Listen carefully…and don’t tell anyone else…we don’t want this to get out.
The secret to F&I success is that there is no secret. F&I success comes from solid, consistent execution built on a sound infrastructure. No magic pixie dust! No secret lenders that make all the difference! No special words or mythical sales techniques.
It makes me chuckle when people talk about getting great rates or having special abilities to address credit challenged customers. Everyone can get great rates and everyone can service non-prime buyers…there is no secret.
I was asked recently, at a Dealer’s Meeting, what is the best rate you are seeing? That question, in part inspired by some Service Providers, is academically interesting, but practically not very useful.
There are three or four national prime lenders available to marine dealers and a handfull of regional prime dealers. Once you are affiliated with those lenders, and once you fully understand their underwriting guidelines, you will get the best buy rate for your customer based on their credit profile – every time.
Now, that said, the best buy rate for a specific customer may actually not be what is best for you or the customer. Some lenders let you bump to 7% reserve, some 6%, in some cases, depending on loan amount and LTV, you may get capped at 4% or even 2% or 3%. In some cases you may get a bonus on deal, and if you use the auto-approve programs, you may get an additional 0.25% off the base buy rate.
The “best rate” and more importantly the reserve, are based on the credit profile of the consumer and the underwriting guidelines of the lender – every time, all the time. You have no practical ability to influence either of these (although there are rapid rescore, credit improvement programs available that can change a shoppers credit profile favorably in as few as five days.) Your job, and the thing that you absolutely control is getting established with these lenders and fully understanding their programs, so that you can reliably put your prime shoppers in front of the right lenders, without wasting the other lenders time.
You can influence your look-to-loan ratio…and that can be important. If that ratio gets too out of line, you could lose a lender…so the “throw mud at a wall and see what sticks” approach to application submission in an effort to capture rate can be counter-productive. Remember, when you submit an application to four lenders, in the best case, you are not going to give the deal to three of them. That adds up over time.
The other thing that you can do is work hard at establishing good, personal working relationships with your rep and with the underwriters at those lenders. They are the people who you need. If you are the person who is always begging or harrangueing the underwriter, you may be hurting yourself. No underwriter has the authority to change a program…if you can have developed and maintained good solid relationships and work hard to put good deals in front of them, they might waive a stipulation for you, or even tell you how to restructure a deal to make it work. Keep those relationships.
So…no secrets there. Knowledge and relationships will get you the best rates and the best reserves.
Okay, so what about credit challenged buyers? The answer here is exactly the same.
There are a couple of national near prime lenders and about three national (or near national) non-prime lenders. The work that needs to be put in here is identifying local banks and credit unions which offer indirect lending programs.
Once you have identified the pool of lenders, you have to understand their programs and underwriting guidelines.
I would exercise caution here. There is no benefit whatsoever in having two available lenders with identical programs…so having ten local banks and credit unions may be no better than having three. You do gain leverage through loyalty and volume – spreading the wealth among lenders is a losing strategy. Look to book matters among the non-prime lenders too.
Relationships matter a lot in this category. There are virtually always going to more stipulations and more areas where your friendly underwriter can help you.
The basics of blocking and tackling on backend sales are the topic for another blog, but the fundamental truth remains the same.
F&I Profit potential is a level playing field. Execute the basics; equip your team with the right relationships; be educated and consistent! There are no secrets!