There is no magic sauce to turning around a faltering subprime department and suddenly making it successful. While it doesn’t require a rocket scientist, your dealership has to be committed with the right personnel, processes, and lenders in place – none of which matters without the right inventory.
Setting Up a Subprime Department
Here at Auto Credit Express, we’ve been involved in the subprime arena for over 20 years. Over the course of those two-plus decades, we’ve had the opportunity to be personally involved with the success of hundreds of dealers in the subprime space. What we’ve learned is that there’s a common thread among dealerships that are successful.
No matter where they’re located, or how big or small they are, each exhibits the following traits:
- Dealer commitment – The dealer principal must be committed to taking the steps, however difficult they may be, to making the subprime department a success.
- The right personnel – Success in the subprime space means having the right people in place.
- A subprime process – Procedures must be put in place to track leads and follow prospects throughout the entire process, from meet and greet to delivery – with an emphasis on documents review and loan funding follow-up.
- Inventory – Without the right inventory, your subprime department is dead in the water.
Stocking Your Inventory for Subprime Success
You may believe that getting subprime prospects through your doors is the hard part, and, for dealers new to the space, it can be. But the fact of the matter is it’s even more critical that you stock the right inventory.
After all, even if you coax hundreds of these buyers to pay your store a visit, approvals mean nothing if you can’t offer them a vehicle that you can sell at a profit.
So, where do you start?
If you’re a typical dealership that currently lacks a subprime department, chances are that most of the units in your inventory don’t fit the profile. Here’s the profile:
Cars with a wholesale value of between $8,000 and $14,000 that you can buy $1,000 or more behind wholesale book – the further behind, the better off you are, since this spread helps you more than cover the fees charged by your lenders.
Keep in mind that this spread is very fluid and changes weekly. Target a 60-day or less turn, and sell off any inventory that sticks around longer, because as book value diminishes, so does profit potential. Track your sales and gross history to pinpoint those units with the best gross and turn, keeping seasonality in mind.
Where do you find these vehicles?
Unless you’re a mega-dealer, you typically aren't taking these cars in on trade. Your best bet is auction and program units. Look for used domestic vehicles, followed by the Korean brands and then the Japanese manufacturers, that structure best in that order. If your franchise brand still offers new subcompact and compact sedans, both may structure with some lenders if rebates are available.
- Avoid entry-level trims – Feature-rich models are more appealing and book better.
- Target automatic transmissions – Avoid manually-equipped models like the plague.
- Think sedans, not coupes – Four-door models appeal to a wider range of buyers.
Where to Find the Right Subprime Buyers
Once you’ve stocked the right inventory, the next step is to find the right buyers. At Auto Credit Express, we’ve been providing quality subprime leads to dealerships for more than 20 years.
In addition to leads that you can tailor to, among other attributes, area and credit score, we also offer additional services including bankruptcy mailers, new and used car leads through our partnership with CarsDirect Connect, and a dedicated BDC that will prepare and follow up on your prospects, freeing up your subprime department to do what it does best – close deals.
To find out how we can serve your store, give us a call at 888-535-2277, or fill out our online contact form and one of our knowledgeable sales professionals will be in touch.