(click the image to view the pdf)

Tweet This Post

(click the image to view the pdf)

Tweet This Post

By Laurie Kight

When it comes to the funding in auto finance, speed is still the name of the game. While dealers, lenders and consumers consistently list “fast funding” as a key driver of customer satisfaction, kicked contracts still hamper the deal process. Submitting a “clean” contract package is the number one thing dealers can do to lessen the time it takes to receive their funds from a lender.

Drive® dealers primarily submit applications for sub-prime consumers, which translates into multiple stips as part of the funding requirements. No doubt, stips are a hassle to gather, but they are an important part of the underwriting process because they help Drive better understand the risk of each applicant, and help predict future performance of the loan. Packages sent with missed or incomplete stips result in a funding delay. Understanding Drive’s requirements and reviewing a checklist prior to sending funding packages ensures that contracts can be funded as quickly as possible.

Top Five Ways to Improve Funding Time:

1. Review your Drive callback. Stips vary by program, so be sure you check the callback carefully and gather all stips.
2. Ensure all the required documents are in the package. This sounds simple, but it’s a frequent cause of delays. Documents that are often left out, but required include: the contract, odometer statement, Title documentation and insurance documentation.
3. List a valid employment verification number. Drive verifies employment on 100 percent of its deals. If the customer is contacted by Drive, it is important that they return the phone call immediately. Employment verifications are a leading cause of funding delays.
4. Provide a valid contact number for the applicant. Drive often conducts customer interviews prior to funding.
5. Send the correct number of references. Check your call-back for the number of references requested, as they vary by program level. It is also important to send in a deal as soon as it can be packaged. Drive, like most lenders, has an approval expiration date. After the approval window has closed, the deal process must start again from the beginning.

To Review the Status of Your Deals, Visit:

http://dealer.drivefinancial.com

Contact your Area Sales Manager for your username/password.

Send all Funding Packages to:

Overnight

Drive Financial Services

ECP Program Dept. 2039

284 State Route 72N

Reesville, OH 45166

Regular U.S. Postal Service

Drive Financial Services

Suite 2039

3268 State Route 73

South-Building 12

Wilmington, OH 45177

Call Your Funding Team With Questions

Team 1

800.417.0905

(GA, HI, IA, ID, KY, ME, NC, VA)

Team 2

800.417.0925

(AR, CT, IL, MD, MI, NH, PA, WA, WI)

Team 3

800.417.0929 (ALL STATES)

Team 5

800.417.0933 (TX)

Team 7

800.417.1055

(AK, CA, CO, KS, MA, MO, ND, NE,

NM, NV, OK, SD, TN, WY)

Team 8

866.552.4520

(FL, IN, MN, MS, NY, OH, OR)

Tweet This Post

By Andy Brown

Since their introduction several years ago, many manufacturers have adopted certified pre-owned vehicle (CPOV) programs as a means of boosting customer acquisition and retention. The loans feature lower interest rates than other pre-owned auto loans.

CPOV programs “get people through the door for entry-level cars, because they offer an attractive way to own a pre-owned car that customers might not have been able to afford as new cars,” says Melissa Cape, director of financial services at Leith Audi, in Cary, N.C. “Once they’ve enjoyed driving it for a while, it helps get them through the door for the next one. In two or three years, they’re going to be in a better financial situation. If you treated them well, they’ll be good to you.” She estimates that 45 percent of those who purchase certified pre-owned vehicles upgrade the next time around.

CPOV loans also allow finance and sales departments to coordinate marketing efforts. Manufacturers and dealers can track how much equity customers have and target them with special offers timed to their buying cycles. When Audi introduces a new vehicle, for example, dealerships can determine which customers will be more responsive to advertising based on their previous purchases and the status of their current loans, Cape says. The manufacturer and financial services companies will alert dealerships when loans are about to expire and encourage them to contact the owners. In another example, Leith Audi held a party to introduce a new car model. The manufacturers and dealers worked together to create a mailing list that identified potential customers based on their purchasing information.

Furthermore, the service department benefits: Even though CPOV loans offer warranties, customers who buy certified pre-owned cars often bring their vehicles to the dealership for routine maintenance. “CPOV loans tie you into the customer all the way around,” Cape says. “You buy the car and finance it through the dealers, and most of them will service it.”

The approval process is also expedited by favorable conditions for customers. “With certified pre-owned vehicle loans, sometimes you get more carry. For instance, let’s say someone has negative equity — they owe more on their car than it’s worth. On certified cars, you’ll get more approvals in that scenario than you would otherwise,” says Melissa Gautreaux, business manager at Boardwalk Audi, in Plano, Texas.

