Down Payment Dollars and Sense
General managers who ask me to assess below par F&I production often express surprise when I ask about the down payment on their deals.
Once upon a time, down payment covered the gross profit on the transaction. No so in most of the deals today. If you advertise “no down” and “poor credit” that is the business you will get, along with limitations on the extra items.
When customers have less than perfect credit scores with little or no down payment, finance personnel must work with limited options and really have to scramble to secure loan approval without ancillary products. In such cases it is difficult to measure the value of the finance process.
Down payment is the cornerstone of profitability for sales and finance departments. Down payment is a “must see” for the sales team who wants to speed the funding process and for the lender who is looking for the level of customer commitment. Most customers will not leave equity on the table. An adequate down payment ensures on time vehicle payments when expenses exceed earnings.
With the customer in the right vehicle and down payment secured, there should be room in the customer’s budget for protection policies such as service agreements, credit insurance, and GAP.
The dearth of down payments has prompted many lenders to limit advances. If your lenders are curbing advances, ask for the inclusion of service agreements. If a budget is already strained with a car payment, what might happen when a breakdown occurs and a repair bill is presented for payment? Could a repair bill be the trigger for repossession? A service agreement in tenuous situations may save the day and the deal for everyone.
Down payment sense makes a whole lot of dollars. Down payments get deals approved, clear the way for added protection for the consumer, and take productivity to the top of the charts.
World of Special Finance, July 2005, p.22