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The Seven Secrets of Social Media Success

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SM-imagesYou may not believe that Social Media is important for your business – after all, you are selling a boat or an RV, not trying to build a community.

The most successful dealers have an effective and active social media strategy.

There are seven key elements to generating a powerful productive social media presence.

  • Social media is about networking not advertising.

You want to put out content that is fun, interesting and intriguing and a sales pitch is none of the above. Tell stories, and even better, add videos, that illustrate how much fun people can have, or what great adventures, or how your products can help pull families together. It is not about the product, it is about the experience.

  • Social media is the same as a conversation with a friend.

When you meet a friend, you don’t do “marketing speech”, you just have fun and meaningful conversations. Social media adds value and is not an informercial.

  • Listen to others.

If all you do is post and talk, you are missing the point. People love to be heard, so make sure that you are monitoring your social media platforms and respond appropriately.

  • Remember the Golden Rule.

Find your favorite Blog posts and Facebook pages and emulate (don’t copy) them. If you produce content that is similar to what you like, and stay away from what you don’t like, you will grow your network.

  • Sharing fuels growth.

When you share interesting content of others, you are giving a great compliment. Those compliments will grow your network. As your network grows, your influence grows and the productivity of your network grows.

  • Ask.

People have opinions, and they love to share. The regular use of polls and surveys will appeal to your audience, and it will be instructive for your business.

  • Have fun.

Your products are all about fun. Your social media presence needs to be fun and lighthearted and reflect the spirit of the industry.

Stay active with your social activity. Your network will grow and serve as a megaphone for you. It will, over time, directly fuel growth for your business.

The Seven Secrets of Highly Effective Websites

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Getting visitors to your site is challenge enough – you have to make sure that your site delivers enough values to capture their attention and get them to your store. Doing just seven things right can go a long way to ensuring the maximum effectiveness for your site.Principles-Of-Creating-Effective-Web-Designs-300x266

  1. Keep it crisp and clean

Cluttered sites fill with flashing lights and banners, distracting pop-ins and unusual colors and graphics are distracting and disconcerting to visitors. A visually appealing, clean easy to view site allows visitors to comfortably spend time looking at your products and your store.

  1. Make it easy

Make sure that your site is easy to navigate. All your links and tabs sould work. One broken link could well lose your visitor. The link and tab language should be descriptive, easily understood and intuitive. You have to make it easy for your visitor to get where they want to be on your site.

  1. Give visitors what they want

There are two primary reasons why you get visitors to your site. They want to know if you have the inventory that they are looking for and they want to know the price. Hiding the price, or making it difficult to identify available inventory will force your visitor to become someone else’s visitor. Of course, you can offer “special e-pricing” in exchange for a lead form, but you need to give your visitor enough information to let them believe that you are trying to be helpful by providing the information they want.

  1. Make an offer they can’t refuse

If you want the visitor to complete a form on your site, you have to give them something of true value. Remember, if they wanted to talk to you they would pick up the phone or walk in. They are hanging out anonymously on your site because they want exactly that – anonymity. They don’t want to “pay” for information with their name, address, phone number and or email.

If you want this information, you have to give in order to receive. It could be something as simple as a $5 or $10 Gift Card, or it could be something much more mutually useful, like a Soft-Pull, no social security number, Pre-Approval (see Creditminer.) If you want the customer’s highly valued information, you need to provide something of equal value to them.

  1. Answer questions however they want

What happens when a visitor to your site has a question? You need to be ready and able to talk to them the way they want to talk to you. Some will call in – and your phone system and phone coverage had better be friendly and robust enough to handle their call. If you send them down a phone tree path that results in “Please leave a message”, they probably won’t and you have probably lost them.

If they submit a lead form and ask to be contacted by email – don’t call. You should be sending a personalized email response within 30 business miniutes…and if it is outside of business hours, you hould have a personalized auto-repsone promising an answer at the start of the next business day. (And make sure that you do follow up at the start of the next business day.)

Live chat is hugely popular with today’s visitors and is a great way to establish a relationship with your visitor, with one huge caveat. There is nothing more frustrating than a continuing message that there are no agents available or even worse, a chat that goes unanswered. When you commit to Chat, you have to be truly committed to seeing that it is properly staffed and that visitors are getting responses in less than one minute.

Trying to dictate the way a visitor can communicate with you is not satisfying to them, nor effective for you. To make your website a selling tool, you have to talk to your visitors their way.

  1. Follow up on leads

You have gotten a lead from your website, email, chat, phone and it was hard earned. If you are not following up promptly and repeatedly, you are just wasting money on your site.   Phone calls should always end up with a real person, not a machine. Emails have to be answered in 30 minutes or less. Chats should be answered in one minute or less. If you are doing email follow-ups or phone follow ups they should be done daily for the first week. Three times in the second week. Twice in the third week. Weekly for the next four weeks and bi-weekly after that.