One disadvantage of CPOV loans is that they can affect short-term profits. Rates are set by the manufacturers and nationally advertised, so customers know what to expect, leaving finance managers with less opportunity to build in a higher margin. “The advantage of CPOV loans to the dealer is that they help move inventory,” says Ryan Meegan, finance manager at The Audi Exchange, in Highland Park, Ill., “but they can potentially affect the profit in a negative way. You can still make money, but for the most part they cap how much you can make.” Certified pre-owned cars typically come with warranties, so dealers find it challenging to sell customers on more protection. “If someone buys a certified car, it is almost impossible to sell them an extended service agreement,” Gautreaux says.

Tweet This Post

by Victoria Fierson

When you think of Subarus, you think of… insurance?

Perhaps soon, because Subaru America recently launched its own name brand Guaranteed Asset Protection insurance product called Subaru Equity Shield. The concept of a manufacturer offering its own nameplate GAP product is not new. In fact, Chrysler, Toyota and Honda offer similar products.

But Subaru’s fresh presence in the GAP market is a sign of the lengths the carmaker is going to remain competitive in the automotive world and sell ancillary services directly to its customers.

Subaru America first introduced the GAP product in April 2008. The product is available nationwide to dealers, except in Minnesota, Nevada, New York, Oregon and Texas, which prohibit the selling of any GAP. SES is available on new and used Subaru models that are financed, and it protects customers in the following ways:

• Pays all or most of the difference between an outstanding loan balance and the amount the primary insurance company will pay in the event of a total loss on the vehicle; and
• Covers the primary insurance deductible up to $1,000. Subaru added an incentive to their product to entice dealers to offer their product. SES includes an extra $1,000 credit toward the replacement Subaru purchased at the same dealership as the original. (The incentive is not available in all states.)

Subaru dealers who offer the SES program agree that the personalized GAP product indicates that Subaru is trying to create a more loyal customer base. “Dealers might be more inclined to use their own brand GAP policy to promote the company as a whole,” says Mike Brady, sales manager at Martin Subaru located in Sicklerville, N.J.

Brady offers SES GAP insurance at his dealership in addition to other GAP products. He says SES benefits Subaru customers and views the product as a very positive for Subaru because it allows the company to enter a new market. Some of the particulars of the Subaru GAP are a plus for consumers, specifically that it covers up to 150 percent of the vehicle’s MSRP over a lease length up to 84 months. Brady says other GAP products may cover less — around 130 to 135 percent of the MSRP.

A finance manager from a Subaru dealership in Morristown, N.J., which recently began to offer the SES insurance along with other GAP products, explains that SES and generic GAP insurance products might be similar, but the benefits of Subaru’s are real, but less tangible.

“You can gain more loyal customers if the dealer passes along the savings no matter how small,” says the dealer, who asked to remain anonymous. “Customers will see that as a sign of good faith, that their best interests are at heart.”

The SES, a relatively young product, has not gained wide dealer acceptance yet. Brady says some dealers may pass on SES because they are loyal to another GAP insurance company. “Whichever product the dealer thinks will generate the most profit is the one they will typically choose,” he says.

Some Subaru dealers say the benefits of SES are not enough for them to offer it. In fact, Richard Johnson, business manager at Premiere Subaru, Branford, Conn., had never heard of the SES when this reporter spoke with him. Johnson says he’ll stick with the GAP product he offers now, even though he granted that “the Subaru Equity Shield will likely make a customer feel like the process is truly a one-stop shop.”

“The customer will most likely opt to go along with whomever the dealer is using,” Johnson adds.

In the end, dealers say this or that GAP product does not motivate sales — incentives move sales. Vance Szabo, the finance director at Kerbeck Cadillac Pontiac Chevrolet, Inc., in Atlantic City, N.J., is one of those dealers. “Special financing incentives, such as low 2.9, 3.9 or 4.9 percent financing, would be much more appealing to customers,” he says. “Oh, I might win later on” incentives matter less to consumers.

Tweet This Post

by Mary Wisniewski

“Without floorplan financing, an auto dealership will close within a matter of days, triggering additional and further erosion of the local tax base”

— Dealer Trade Groups NADA, AIADA, & NAMAD in an open letter to President Obama

All the troubles at the carmakers might be secondary to another factor critical to the future of dealers: floorplan financing. Vehicle inventory lending, commonly known as floorplan financing, has never gone through a more challenging period than it has in 2009. Despite government assistance to banks and credit markets, floorplan financiers are charging more interest and putting ceilings on the amounts they lend as they face newfound credit chargeoffs. There are even some that have changed the terms for certain dealers or terminated a number of contracts.

