Every new-vehicle dealer in the country is in the subprime business. They may or may not explicitly understand this reality, but as reports show, dealers are all working deals with customers who on average have a 640 credit score or less.
Statistics indicate there is a 50% chance a car salesperson will work to get customers into vehicles they want but whose credit scores suggest they cannot afford.
The very nature of the credit-challenged customer precludes a dealership from treating them the same as the half with 640 or above credit scores.
We have all seen this before — desking managers realize the problem when they read the credit report. They then work like crazy to shoehorn the customer into the vehicle by using possibly new and interesting information on their credit application, and, bam, a neat opportunity for a moment of litigation.
This seldom happens, but certainly the deal's chances of going south increase substantially when it does. It can end with the client simply stopping payments or your finance company ordering a vehicle repossession.
Currently, with nearly every finance company either getting out of subprime or looking for reasons to say “no,” it is in your best interest to avoid the shoehorn effect.
The Three Ways To Get Burned
The three primary causes of getting burned occur when sales people don't recognize the true nature of their customer and create the shoehorn effect. This is due to:
- Lack of training or focus on the subprime sales process.
- Not knowing who they are dealing with, how to read a credit report or the new regulations (i.e. Red Flags Rules, one time incidents versus consistent pays, etc.).
- Lack of effective policies or not knowing lenders' programs.
How Do You Keep from Getting Burned? It's Easy, Sort Of
Conceptually simple, but operationally difficult, backing the pre-approved monthly into an affordable vehicle is the first step to avoiding a credit-challenged deal going wrong.
The best way to ascertain whether the prospect in front of you has subprime credit is to ask a series of interlocking questions. These questions generally beat around the bush of the prospect's current credit situation but give you the information you need to make such a determination.
There are several training service providers that can provide these subprime-specific talk tracks, but understand that this is a subtle process that requires management focus, ongoing sales training and legal compliance. But you know it isn't easy being a dealer, right?
Know Who You Are Dealing With
The ideal subprime sales situation would be:
A customer goes to your Web site.
He or she securely relays their credit information.
That allows you to electronically to check their credit.
Your Web site then shunts customers into the subprime pre-sales process.
a. Your Web site shows them vehicles within their price range, based on credit scores and your lender's programs.
b. They print out cool online brochures of the vehicles they are interested in.
c. Your website helps them set up an appointment for a test drive.
d. An email is sent to the subprime lead manager with all this information.
e. Email would include subprime deal forms pre-loaded with client's data.
The subprime prospect walks onto your lot with the “credit financing approved” letter printed off your website and has the vehicles of their choice listed by preference.
Wouldn't that be nice if this were a realistic scenario? But it's not, so you manually gather all of this information, get the credit report and really start to dig into the prospect's nature as “payers.”
Ask the screening questions your training provider gave you and actively listen to their “story.” It may be tall tales, but more than likely they want a car they can afford to get them where they need to go.
Yet, there are a lot of risks lurking in the dark corners of the subprime sales process. Knowing how to interpret the credit reports is important to understanding the prospect in front of you.
Further, understanding new regulatory requirements, such as the “Red Flags Rules” from the Federal trade Commission, will also help you avoid getting burned by identity thieves, as well as make your desking and sales people better at qualifying prospects.
To support your sales process, there is a growing number of “inline” transaction-based background checks, ID checks, OFAC (Terrorist Watch List) and real-time deal compliance auditing systems. These can be invaluable in the subprime sales process by simply making sure your people do all the legally mandated steps in the vehicle sales process.
Establish Policies and Procedures
Getting your people up to speed on subprime sales processes is a training issue. Getting your people up to speed on subprime-related compliance issues is another matter.
Not only does a dealership need to train its people on the legal consequences of not following mandated procedures, it must establish a set of policies and procedures that align with the legal and transaction-based compliance issues faced during the sale.
This means more than training. You need to establish a “good faith” compliance effort that not only increases overall satisfaction with the subprime transaction, but also aligns the existing and emerging consumer laws coming out of the subprime housing debacle.
Emerging technology focuses on personnel-based compliance that helps your staff better understand and comply with the ever-changing rules and regulations.
Dealership compliance management systems can keep you out of trouble by keeping your people from causing trouble or at least protecting your dealership from litigation if they do.
Putting Balm on the Burn
By properly qualifying each prospect to ascertain the nature of their credit situation, you create a selling process appropriate to the individual client.
This customized sales approach will better meet their needs and more quickly close deals while increasing the feeling among your clientele that your dealership “gets it” and treats people consistently, according to their situation.
Making sure that your sales people understand their customers will increase overall customer satisfaction and improve your margins. Whatever happens, qualify the prospect and point subprimes toward trained staffers who know how to deal with credit-challenged customers.
James E. Lawrence develops dealership software and manages compliance software development at Compli. He's at [email protected].
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