  1. Serve it up with speed

Finally, and this is an infrastructure issue, make sure that your site loads quickly. Sites that take 15, 20 or 30 seconds to load will lose visitors (even 10 seconds is a long time for an internet shopper.) Make sure your page structure is efficient, your hosting infrastructure has sufficient capacity/bandwidth, your hosting platform (WordPress, Rackspace, etc.) is responsive. Don’t lose your visitor before you even start with a non-responsive site.

 

So, there you have have. Seven simple but powerful ways to maximize the effectiveness of your website. Your website is part of your store – make sure it reflects your store the way can be proud of!

Eliminate F&I – And Maximize F&I Profit

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Profit-300x225 Huh? Eliminate F&I and maximize the profit? How does that happen?

I’m not going to claim credit for this, and I can’t even fully properly attribute it. I’ll be happy to give credit where credit is due – but this is brilliant! (At this point, I will attribute it to David Parker of Parker Business Planning and one of his 20 Group members, I am just not sure which one, but I’ll update everyone when I know – another reason why 20 Groups are important!)

What Does F&I Mean To Most People?

Anyone who has ever bought a car has met the Finance Manager. Almost universally, that is a negative experience. People hear F&I, Finance Manager, Finance and they tense up. This is where the pressure starts; where they get sold things they don’t want; where they end up with a higher payment than they want.

F&I, from the consumer perspective, is a dirty word (okay, maybe words.) Going to see the Finance Manager is often perceived a little like being sent to the Principle’s Office. When you tell someone that they are going to talk to your Finance person, defenses go up and profit goes down.

There is a remarkably easy solution!

Delivery Coordination

Once someone wants one of your vehicles, what is the next thing they are concerned about?

Delivery! They want what they are buying because they are excited about using it!

Whether they are paying cash or financing, the thing they care about is taking delivery.

Get rid of your Finance Manager and add your Delivery Coordinator.

“Well, Mr. Customer, you just made a great choice. Let me introuce you to our Delivery Coordinator who will take care of all the details.”

Your Delivery Coordinator can and should easily discuss:

  • Finance rates and terms (essential to delivery)
  • Backend products (no delivery would be complete without these)
  • Delivery times and requirements (smooth and easy delivery)

What just happened?

You eliminated your customer’s normal aversion to Finance and F&I, generated excitement about getting their vehicle and opened the door to easy conversations.

Funding reserve and backend profit should be at least 50% of net profit at your store, why not smooth the path to that profit by eliminiting F&I and adding a Delivery Coordinator?

One Easy Number You Never Knew Could Help You Finance More Deals – Why Bad Things Happen To Good Credit Scores

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It has happened to everyone. A customer comes in and they have a great credit score, say, an 800 – no, really, they do – and they just can’t get financing. What happened?

We happen to have the luxury of a lot of data from across the country and a great mix of franchises. Once a month, at the beginning of each month, we are going to take a look at that data and try to provide some interesting and useful, actionable information from that data. This is our first data extraction in the series.

The Data

The following table may raise some eyebrows – or maybe this is just intuitively obvious:

  Approved For Financing (but did not buy) Funded/Bought Declined
Credit Score 729 746 657
– Max. Credit Score 835 835 826
– Min. Credit Score 568 630 553
Ann. Income $100,491 $110,253 $66,298
Debt to Income 26.6 27.2 36.3
Available Revolving 72.4 76.1 54.6
Amount Financed as Percentage of Annual Income 27% 25% 37%

And The Data Say…

So, what jumps out from this data, and how can you use it?

Let’s note from the start that we saw proposed deals way outside of these data, but for a variety of reasons the applications were withdrawn from consideration before they finally achieved either approved or declined status, and so they were excluded from this data set.

The other caveat is that these are averages. By definition, there will be deals that fall outside of this data…but not very often.

So, to start, getting approved is not the same as closing the deal. Things happen. People who actually buy have incomes that are 10% higher than those who are approved and don’t buy, and they have 5% more available revolving debt than those who don’t.

The Magic Number

We have a “new” statistic here that has not been largely reviewed in looking at marine and RV buyers…income relative to amount financed. For deals that funded, the Amount Financed to Annual Income percentage was 25%, which is 2% less than Approved but not Funded, and a full 12% less than than those Declined.

It turns out that two of the metrics here are most deterministic in the success, or lack thereof, of a finance application. This are best highlighted by looking at the extreme cases in this data.

Of the deals that had a 568 and and 630 in Approved and Funded respectively, they had, for the 568, a 3.3 Debt To Income ratio and for the 630 a 6.11 Debt To Income ratio. The 836 who was declined had a 77.88 Debt To Income ratio.

