. In the Automotive News survey, nearly one-third of respondents said they have a special finance department or are considering starting one.

    In June, Galpin Motors, a five-store group in suburban Los Angeles, launched a subprime unit on its used-vehicle lot, across the street from its huge Ford store. Galpin had closed a previous special finance department before the recession, but now specializing in credit-challenged customers makes sense again, says Andy Graff, Galpin vice president of sales.

    "The cars were available, the lenders were there, consumer confidence was there," Graff says. "All the things came together for us."

    The Galpin unit has one full-time person selling about 20 used vehicles a month.

    Ultimately, the Galpin unit probably could sell 80 to 100 used vehicles a month, Graff says, but competition for used vehicles at auction has limited inventory. He's aiming for 50 to 75 used cars a month by next summer.

    Tracey says dealers should be cautiously optimistic about the next 12 months. With so much competition for loans, lenders loosen underwriting standards, he says. That means a downturn may happen faster than in past cycles.

    "A year from now, the portfolios may not be behaving as well as they'd like, and the institutions may say, 'We're going to back off a little bit on growth,''' Tracey says.

    Dealers should get a good lineup of lenders now, so they have options if some back away.

    Know as much about those lenders' preferences as possible, says Rob Hagen, a Louisiana-based subprime consultant to dealerships. He has worked in special finance departments selling anywhere from 25 to 250 cars a month.

    Knowing lenders' preferences increases the chance of completing the deal. It also helps a finance manager determine which lender to try first for the maximum potential gross on the sale, Hagen says. Despite the auction competition, dealerships also should work to line up additional used vehicles, aiming for the $12,000 to $15,000 subprime sweet spot.

    Some dealerships aren't quite ready to carve out a separate department. That describes Brown's Ford of Johnstown, N.Y.

    Business Manager Joe Papa worked in the dealership's special finance unit in 2005 and '06 before it disbanded as the economy slowed. While there has been a "tremendous uptick" in the store's subprime business the past six months, Papa himself wants to handle mainly prime customers.

    But the store would consider a separate unit if it found the right person to lead it, Papa says. The ideal person is someone skilled in interviewing customers, matching them with cars -- likely used -- and then structuring the deals, he says.

    "With the subprime customer, you do it backward," Papa says. "You put them in a car rather than have them pick out a car. Ninety-nine times out of 100, they'll pick out a vehicle they will not qualify for."

    Papa uses software that uses credit scores to sort in-stock vehicles likely to qualify for loan approval. Then he shows a subprime customer the top three cars recommended. It's a big timesaver.

    Hagen says technology can help any dealership evaluating whether to start a subprime unit. A dealership can use its customer relationship management software to compare closing ratios across bands of credit scores to determine whether it's missing out on business.

    A dealership should close about 20 percent of potential deals, Hagen says. So if the store is getting a very high close ratio, say, 24 percent, on the prime credit score band of 700-plus but a very low close ratio, say, 4 percent, on the subprime credit score band of 599 and below, there's a lot of potential in the subprime space that the store is failing to capitalize on.

    Hagen says any dealership has the potential for 25 subprime deals a month.

    "But those deals have to be helped a little bit," Hagen said. "It may take having a small advertising budget to buy leads or having a credit microsite to get those deals to come through the doors."

    Rosner Toyota of Stafford has been doing 10 to 13 subprime deals a month, mostly used vehicles, Weddermann says.

    She projects the store can get into the 30s and eventually work toward 50 a month.

    Subprime buyers generally are loyal to the dealership that helped put them behind the wheel, finance managers say. They often send referrals the dealership's way.

    Says Galpin's Graff: "This is the first step to a lifelong relationship with the customer."

    Related Articles
    AutoNation's pilot subprime unit rescues deals in South Florida
    Subprime lenders rising after recession-era cuts
    Honda Finance's next big move: Taking dealers digital
    Savvy F&I managers match menus to their customers
    Orange Motors teams F&I and sales staffs to win big
    Lease push in downturn gives Toyota 'a real advantage'
    Survey: Ally gets back to dealers fastest
    Ford Credit stays on mission -- and gets results
    AutoNation's pilot subprime unit rescues deals in South Florida
    Subprime lenders rising after recession-era cuts
    Savvy F&I managers match menus to their customers
    Lease push in downturn gives Toyota an edge
    Ford Credit stays on mission -- and gets results
    Orange Motors teams F&I, sales staffs to win big
    Honda Finance's next big job: Take dealers digital
    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    Digital Edition
    THIS WEEK'S EDITION
    See our archive
    Fixed Ops Journal
    Thumbnail
    Read the issue
    See our archive
    Sign up for free newsletters
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please select at least one newsletter to subscribe.

