The Importance of Dealer Facilitated Financing
One of the prime directives in the mission statement for the sales business managers is” To Increase Customer Retention”. When a customer has a positive financing experience with a major purchase, they will return to the place of purchase when it is time to obtain a new vehicle.
It has long been known that 25% of our customer expect to finance through the dealership. 12% pay cash. You have an opportunity to secure the financing of an additional 63% of your customers.
First Line of Defense: The sale consultant’s opinion of the dealership’s sales business office. Many of the sales consultants who negotiate for full sticker deals are those who want the dealership to arrange financing at below buy rate. They do not understand that financing is more than a service, it is a profit center. The level of profit is commensurate with the level of risk the dealership takes on with the deal.
Many dealerships have to sign recourse paper in order to secure financing for the customer. By allowing the dealership to finance the deal the customer has the advantage of “Holder In Due Course”.
Holder in Due Course mandates that the lender must guarantee performance of the policies and services, which appear on the contract. This protection is only afforded through dealer facilitated financing. Should the customer utilize other finance source, they forfeit this right.
The sales consultant’s should support dealer facilitated financing because this activity eliminates an outsider from giving their customer unqualified sales counsel.
The Second Line of Defense: The Sales Managers, how they structure the deal. Are they using the dealership sources? Are they sacrificing the reserve to make a deal? How often are they do so?
The sales managers should include the sales business managers early in the deal. They should work as a team to maximize the profit in every area. Pay attention to the deal structures; eliminate the need for rewriting the deal. Rewriting the deal, cause the dealership to loose gross, CSI points, and sales consultant’s moral.
The Third Line of Defense is the Sales Business Manager: Every customer should see the Sales Business Manager at the point of commitment on the unit. Today’s customers still buy the unit first and then seek financing. Often the customers do not realize the benefits of dealer facilitated financing.
A professional sales business manager will interview the customer and will present the benefits of dealer facilitated financing. Many customers do not realize the rights they forfeit when they select other sources.
Such as: Credit Unions have the right to go into they deposit accounts for payment of the outstanding loan balances. This is referred to as the pledge of shares. Check it out for yourself. Go to a local Credit Union and ask for a copy of their “Truth and Lending” disclosures; it will be a part of the credit application. Review the clause of Security Interest; and the default clause.
Many of you will say we do financing with Credit Unions. Please read your dealer agreement and make sure that the credit union uses only the title of the vehicle as security. Your dealer agreement may very well be the veil of security for the customer.
For the credit unions, which the customer arranges the financing, they use more than the title as securing. Get informed about your competition. Your customer may say;”Our Credit Union would never do that to us.” Your response could be;”We certainly hope they would never do that to anyone. However, one needs to ask themselves why it is in print, if the credit union never uses the clause?”
The great news is, with our finance sources, only the title will be used as the security of the loan.
With automobile financing reaching 96 months. We need to begin to discuss execrated equity with our customers. One extra payment a year can make drastic differences in the term of the loan. One extra payment a year pays off a 60-month loan in 54 months. Excellerated equity will allow lower payments for the bare minimum payment for the worst of times, and will allow for a shorter trade cycle in the best of times.
Cash Transactions: Per the federal reserve reports only 3% of americans can write a check greater than $3K and have it clear without moving money. That fact tells us that we have a 9% finance conversion opportunity. Again, the secret is seeing the customer at the point of commitment on the vehicle. Finding out if they intend of replenishing the funds, and how are they planning on doing so? Do they have an income stream to support those plans?
A five year CD gives a rate of return of just under 5%. Check you local newspaper for the current yields. They change weekly, sometimes daily. Compare the interest gained on a five year CD, which by the way is FDIC insured; Versus the interest paid on a five year loan. If they customer is going to replentish the funds by saving, they could be ahead of the saving game if they had a cash reserve to begin with rather than zero cash reserve.
Yes, they will have to pay interest, they will also have access to a larger cash reserve if any emergency should arise. They would have the funds to pay off the loan if that is what they wish to do. They would have funds for investments in addition to the vehicle if that is what the customer wished.
Financing the vehicle purchase allows the customer to have options. Why they could even consider a one pay lease, which would allow them the opportunity to have one payment, to have a cash reserve, and to be able to upgrade their vehicle every two – three years without suffering all the depreciation.
A professionally trained business manager can be instrumental in securing the financing, and thereby controlling the automotive buying future of that customer. After considering all the pros and cons, there simply is no better place for vehicle financing than through the dealership.