While, on the surface, it would seem that Available Revolving is an important predictor, it is more often just an outcome of being over-extended in terms of Debt To Income. While Available Revolving percentages of less than 70% are correlated with Declines, they are not predictive.

More On Debt To Income

If you want to understand why a great score got declined, look at Debt To Income.

Now, there is at least one lender who, if all other credit profile factors are in line with their requirements, does not look at Debt To Income, as long as they can demonstrate consistent income. If you find your buyers often falling into the “responsible but extended buyer” category, you need to look for these lenders. That said, these lenders don’t help you before you pull a credit bureau. Our data helps as soon as your sales person engages the customer.

For most lenders, a Debt To Income ratio of over 50% (and often over 40%) is the kiss of death – without regard to Credit Score.

It turns out that the ratio of loan amount to annual income is also highly predictive of financing success. If a buyer’s proposed Amount Financed is greater than 32% of their annual income, unless their existing Debt To Income is less than 10%, their chances of financing success are remote.

It turns out that the reason this Amount Financed to Income ratio is so important is that it directly impacts the post loan Debt to Income – which is what lenders ultimately rely on. Adding 35% to existing Debt to Income is generally a sure course to a Decline.

Actionable Data

How is this data actionable? Your sales people are not pulling credit reports (although they could pre-screen with a CreditMiner soft credit pull), but they can, through conversation, get a sense of the buyer’s income, and even get some idea of Debt To Income. With that knowledge, and an understanding of Trade-In and Cash Down, get a really good idea of how much financing that customer will be qualified for…and can direct them to appropriate inventory.

The basic guideline is: for buyers in the 26% Debt To Income range, with self-reported scores in the 730 range, guide them to inventory where the amount financed will be 25% of their annual income; for buyers in the 5% Debt To Income range, with self-reported scores in the 750+ range, guide them to inventory where the amount financed may be as much as 35%-45% of annual income.

So, the data says…look at Debt To Income and at Amount Financed to Annual Income…those two elements will tell you, with far more accuracy than the credit score, who will experience financing success. Help yourself and your sales team by guiding your buyer’s into inventory that they can get financed for.

Profit? Bah! Humbug!

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scrooge-271x300Are you maximizing profit at your store…or do you treat profit as a humbug?

You have about four weeks left to make the changes you need to all your processes, procedures, vendors and suppliers. The holiday season is officially in full swing now that Thanksgiving has past (although it has been in full swing in the department stores for months now.)

For most of you, this four week period will be the slowest of the year. Sometime in January, things (meaning sales) will start picking up. By the end of January or early February, it will begin to become increasingly difficult to think about change in your store, as your sales volume starts to drive your behavior…and maybe not for the better.

If you are treating unit margin as your primary net profit generator, then you are a Scrooge and are treating your store’s profit as a humbug. It’s not too late though…like Mr. Scrooge on Christmas morning, you still have time to visit your ghosts and create a miraculous profit year for 2015 and beyond.

To get your holiday miracle, you need to visit with your three profit ghosts…don’t worry, it is not all that scary, but it does require you to be ready to change.

 

Ghost #1 is the “Ghost of websites past.” If your website is underperforming, you are losing, or more accurately, failing to generate profit from your website.

How can you tell if your website is underperforming?

  • If you are not using social media with lots of pictures and videos to drive traffic, your website is underperforming
  • If you are using an online credit application as a lead form, your website is underperforming
  • If you don’t have the opportunity for a website visitor to complete a lead form on every page and every view, your website is underperforming
  • If you are not allowing visitors to get pre-approved for financing without submitting their social security number or date of birth, and/or if the pre-approval data does not include a real time credit score, you cutting your leads by about 300% and so, your website is grossly underperforming

Embrace your “Ghost of websites past”, for it is not necessarily a foreshadowing of things to come. The changes required are neither hard nor expensive. All you need to do is overcome the “never time to do it right, always time to do it over” mentality and get your website fixed. Four to five weeks is all it will take to drive profit from your website.

Ghost #2 is the “Ghost of finacing failure”. If just your financing activities, excluding backend sales, are not contributing 35% or more to your net profit, you are still being haunted by this ghost.

The key indicators that you are being haunted by this ghost are:

  • If you are not successfully financing 65% or more of your deals, it is only because your sales team is not promoting financing 100% of the time, and your are experiencing financing failure
  • If your finance approval rate on customers with scores of 600 or better is less than 85%, you are experiencing financing failure
  • If your cost of financing exceeds 30% – 35% of gross profits, you are experiencing financing failure
  • If you don’t have indirect lending relationships with at least two prime lenders, two mid-tier lenders, two non-prime lenders and two local credit unions, all of which pay reserve, you are experiencing financing failure

Again, this need not be a persistent ghost. Financing failure can be corrected, it just needs to be a point of focus and be implemented with an appropriate process.

