LAS VEGAS – Shawn Foster calls them dealership “prime-a-donnas.”
“They are salespeople who only want to do business with prime customers,” says Foster, executive trainer for Dealer Strong, a consulting firm.
But dealing only with the top credit scorers of the world means missing out on selling cars to a lot of other people, say subprime pros. Some of them are fine with fellow dealerships shying away from the credit-challenged. It lessens the competition.
“Fifty percent of stores don’t want to work with those folks, which makes it easier for us,” says Sterling McMillan, general sales manager at Planet Mitsubishi in Charlotte, NC.
Subprime makes up 16.2% of the auto financing market, according to credit tracker Experian. Deep subprime loans represent 3.5% more.
Lenders have eased up on credit restrictions since the financial freeze of 2008 and 2009 when subprime lending was lost in the Arctic.
“It’s a big segment,” McMillan says. “It’s a chance to make more money and sell more cars.”
Credit scores range from super prime (740 and above) to deep subprime (minimum 550; anyone scoring below that is persona non grata to lenders).
It takes a special person to handle special finance at a dealership. “You need a sales guy that doesn’t give up easily,” McMillian says during a subprime panel discussion at this year’s F&I Industry Summit.
Only a couple of staffers at Hare Chevrolet in Noblesville, IN, fit the “prime-a-donna” description, says Kevin Cunningham, the dealership’s customer finance director.
That’s two too many for McMillian. “It’s not someone we’d put up with,” he says of salespeople who would shun people with imperfect credit scores. “If someone does that maybe once, twice, then it’s ‘This is not the place for you. Sign here.’”
Foster calls such staffers “deal killers.”
An incentive to salespeople who are prime picky is to “show them what others are making on subprime,” says Mike Struble, special-finance manager at Walt Sweeney Ford in Cincinnati.
McMillan agrees. “Keep the staff motivated. Say, ‘Hey, this guy sold 300 units; you sold three.’ It’s a question of attitude.”
But subprime-lending success requires due diligence. Some would-be borrowers with checkered credit histories can fudge facts and sometimes outright lie.
Stipulations, also called “stips” represent proof of employment, income, residency and the like. “You need to verify the accuracy of spifs,” Cunningham says. “Sometimes you’re dealing with false information.”
He tells of loan seekers underreporting rent by half or trying to use the pay stub of a cohort who earns more. “We’ve seen a lot more of that in the last six months.”
Proffered copies of pay checks, rather than the real thing, “raises questions,” he says. And, no, a dealership finance manager had to tell a customer recently, money an insurance company pays for medication does not constitute income.
Asking the right questions reduces the risk of fraud, McMillan says. “We ask specific questions, such as ‘How many hours do you work? How long have you been on the job? What month did you start work?’”
Conference panelists say most subprime borrowers are not out to cheat the system. Many of them are honest people who have suffered a financial setback for any number of reasons. They are just out to get a loan.
“They’re loyal customers, especially if they see you as someone who sat down with them and put them in a car,” Struble says.
Cunningham adds: “We tell them they’re not only buying a car, they’re also building their credit so that the next time they buy a car they’ll do so with a better credit score.”
