AD-ing Up the Scores
The 1.5 million bankruptcies filed in 2002 are evidence that sub-prime financing is a growing business. At a recent dealer meeting I was asked if I thought dealers should enter the sub-prime market. My answer was an unqualified yes!
Every dealership enjoys sales opportunities from customers who have survived some tough economic times. How many sales do we lose when we label customers with less than perfect credit scores as “not serious buyers”?
This article is to help you think about the advertising you employ to attract sub-prime business and to encourage you to track the credit scores of the traffic your advertising generates.
AD-ing Business
Let’s say your current message is driving people with a credit score of 400-450. Your special finance manager will need to spend extra time with these customers and conduct a thorough credit interview. Documentation of the facts and proper deal structure are the keys to making these deals roll. Some dealerships will have a Buy Here – Pay Here option for customers who have enough down payment and/or those who really do want to correct their past credit situations.
Other financial sources will approve direct loans for customers in the 400-450 credit score range. The dealership will not receive any reserve for this transaction, but can sell a vehicle, a service agreement, and some aftermarket products. The loss of reserve is a small sacrifice in this situation.
Credit scores of 451-500 are still in the special finance market. Depending upon the delinquency situation, down payment, deal structure and standard stipulations will apply with any lender. The standard stips include proof of income, employment, residency and insurance; verification that all delinquencies have been made current; and ten complete references.
Often CUDL (Credit Union Direct Lending) will be a solution to the mid 500 credit score. Credit unions who want to expand their member base have joined forces to create CUDL. A dealership electronically submits a web-based credit application to the CUDL system. CUDL evaluates the application and faxes an acceptance or denial to the dealership within minutes – often with a lower APR than other sub-prime lenders can offer. CUDL provides a funding alternative in which the dealership can make about one point in reserve and offer all the F&I products in addition to making a deal.
Tracking Traffic
Tracking your ad traffic is critical. After the advertising hits the media, track the credit scores and other similarities and differences of your customer traffic. The differences could be the key to securing deals. The sale of any vehicle is only as good as the ability to fund the sale.
While I support lot activity, I question whether advertising is effective when deals cannot be secured due to basement credit scores, unemployed customers, or negative equity situations when there is no down payment with trade.
Monday morning after the weekend frenzy or after a special sales event is a great time for a “Let’s Make a Deal Meeting” with the sales management team. Sales and F&I managers review all the write-ups which somehow did not become deals. What did the customers have in common? What were the deal inhibitors for potential customers the ads brought into the store? Are the ads driving the quality of customers your team can effectively sell to?
When dealerships continually advertise for “bad credit” customers, after a while that is exactly what they get. Meanwhile, customers with marginal credit, often in the 600 range, do not want to be seen in a dealership with a reputation for selling mostly to individuals with bad credit! If “branding” is the name of the current business game, make sure your advertising matches the image you want your customers to associate with your dealership.
While credit scores in general have declined, the need for transportation has increased. Plenty of potential business is out there waiting to hear about the transportation solutions your dealership can provide. Tracking the credit profiles of your deals and near deals will help you implement an effective advertising campaign.
World of Special Finance, July 2003.