The biggest question is, do you do this yourself, or do you get third party help? If you can ensure that your in-house cost is below 35% and you have the expertise and the management and the ability to handle all of the associated compliance issues, you should consider doing this in-house.

If you can get your financing done at an average cost of 35% or lower of your gross profit, and you don’t have to worry about staffing, management or compliance, and can be assured of 80%-85% approvals while maintaining your store’s relationship’s with the lenders, you definitely should consider a third party option very strongly.

In any case, the time to make sure that you are ready for the “busy season” is right now. Getting everything in place will take two to four weeks and you will then have learned your lessons from the “Ghost of financing failure.”

Your third and final Ghost, Ghost #3, is the “Ghost of missing backend sales”. If your backend product sales do not add another 25% – 35% to your net profit, you are being terrorized by this ghost.

You can tell that you have not exorcised this ghost with these indicators:

  • If you are not discussing backend products with 100% of your customers, your profit is being victimized with missing backend sales
  • If you are not selling backend products to at least 35% – 40% of your customers, your profit is being victimized with missing backend sales
  • If you do not have a full compliment of backend offerings which include, at a minimum, all manufacturer extended warranties, FPC extended warranties, AGWS extended warranties, pre-paid maintenance, accessory package warranties, environmental protection, tire and road hazard and GAP, your backend profit is being victimized with missing backend sales
  • If you do not have a professional using a menu selling process to present your backend offerings, your backend profit is being victimized with missing backend sales

This may be the toughest ghost to exorcise…but it may be the most profitable.

Your F&I team must be trained to understand the products, present them with a menu and encourage customers to take advantage of these offerings 100% of the time. Your sales team must set the stage for these backend conversations as they are having their initial conversations with your customers.

Making this change is all about management and training…and making sure that you have all the products accessible to you and your team.

Banish this ghost and the miraculous happens…

All of a sudden you wake up and you see the miracle of vastly improved profits for your store.

Ho! Ho! Ho! Merry Profits for all!

Is There A 20 Group In Your Future?

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DSCN1018-300x194Let’s start with the definition of a 20 Group. A 20 Group is a collection of twenty or so non-competing automotive, marine, RV or Powersport dealers who gather for 2-3 days 3-4 time per year to learn and share best practices, business fundamentals and benchmarks, insights into their own and others financials and generally gain the benefits of the collective wisdom of the group.

According to David Parker, found of Parker Business Planning, a 20 Group facilitator and consultant in the marine industry, “20 Group participation has been statistically proven to improve and increase professionalism and profit.” In support of that he notes that roughly 20% to 30% of dealers in his 20 Groups are consistently in the industry top 100 dealers.

Should you be in a 20 Group?

Of of the business paradigm’s which Parker uses (and which was originated by sales trainers Miller and Heiman and written about by Bill Stinnet) looks at the four modes of a business.

Growth Trouble
Even Keel Know-it-all or Oblivious

Every dealership can be placed into one of these modes.

 

Growth Mode – The dealership may be, probably is, doing reasonably well, but they are aware that that could do even better and is actively seeking new processes, products and people to aid in that improvement.

Trouble Mode – The dealership is struggling in one or more areas and is conscious of the problems. They are also actively looking for tools and techniques to help “right the ship” and aid in the transition from Trouble to Growth.

Even Keel Mode– This is a dealership that is satisfied with where they are. The may well have good systems and procedures and they are not in the market for anything to change what they have or what they are doing. “If it ain’t broke, don’t fix it.”

Know-It-All Mode – This mode is also referred to as Overconfident or Oblivious. This dealership could already be in Trouble, or they could be Even Keel, but they don’t really know or care and they certainly are not looking for any change agents.

As Parker points out, “Most of the dealers who are in Even Keel or Know-it-all mode are actually already in Trouble, or soon to be, and they don’t even know it. The only sustainable mode for a business is Growth mode.”

So, back to the question of whether you should be in a 20 Group…if you are in Growth Mode, then you are on a path of seeking continuous improvement.. This requires new insights, new ideas, innovation and a thirst for knowledge. It is very difficult to continually generate fresh thinking on your own. Even with all the smart people you have in your store, it is too easy to fall into “groupthink” and miss the revelations that fresh eyes can shed. So, if you are in Growth mode, and want to stay that way, you should find a 20 Group and get active.

If you are in Trouble Mode, you need help. The good news is that you know you need help. There is no more cost effective way to get knowledge and instruction from good business people and like-minded dealers, many of whom were likely once struggling in the same areas as you are currently. For those of you in Trouble and you know it, a 20 Group is a must.

