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CID = ACV + reconditioning + warranty cost (optional) + tax and fees – down payment

Why is this number so important? First, it is your exposure! It is the amount you stand to lose if this customer is a first pay default. What is your comfort level?

Next, you must plan your cash needed accordingly when you start your operation. For example, if you decide you will have a maximum CID of $4000 and want to sell 20 cars a month, you know you need $80,000. It takes about 18 months before your operation will start to fund itself so it is recommended you have at least this many months in cash on hand to start.

CID $4000 x sales 20 x months 18 = 1,440,000 cash needed in this scenario

The same things if you want to back into a budget. Let’s say you have $1 million in cash to start and you decide you are comfortable with a CID of $3000. Accepting the fact that you will need 18 months of cash on hand to start, this means you can sell 18.5 cars per month to stay on budget.

Cash for start up $1,000,000 / CID $3000 / months 18 = 18.5 cars sold per month to stay on budget

CID is fundament to your underwriting procedures. Many dealers in BHPH don’t require down payment and do very well but the need for cash down is often dictated by your CID. If you’re total AVC plus taxes and fees totals more than your maximum CID, then require your customer to put the difference down out of their pocket.

ACV + tax and fees – ($) cash down required = max CID

Don’t get emotional about a sale in BHPH. Once you determine your CID, stick to it. Work with customers if they don’t have the cash but don’t waiver from your CID. This is the quickest way to get your business in trouble in BHPH. Create a lay away plan if people say they can have the rest of the cash in a week or so but don’t contract them. Park the car out back and give them seven days to come up with the remainder.

Stick to your guns and BHPH will add greatly to your bottom line! Can you think of any other uses for CID?

Over the last two years, a tremendous number of formerly prime credit customers have been adversely affected by the shaky economic status of our country. You need not look any further than the United States’ average credit score, which is down almost 50 points from where it was only four years ago. This will cause a dramatic shift in our industry and it will change the way many dealers handle their customers.

Consider the example of a customer whose last two vehicles were luxury cars but recently went through a foreclosure. Yes, he’s a special finance customer, but his needs were shaped by better financial times. He’s not likely to call an 800 number and submit all of his personal information. He will also definitely balk at an 18 percent annual percentage rate (APR). He also is not likely to develop a taste for the traditional special finance vehicle. In fact, he will probably look for the type of vehicle he’s accustomed to — or better!

Every dealership in the country must be prepared to assist this new type of credit-challenged customer. Making that adaptation will be critical to minimizing the number of opportunities your dealership will miss due to credit issues.

Credit Counselors Needed

Now, don’t get me wrong, I’m not saying you should immediately adopt the traditional subprime process and demand a credit application for every customer who walks through your door. You do, however, need to have a plan in place for this now-common scenario of a customer who drops in, goes through the entire process with your top salesman, commits to the deal and then says, “Is a foreclosure a bad thing when it comes to buying a car?” What now, right?

First, remember that your customer is swimming in the subprime credit pool for the first time. That means he’s likely to be an informed buyer who has never had a problem obtaining financing. The idea of being turned down is foreign to him and he expects to be treated like he always has been. How do you handle this combustible situation? Become a therapist to your customer. Here are some pointers:

• Diffuse the Situation: Your customer is not going to understand why qualifying for an auto loan is suddenly such a big deal. Take the time to walk customers through their credit report and explain what prospective lenders will see.

• Share Resources: Purchase or create a resource book that shows customers tips on how to rebuild their credit. Spending an extra few minutes with a customer will make a big difference.

• Verify Accuracy: Make sure the credit issues belong to your customer. The Federal Trade Commission estimates that as many as 9 million Americans fall victim to some form of identity theft each year. In your resource book, have templates of dispute letters that you can give customers, as well as contact information for all three major credit bureaus.

•  Listen and Learn: There is a story behind every derogatory item on the bureau. Find out what happened and ask what they are doing to resolve their situation.

Lender Relations

Once the therapy session is over, you will need to have lenders lined up to buy the contract. How is your relationship with your captive lender? Which of your noncaptives are most likely to buy deeper for you? For some dealers, it’s a local or regional bank or credit union. Whoever it is, you need to make sure this relationship is strong!