All this has left many dealers reeling – some even shuttering their doors.

“The most frustrating part is dealers don’t have many options,”saysPeterWelch,presidentofCaliforniaNewCarDeal- ers Association (CNCDA), which represents more than 1,400 dealer members. “There are limited options of captive finance companies and banks that offer automotive floorplan lending. It is a sophisticated line of credit. Nobody is taking on new customers.”

Welch says the problem started to manifest itself in October/ November of last year. By the end of 2008, CNCDA saw 137 of its members close its doors. Of these, 108 dealers represented domestic cars. Welch says most of these dealers cited “Draconian action by floorplan,” as the reason for their closures. Further exasperating the floorplan problem is that lenders often lack liquidity themselves. Obtaining floorplan financing is acutely magnified for Chrysler and GM dealers, since their manufacturers have requested bailout money, Welch maintains. The National Auto Dealers Association (NADA), along with the American International Auto Dealers Association and the National Association of Minority Auto Dealers, sent a letter to President Obama in March requesting a refinement of the Term Asset-Backed Securities Loan Facility (TALF). The letter also requested initiatives that would restore retail and floorplan lending. So far the Treasury Department has made no changes to the TALF.

“Without floorplan financing, an auto dealership will close within a matter of days, triggering additional unemployment and further erosion of the local tax base,” the trade groups stated. The “biggest and most immediate threat” to dealers is the monthly floorplan curtailment payment requirements from lenders like GMAC Financial Services and Chrysler Financial, Welch says. These lender policies force a dealer to reduce part of the principal amount owing on a vehicle before the automobile is sold.

To address the dealers’ floorplan plight, the CNCDA is encouraging federal intervention and sent a letter, authored by Welch, to Treasury Secretary Timothy Geithner in February. In the letter Welch described several specific curtailment problems, including GMAC now requiring many of its dealers to pay monthly minimum principal reduction payments of “10% of the original balance on all new 2007 model year vehicles; 10% of the original balance on all new 2008 model year vehicles invoiced prior to September 1, 2007; and, 5% of the original balance on all new 2008 model year vehicles in inventory for more than 180 days.”

GMAC spokesman Mike Stoller says floorplan financing is a constant part of its business, and estimates that 75% of GM dealers receive floorplan loans from GMAC.

“With the significant reduction in auto sales, there are growing numbers of aged vehicles on dealer lots. Curtailments are required for GMAC to manage the risk of lending against this aged collateral,” according to a GMAC statement. However, the lender announced that during the month of April, it eliminated all dealer curtailment payments for aged inventory. Courtesy Chevrolet, a Phoenix, Ariz.-based dealership that has used GMAC “off and on” for the last 20 years, says GMAC did not always emphasize curtailments.

“Everyone is going through issues and situations,” says Scott Gruwell, sales manager. “GMAC had to do what they had to do to [remain] solvent. We understand that.”

This change could have been a “real big problem” for Courtesy Chevrolet if the dealership had not actively managed its used and new car inventory, says Gruwell.

Although many dealers are feeling the floorplan financing crunch, not all feel the pinch quite so severely. Consider Silver Spring, Md.-based Darcars Automotive Group. Its lenders — Toyota Financial Services, Chrysler Financial Services and Ford Credit — have not increased interest rates for floorplan loans at the Group’s 26 dealerships.

“They aren’t changing it for us,” says Tammy Darvish, vice president. “We have always been loyal to our captive. We send as much retail paper as they accept. The dealers who now are looking to captive financing will find difficulty,” Darvish says. Although Darcars is not yet dealing with fickle loan contracts, Darvish says floorplan loans could affect the Group’s future acquisition decisions.

“When we analyzed acquisitions, we didn’t think twice about floorplan,” she says. “If we made acquisitions within six to eight months, we would have to also consider floorplans.”

Survival Tips

• Petition for federal intervention by writing your House representative or senator. Request for efforts to make credit more readily available by expanding access to Small Business Administration lending as well as ensuring TALF assists floorplan lenders.
• Keep applying for floorplan financing. Do not take the mentality there is no financing available.
• Call NADA’s hotline for consulting advice. Request an appointment here: www.appointmentquest.com/provider/2080092931
• Actively manage used and new car inventory to avoid and/ or reduce curtailment fees

Tweet This Post

by Mary Wisniewski

Working in special finance for well over 10 years, Richard Snyder has seen his share of changes within the industry. The present, however, is shaping up to be one of the more tumultuous periods.

