Archive for the ‘News’ Category

How Virtual Inventories can provide a real Advantage

written on July 14th, 2010 with no comments

By Peter Plazza

“You can’t take a salesperson from the front of the house and tell them they’re going to now sell cars online,” because the dynamics are so different. – John Foley, President, izmomedia

Dealers know that most customers research their car purchases online before buying. To some that may seem a risk since it adds more competition to the mix. But many dealers use the Web to lure and capture buyers by using virtual inventories.

John Kimel, who heads the Internet sales department at Lewis Motors in South Burlington, Vt., says he’s heard that as many as 95 percent of car buyers check online before they buy a car. Lewis Motors put a virtual inventory on its Web site five years ago, and kimel says it’s been a boon for business. “If you don’t have a good Web site and you’re not showing everything you need to be showing, such as inventory, specials, and your finance rates, you’re just telling people ‘Don’t bother shopping here,’” Kimel says.

Helping Small Dealerships Look Big

At the most basic level, virtual inventories simply show every car that’s available on a dealer’s lot, with automatic nightly updates from the Dealership Management System (DMS) as cars come in or are sold.

But virtual inventories can go further and show all makes and models that are available, with data updated directly from car manufacturers. These expanded inventories create an opportunity for small dealerships to gain customers, says Andy Flint, national sales executive with Tk Carsites, which creates Web sites with virtual inventories for dealerships.

“If somebody is on the Web site looking for a specific vehicle, if you don’t have it, they’re simply going to move on to the next Web site, so you’ve lost a potential client,” he says. By displaying all makes and models, many of which can be ordered, dealerships are not limited to selling whatever is currently on hand.

Virtual inventories help small dealerships compete with large dealerships without having to spend enormous amounts of money, says John Foley, publisher of izmomedia, which also builds virtual inventories and dealer Web sites.

“The first thing you have to do is get the dealer to realize that by creating an online store, he is actually opening up a new dealership. The difference is he doesn’t need land.”

“Hi, I’m Your Web Salesperson”

Foley explains that dealerships need to understand the difference between selling a car online and selling one in a showroom. “You can’t take a salesperson from the front of the house and tell them they’re going to now sell cars online,” because the dynamics are so different, he says. Izmo also offers sales training to help dealerships take advantage of Web-based opportunities.

Mark Heer, general sales manager at Sonnen Porsche in Mill Valley, Calif., says that having a virtual inventory helps sales. Sonnen’s virtual inventory has been active since the dealership opened in 2002.

Virtual inventories are also lead-generation tools. Flint says that individual Web products start at approximately $100 per month, with full packages ranging from several hundred to several thousand dollars monthly, depending on variables such as the number of brands being sold. Getting sites up and running does not require extensive technical know-how; ‘off the shelf’ software can be plugged into the DMS and running in three business days.

Online inventories help dealers generate leads and compete for customers who are researching their purchases online before they buy. “People’s buying habits have changed, and that means our selling habits have to change,” kimel says. Putting a virtual inventory in place can help dealerships make that transition.

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How to make sure your Lenders will be there when you need Them

written on July 14th, 2010 with no comments

By Bridget McCrea

The credit crisis is pressuring car dealers on a number of fronts, as they sell into an economic headwind while also facing concerns from customers related to escalating fuel prices. Many lenders, meanwhile, have cut back on their loan programs or tightened conditions for customers to qualify for loans, exacerbating what is already a perilous time for car dealers. It’s a far cry from just a few years ago, when lenders were much more lenient when it came to doling out cash for just about any type of large purchase.

The changes made by lenders have redrawn the map for dealer-lender relationships, forcing dealers to examine their current funding rosters and to send them looking for new sources. Borrowers with less-than-perfect credit have become particularly difficult to finance in recent months, thanks to fallout from the subprime mortgage market meltdown.

Take the auto dealer who, in searching for a lender, was recently told that the lender would only originate loans if the balance was under $8,000. “From the dealer’s perspective, that wasn’t something he could even build a business on,” says Payam Zamani, CEO and chairman of San Ramon, Calif.-based online financing marketplace Reply.com, and founder of Autoweb.com. Zamani expects more dealers to steer clear of subprime deals over the coming months — a trend that could present an opportunity for those dealers with solid, existing relationships with lenders that specialize in the subprime market.

