Lenders Tightening Up - More Repos!

Lenders Tightening Up – More Repos!

…time to reinforce basic skills and practices

A few days ago, a dealer friend and I were discussing how much lending practices have changed. They’re not buying as deep as they did six months ago. And repos are on the rise.

According to a recent news story, “A perfect economic storm of inflation, soaring gas prices and the unintended consequences of the federal pandemic relief programs is closing in on many car owners.” And this scenario is affecting prime and subprime customers alike.

The industry is feeling the squeeze. Vehicle pricing is at an all-time high and lenders are tightening deal standards.

More importantly, a lack of skills and experience at the desk, particularly when it comes to how lenders buy, is negatively impacting sales.

A cautionary tale…

Last week, I was consulting for a fairly large volume store. I start my process by doing a deal analysis, sitting at the sales desk, and watching how deals come together. In this store, customers seemed happy and salespeople were busy closing deals.

We know the sales desk is the hub – where profits come together. I see the salesperson take his deal to the desk and tell the sales manager, Joe, that his customer doesn’t have the best credit. It seems the customer had some credit challenges in the past but managed to get caught up. Also, the customer recently started a new job making $5,000 per month but was an independent contractor for two years prior. He tells Joe he sent the application over for processing.

Joe submits the application to several lenders at face value without verifying the information. He goes back to penciling the worksheet and tells the salesperson to present the numbers to the customer. The salesperson returns to the desk and tells Joe the payments are too high. The customer needs a longer term. Can they give the customer a better rate? With a click of a mouse, Joe extends the term to 76 months, reduces the rate, and cuts the payment.

It's a perfect storm about ready to break! Incredibly, it happens all the time.

Joe submits the application to several lenders and runs with the best call. He’s thrilled he's got a great lender call and the F&I manager will be as well. The customer is happy they got the payment they wanted and the salesperson is overjoyed. He loves working his deals with Joe!

The salesperson hands the deal to the F&I manager and says, “Here you go, we're selling cars today!” The F&I manager replies, “Just bring the customer into the office and I’ll do my magic!”

Now the F&I manager is ecstatic! He sold a VSC, maintenance, and GAP! All is going as planned until the F&I manager finally shuffles through the paperwork, including the callback, to be sure he has everything needed for funding.

He notices on the callback there’s a stip for Proof of Income! Of course, he immediately asks the customer for proof of income, luckily the customer hasn't taken delivery of the vehicle yet, only to find out the customer started his new job just three days ago! His 1099 will only prove a net total earning of $1,500 per month since he wrote off all his expenses for tax purposes. Everything comes to a screeching halt!?The happy deal is about to go sideways.

As it turned out, Joe was able to put the deal together, but not after cutting all the F&I products and $750 off the front. The F&I manager was able to get on the phone and work the deal with another lender that didn’t require proof of income.

There are two lessons here.

First, F&I needs to get involved early, meeting the customer on their terms at the salesperson desk. The F&I manager reviews the application to ensure it’s accurate and determines the reasons behind the slow pay history for a better lender approval.

F&I’s job is to protect the dealership assets. Sales and F&I must work in unison; it’s a team effort. Two heads are always better than one.

Second, know your lenders inside and out. A lender relationship is worth its weight in gold. Lender management is probably the most eroded skill set in the sales and F&I space today.

Many desk managers simply don’t know how their lenders buy. They don’t have a full grasp of the guidelines and may glaze over the LTV, not to mention what credit bureaus the lender uses to make a buying decision. They vary.

Lender reps don’t help matters, insisting the dealer submit the application no matter what – they don’t have a look to book! It’s as though the lenders prefer to keep the dealer in the dark, which likely costs dealers a fortune! In many cases, the manager doesn’t know the lender guidelines, is short-sighted, and simply takes the best call and runs with it.

Asking for additional money down or putting an extra $200 on the trade can make a world of difference between getting a conditional approval or a 100% approval with a great rate and term! It happens all the time.

So build better relationships! Get on the phone, call the lender, ask for more – three months, two months, or one month in term! Keep asking!

The excuse I hear today is that lenders don’t rehash because they all use internal scoring. Guess what? Ford Motor Credit had internal scoring 20 years ago, but that didn’t stop us from calling them back and asking for more.

Both of these processes – meeting customers early at the desk and lender management –cut time off each transaction, boost customer satisfaction and plug profit leaks.

Brush off the fairy dust

Managers, get back in the saddle and brush off the fairy dust, it’s time to get back to the real world! Work every deal. Cherry-picking deals won’t win you prizes and grow your loyal customer base!

Get your documentation in order. Understand the rules of engagement – and why dotting your i’s and crossing your t’s puts more deals on the books. Get involved earlier in the process and validate the application.

Make sure the customer is on the right vehicle they qualify for the first time. And know your lenders so you can capitalize on every deal!

Coming in the next newsletter…

Did you know online lenders offer vehicle owners refinancing options, as do some insurance companies? These online providers can help cut back on the repos. Great for the consumer, but should auto dealers be alarmed? Chargebacks are on the rise; auto dealers you have options!

Don’t miss my webinar on this trending topic

?– Refinancing Made Easy for Auto Dealers!

Chernek – with over 30 years in automotive retail and highly regarded for superior F&I consultation – now offers dealers the flexibility to streamline the refinancing process for the first time ever! Take back control! Keep your customers captive, reduce chargebacks, and sell more cars and products too! Be sure to attend the upcoming webinar, “Refinancing Made Easy for Auto Dealers” on August 30th at 1:00 PM EST.

For more details, visit ?REFI WEBINAR WITH BECKY CHERNEK! ?

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Dealer's schedule a 15-minute with Becky Chernek today!

Unparalleled Experience + Analytics + Gold-Standard Training = IMPACT

Chernek Consulting, founded in 2001, offers automotive dealers exceptional experience-based consultation for multipoint, multi-brand automotive groups to significantly impact performance. Rebecca Chernek has worked with industry leaders such as JM&A, AutoNation, NCM Institute, NCM 20 Groups, NADA 20 Groups, Mercedes Benz Financial Services, Sym-Tech Dealers Services, and more.

Rebecca’s comprehensive analysis identifies operational and team strengths and weaknesses. Her focus is on:

1) plugging profit leaks

2) getting the customer on the right car at the get-go

3) cultivating customers for life

4) digitizing processes for maximum efficiency and profit

It’s the little things you do that can make a big difference.

Rebecca gets the entire team on the same page, implementing processes that:

·???Meet customers on their terms – online to in-dealership,

·???Finalize the transaction in the F&I office with a single-point sales associate, hybrid or a dedicated F&I manager,

·???Get the paper off the floor – digitizing the entire workflow, making it easier and faster for the customer to buy a car.

·???Get the transaction right the first time out, improving customer satisfaction.?

Remove the obstacles to selling more cars – and achieving higher performance on cash, lease, and finance transactions!??

In addition to onsite consultation, Becky provides continuing education via her F&I On-Demand Virtual Pro platform, with optional video critiques and F&I manager performance monitoring. F&I On-Demand Virtual Pro topics include:

§?Digital Retailing/Online to In-Dealership

§?Digital Menu/eContracting RouteOne/Dealertrack

§?Product Sales/Product Knowledge

§?Compliance

§?Online Presentation/Offsite Delivery

§?Desking Practices/Presentations

§?Single-point/Hybrid F&I Approach

§?Funding/CIT

§?Lender Relationship/Rehash

§?Pay Plans

§?Process Implementation

"Remember. Every day some ordinary person does something extraordinary. Today it's your turn." ~Lou Holtz