Even Keel Mode is really a myth. You may be Even Keel for weeks, or months, or maybe even a year or so, but there are people, competitors who are working on continuous improvement, and you will wake up one morning to find that some else just ate your lunch. You are either growing or dying. Suddenly, your customers are abandoning you. Your profits are down. Your employees are dissatisfied. Congratulations, you just made the big transition from Even Keel to Trouble. Wouldn’t you have enjoyed life even more if you could have skipped this step and moved right into Growth? Save yourself time, money and heartache by joining a 20 Group today.

For those reading this who fall into the Know-it-all mode, you probably are Oblivious and won’t recognize yourself. How can you tell if you fall into this category? Look in a mirror and force yourself to answer the following questions honestly:

Are you showing steady quarter over quarter and year over year improvements in your top and bottom line (seasonally adjusted, of course)?
Have you taken on a major new product, make a significant change in an in-store process or procedure, or have you asked for the help or advice of someone external to your store on a significant business issue in the last six months?
Are you able to confidently and consistently take time away from you business comfortable in the knowledge that the business will continue to run smoothly?

If you answered any two of these question No and you don’t see yourself as either Even Keel or Trouble, you fall into this fourth quadrant. If you answered No to all three, you are in Trouble today. Get into a 20 Group – now!

You can see for yourself what David Parker has to say about 20 Groups by viewing his video (click here).

20 Groups are important. They help, as long as you want to be in Growth Mode. If you are not concerned with being Growth Mode, then a 20 Group won’t help – unless it helps open your eyes.

Growth Mode is the only sustainable business mode. You should be seeking Growth Mode for your store, from your employees, from your vendors (yes, if you are Growth oriented, working with Vendors who are not will hold you back) and most importantly from yourself.

20 Groups may not be the only way to get a group of like-minded people together for the purpose of continuous growth and improvement, but they exist today. They function well. The infrastructure is there. Get to Growth with a 20 Group.

Speed Spells Sales Success

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speed-thrillsOnce you have a customer showing interest, speed thrills.  Going slow is the quickest thing to dull an otherwise enthusiastic buyer.  When someone is ready to buy, your job is to create the lowest possible barriers to actually accomplishing the purchase.

Lack of speed kills the sales process.  Your job is to make sure that you have “greased the skids” of every process and step in the buying process for your store so that every potential buyer turns quickly into a happily sold customer.

First Contact

There are four possible points of “first contact” where you have the ability and the requirement to influence the speed of the process.

1)   The Phone Rings In The Store – There is nothing that will put a potential buyer off more quickly than an unanswered phone call.  They were calling with a specific question or purpose.  If no one was there to deal with the question, this is an opportunity lost and there is a very high probability that the customer will move on to the next store.

Phone calls need to be answered by a human and with a very few rings.  The second most frustrating experience for a customer is the endless automated phone trees.  “Dial 1 for sales, dial 2 for service, dial 3 if you want to get trapped in a never ending series of dial instructions.”  This gets worse when there are two of three steps and the outcome is Voicemail.

Inbound calls are pure gold.  Make sure that during business hours a pleasant human being is available to handle those calls.

2)   You receive an email query – As with inbound calls, serious inbound email inquiries represent very serious potential buyers and should be treated efficiently and professionally.  There is no reason that every inbound email cannot be answered within one business hour.

The response should be complete, literate and should never demand more personal information or an in-store visit as the “price” for getting an answer.

3)   The customer walks in to your store – You should be able to make a sale to more than 80% of walk-ins (provided that they are financially capable of completing the transaction.)  Walks –ins should be personally and professionally greeted within one to five minutes.

4)   The customer is on your website – Just as slow or no response to phone calls is frustrating, poorly designed and poorly performing websites are quick to turn off your potential buyers.  Make sure that your website is fast – meaning that clicking links results in the new page instantly, or at least very quickly and that the site is easy to navigate.

If you elect to offer chat (and it is recommended that you do), make sure chat agents are always available whenever the chat option is visible.  Like unanswered calls, chats that receive no response, or which have very long delays between questions and answers will drive customers off of your site.

During the recent “Boating Industry State of the Industry 2014” webinar (which you should take a look at here), John Burnham, of Dominion Marine Media pointed out, “New boat shoppers and used boat shoppers are online in force.”  Your website must provide a suitable experience to capture and hold these shoppers.

The Most Common Question

Once you have established contact with a potential buyer quickly and professionally, you have to be prepared to answer their questions.  Besides the common inventory and vehicle specific questions, the single most common question is something around “Can I afford this vehicle?”