Layoff Uncertainty

At Bill Gray Volvo in Pittsburgh, finance manager Lisa Schaum is concerned about a number of subprime lenders that have laid off thousands of dealer reps — a sign, she says, that fewer deals are being closed. And while her firm does much of its business with Volvo Finance, she says dealers in her area are reporting 25 or more application turndowns per month right now.

“I have people who are making $200,000 to $300,000 a year, and I can’t get them approved,” says Schaum. “Even income doesn’t seem to be able to balance out those credit challenges.” For now, she plans to stick with her current group of lenders, while keeping a close eye on those firms’ willingness and ability to finance deals. “No one has a crystal ball,” says Schaum, “but going forward, I think we’re all going to have to re-evaluate our lenders.”

That means going back to the drawing board and figuring out which lenders will be most likely to approve applications. Jeff Bennett, a former owner of Chevrolet and Toyota dealerships, and currently an assistant professor at Northwood University in Midland, Mich., says dealers need to go beyond the traditional “What is the lender going to do for me?” question, and instead consider what the lender should do for individual applicants.

So whereas approvals appeared to rain down from the heavens in the past, especially when using long-time lender-partners, these days lenders are looking more closely at the individual applicants, rather than the dealers. Mike Sheridan, president and founder of Los Angeles-based auto loan exchange Global Debt Network, says this shift warrants dealers to take a more diverse approach to lender evaluation, and to consider numerous options that can accommodate a wider range of buyers.

When assessing those lenders, Sheridan says dealers should look at how each has reacted in the past during both good and bad times. “Put lenders to the fire a bit,” he says. “Find out how good they are at supporting their customers and/or helping them find other relationships within their own organizations, or at outside entities.”

Lender due Diligence

Dealers must also talk to one another to figure out which lenders are most apt to approve applicants, Sheridan says. “Lenders complete due diligence on the individual dealers,” he says, “and I think dealers need to start doing the same with their lenders.” key points to discuss include the lender’s turndown record, application requirements, record of approving subprime loans, and record for deactivating dealers.

“Deactivation has become a very common practice during the past year, particularly for dealers that aren’t sending enough business to the lender,” says Sheridan. Deactivated dealers should immediately call the financing company to find out the reasons behind the decision, and then work to rectify the situation. If, for example, a lender pulls the plug because  it feels a dealer isn’t meeting expected deal levels, then it may be time for the latter to reassess just how important that lender is for the company, and whether the relationship is worth saving.

The Stress Factor

Sheridan says dealers should also look to open lines of communication with lenders and make them two-way streets, despite the fact that they haven’t histori- cally worked that way. “Go back and ask them what’s going on in their business, whether they’re tightening up lending standards and how those changes will affect internal underwriting practices,” says Sheridan. “With financial institutions under a tremendous amount of stress right now, the smart dealers are picking up the phone to find out what’s going on.”

Going forward, expect to see tighter lending practices forcing dealers to continue re-evaluating the financial institutions that their customers do business with. By taking proactive measures when working with new and prospective lenders — and when structuring the deals themselves — Sheridan says dealers can be better prepared to handle any changes that come their way. “This is going to force dealers to react quickly,” he says. “Hopefully the close relationships they have with their lenders will see them through, otherwise it could result in further funding problems.”

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Take the Long View with CPOV Loans

written on July 14th, 2010 with no comments

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.

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Hook, Sales & Sinker: Selling in tough times

written on July 14th, 2010 with no comments

By Geoff Williams

Attracting car buyers has never been more difficult, or more important. This dynamic has placed an increased emphasis on marketing, as dealers try to achieve higher returns on
shrinking budgets.

Regardless of the economic climate, the key to marketing cars remains constant. As Kevin Gallagher, who owns Utah Auto Sales in Lindon, Utah, says, “I call it the BSD factor. You have to give your customers Benefits, you have to have a little bit of Sizzle, and you have to be Different. If you don’t have the BSD factor, you’re not going to attract people.”

