Some dealers are heavily into the subprime space and some are not, but all dealers fall into at least a couple subprime deals every month. Studies show that 20-25% of all auto loan originations are subprime loans. An even more surprising stat is that about 43% of the millennial demographic currently fall in this category. Whether you are all-in on subprime or not, one thing is for sure- subprime business is not going away. The question every dealer needs to ask themselves is: can you afford to just dabble in subprime or ignore it anymore? The answer is probably not. So, if you are looking to beef up your subprime business, where do you start? These 7 steps will help you define how you incorporate subprime into your dealership successfully:
Step 1: Define the Mission
You need quantifiable goals to achieve success. A solid industry benchmark for subprime departments contribution to total dealership growth is 25%. Example, a 100-car store doing little to no subprime business (they all do a little by accident) can certainly grow to 125-130 units in 90 days with a renewed focus and dedication to the department.
Step 2: Define the Department
Decide if you want an open blended floor or a separate department. You may find a separate department is difficult to staff in higher volume special finance stores. Will you be rebuilding your existing subprime business, if any, or starting from scratch? Evaluate pay plans.
Step 3: Evaluate Resources and Needs
Review your current demographics, salespeople, and overall sales. You will also need to assess your current lenders and new and used inventory. Will your new opportunities match your current lenders and available inventory?
Step 4: Fill Resource Needs
Seek out lenders to handle every credit tier and scenario then add inventory to fill these needs and niches. You need lenders to match your credit tiers and inventory to match your lenders and volume in each tier.
Step 5: Evaluate and Assess Your People
Do you have people who can look at a credit report and know what lender will buy it and why? Do you have enough salespeople to handle the increased opportunities? If no, where will you find them? How will you train them? A good best practice for someone new to the industry is a week on the phones in the BDC or with internet specialists; a lot of this job is done on the phone. Fresh faces are often more effective than retreads when building this department; they don’t know enough to prejudge.
Step 6: Define Lead Needs and Budget
To produce an additional 30 deals a month you will need an additional 90 leads/opportunities using industry benchmark closing standards. Will you hope they come in the front door or seek out creative, cost-effective measures to create these leads within your department budget? By identifying the subprime customer early on in the showroom or online you can maximize and possibly even reduce your subprime marketing budget.
Step 7: Be Flexible and Willing to Adapt and Adjust
Create a team that can maximize your opportunities on the floor and the additional opportunities through your additional subprime marketing efforts. As you grow and add lenders, people, and inventory, things will not always go the way you planned. Be willing to change and adjust. The only way you can do that is by tracking each key component- people, lenders, and inventory- often. Tracking is the only way to know what is working and what is not. Using completely quantifiable and trackable lead sources is the best way to do that.
Whether subprime is a big focus at your dealership or not, following these steps will ensure success.