You must be prepared to help the customer understand just how much vehicle they can afford.  The best, least intrusive, and fastest way to help customers out is with a soft credit pull pre-approval process.  This can be done online, over the phone, through an email query or in your store.  With just the customers name, address, phone and email, you can get a real-time credit score so that you are equipped to guide them in the right direction.  It takes just a few interactive minutes to capture the basic information and the result is instantaneous.

Within minutes of first contact, you are now able to assure the customer that they can get the vehicle of their dreams.

The Sales Process

Your potential buyer is hooked.  Their initial experience was fast and awesome.  They know what they can buy.

If they were online or on the phone, now is the time to set an appointment to have them come in for a test drive.  If they are in your store, do the test drive now.

Once the test drive is complete, you are ready to help the buyer complete their purchase.  If they are paying cash, just do the appropriate OFAC compliance checks and send them on their way with their new vehicle.

If the customer is financing, and 65%-80% of all buyers finance some or all of their purchase, you need to complete a credit application and find them a loan.  With the pre-approval, you already have a pretty solid idea of how this will proceed, depending on which lending sources you have available to you.  Once you actually pull credit, you can know with a very high degree of certainty how likely they are to be approved, and how quickly they will know.

If the process is going to be quick, because they have a strong credit profile, have them wait a little bit, or visit your Pro Shop.  If they have some credit challenges, you might suggest that they go have a cup of coffee, because you may need to work with a few lenders and it may take a little longer.  In any case, you should be able to let them know the likely outcome and the time it may take in less than one minute after you run their credit application through the appropriate bureau.  (Check out First Approval Source’s “First Glance” program.)

Finishing The Sale

You have the approval and you know the finance terms.  The concepts of extended service agreements, GAP, and other protection programs should have been gently introduced during the sales process.  Now is the time  to sit down with the customer and review the loan terms and discuss the value of all of the backend product offerings.  This should take just a few minutes and the customer should quickly see the value of the “peace of mind” that these additional products offer for just a few added dollars per month.

There you are, ready to contract.  In general, it should take 15 – 30 minutes or less to prepare contracts.  There may be exceptions for certain lenders, but once again, you can set the appropriate expectation with you customer and make the process as efficient as possible.

Sign, smile, shake hands and take pictures for your social media sites.  The buyer is delighted.  The process was fast and painless with no surprises.  They become a walking billboard for your business.

Speed, speed, speed.  Speed thrills!  Speed makes sales!

The Seven Deadly Reasons For Financing Disappointment – “But I have a 750 and I can’t get a loan?”

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financing-magnifying-glass-words-load-mortgage-word-under-terms-like-interest-rate-loan-borrow-bank-qualify-options-34058926-300x262Of course, everyone who walks into store or visits your website is an 800 or better – until it turns out that they don’t.

Reality can be a harsh master at times, and when that 800 turns out to be a 560, there is really nothing anyone can do.  A 560 is simply not going to qualify for any recreational loan (never is a long time, and there could, in .0001% of all cases, be some combination of down payment, income, and explanation that would get some kind of very high interest loan).

The more disappointing cases are ones where someone truly is a 700, or even a 680, which should qualify for a loan 80-85% of the time and yet, no one will approve financing.  Equally disappointing are those folks for whom approvals are obtained, but who walk away because they don’t like the terms or can’t meet the conditions of the approval.

In the cases where people who, on the surface, should qualify don’t, or where people who do get an approval walk unsatisfied, there are Seven Deadly Reasons for this disappointment.  These seven reasons fall into two categories: The Number Is Not All It Seems and Miss-Set Expectations.

The Number Is Not All That It Seems 

1)   Too Much Revolving Debt – A person with a high score, 700-750,  may be doing an excellent job of managing their credit.  They have established credit.  They have several trade lines.  They are current on a car, boat or RV loan.  Everything looks great until you look at the amount of available revolving credit they have.  When their available revolving credit drops below 55-60%, lenders begin to back away.  What does this mean?  Suppose that 725 individual has five pretty high limit credit cards, allowing a total amount of available credit of $100,000.  If they have consumed $60,000 of that credit, loans are going to be a lot harder to get.  Lenders like to see at least 50% and generally 60% or better available revolving credit.

2)   Too Much Debt Relative To Income – Let’s look at the same 725 individual, with the same $100,000 limit.  This time they have only used $30,000.  They have a car loan, with a $35,000 balance and a motorcycle loan with a $15,000 balance.  Excluding their mortgage, they have $55,000 of debt.  We see that they have a respectable income of $125,000 annually.  They have $80,000 of debt with is 64%.  Recreational lenders like to see 40-45% or less debt to income.  Once again, without reflecting at all on this individual’s ability to manage their debt, their debt to income ratio will make lenders step back.  In many cases like this, lenders will ask if there is additional income available.  Without that additional income, a loan is a long-shot.