Marketing strategies don’t have to be all three things at once, but they better have at least one of these attributes. Some examples:

Look after your current customers

According to OneCommand.com, a marketing firm for auto dealerships, 89 percent of buyers will never return to your parking lot—not even for maintenance. Of those remaining 11 percent, 72 percent will eventually repurchase a car from that same dealership. The message: stay in touch. Whether the economy is up or down, failure to market to your existing customers is a mistake.

Be a resource

To your own customers, absolutely, but even to the general public, if possible. Eight years ago, Gallagher started publishing “The Used Car Buying Guide,” a 30-page magazine with articles and information about beating depreciation. He has printed 10,000 copies over the years, occasionally modifying the text, and he has built relationships with credit unions around the state, offering educational seminars on the premises to the institution’s customers.

Consider newer ways to get out your message

Six months ago, Mike Sage, owner of University City Nissan in Los Angeles, gravitated to Gumiyo, a specialist in automotive mobile marketing. Gumiyo, whose prices ranges from zero to approximately $150 to $200 per month, places a dealership’s inventory, vehicle photos and condition reports on mobile phone screens. Photos on a mobile phone aren’t for every dealership. “If we were another company, aimed at Generation X and Y, I would say that would be a focus that we would need to concentrate on,” says Paul Nogrady, new car sales manager at Porsche of The Main Line in Newtown Square, Penn.

Partner with organizations to attract new customers

Dan Quirk is the owner of eight dealerships in Massachusetts and recently set up a partnership with a nonprofit called Moore Center Services, which helps people with developmental disabilities. Quirk paid for a 1950s-style diner to be built on the premises of his Quirk Chevrolet Buick dealership. Moore Center Services staffs the eatery and keeps the profits.

Remember your community

Gallagher’s dealership has an annual complimentary barbecue that feeds approximately 1,500 people. It’s always a success because he joins forces with a local parade, which has a built-in crowd that is grateful for the food. “People need some benefit when they’re going to do business with you,” says Gallagher. “You’ve got to change with the times and give people something that they want or need.”

As guerrilla marketing guru Orvel Ray Wilson once said, “Customers buy for their reasons, not yours.”

Of course, that’s how it has always been, which should be comforting. The times and technology may be frequently changing, but the actual marketing in many ways doesn’t. “History repeats itself,” says Nogrady of Porsche of the Mainline in Newtown Sq., Pa. “When it comes to marketing a car dealership, you often have to stick to the tried-and-true to bring in customers. It’s how you handle those tried-and-true events, and where you’re spending your money in general — that’s what’s important.”

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What a new online auction means for new-car Sales

written on July 14th, 2010 with no comments

By LeAnne Graves

competition will play a large factor in this online auction territory. Dealer industry will have to remain competitive with rebates and incentives offered by manufacturers at dealerships.

Car dealers are most happy when their lots resemble revolving doors — old inventory going out and new cars coming in. Moving aging vehicles has always been a problem for new car dealers.

To combat this problem, dealers have turned to online auctions as a means of supplementing their other sales channels.

Used car dealers have many options, such as Manheim’s OVE.com auction or GMAC LLC’s SmartAuction. Now, new car dealers have a similar option with the June release of DealerIndustry.com LLC’s Dealer-to-Dealer New Car Auction.

Dealers offered mixed reviews about the new product — and about online auctions in general. Finance manager Scott Cramer says that aged units are not a significant problem for many dealers in the new car industry. At his lot, Grossinger Volvo in Lincolnwood, Ill., selling 2007 models is the top priority. However, Cramer says he does not see much of a panic in the aging cars perhaps as a result of an efficient floorplan.

Grossinger Volvo currently uses Manheim’s OVE, selling three or four cars a month and buying one or two vehicles, but Cramer notes that most dealerships have access to other dealers’ inventory via the manufacturer’s Web site.

“I think the [New Car Auction] is a great tool that dealers can use, but it looks too similar to other auctions that we already have dealings with, and new-car inventory not really being an issue, I’m just unsure if we’d use this,” says Cramer. DealerIndustry’s auction is meant to act as a central resource for new car dealers, says co-founder David Ballanger.

Dealers may go to the site and register an unlimited number of VIN codes for vehicles to be auctioned. They can set parameters, such as pricing points and rebate details, and the system will manage the inventory and bidding process.