    You can unsubscribe at any time through links in these emails. For more information, see our Privacy Policy.

    Get Free Newsletters

    Sign up and get the best of Automotive News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Now

    Get access to in-depth, authoritative coverage of the auto industry from a global team of reporters and editors covering the news that's vital to your business.

    Subscribe
    Connect With Us
    • Facebook
    • Instagram
    • LinkedIn
    • Twitter

    Our Mission

    The Automotive News mission is to be the primary source of industry news, data and understanding for the industry's decision-makers interested in North America.

    AN-LOGO-BLUE
    Contact Us

    1155 Gratiot Avenue
    Detroit, Michigan
    48207-2997

    (877) 812-1584

    Email us

    Resources
    • About us
    • Contact Us
    • Media Kit
    • Subscribe
    • Manage your account
    • Reprints
    • Ad Choices Ad Choices
    • Sitemap
    Legal
    • Terms and Conditions
    • Privacy Policy
    Copyright © 1996-2019. Crain Communications, Inc. All Rights Reserved.
    • HOME
    • NEWS
      • Dealers
        • Access F&I
        • Fixed Ops Journal
        • Marketing
        • Used Cars
        • Sales
        • Best Practices
        • Dealership Buy/Sell
        • NADA
        • NADA Show
      • Automakers & Suppliers
        • Automakers
        • Manufacturing
        • Suppliers
        • Regulations & Safety
        • Executives
        • Leading Woman Network
        • PACE Awards
        • CES
        • Management Briefing Seminars
        • World Congress
      • News by Brand
        • Aston Martin
        • BMW
          • Mini
          • Rolls Royce
        • Daimler
          • Mercedes Benz
          • Smart
        • Fiat Chrysler
          • Alfa Romeo
          • Chrysler
          • Dodge
          • Ferrari
          • Fiat
          • Jeep
          • Maserati
          • Ram
        • Ford
          • Lincoln
        • General Motors
          • Buick
          • Cadillac
          • Chevrolet
          • GMC
          • Holden
        • Honda
          • Acura
        • Hyundai
          • Genesis
          • Kia
        • Mazda
        • Mitsubishi
        • Nissan
          • Infiniti
        • PSA
          • Citroen
          • Opel
          • Peugeot
          • Vauxhall
        • Renault
        • Subaru
        • Suzuki
        • Tata
          • Jaguar
          • Land Rover
        • Tesla
        • Toyota
          • Lexus
        • Volkswagen
          • Audi
          • Bentley
          • Bugatti
          • Lamborghini
          • Porsche
          • Seat
          • Skoda
        • Volvo
        • (Discontinued Brands)
      • Cars & Concepts
        • Auto Shows
          • Detroit Auto Show
          • New York Auto Show
          • Los Angeles Auto Show
          • Chicago Auto Show
          • Geneva Auto Show
          • Paris Auto Show
          • Frankfurt Auto Show
          • Toronto Auto Show
          • Tokyo Auto Show
          • Shanghai Auto Show
          • Beijing Auto Show
        • Future Product Pipeline
        • Photo Galleries
        • Car Cutaways
        • Design
      • Shift
      • Mobility Report
      • Special Reports
      • Digital Edition Archive
    • OPINION
      • Blogs
      • Cartoons
      • Keith Crain
      • Automotive Views with Jason Stein
      • Columnists
      • Editorials
      • Letters to the Editor
      • Send us a Letter
    • DATA CENTER
    • VIDEO
      • AutoNews Now
      • First Shift
      • Special Video Reports
      • Weekend Drive
    • EVENTS & AWARDS
      • Events
        • World Congress
        • Retail Forum: NADA
        • Canada Congress
        • Marketing 360: L.A.
        • Europe Congress
        • Fixed Ops Journal Forum
        • Retail Forum: Chicago
        • Leading Women Conference Detroit
      • Awards
        • 100 Leading Woman
        • 40 Under 40 Retail
        • All-Stars
        • Best Dealership To Work For
        • PACE Awards
        • Rising Stars
        • Europe Rising Stars
    • JOBS
    • +MORE
      • Webinars
      • Leading Women Network
      • Custom Features
        • Ally: Do It Right
        • Guide To Economic Development
      • Classifieds
      • People on the Move
      • Newsletters
      • Contact Us
      • Media Kit