The finance manager at Allstar Auto Sales is witnessing an evolution of special financing; underwriting standards are tighter, lenders are lacking, rates are higher, compliance constraints abound, and more consumers need such financing.

“Those who could get 0% financing are now in special financing,” he says.

Snyder recalls a couple of customers with credit scores falling somewhere in the 620-to-640 range coming into the Marlborough, Mass.-based dealership. In better economic times, their credit scores would be considered good, explains Snyder, but these are no such times. To his surprise, and the consumers’ dismay, they could no longer qualify for an A-loan. When telling the consumers they fell into the subprime category, Snyder describes their reactions as emotionally charged.

“It is embarrassing, and they can’t swallow it,” he says. AllStar, like other dealerships across the nation, are facing a new era of special financing, with much tighter underwriting standards and a new breed of consumers. One of the most severe issues within the financing niche, however, is fluctuating car costs, say industry experts.

“Inventory is the biggest problem for special financing,” says Snyder. “Costs of vehicles have risen dramatically since February.” This price hike hit SUVs particularly hard. Snyder estimates that the price for Explorers has spiked $1,500 more than its price tag in February, for example. Consequently, some lenders are requiring higher down payments, he says, noting that consumers are unable to pay more.

Rob Hagen, chief executive officer at Special Finance Coach, shares Snyder’s top concern. Within the last six to nine months, varying values of vehicles is one of the biggest challenges for special financing, he says.

“This puts more and more pressure on dealers to get higher down payments,” Hagen says, explaining this request isa catch-22, as many consumers cannot afford to pay a higher lump sum upfront amid a recession.

Higher down payments aren’t the only price hike source.

“Rates have been steadily increasing,” Hagen says. “Money has been hard to come by….[Lenders] will charge more to make sure they are profitable.”

The fee depends on the consumer – the higher the credit score, the lower the fee, Dave Dutcher, finance manager at Michigan City, Ind.-based Harbor Chrysler Jeep Dodge, says. For example, Dutcher says a consumer with a credit score lower than 500 could generate a $1295 bank fee; with a better credit score, the fee could only be a few hundred.

“You can’t pass the bank fee on to the customer,” he says. “If the car is $15,000, and you charge $16,295 [$15,000 plus the $1,295 fee], it’s illegal.”

Jimmy Guerra, finance manager at Fiesta Auto Center, which works with lenders that require “all kinds” of stipulations, such as money down and references, he explains. “All banks want three to eight references,” Guerra says. “You can’t mess around with the lenders anymore. They do checks on everything now.”

At AllStar, however, lenders’ fees for special financing have stayed relatively consistent. What have recently changed are term lengths. Snyder explains lenders continue to shorten those up.

Growing Pains

As underwriting tightens, consumer demand for special financing grows. AllStar, for one, continues to see more and more consumers at its shop falling into this lending category. “Special finance is going to boom,” Snyder says.

He is certainly not alone observing this trend, either.

A year ago, a consumer with a 520 FICO score was forced to take a subprime loan, while today it can go to a consumer with a 560 FICO score, says Hagen fromSpecial Finance Coach. As consumers fall  into new categories, further education is required.

“We are going through the opposite training period with customers. I am talking to dealers about mental psyche with customers,” Hagen says, explaining this new breed is not used to higher fees that are associated with special financing, for example.

It’s “almost like holding their hand a little more,” Hagen says. “These former prime consumers are going through this for the first time.”

Tom Herald, managing partner at Benjamin Herald Associates, says special financing has been a “complete evolution over the last year” – particularly since last January – and it conjures up memories from the early 80s.

As more lenders and dealers got into special financing three or four years ago, the underwriting standards loosened up because business was lucrative, he says. “We, as an industry, had too loose of underwriting for mortgages,” Herald says. “Auto finance is the same way.”

Today, Herald estimates most dealers and lenders require $1,500 to $2,000 as down payments, where as last January,  payments hovered around a mere $500. These higher down payments stem from better underwriting, says Herald, explaining underwriting should only improve going forward. He says requirements are and will include: An equity investment that is 25% of the cost of the car, minimum; higher down payments; greater stability in the consumer’s job; and shorter payment plans, which will hit in the 36 month range.