For instance, if one dealer has eight Toyota Camrys with newer models coming in, the previous eight are now aged units. Previously, dealers might sell those Camrys at retail store price and break even. With DealerIndustry, sellers pay $99 and buyers pay $49 when a car sells. There are no listing fees.

More than 300 dealers signed up during the two-week period following the product’s release, Ballanger says. The company’s goal is to have 5,000 dealers online within 12 months. Competition will play a large factor in this online auction territory. DealerIndustry will have to remain competitive with rebates and incentives offered by manufacturers at dealerships. “We don’t necessarily have overstock concerns as GM puts bonus money on aged inventory to give dealers extra incentives,” says Vince Peckens, sales manager at Demaagd Auto Group, in Battle Creek, Mich.

DealerIndustry’s Ballanger agrees this is common issue, but not a large concern as incentives will fluctuate. While employed at a Chevrolet dealership, Ballanger recalled having new S-10s more than 200 days old with no incentives or ways to move the units. Each vehicle cost approximately $2,000 to move.

Auctions may just be the key to unlocking that revolving door

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Dealer Profile: William Halley, General Sales Manager Stone Mountain Chrysler, Stone Mountain, Ga.

written on July 14th, 2010 with no comments

Q: Why did you choose to start working with Drive®? Why do you continue to work with them?

A: I started as a subprime finance manager in 1995, so I have been doing this for quite a long time. I found that Drive Financial gave me an edge over my competition, because many finance managers wouldn’t use Drive, because the fees were high. But the reality is, there wouldn’t be a deal if it weren’t for Drive. I have found Drive to be very consistent with its practices, which, in my opinion, makes it very easy to use them. Your callback is exactly what it says, with no surprises. Drive structures your deal to fit the callback and you have a deal. The callback gives you everything you need to do your deal, unlike many banks. It’s as easy as you make it to do business with Drive or any other bank.

Q: What do you see as the greatest challenges in special finance today? Is Drive able to help you overcome any of those challenges?

A: The greatest challenges in special finance today are inconsistencies of lenders practices, approvals changing when the deals are sent in for funding and funding issues. I have not had these problems with Drive, because with Drive the program is the program every time. The approvals remain the same throughout the transaction and the funding is amazingly fast for the type of customer Drive chooses to put on the books.

Q: What are the key things a dealer should know when using Drive as a lender?

A: The key things a dealer should know when using Drive Financial are as follows: You have to

»» buy cars to fit the program with Drive. There are many customers that fit this program that get approved with Drive and leave because the dealership doesn’t have cars for them. This needs to be part of the used-car manager’s job on a daily basis, if you really want to be in the sub-prime business like we are.
»» Funding with Drive Financial is as good as any other lender, if you send in a fundable package. If it goes in right, it comes out right.
»» Drive is not going anywhere, so if there is any question about their ability to fund, don’t let this be a concern. They do subprime the right way.

Q: How has your relationship with your sales manager affected your relationship with Drive?

A: My area sales manager does her job very effectively and is there when we need her, but over the years we have developed such a good relationship with our buyer that if we need help with a deal for any reason, we just call the buyer directly. Most [area sales managers] with Drive are more knowledgeable than any other [bankers] out there.

Q: Do you see Drive as a partner to help your business succeed? Why or why not?

A: Drive is a daily part of our business. They have been for years, because there is always a way to go with every customer when you understand their program. Much of our success is dependent on Drive, which is made even more evident by the referrals of customers from other dealers who don’t use Drive as a lender. We don’t understand why a dealership wouldn’t use a lender like Drive, but we are not mad because it just means more business for us.

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Helping Dealers Maximize DealerTrack and RouteOne

written on July 14th, 2010 with no comments

by Mary Wisniewski

RouteOne and DealerTrack are certainly not strangers to the auto industry, but that does not mean every dealer knows all the ins and outs of the Web-based credit application management systems.

Todd Anderson, financial manager at Holland, Mich. based Elhart Dodge Nissan Hyundai, uses both DealerTrack and RouteOne, but no specific features or updates stand out to him; he is “just using them to send in applications.”

Anderson is certainly not the only financial manager to use the systems just for credit application purposes; however, other functionality certainly exists.

