Build a New Special Finance Office Ground Up: Pt 3
The DealerStrong Team Chronicles the Steps to Building a New Special Finance Office.
Third in a six-part series of articles.
While the names and locations are being changed to protect the company’s privacy, this is the third of six articles documenting the process being used to develop a startup Special Finance office inside an already successful independent dealership, located on the fringe of one of the major metro markets in the United States. It will detail the plan, the strategies, the successes and the challenges encountered over a six month period, with the end goal of the new department reaching a monthly sales volume of 70 deals at over $230,000 total gross by the end of that period.
End of Month Two and Halfway There
Month number two represented the first month where we were fully staffed, trained and operational for the entire calendar month. We were excited to say that we beat our monthly goal in units and gross profit. While we patted ourselves on the back for that accomplishment, we knew there was so much more opportunity in front of us. The following is an update of where we sat at the end of month two.
This is a good news/bad news story. The bad news is that without a doubt, we can say this is the toughest market we have ever experienced to hire sales people and special finance office managers. We expected to have on board three solid customer service representatives by the first week of the first month. It took us up to the last week of the second month to actually achieve that goal. During that time we must have interviewed two dozen people, hired ten, and only had a handful even report for work. During the same time, the dealership tried unsuccessfully to hire a prime finance manager and failed as well. I even started looking online to see if there was some red flag we were missing about the dealership. Not the case. Just a tough market!
The good news is that after two months both the BDC and the sales team are finally fully staffed and they seem to have gelled into a good crew. We now have a very solid management team with our Special Finance Office director as well as a very experienced credit manager. The two have begun to develop chemistry and adapt to their roles allowing daily training of our sales team, which surprisingly has taken longer to build than expected.
The BDC has been going through the typical ups and downs of a start-up BDC. They initially started working the shared leads from Focus, which we felt would be a great place to start (practice/live role play) given how inexpensive they are, and that they are people who are genuinely interested in buying a vehicle. The team quickly learned to set appointments, but the appointment-show rate was slim, again, nothing unusual – especially in a competitive market. By the end of the month, they were not only getting them to show, but buy. Total cost per sale was $243 per car, which was very affordable – and great training.
The best news was the conversion rate for people that made it into the showroom. While the Red Team (the Special Finance team) worked with just 74 people in the showroom, they delivered 37 for an amazing 50% closing ratio (as a note, we pulled more bureaus and could have had more showroom traffic, however, they were from well over 50 miles away and the decision was made to not invite anyone that did not have the income or verifiable job required to make a deal). The team worked well together selecting proper inventory to match with finance companies and in the end, averaged $3,600.34 per unit retailed – 20% over our target deal gross.
During the second month, the Red Team started showing adeptness at working with ProMax for everything. From inventory, finance company selection, CRM and follow-up to reporting, they really came into their own. The automated follow-up protocols that Wendy Reeves set up for scheduled and missed appointments helped improve the show rate as the month rolled on.
Additionally, the management team really started to click with how to use the reports to measure, manage and train/coach the sales and BDC teams to continually improve their performance.
After getting our feet wet in the first month with third party leads (Focus, Inc. shared leads) we tapped the “Go” button with some broadcast advertising as we launched our Nation’s Premier program on the 15th of the month. We did a two week test with broadcast television for just $10,000. The results were very positive, with calls and walk-ins generated from it running under $50 per call, and sales tied to it at about $540 per unit sold. Considering it was a new trade name and a small buy, we were certainly excited and will push the “Go” button about twice as hard in the next month.
The biggest disappointment in marketing came with one third party lead provider that I have had a very long relationship with. They were confident that they could produce 135 leads within a 15 mile radius that would be within certain credit score parameters and income. Unfortunately, that did not pan out. We did receive about half of that, 67, but with disastrous results. Of the 67, the BDC was only able to appoint 3 and no one showed.
The overwhelming theme from the customers was that they had not applied for an auto loan. To the provider’s credit, they had their own BDC call the entire customer list with the same results, indeed validating they were worthless leads. To their credit (and to no surprise) they did not charge for the leads. Again, good news/bad news. While we didn’t pay for anything, we were definitely counting on those leads to be a source for another 10 – 13 sales, which without them, did not occur.
Finance Companies and Credit Tiers
For the month, we sold
|Credit Score Tier||# of Units|
|No Credit Score||5|
|Tier 4 SF Credit||1|
|Tier 3 SF Credit||5|
|Tier 2 SF Credit||7|
|Tier 1 SF Credit||19|
Only the most difficult tier, Special Finance Tier 4, was underserved. Surprisingly, we cashed contracts with 11 different finance sources. Capital One Auto Finance led the way with 8 deals, followed by 7 with AmeriCredit and 6 with Wells Fargo. We used all resources, however, as we had three each with Ally, Exeter and United Auto Credit, and the mix also included Pronto, Sierra, Gateway One, CPS and Honor. All in all, a great job was done by the credit team.
While we had sufficient special finance office inventory, and Clay Rodgers and Aaron Mathews certainly were able to source needed inventory well, the biggest challenge they discovered was having the proper process to get the units through the shop on a timely and cost affordable basis. Some units had to sit for three weeks before getting into service just for an inspection. This was addressed and new procedures were put in place for the buyers and service department to address this issue.
On to Month Number Three
With glowing results, you might think that this project is going to be a piece of cake. We know better. As we head into the next month, we are focused squarely on continually hiring and upgrading our talent, using the reports and tools to our avail to better manage and train, and of course, trying to create more showroom traffic.
We know that even if our conversion percentage were to drop to 33%, if we can put 200 people into the showroom, that we would nearly be at our goal of 70 Special Finance units per month. Of course, it doesn’t work that way. Certainly if that were to occur, we would outgrow our systems and processes for inventory sourcing and very likely funding.
Our goal at the onset for the third month was 40 units and $120,000 in total gross profit. While the sales growth is minimal over actual, and the gross goal would be a step backwards, we are really focused on the bottom line of the special finance office and department. The department cleared nearly $28,000 after paying all associated expenses (including personnel). So while we are certainly looking to grow the special finance office, we will certainly be bottom line focused as we progress to the halfway point of the project.