Sales and Finance Dilemma: How many “mind-deals” lead to a sale?

Every day, countless potential sales are lost by dealerships across the country.  While the loss of profit to the dealership is cause for concern in itself, the worst part of this grim scenario is the reason behind the loss: potential customers are lost every day because their deals are mismanaged.  Virtually every dealership has experienced such losses.  A customer with a less than stellar credit history wants to buy a vehicle beyond their means, and the sales manager, instead of trying to re-direct the customer to a more appropriate vehicle, pushes the deal through to the finance office and hopes for the best.  This is known as a “mind deal” (as in, the deal structure exists solely in the mind of the sales or finance manager).  These “mind deals” often involve a deal negotiated on extended terms with no money down—often utilizing subvented interest rates—even though the customer demonstrates a serious delinquent payment history. Optimistically assuming the deal will get funded by one source or another, the sales manager hands the deal over to Finance with crossed fingers.  Sadly, in the world of finance, wising does not make it so.  Such an unrealistic deal will most likely languish in Finance for several days while the managers debate which bank might pick it up without too many outrageous conditions. Or, the manager will simply shove the deal to a corner of the desk and ignore it.  In either case, the process will take too long, and the customer will walk away. The sale is lost. The customer is gone forever.  Each time this scenario replays itself, greater and greater profits are lost.

What are you going to do about it? Any customer who comes to your lot is on a mission to buy a vehicle.  Very few customers are willing to wait for even a few hours, let alone several days.  They won’t hesitate to go to your competitor if you cannot quickly and efficiently make the sale. You must take prompt, responsible action.

Proper Qualification of Customers

Your sales and finance managers must understand how to effectively qualify and structure a sale based on the customer’s credit criteria. They must accept that credit-challenged customers can’t qualify for specific terms simply because they want to.  Furthermore, they must abandon the dangerous assumption that a customer with a poor credit rating will gratefully snap up any deal the manager dishes out, no matter how exorbitant the terms. That is a sure way to send a customer straight to your competitor! Your managers must learn to back away from deals that don’t make fiscal sense, and steer these customers toward a vehicle where qualification is less problematic.

When should this re-direction take place? The instant they obtain a customer’s credit and determine that qualification is improbable or payments will be too high.  “Mind deals” are a significant waste of time and, even when successful, produce only modest income for the dealership. 

Trained Managers = Qualified Managers

In today’s marketplace, your dealership has very little time to close a sale. Mangers without a financial training and experience are at a severe disadvantage. Too many sales are delayed (and too many profits lost) by sales managers who do not fully understand how to structure a viable deal.  They may not even be able to utilize the credit report in negotiating or structuring a sale. This happens far more often than many dealers would like to admit.  Does your sales manager truly know how to read a credit report? Have you ever tracked the number of “mind deals” this manager finalized which put your finance manager in an untenable position?

How often does your finance manager accept these doubtful deals, then keep your hopeful customers waiting as the manager struggles to find a lender? Even if a lender finally accepts this deal, the terms will usually be unacceptable to the customer. Your customers will storm out, deals will be lost, and profits will be diminished, if you don’t monitor and take action.

The solution to this problem is simple: thoroughly educating your managers in up-to-date, more effective sales practices.  Sales managers can be taught to structure an appropriate, successful deal for each customer, regardless of what the credit report says. After all, a poor payment histories or budgetary restraints don’t have to preclude a sale that maximizes profitability. Success begins with managers who know how to effectively qualify credit-challenged customers for the right vehicles.

What Constitutes a Workable Process?

Sales and finance managers need to know certain facts about potential lenders and at-risk customers before a transaction ever takes place.

1. Which lenders will take such a customer with no money down?
2. What credit terms are acceptable? Will the lender allow extended terms of 72 or 84 months?
3. What advance is appropriate, based on a customer’s payment history and debt to income ratio?
4. What interest rate will be charged based on a customer’s credit history, advance and terms?

An effective finance manager, besides knowing the answers to these questions, should be actively involved with sales manager. It is important that the finance manager not only shows support for the deal, but to be available to offer solutions. The talent of a great finance manager should never be ignored. Inter-departmental ego has no place in such transactions. Moreover, finance managers must take the lead and interview all customers outside the finance office:

1. On ordered or dealer exchanged units.
2. On cash or credit union sales.
3. On credit checks, to determine the reason behind a slow pay history and the potential for lender disapproval.
4. At time of delivery, to qualify a customer for product objections.

When sales and finance managers are well trained in effective procedures, and well informed about the terms of various lenders, they can treat each deal as if were being delivered that very day. “Mind deals” which tax the patience of the customer will no longer be needed. Everyone will be satisfied. Sales and profits will rise. A new and valuable customer market will be established.