Articles: Marketing & Sales

Subprime: Are you IN or OUT?

Richard J. LaLonde is the Founder, President and Chief Executive Officer of Auto Credit Express (ACE), a company specializing in Sub Prime since 1992. ACE offers their dealership partners a wide array of products to streamline the Sub Prime process; from the turn key outsourcing of their Sub Prime operations, to an easy to use online selling system. Additionally, ACE offers entry level and advanced sub prime sales and finance training and special finance lead generation. Mr. LaLonde started in the car business in 1981 by serving large dealer groups in public accounting. He then went on to work as a Comptroller for a mega dealer and as a General Manager for Agency Rent-A-Car dealerships. Rich outsold other Agency regions three to one. He recognized the potential Sub Prime displayed and decided to help dealers get into the Sub Prime business by starting his own company. He continues to be the nations leading expert in Sub Prime. Mr. LaLonde is a CPA and received his BBA from Western Michigan University.

In this year of political campaigns the theme that resonates from both parties is one of change. I have served the subprime industry as a consultant for over fifteen years and I can tell you, without hesitation, that it is time for change. In fact the Republicans have a maverick running for president. It is also time for those dealers not doing subprime to be mavericks, themselves, and chart a new course for their business.

For those dealers who are willing to become students of the subprime business and make a minor investment in the proper infrastructure, process and people which will insure their long term success, there has never been a better opportunity than today.

WHAT OPPORTUNITY?

The pool of subprime customers has never been bigger- With the subprime mortgage mess still playing out, with debt levels at record highs, and with record home foreclosures and unemployment rising, new consumers are entering the subprime market in record numbers. This trend will continue throughout our lifetimes and, therefore, not decline any time soon.

The pool of qualified Dealers to serve them is getting smaller- Dealers are exiting the subprime business in record numbers. Why, you might ask? Well there are a number of reasons:

• The subprime "GURU" effect - In this scenario, a dealer would hire a subprime "guru", buy a few leads or do a direct mail campaign, and deliver 10-15 deals a month. The dealer and GM generally didn't spend a lot of time understanding what the "guru" was doing or how this individual was conducting their subprime business. If the guru had some success, chances are better than 50/50 (just like Vegas) that there was someone within the dealer's management staff that didn't like it and made it difficult for the guru to continue to be successful. The dealer stopped advertising, or buying the right inventory. The next thing you know the guru was on his way to that same dealer's competitor. Can you blame him? With no real traffic or an opportunity to make a pay check he had no choice but to leave.
• "GURU" Funding Problems - This can happen if the dealer paid the guru on delivered cars and not funded contracts. Typically, in this situation, the guru gets ahead of the dealer by 2-3 months. When questions finally start getting asked about the funding, the guru is gone-either before you caught him or because you fired him. And by the way, there is nothing that will sour someone's taste for sub prime more than being caught holding a bag of unfunded contracts.
• "GURU" Fraud - From "power booking" cars whose moon roofs just happened to close up by the time they arrived at the auction (after being repossessed) to bogeying pay stubs or the down payment; when your guru is committing fraud and no one is watching you will have problems. We have seen dealers get asked for tens of thousands of dollars (a few for over $100,000) as restitution for these types of issues. This can certainly turn someone away from the subprime business.
• Lenders are Tightening Up - No question about it. Those dealers who have the right processes in place and the right people in the store are not out of business. Lenders still have money to lend and a smaller dealer base to lend it through - sounds like opportunity to me.

Whatever the scenario, you are out of the sub prime business because you relied on that one person, while a local competitor who has the right process in place just got more profitable. There is no one to blame for this but you. As a dealer, you have to "inspect what you expect" and, as a result your employees will "respect what you inspect".

Net Profit- Dealers who can attain an average of Twenty Five (25) additional deals per month will realize a departmental profit in excess of $400,000 per year.


Customers for life - Think about the opportunity you are giving these customers to re-establish their credit. Treat them with respect and kindness and you will begin to build a strong customer base that will be loyal and send you a tremendous amount of referrals.

Motivated Sales People - There is nothing worse for a sales person than to work a deal for 2 or 3 hours only to find out that the customer can't get financed. Think for a moment of all the family and friends of your staff that buy cars elsewhere because you are not equipped to handle the financing? Would your salespeople like to be able to help the 40-plus percent of the buying public who have credit problems and make 20-30% more income each month? Of course they would.

It's time to confront the brutal facts:

• Sub prime is here to stay.
• If you want to be a top dealer you can't ignore over 40% of the buying public that has a sub prime credit rating.
• Now is the time to get in while others are running away.

The only real question left is: Are you in or are you out?

If you are in and want long term success in this market, the only real strategy is to change the culture of your entire store. By that, I mean sub prime needs to be integrated into your new and used sales departments and each member of the team needs to understand what they are responsible for.

Any successful big business understands the segregation of duties. Huge companies invest millions on internal audit departments to insure these polices are carried out. Would you allow your office manager to receipt in the money, write the checks, make the bank deposit and reconcile the bank account? Of course not! So why do so many dealers who try subprime believe they only need to hire a subprime manager? They allow this person to buy cars, book the cars, collect the stips, sign documents and send the package off to the lender. Talk about a recipe for disaster. The answer is that they are not willing to change their culture. The economic impact hasn't affected them enough to "rock the boat". They have heard from someone that they should put this person in an isolated office and let them do their own thing, after all these aren't real customers; this is just "incremental business". No it isn't. This is big business and it should be treated that way. You, your GM and the entire store needs to be involved.

Success in sub prime isn't dependant on any one person or any magical advertising campaign. To achieve long term success in subprime you must get your team aligned and get everyone involved. Think of it this way: When your service manager leaves, do you stop doing service? When your GSM leaves, do you stop selling cars? When your used car manager leaves, do you stop taking in trades? Of course not; you have built a culture and infrastructure that is not dependant on any one person. You need to do the same for sub prime.

Taking on this task is not easy; it takes a tremendous amount of work and a great deal of discipline. You will be tested along the way, but if you communicate effectively with your staff, if they are clear on the importance of their roles, and the impact it will have on the organization and themselves, it is possible to achieve long term success in sub prime.

In the next issue, we will begin to define the process, step by step, on how to integrate your departments and align the team with your sub prime goals.

Published in the F&I Management & Technology Magazine