The days of bank reps taking us to a nice steak lunch are, for the most part, over. So why not initiate the lunch date yourself? Call your buyers up and ask them to lunch. I dare say that most dealers will reimburse you for a lunch with your No. 1 lender.

Remember, this is a relationship and you need to treat it like one. Wine and dine if necessary, listen when possible, and always be there for support. Have you ever asked your top lender what your delinquency rate is? How many first-pay defaults you have had? Those questions are traditionally raised with strictly prime credit outlets, but ask those questions of your buyers some time. They will appreciate you taking notice because these are factors that affect their paychecks.

And if you haven’t heard, rehashing is back! Rehashing deals was one of my favorite duties, as nothing gets the blood flowing like being told “No” when you know there is a “Yes” to be found. In my own F&I days, my motto was always, “No” means “Not yet.”

Going back to the scenario previously discussed, let’s say you have learned all you can about your customer’s situation, but your lender turns the deal down. No car guy worth his salt will take “No” for an answer if he believes in his customer. You have to fight for your customers — remember, they’re writing your paychecks. Take a stand, relate their story and tell it in such a compelling manner that your lender has no choice but to approve the deal.

Dramatics aside, there will be times when the lender’s answer is still negative. Now, what I am going to say here may hurt a little — and, in all honesty, it hurts me a little just typing it — but you may have to send the customer to their own bank or credit union. No finance manager wants to do that, but sometimes it’s the only viable option.

I was always taught that my No. 1 goal as a finance manager was to make sure the customer buys the car. I thought for sure it would have been to sell a service contract on every deal, but I was wrong. You’re in charge of protecting the interest of your customer and your dealership, even if it occasionally hurts your profit per retail unit.

After thoroughly studying the credit bureau, I am sure you will notice some places the customer has done a significant amount of business. Get them on the phone, blow the dust off the fax machine and send them a buyer’s order.

Ralph Waldo Emerson once said, “Nothing great was ever accomplished without enthusiasm.” In the finance office, I like to say, “Nothing great was ever accomplished without taking a chance.” You have already been told “No,” so what’s the worst that can happen? If you spend a little extra time working for your customer, it might just pay off.

Sidebar: Do You Know How to Read a Credit Bureau?

It may seem like a silly question, but it is absolutely imperative that you can read a credit bureau like your morning sports page. I am not talking about seeing a credit score and making a decision. I mean truly understanding all the timelines and codes in a credit bureau. Call your bureau rep and ask him or her to visit your dealership to train you on how to read a bureau. This will be free, they will be happy to do it and you might learn something. Get your entire management team on the same education level in this regard so you can all be experts.

Rob Hagen is the founder of Houston-based SpecialFinanceCoach.com and Next Generation Dealer Services. He can be reached at Rob@SpecialFinanceCoach.com.

At Next Generation Dealer Services we strive to be the forefront of automotive social media by always bringing the most robust social media information to the table. This FREE webinar will be no different, it’s focus will be on the fleet department and how to use B2B social media tactics to connect with and ultimately sell to future customers.

In this 1 hour webinar learn:

* How to build an infrastructure to capture leads.
* Why developing a content creation strategy will build authority and rapport.
* How to track your effectiveness and gauge traffic.
* Why creating platform specific landing pages will help you to close the deal.
* How LinkedIn can save your professional life.
* And a whole lot more!

Related posts:

1. Webinar: B2B Social Media – Getting The Fleet Department Involved
2. [Webinar Recording] The New Rules Of Automotive Social Media Engagement – The 20-20-60 Rule
3. Webinar: Blogging 101, An Auto Dealers Guide To Creating Authority

Blogging 101: An Auto Dealers Guide To Creating Social Media Authority – Presentation Transcript

Related posts:

1. [Webinar Recording] Blogging 101: An Auto Dealers Guide To Creating Influence
2. Webinar: Blogging 101, An Auto Dealers Guide To Creating Authority
3. [Slide Deck] Developing A Successful Automotive Social Media Strategy

If you would like to be alerted about future blog posts just fill in the form below and leave the rest to me. Don’t worry I HATE spam as much as you do.

Related posts:

1. [Slide Deck] Blogging 101: An Auto Dealers Guide To Creating Social Media Influence
2. Webinar: Blogging 101, An Auto Dealers Guide To Creating Authority
3. [Webinar Recording] The New Rules Of Automotive Social Media Engagement – The 20-20-60 Rule

Erik Qualman, author of Socialnomics, said “The ROI on social media is that your business will still exist in 5 years.”