DealerTrack

One of the most important products DealerTrack offers is its compliance suite, says David Trinder, senior vice president of network solutions at DealerTrack. A Red Flags Rule solution was added to the suite earlier this year.

“Every single dealership needs to show they are Red Flags ready,” Trinder says, noting that this includes not only going through certain actions but also putting a policy into place. “We show them what a policy should look like.”

Dealers realize the tool’s importance too; the compliance suite is one of DealerTrack’s fastest-selling items.

One dealership utilizing the tool is the Luther Automotive Group.

The St. Louis Park, Minn.-based dealership group is still rolling out the Red-Flag solution, but already it is proving valuable, says Duane Brinkman, director of compliance. “At this point in time, we are pleased,” he says.

What Brinkman would like to see from the tool is not finance- transactions flags, but flags for other transactions, too. An addition of a note section would also be beneficial, he adds.

Real-time market pricing for InventoryPro is one of DealerTrack’s latest updates, which allows dealers to see how local competitors price their vehicles. The product lets dealers “look at a vehicle and see what it is selling for at the auction,” Trinder says.

Bill McMorris, director of remarketing at Jim Ellis Volkswagen of Atlanta, applauds InventoryPro, especially its real-time functionality. The tool gives the several dealerships in Jim Ellis Volkswagen a “tremendous advantage” by helping them determine how to price their vehicles. In particular, it really helps with their online car stock, he says, noting this is because 80 percent of the people shopping the Internet for vehicles search by lowest price. Using InventoryPro allows Jim Ellis to price their vehicles accordingly so they can come up on top of a Web search. McMorris says DealerTrack is great at incorporating customer feedback into its product, too. “They really do listen,” he says. “They follow up on what they say they are going to do.”

RouteOne

RouteOne rolled out its version 8.9 release last September. Among the enhancements is the addition of Kelley Blue Book vehicle values in the United States. RouteOne also added Payoff Quote, which allows dealers to request a payoff with their lenders. Dealers can use the tool only with lenders who sign up for it.

“Payoff Quote would be spectacular if all lenders were on there,” says Tom King, finance manager at Ray Laethem Pontiac Buick GMC. King doesn’t think it is possible to get all banks to do this from what he understands.

Although the Detroit-based dealership mostly taps RouteOne for credit bureau information, it also utilizes some of its other features, like Adverse Action. Adverse Action allows dealers to search for applications that may require Adverse Action notices, and then automatically creates those notices. When a customer is turned down for credit, King says Adverse Action helps deal with the ensuing compliance issues.

King would like to see RouteOne offer a lease linking tool, but is happy with the service overall. “RouteOne is the only place you can get captive finance with everything else,” he says.

In particular, King likes how interactive RouteOne is with its customers. RouteOne asks for feedback, and reacts to it well, he says. “This is how they are distancing themselves,” he says.

RouteOne is pushing its eContracting offerings, says Brad Rogers, vice president of operations at the technology company. RouteOne’s eContracting adds electronic processes to paper-based contracting. Currently, the solution’s footprint includes seven states, 134 dealers and three captives.

Orlando, Fla.-based Greenway Ford is using eContracting. David Stone, director of finance, says one of the biggest benefits of eContracting is its electronic funding feature, because eFunding, as it is called, “probably saves us funding.”

Stone says Greenway Ford works with both Ford Motor Credit Co. and RouteOne to try to discover any errors in the application process, before the mistakes prevent funding.

Stone says he sees recent improvement in the RouteOne product. RouteOne is working on adding new features to and refining its platform. In October, the company launched an identity-verification product. Says Rogers: “Identity theft is so big.”

The tool, devised with TransUnion’s help, will help dealers comply with the new FACT Act Identity Theft Red Flags Rule. This rule mandates that financial institutions and creditors establish written, identity-theft-prevention programs.

The ID tool itself provides warnings of potential fraud by generating a score on whether or not a customer is “high risk.” Then, it generates out-of-wallet questions for triggered applicants, asking questions such as “What street did you grow up on?”

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Sharp Turn: Dealers Get Whipsawed by a Dramatic shift in car Lending

written on July 14th, 2010 with no comments

by Victoria Fierson

The credit crunch sent shockwaves throughout the American economy. The ride has been that much rougher for automobile dealerships, one of the economy’s major touch points for consumer credit.