3)   Not Enough Credit History – Frequently occurring with younger borrowers, lenders do look at the number of cards and loans and like to see a solid history of payments.  It may be that on two or three cards and with a car loan, all just a year or two old, the individual has proven reliable and has a solid score.  The lack of more established history can make achieving financing a challenge.

4)   Bad History – Bankruptcy is not fatal.  It is entirely possible to have a score above 700 and have a discharged bankruptcy on your record.  That score, however, with a bankruptcy, puts a magnifying glass on every other aspect of the credit history.  What were guidelines with the bankruptcy become musts and they may be even more rigorous.  It is frequently possible to obtain a loan with rehabilitated credit, however, interest will be high and terms less favorable.

Miss-Set Expectations

5)   Proof Of Income – With increasing frequency, lenders are demanding proof of income.  This may be in the form of paystubs, or it may be in the form of tax returns.  Whatever form it takes, your customers need to know that may (and, in fact, today it is most of the time) required to prove the income number that they put down on their Credit Application.  If they can’t – no loan.  Once a lender asks for proof, there is no going back.  If the customer has misrepresented their income, what was a “Conditional Approval” will turn into a “Decline”.  It is incumbent on you to ensure that your customers understand that Income means Verifiable Income.

6)   Down Payment – With the exception of very occasional and very brand specific specials, recreational loans require a down payment of 10-25% depending on credit, term, amount financed, vehicle financed, etc.  Your customers need to be aware that they are going to have to put down AT LEAST 10%.  If there is a happy surprise and the terms get better, then that is good for everyone.  There is nothing more disappointing than turning in a Credit Application for a $30,000 vehicle, being approved for $27,000 (10% down) and not having that cash available.  It would have been better for everyone to know up-front that cash was needed.

7)   Don’t Like The Rate – Sales people tend to lead with a great rate promise.  “We can get you 4.99%.”  The problem is, the customer may well qualify for 7.99%, or you might want to make some money and so wanted to offer 5.99%. Well, guess what, if that customer was looking to finance $27,000 over 144 months and wanted to keep their payment under $300, all three rates work.  Some shoppers will walk away if they feel insulted by the rate, even if the payment works for them.  Sales people, and even finance people, until credit has been run, should always deflect rate conversations with, “We won’t know what rate you can or will get until we actually settle on your loan amount and run credit.  The important thing is that we will work hard to get you a payment that fits your budget.”  Talking rate ahead of real knowledge causes financing disappointment.

With knowledge and proper expectation setting, it is possible to ensure a finance experience that, even though not always successful, will at least be understandable, respectful and predictable.

Don’t let your customers or your team fall prey to “The Seven Deadly Reasons For Financing Disappointment!”

Considering A Financial Services Company – 10 Questions You Must Ask

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10-qsWe are coming into the time of year when  marine and RV dealers begin evaluating there vendors.  One type of service provider that is frequently evaluated  is the third-party financial services organization.

While there are many excellent reasons for using these companies, it is important both for ease of business and for maximum profit, that you evaluate these companies carefully.  Here are the 10 questions that you must ask in any such evaluation.

1)   Are they easy to work with?

No matter how you elect to interact with a financial services company, they are going to be an integral part of your business.  They must be flexible – and they must be easy to work and do business with.  You should feel comfortable that this team will interact well with your business and your customers.  You must know that their management will take your concerns and requests seriously.

2)   Do you have to turn over all financing?

Does the financial services company require that they do 100% of your financing?  Do they require that all banking/lender relationships are with them?  Do they have a policy that they will never charge for a transaction that they did not initiate?  Do they have a single, inflexible, “one-size-fits-all” mode of operation with your dealership?  You owe it to yourself to work with a company that understands and appreciates your business needs and adapts to those needs.

3)   Are they flexible in terms of customer interaction policies?

Does the service provider require that they do all of the customer interaction, or that you do?  Are they willing to treat each transaction and the associated customer interaction on a case-by-case basis, working as your partner and teammate without imposing an inflexible set of rules?  These are your customers – you deserve the right to establish the rules of engagement.

4)   Do they provide 24/7 access to transaction details?

A quality financial services provider capitalizes on technology.  From online forms and the ability to accept electronic payments for services, your financial services provider must offer you 24/7 access to the status of your transactions.  In addition, they must provide you with ongoing details as to reserve, invoices and other details  of your account.

5)   How much can you earn?

This is a big one.  Many providers offer a dealer only a 30% or 40% share of the funding reserve and other backend profit.  You deserve the right to earn up to 80% of the reserve and profit.  If your provider does not provide flexible rates based on your business volume, you are giving up valuable profit everyday.

6)   Are references available?

It goes without saying that your provider must have verifiable references.  They need to have other happy customers.  Go ahead and ask for them.

