Remember the days when selling subprime vehicles involved a guy and a desk at the end of the showroom? He might have been lucky and even got an office in an old trailer out back. Those were the days customers were thrilled to get an opportunity to buy anything we had and most dealerships were still saying, “We don’t want those customers in our showroom”.
Now fast forward to 2016. Today’s subprime customer is internet educated, price conscious, and expecting to get cars that in many cases are above $20,000. No longer is there a never ending stream of customers who will wait three days to find out if they are approved. In today’s market, dealers of all shape and size offer on-the-spot financing.
More dealers than ever before are getting back into subprime. An Acura dealer in Missouri recently told me that subprime makes up 20% of their business. Imagine someone saying that 20 years ago, or even just 5. Most people, even those in the car business, would find that stat hard to believe, but it’s true.
With all of the changes in technology within the industry, dealers have been forced to either change the way they do business or suffer the consequences. Those that have changed are thriving; some that have not are struggling. Today, there are 4 mistakes most dealers make when selling subprime vehicles:
The Sales Process
Easily the biggest challenge within any organization. The reason it is so tough is that the process of selling subprime vehicles we all learned is exactly the opposite of the needed change. Since the beginning we have been told, “Get the customer to drive it and everything else happens from there”.
The problem with this process is, 55% of the time you have shown the wrong car and killed the deal. At the very least, you cost yourself gross. Dealerships that have changed their sales process to allow for proper qualification prior to vehicle selection will outperform those that don’t every time. Some dealers choose to get into subprime; others are forced based on their market. No matter the reason, if you want to increase this business, your sales process will need to change.
Data
Many dealerships have no idea how many customers they actually see or speak to on a daily basis. In the past, there was little focus on the data. If we wanted to sell more cars, we spent more money or bought more inventory. Never once did we consider that maybe we just weren’t performing at an acceptable level. That type of self-analysis was nonexistent in the industry.
But thanks to the collection of data available through many of our CRM’s, we are able to gather a tremendous amount of useful information to conduct that analysis subjectively. Total leads, credit quality, and phone calls –just to name a few– were never really looked at prior to the last cycle within the industry. By paying more attention to data today, we can track closing rates and lead costs. This data provides great insight to the strengths and weaknesses of both the sales team and the advertising campaigns. If you are still spending money based on gut feeling and not actual performance, you need to start paying more attention to your data.
Finance Companies
Today, everyone can get approved, but this wasn’t always the case. For years there have been finance companies in the subprime market, but what they bought then compared to now, is nowhere near the same. In today’s world, anyone with an income can get a loan from someone. I am not suggesting they can buy anything they want, but if worked properly and landed on the right car with the right finance company, anyone can take delivery.
If your store is consistently getting customers in the door but unable to get them approved, you have a finance company issue. Make sure that every deal gets looked at by every available finance company. It may sound crazy, but often times someone at the dealership is pre-deciding that it’s not a deal. Also, make sure that you are submitting a buy-able deal structure. If the customer has an income of $2000 per month, they are not going to qualify for a $500 car payment. Dealers, you need to know your finance companies and know their programs.
Inventory
Remember when your subprime inventory was nothing more than the old trade-ins that were slated for wholesale? If you were a subprime manager, you probably had to arm wrestle the local wholesaler or used car manager to even have a chance to sell them. Rarely was there a car on the lot that booked well through NADA because 99% of all cars bought wholesale at the time used Black Book as a guide? I have heard countless used car managers and buyers tell me, “I can’t buy cars to fit those programs”, but the truth is YOU CAN! I will admit, it’s not as easy as it once was; the number of dealers now attempting to capture their fair share of the subprime market is much higher.
Successful dealers today do more than just buy cars and then sell them. They know when to buy them and how they are going to sell them. They also know to what type of buyer and through which types of finance companies. This gives them a significant advantage over their competition. They’ve learned how to identify hidden subprime gems and know when to put their hand down while bidding on a vehicle everyone else wants to buy.
Closing
The automotive business has changed and subprime has as well. Dealers have gotten in, and then get out, and now they are coming back in again. Although selling subprime vehicles has changed greatly, in some ways it’s still the same. Customers should still be treated fairly and dealers still want to make a fair profit. Take time to identify these four major elements of your operation to get your fair share of the subprime market.