F&I Magazine – Beyond Prime

Going beyond the norm to capture the ‘beyond prime’ market

By Arzu Algan

Profit margins continue to thin as the automotive business becomes more competitive and more complex. As a result, dealers are scurrying for anything that will enable them to sell more cars, minimize costs, develop additional profit centers and offer finance options that will meet consumer demands today and in the coming years.

Change is a precursor of advancement and growth. That’s particularly true in the automobile industry, which is evolving at a tremendous pace. The advent of such new technologies as e-contracting and other paperless processing systems cuts down on contracts in transit, improving dealership cash flow and, ultimately, the bottom line.

For the consumer, this is the golden age of choices, and not just in the myriad of products that have flooded the market. Consumers also have many diverse financing options, and the ability to choose between the companies that offer them.

These choices have trickled down to the nonprime market in a major way. Want proof? Just see how many credit offers come flooding to those who have just had a bankruptcy discharged and sometimes even before the discharge.

MAINTAIN A COMPETITIVE EDGE

Dealers are aware of the new consumer trends, and have taken action by becoming more accommodating and flexible with their customer base. The days of the stereotypical high-pressure sales approach is becoming a dinosaur and is being replaced by CSI, which has become a catalyst for change.

To maintain a competitive advantage, dealers are searching for creative ways to establish new profit centers. In today’s aggressive economy, where such terms as “downsizing” and “early retirement” have become part of the vernacular, the need for special finance departments is glaringly apparent. Many dealerships have taken notice, realizing that appealing to this growing segment of the population can pay huge dividends, both financially and philosophically.

An issue dealerships must face is an increasingly large percentage of consumers who are currently in an economic position to finance a vehicle, but who may have suffered credit setbacks for one reason or another. These customers are often excellent car-buying candidates, but remain haunted by the ghosts of their financial past. It would be in the dealers’ best interests to capture this enormous market, for a variety of reasons. Dealers who find a better way to capitalize on it, such as changing their procedures to be more responsive to their customers’ needs, will not only remain ahead of the game, but blaze a new trail.

BUILD CUSTOMER LOYALTY, IMPROVE CSI

Going beyond prime can pay off in the following manner:

• Converting a massive consumer market into profitability
• Increasing responsiveness to a disparate customer base
• Protecting consumer investments through additional product sales
• Building dealership loyalty through repeat and referral business

Dealers know that excellent credit gives the consumer a negotiating advantage. A car buyer with outstanding credit can command better interest rates, and in general drive a harder bargain. It’s all about the power of money.

The balance of power shifts dramatically to the dealership when dealing with a customer possessing lackluster credit. In many cases, the nonprime customer feels fortunate just to be able to purchase a new or used vehicle. That customer’s credit options are limited, but his choice of dealerships is not.

If the dealership treats these customers with respect, and accommodates their needs, they will breed intense customer loyalty. These customers will often travel beyond the dealership’s normal geographical boundaries, and tell their inner circles how the dealership was able to assist them when they needed it the most. They’ll also come back themselves when they are in a better position to upgrade their vehicles.

As long as deals are structured properly, stipulations are collected and the paperwork process is in order, dealerships and lenders can prosper beyond prime. Click Here to Download the Article.

Arzu Algan is CFO and dean of education for the Scottsdale, Ariz.-based Automotive Dealership Institute, a global leader in providing an automotive management education. She is responsible for developing and structuring ADI’s course curriculums, and coordinating the editorial material for the institutes’s Encyclopedia of Finance & Insurance Management, due later this year.