The result for dealerships: significant day-to-day business challenges.

“Getting people approved for credit is the most difficult thing for us right now,” says Brianna Tozzo, sales representative at Acura of Westchester, N.Y. “This month we’ve had 17 cars on our sales sheet that were not able to be delivered. Of the 17 incomplete sales, 10 had to be put aside because the customer had poor credit. Sales have declined about 30 percent over the last month due to less available credit and more stringent credit standards from loan institutions.”

Acura of Westchester is trying to work its way through the problem, relying more on America Honda Finance, the captive for Acuras.

“In addition to Honda, we previously used Chase, but we stopped because their standards were even tighter,” Tozzo says.

The scramble for lenders is not restricted to Tozzo’s dealership. Igor Tselnik, the finance manager at Premium Nissan Ltd., located in New Rochelle, N.Y., is facing a similar struggle.

“We have other lenders in place, but what we’re finding is that we are going to our main source a lot more often than we used to,” Tselnik says. That wasn’t always the case. “Outside companies used to offer preferential rates for certain customers, but lenders are no longer looking to increase business; they’re looking to decrease business,” he says.

Overall, financial institutions are still lending, but they are analyzing loan applicants more critically. For example, lenders are delving into the applicant’s job, how long he has been at the current job, and is his recent debt payment history. “They’re even asking why customers didn’t pay more than the minimum on their Gap card payments,” Tselnik says.

Normally, dealers would fall back on their core lending relationships with a handful of go-to financial services companies. But the dire economic conditions have eroded dealer-lender rapport, even among long-time business associations.

“The dealer-lending relationship does not hold much weight anymore,” says Brad Horton, a financial advisor at Benders Honda in Clovis, N.M. “If the deal isn’t structured properly, if it isn’t a ‘win’ situation for the lending institution, it is much harder to get the deal put together.”

Dealers are not getting sympathy from lenders. Credit exceptions are non-existent. The most critical concern for dealers is now the consumer’s credit score. The linchpin in the automotive market is credit today – and that puts the credit score centerstage.

“A month ago we didn’t have to worry about it,” Tozzo says. “Now, we have to base what we sell a car for off of some- one’s credit. If someone has poor credit and they even qualify for a loan, their monthly payments could be between $20 to $40 higher.”

Many dealers are asking customers to put more money down to help them qualify for loans. “A customer I had last month was a victim of identity theft,” Tozzo says. “His credit was completely ruined. There was no way he was able to qualify for a new car loan, so we were looking  pre-owned cars. In order for the deal to go through, he had to pay half of the car off in cash, which came out to about $15,000. The other half he was able to finance.”

To dealers, the whole lending melt- down seems to have put them in a bad spot. Scott Lee, finance director at Front Range Honda located in Colorado Springs, Colo., says, “Unfortunately, we’re at the mercy of the lenders — and the customers able to buy cars a year ago are not able to buy right now, because banks are not buying higher risk. Each deal is evaluated on an individual basis.”

Lee also says his associates are asking for more money down to help the customer qualify for the same loans they would have gotten a year ago with ease, and they are doing that to encourage their lenders to lend. “We have a pretty decent range of banks lending already,” he says. “Any other banks we bring on are not going to do anything differently.”

Dealers have also taken a more active role in assessing a buyer’s credit, which is normally left to the dealership’s fi- nance department. “Normally when you go through the credit process, asking the customer what their credit score is one of the last questions; that usually happens when they get to the finance department,” says Tozzo of Acura of Westchester. “Now salespeople are expected to do more credit screening when a customer walks into the dealership.”

That active role includes addressing credit issues earlier, because in order to make sales, dealers need to focus on getting consumers into an affordable car — with a loan to do it.

“We’ve had to become more diligent and take more time out to interview customers from a sales perspective,” Premium Nissan’s Tselnik says. “It is not in our best interests to spend a lot of time with a customer to find out that they’re looking at a vehicle that a bank will never qualify them for. We want to know the battle upfront, and be able to suggest the best option for our customer right up front.”

All this tumult in the lending landscape has come amid a significant change in consumer preferences in cars. Namely, compact cars are hot, SUVs are not. Part of this shift in can be attributable to lending institutions, which are showing a preference for extending credit for more fuel-efficient vehicles.