Harsh I know but social media encompasses several major topics that every dealership has to focus on to ensure their continued success including reputation management, community awareness, and brand development. All of these are affected by every profit source in a dealership and steer dealers towards the ultimate goal: Create customers that create customers.

What is social media? It is an old business tool used in a new way. It is networking squared! Social media allows you to network to the masses and create a much large scope of influence.

A couple words of caution that your social media efforts should not be an extension of your offline advertising. Also, do not be a shameless self promoter or you will be viewed as spam.

Here are some tips to put social media to work for you in your dealership.

Finance department

Sales of F&I products have the added challenge in that a customer cannot touch of feel them and people in general hate to spend money on insurance. Having spent 15 years in “the box”, I have tried numerous methods to try to develop a mental justification to purchase VSC and other backend products.

Create a short video showing your customers the warranty claim process and let them see how easy it is. In a video, show a relatively new vehicle coming in for a repair since most customers think their vehicles won’t break. End the video by asking the customer if they think their vehicle is 99% perfect since it is a machine and machines do break from time to time.

Your business manager can then tell a customer this word track: “We believe your new vehicle is 99% perfect as well but with over 5000 moving parts in it, that means 5 things will break over its lifetime. You saw how easy the claim process was. Isn’t that easier than paying for it out of your own pocket?”

Special finance department

Special finance customers always have the fear of being turned down and embarrassed. Setup a blog site and write blogs about credit and what lenders look for to approve loans. Blogs build authority. The more information you provide, the more people will look to you as the expert on a subject.

Also, this is a great area to get testimonials and you can include them in your blogs such as “This week at ABC Auto Loans (whatever you call your special finance department), Tom H. came in after being turned down by several other dealerships and we managed to get him approved for a new family car.” Then have a quick quote from your customer. Immediately people reading your blog will start to have more trust in you and your ability to get them approved.

Service department

Have you ever sponsored a baseball or softball team in your community? What usually happened? You wrote a check and got a picture at the end of the season that you proudly hung in your service department for everyone visiting your dealership to see.

Well, most everyone that is visiting your dealership already likes you. Add social media to this scenario and create incredible community awareness. Ask the coach to take a couple of pictures per game and send them to you with a quick game recap. Post the pictures and recap on your Facebook page and congratulate the heroes of the game. You will have proud parents engaging you and thanking you for the kind words. Plus, they will be bragging to all their friends and sharing the information.

Body shop

Do your customers even know you have one? Every new car delivery has salesman walk their customers through service. Why not your body shop too? Wouldn’t it make sense that a customer would prefer to have their vehicle fixed in a place they know especially since their insurance is paying for it.

Create a slide show that shows before and after pictures and place it on your website and all your social networks. Include in their pictures showing if you are a for instance a “Geico Certified” dealer.

A lot about social media is not revolutionary such as engaging your community and making friends but it does take execution. When done properly, it can pay big dividends at the end of each month at the bottom of your monthly statements.

As Rob Hagen Likes To Say, It’s Not Just About Sales, It’s About The Bottom Line!

At Next Generation Dealer Services we strive to be the forefront of automotive social media by always bringing the most robust social media information to the table. This FREE webinar will be no different, it’s focus will be on the fleet department and how to use B2B social media tactics to connect with and ultimately sell to future customers.

In this 1 hour webinar learn:

• How to build an infrastructure to capture leads.
• Why developing a content creation strategy will build authority and  rapport.
• How to track your effectiveness and gauge traffic.
• Why creating platform specific landing pages will help you to close the deal.
• How LinkedIn can save your professional life.
• And a whole lot more!

In this webinar I will share with you HOW to choose the right social media tools, where to find specific types of businesses and how to engage them without coming across as being pushy. Space is limited so register today!

When: 6-18-2010 at 9 AM Pacific Time

10Am Mountain
11AM Central
12PM Eastern

Related posts:

1. [Recorded Webinar] B2B Automotive Social Media – Getting The Fleet Department Involved
2. Webinar: Blogging 101, An Auto Dealers Guide To Creating Authority
3. FREE Webinar: Developing A Successful Social Marketing Strategy