Auto Dealer Monthly Magazine is the daily operations publication serving the retail automotive industry. This automotive publication serves dealer principals, officers and general managers with the latest best practices.
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By Greg Goebel SPECI A L FIN A NCE NO MORE EXCUSES Your customers are not to blame for your lack of back-end proft on subprime deals. It's time to stop overselling your inventory and start producing. PTI AND LTV Te mistakes on which we need to focus have little to do with how much you owe on the vehicle related to book. Te problem is that the price of each unit is eating up all the space in your payment-to-income (PTI) and loan-to-value (LTV) ratios. By selecting a vehicle that is $1,000 less expensive, you create the opportunity to upsell tons of backend product. I work with dealers of every 30 ©ISTOCKPHOTO.COM/SERGEY NIVENS Ih have been on the road quite a b the past couple months. bit Wi With all the advancements we hav have made in this segment, I'm stil still amazed to fnd otherwise pro prosperous dealers struggling to produce adequate back-end proft from their special fnance departments. I was in Omaha, Neb., right before Christmas, meeting with a group I have worked with for a long time. Tey have a tremendous F&I; team. Tey were averaging between $1,600 and $1,800 back-end proft per vehicle — except on subprime deals, where they were averaging closer to $700 or $800. Te staf said they were lucky to make any back-end proft in special fnance. Tey were wrong. Folks, this is not rocket science. It all comes down to which vehicle you sell to the customer and what they put into the deal. We're coming up on tax season. I don't want you to continue making mistakes in inventory selection. Let's correct them now. stripe who routinely average $1,600 or more on the back end in SF, including deals with Tier 3 and Tier 4 fnance companies. Tat is especially impressive when you consider that those companies tend to place strict limits on how much you can sell and how much you can make. My advice is to back down the transaction price just a hair. Infated transaction prices are the common denominator among struggling F&I; departments. It's a telltale sign, because those debts require a signifcantly higher monthly payment. By stepping down, you haven't maximized the PTI, which is what the fnance company is AUTO DE ALE R MONTHLY • FE BRUARY 2014 most concerned about. Tis could prove particularly important in the near future. If the regulators have their way, fnance reserve from banks and fnance companies is going to go away. I've been saying this is likely to happen for the past nine months. Ally's recent $98 million settlement with the CFPB was a major red fag. It's essential that special fnance managers learn how to get callbacks that give you enough room to sell products. Let me be clear: Tis has nothing to do with the illegal practice of payment packing. I would never suggest you mark up the interest rate to cover un- wanted products. Nor should you include the service contract or GAP in the price of the car. I just want you to give each customer an opportunity to secure their purchase. CUSTOMER SERVICE Te frst step is to be sure the sales team — including the salesperson, the desk, whomever — doesn't max out what the customer can aford. It's easier to sell a nicer, more expensive vehicle. It's a problem endemic to the industry. You can't blame the salesperson for trying to please the customer; in any case, that's not the issue. Te main problem is that most cus-