“Lenders do not want to finance Pathfinders or Armadas,” Tselnik says. “They don’t want to tie up capital in these markets. Dealers are not able to offset the interest rates and higher loan costs enough, even with incentives to counter the lenders rates.

“Right now lenders are offering better deals on compact cars and sedans,” he says. “Typically, they are less expensive than SUVs, and the risk involved with taking on one SUV loan could cover multiple compact car or sedan loans.”

So what are dealers doing? First, they are encouraging customers to take shorter lease terms that would increase their monthly payments, but are much beneficial in the long run. “If the customer is able to take on a bit more financial responsibility every month to make those higher payments, when the loan term is over, say two years down the road, they will have lower interest rates and payments,” Tselnik says. “It may be a stretch at first, but it will ultimately work in the customer’s favor.”

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Subaru hits the gap to mixed Reviews

written on July 14th, 2010 with no comments

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.

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Selling “Regular” cars amid the hybrid Craze

written on July 14th, 2010 with no comments

by Victoria Fierson

Boy, that Prius looks nice. You are standing in your local Toyota dealership looking over a dark blue model, practically salivating at the thought of going 571 miles between tank refills. “Sorry, sir, that’s the last one we have,” the dealer says. “And it’s already sold.”

What a dealer does next is equal parts art, sales and math. In today’s market, keeping customers when their preferred fuel-efficient model has sold out is as critical as ever. There are only so many car sales to go around.

Consider the methodology of Brady Henderson, financial director for Pederson Toyota located in Fort Collins Colo. “The real question is, do you drive enough to make up the difference in pricing on the more expensive model?” asks Henderson. “Hybrid models are more fuel efficient when driving short distances within cities and towns. On the highway the car switches from electric to fuel emission. Whether or not it is a more cost efficient alternative mainly depends on the type of driver.”

It works — sometimes.

“Our job is to educate and guide the customer,” Henderson says. “There are many instances where a customer is misinformed about the true savings they will receive from hybrids. But if people want a Prius when they walk into a dealership, they are usually willing to wait for it.”

Tony DePaula, president of DePaula Chevrolet in Albany, N.Y., says the dealer should discuss the economics of a proposed purchase with any consumer leaning heavily toward a hybrid.

“When people are asking about alternative-fuel vehicles, give them an opportunity to do the math, DePaula says. “Often people think they are saving a lot more money than they really are. Customers need to assess what the true return is on their investment. This is based on the amount of miles they drive and the length of period they will have the car. Whether or not a hybrid will be more efficient and cost-efficient is based on a case-by-case basis.”

Take the Prius and the Corolla. There is about a $6,000 difference between the two, says Tim Curley, finance manager at Glens Falls Toyota in New York. For a customer who drives more on highways, the Corolla gets 36 miles per gallon, where the Prius gets 45 to 50. “While there is only an eight-miles- per-gallon difference, the amount of money a consumer will save on gas may not make up the $6,000 price difference,” Curley says.

Curley says initially people often decide to switch to a more fuel efficient vehicle out of panic. What the consumers don’t realize is that “it may take longer than the length of the lease to make up for the cost of the vehicle in relation to the amount of money saved on fuel,” he says.

That’s fine for consumers who buy based on price. What about the consumers who seek out the often-sold-out hybrid models for other reasons, what one dealer called “emotional” reasons? This is a tough situation for a dealer.

“It is a dealer’s responsibility to present all of the options to the customer to find the car that best suits them,” says Louise Miconi, financial manager of Hyannis Toyota in Hyannis, Mass. “Vehicles are an emotional purchase. People have their minds set on something, even when they are told other options are better. Especially when it comes to the hybrids, they are more concerned about being kind to the environment.”

For some nameplates, alternatives to hybrids are selling well, even in today’s credit-challenged economic environment. For example, non-hybrid Hondas are still strong sellers, such as regular Civics, Accords and CRVs. “They get really good gas mileage to begin with,” says Greg Conner, financial director of Prime Honda in Newton Corner, Mass. “Anyone who wants the hybrid version is interested in being environmentally conscious and is not as interested in fuel economy.”

It’s hard to talk someone out of that.

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