The “New” breed of special finance customers
In my training, I always talk to special finance personnel about not stereotyping special finance customers. I stress for them to always remember at least one customer that they helped get financing when they were in a bad spot in their lives that was due to circumstances beyond their control. It helps to make the job so much more rewarding.
My one stabilizing customer was one of my first customers back in 1993. Their credit was perfect except they had filed bankruptcy. Special finance was in its infant stages and bankruptcies were not as easy to get around as they are today. I sat down with them and asked them what happened. They told me their daughter was born with a hole in her heart and almost overnight they had a half million in medical bills and the hospital was trying to sue them. It gave me great personal satisfaction to help these people purchase a tan Dodge Caravan.
Unfortunately, this was the minority of the customers that I helped get financing over the years and it was pretty easy to label the majority as irresponsible or something to that effect in regards to the reason they have credit issues; however, that will be changing in the very near future.
With unemployment astronomically high, foreclosures happening at an alarming rate, and the general overall recession in the economy that has hampered this country, the demographics of a special finance customer is changing greatly. Every dealership in the country is going to need to be prepared to handle the new breed of special finance customer.
Why? Because the customers that are used to buying high line vehicles are not going to all of a sudden start driving starter transportation. A lot of these people will be coming out of leases and needing new cars but now they have credit issues. High line dealers have been creating this flow of repeat customers for years by recommending leasing so they have to buy every couple of years. What are they going to do with a customer with credit issues that wants to lease a new BMW? How are they going to tell this customer that got 5% APR on their last auto loan that their rate is now 18%?
It can be done but it has to be done with a lot of sensitivity. Keep in mind that most people are embarrassed of having credit problems especially someone who has never had credit issues! These customers are going to ask questions and you need to be prepared to handle them. If done well, you will have customers for life but done wrong, you will lose out on this sale and future sales when this customer’s credit improves.
Now is not the time to shy away from special finance but to embrace it. A lot of lenders are getting more aggressive in their buying and this trend will continue. A lender that sponsors my training seminars (ACC) recently launched a foreclosure program. This is an indication where special finance is headed and the only question is are you ready?
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I think it is starting over but will never be the same. As more lenders pop up, there will be more competition that will lead to lenders buying more aggressively; however, the days of the Wells Fargo programs with 145% +++ advance are gone.
I met a dealer at NADA this year from South Africa. He told me their banking industry went through the same thing a couple of years ago and rebounded better than ever. They shifted their focus to affordability which has always been a fundamental practice of successful BHPH dealers. You can see the new programs that lenders are rolling out have lower PTI’s and DTI’s and realize that is where our lenders have shifted their focus as well.
Special finance is not going anywhere. It is just being redefined.