The evolution of underwriting can be understood, in part, by an evolution of the new subprime customer. Before January 2009, Herald classified consumers into three typical lending groups:

1) prime consumers with 650 plus FICO scores;

2) subprime consumers fell into the 520 to 650 range; and

3) custom finance fell to consumers with 520 scores and below.

Since January, the categories split to:

1) 650 plus for the top category;

2) a 550 to 650 segment;

3) a 510 to 550 segment; and

4) the 510 and below segment.

“We unintentionally created a fourth segment,” says Herald, dubbing the 510 to 550 category as “no man’s land,” proliferated with consumers that would not traditionally be found there. “Many dealerships don’t have the wherewithal to sell to this [no man’s consumer],” he says, noting these consumers are suffocating with pride from having to downgrade their car expectations as well as from discovering they must pay significant equity payments.

“[Consumers] are being pushed into lower segments,” Herald says. “For a dealer to survive, it must master the no man’s land of special financing.”

At AllStar, this technique seems to be mastered for now. Snyder’s mantra is “if it works, stay with it.” For now, the dealership just awaits more business. “We want to be ready and don’t want to change processes that work,” says Snyder. “When the market changes, we will adapt to it.”

Tweet This Post

by Mary Wisniewski

Among the litany of woes auto dealerships are facing, financing vehicle inventory matters most.

Floorplan financiers are charging dealers more interest, putting ceilings on the amounts they lend and, most damagingly, cutting off dealers from financing. To troubleshoot these severe challenges, the U.S. Small Business Administration (SBA) launched the Dealer FloorPlan Pilot Initiative on July 1, which provides up to 75 percent government-guaranteed loans to finance inventory for dealerships. The pilot program will run until Sept. 30, 2010.

“In recent months, we’ve seen a dramatic decrease in the availability of credit for financing dealership inventories,” said SBA Administrator Karen G. Mills,in a statement. “We want to be a partner
for these small businesses and help ensure they have the resources they need to help keep their business open, save jobs and survive these tough economic times.”

However, the pilot program may be better as a theory than a reality, say industry insiders.

“While the SBA has a wonderful plan and program, few banks have shown the same excitement,” says Terry Burns, executive vice president of the Michigan Automobile Dealers Association. “We’re just waiting for banks to be excited.” The SBA pilot program provides arevolving line of credit to dealers — and other inventory that can be titled — letting dealerships borrow against retail inventory and obtain financing for retail goods. The dealer repays the debt as its inventory is sold, or it can borrow against the line of credit. The minimumloan is $500,000 and runs up to $2 million. “It’s a bigger deal to smaller, rural dealers who have floorplan issues,”

Scott Lambert, executive vice president at the Minnesota Automobile Dealers Association, says, crediting this limited appeal to the $2 million cap. “It won’t satisfy the needs of metro dealerships, but it’s definitely a life line for those [smaller, rural] dealerships.”

Glacier Subaru Nissan is one such dealer on the quest for floorplan financing. “Unfortunately, the banks, for the most part, aren’t willing to loan even when the government is willing to back it,” Sallie Lumley, one of its owners, says. “I’ve been looking for [floorplan financing] for about 18 months. I have been turned down by national and regional banks over and over again.”

Lumley says the pilot program looks good on paper, but in reality, it lacks the effectiveness to help her Montanabased dealership.

“Businesses all over the country are going under, not because they are notlegitimate or viable, but simply because it takes a line of credit in this day and age…especially for auto dealerships,” Lumley says, encouraging the SBA to be proactive and let dealers know which lenders are actually participating in this program.

Like Glacier Subaru Nissan, Madison, Wis.-based Mad City Sales, Inc. is also searching for floorplan financing, specifically seeking a better rate than its current inventory financing. New flooring lenders could help the dealership save 5 percent annually, says Pat McNamar, president. But so far, the efforts have produced minimal results, and McNamar isn’t banking on sweet relief from the SBA either.

“[The SBA program] seemed pretty neat from the get go, but working through it, I can’t find anything,” McNamar says. But this doesn’t mean Mad City, like other dealerships, will stop trying. Michigan’s SBA District Office, for one, has already received a number of inquiries about the program from dealers and lenders, says Al Cook, assistant district director for its lender relations division.

“I don’t know what to expect,” Cook says, explaining that he won’t know until the program runs for a few weeks. “Those lenders who don’t have experience in it might have some difficulty complying with the loans.”

“The program is flexible enough that if lenders are looking to use it, it can be used for most any kind of business,” he says. “Whether it’s enough remains to be seen.”

Tweet This Post