7)   Is a credit improvement program available?

Credit improvement is different than credit repair.  Credit repair programs take a long time and involve repeated interactions with the bureaus in an effort to get poor credit items either updated or removed.  A true credit improvement  program is far more tactical and efficient, and largely centers around the ability to determine what specific actions, in terms of closing, consolidating or paying off certain accounts, will result in identifiable credit score improvement.  Using a credit improvement program, your financial services provider can, from time to time cause an score improvement of 5 – 25 points or more and thus obtain a .25% rate improvement is just a matter of days.

8)   Will they provide OFAC and Red Flag information on cash buyers?

While OFAC and Red Flag checks are standard with credit customers, will your provider help you with cash buyers?  OFAC violations are just as likely, and perhaps more likely when customers pay cash.   If your partner in finance won’t help with people paying cash, then find another.

9)   Do they provide value beyond F&I services?

You should work with a partner who has the ability to provide broad value to your dealership.  Can your financial services provider help with leads, web services, reputation management or other areas?  Do they offer guidance and assistance in maximizing profit everywhere in your store…or are they limited in scope simply to F&I?  Optimizing performance of all areas of your store drives maximum profit and your provider should be laser focused on your business success.  You should be looking for a Profit Services company and not just a Financial Services company.

10)                    Do they demonstrate expertise in all areas of the marine/RV industries?

As your financial or profit services team interacts with your customers and the rest of your team, it is important that they understand your industry in more ways than simply how to put together a contract.  There ability to hold knowledgeable conversations inspires confidence and trust, and in doing that, helps grow your profit.

10 critical questions to ask about any financial services provider.  Be selective, you can have it all!

For Your Buyers, Paying Cash Is A Bad Idea

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piggybankWhen you have someone come into your store saying that they are going to pay cash for a vehicle, that is almost always a bad idea – for them and for you.

Someone who can pay cash, generally, will be a very good credit risk and so could get good financing terms.  Let’s look at the impact of paying cash on the consumer.

Where are they getting the cash?  There are a few options.

1)   They actually are borrowing from another lending source.

This is inconvenient for them and takes profit directly out of your pocket.  If the source is a Credit Union, they are almost getting a shorter term and a higher payment than you could provide them.  You should always inquire to see if they are will be placing a lien on the vehicle.  If they are, they are not really paying cash, they are just not financing from you and you should always ask them to let you try and help with the financing.

2)   They are borrowing against an unencumbered home.

This does two bad things for the consumer.  First, it now places an encumbrance on the home, which, if there is a cash crisis of some kind may limit their options.  Second, this is type of borrowing is not tax deductible.  They will still be paying interest, so the money is not free and they have just tied up their house.

3)   They are consuming some or all of their home equity line of credit.

This may seem like cheap money, but as with borrowing against an unencumbered home, they are not restricting their access to cash.  Not only that, home equity interest is only tax deductible up to $100,000 – once the home equity credit exceeds $100,000 your buyer  is once again paying interest.

4)   They are cashing out investments or taking money from savings.

While it may seem counter-intuitive, this is perhaps the very worst option.  Some simple math will show you why.

Let’s assume that they would need to borrow or finance $50,000.  Today, a buyer with good credit (and maximizing your reserve) can get an interest rate of 5.74% for 144 months.  After 5 years, they will have paid $12,097.46 in interest and after 12 years, they will have paid $69,296 for the vehicle, principle and interest.

If they had invested $50,000 in a tax free muni at 4.5% (and many of this people will be far more aggressive investors), after 5 years, they would have earned $12,589.79 in interest and after 12 years that entire investment would be worth $85,713.73.

In other words,  in 12 years of a conservative investment, they could have paid for their vehicle and still netted an addition $16,417.73, simply by investing $50,000 instead of paying cash.

No matter what the amount financed, these principles will always apply.  While the impact may seem more dramatic with higher loan amounts, the principal applies even for smaller cash transactions.  Good credit buyers who pay cash are losing money – every time.

So cash is bad for them, what about for you?  On this $50,000, your funding reserve would have been $3,000 plus whatever back-end profits you made.  By not trying help the consumer conserve cash and save money, you cost yourself $3,000 of profit.

Why should someone who can afford to pay cash ever pay cash? Clearly there is no risk to them, and a great deal of upside by financing.  The burden now falls on you to help them understand this and to help them help themselves.

How do you do this?  A simple form or calculator which illustrates the math described above should do the trick almost every time.  Some additional points for the consumer:

–       Even if you do decide to pay this off after a year, your investments and your capital are still intact and you have gained at least 12 months more time of having your money work for you;

–       If we add on credit life and disability, your loan is completely protected as is your nest egg.

While cash may be king, financing is the way to help build cash’s empire.