The Forbes lists are based on sales reported from January through October 2007 and are compared to sales from the same period in 2006.
In the columns below the models are listed in the order found in the Forbes Magazine article. Next to each is the number of units reported sold for 10 months of 2007. The percentage up or down is the comparison of those reported sales with the same period in 2006.
2007 Best Selling Models:
1. Ford F-Series 588,952 -12.5%
2. Chev Silverado 526,575 -2.4%
3. Toyota Camry 398,868 +6.4%
4. Honda Accord 332,815 +10.2%
5. Toyota Corolla 317,796 -4.0%
6. Honda Civic 278,764 +2.2%
7. Chev Impala 270,504 +12.6%
8. Nissan Altima 239,800 +26.6%
9. Dodge Ram 214,569 -29.3%
10. Honda CR-V 184,003 +34.9%
2007 Worst Selling Models:
1. Cadillac XLR 1,525 -42.7%
2. Mazda B-Series 2,363 -35.3%
3. Isuzu Ascender 2,523 -40.3%
4. Jaguar X-Type 2,599 -44.2%
5. Jaguar S-Type 2,973 -44.3%
6. Audi A8/S8 3,092 -27.2%
7. Porsche Boxer 3,148 -21.5%
8. Lexus SC430 3,311 -33.2%
9. Isuzu i290/370 3,575 +21.1%
10. Jaguar XJ 3,637 -11.2%
Tuesday, January 15, 2008
Thursday, January 10, 2008
Researchers Explain Why Subprime Loans Default
by Jennifer Reed, Editor, Subprime Auto Finance News, January 10, 2008
CAMBRIDGE, Mass. — A recent report from the National Bureau of Economic Research analyzed the trends of subprime auto defaults at a large U.S. financial institution The data taken into account during the analysis included applications and sales from June 2001 through December 2004. This information was combined with records of loan payments, defaults and recoveries through April 2006.
"This gives us information on the characteristics of potential customers, the terms of the consummated transactions and gives the resulting loan outcomes," officials indicated. "We have additional data on the loan terms being offered at any given time as a function of credit score, and inventory data that allows us to observe the acquisition cost of each car, the amount spent to recondition it and the list price on the lot," they continued.
Overall, the researchers said there were more than 50,000 applications in the sample period. The average applicant was in his mid-30s with the monthly household income of $2,411. "Just over one-third of applicants purchase a car," the writers reported. "The average buyer has a somewhat higher income and somewhat better credit characteristics than the average applicant. In particular, the company assigns each applicant a credit category, which we partition into high, medium and low risk. The applicant pool is 26 percent low risk and 29 percent high risk, while the corresponding percentages for the poof of buyers are 35 and 17. Furthermore, the officials pointed out, "A typical car, and most are around three to five years old, costs around $6,000 to bring to the lot. The average sale price is just under $11,000 (negotiated price rather than list price). The average down payment is a bit less than $1,000, so after taxes and fees, the average loan size is similar to the sales price."
As many would suspect, researchers indicate that many purchasers would rather put down less of a down payment instead of more. "Forty-four percent make exactly the minimum down payment, which varies with the buyer's credit category, but is typically between $400 and $1,000. Some buyers do make down payments that are substantially above the required minimum, but the number is small. Less than 10 percent of buyers make down payments that exceed the required down payment," according to the report.
Moreover, the paper discovered that more than 85 percent of the loans had an annual interest rate of more than 20 percent, with about half of the loans showing the state-mandated maximum APR. Researchers highlighted that the most states, according to the data, had a standard 30-percent cap. "Our data ends before the last payments are due on some loans, but of the loans with uncensored payment periods, only 39 percent are repaid in full.
Moreover, loans that do default tend to default quickly," the analyzers found. In fact, they said, "Nearly half of the defaults occur before a quarter of the payments have been made, that is, within 10 months."
Another commonly known trend identified in the paper was the fact that demand for subprime auto loans tend to occur in a certain season, closely around the time tax rebates are released. "Overall, demand is almost 50 percent higher during tax rebate season than during other parts of the year. This seasonal effect substantially varies with household income and with the number of dependents, closely mirroring the federal earned income tax credit schedule," officials said. According to the report, applications are 23 percent more common in February than in other months, with the approval rate coming in at 40 percent, as opposed to 33 percent during the rest of the year. "These seasonal patterns cannot be attributed to sales or other changes in the firm's offers. In fact, required down payments are almost $150 higher in February, averaging across applicants in our data, than in other months of the year," the paper said. "Indeed, we initially thought these patterns indicated a data problem until the company pointed out that prospective buyers receive their tax rebates this time of year," officials mentioned.
Breaking it down further, the analysts discovered that households with monthly incomes below $1,500 and at least two dependents, meaning the rebate could be about $4,000, the number of applications doubles during February, with the number of purchases tripling. On the other hand, for households with incomes above $3,500 and no dependents, meaning the rebate is likely zero, the number of applications and purchases shows no increase whatsoever. "About 65 percent of February purchasers make a down payment above the required minimum, compared to 54 percent in the rest of the year," writers said. "Moreover, we estimate that after controlling for transaction characteristics, the desired down payment of a February buyer is about $300 higher than that of the average buyer. This is an enormous effect given that the average down payment is under $1,000.
"Second, we find that the demand is highly responsive to changes in minimum down payments. A $100 increase in the required down payment, holding car prices fixed, reduced demand by 7 percent. In contrast, generating the same reduction in demand requires an increase in car prices of close to $1,000." The paper found that a $1,000 increase in loan size ramps up the rate of default by more than 16 percent. "This alone provides a rationale for limiting loan sizes because the expected revenue from a loan is not monotonically increasing in the size of the loan. We find that borrowers who are observably at high risk of default are precisely the borrowers who desire the largest loans," the researchers described.
"The company we study assigns buyers into a small number of credit categories. We estimate that all else equal, a buyer in the worst category wants to borrow around $200 more than a buyer in the best category, and is more than twice more likely to default given equally sized loans," they pointed out. The analysts found that risk-based pricing can only help a lender within "observably different risk groups."
"We also look for, and find, evidence of adverse selection within risk groups driven by unobservable characteristics. Specifically, we estimate that a buyer who pays an extra $1,000 down for unobservable reasons will be 8 percent less likely to default than one who does not given identical cars and equivalent loan liabilities," the writer explained.
Offering a word of caution, the paper highlights, "So, while there are limits to what we can conclude with data from a single lender, we think that our results highlight the empirical relevance of informational models of consumer credit markets."
Returning to the company at hand, the officials said, "Almost all buyers finance a large fraction of their purchase with a loan that extends over a period of several years. What makes the company an unusual window into consumer borrowing is its customer population." More specifically, the customers are generally low-income workers, and most are subprime borrowers. Fewer than half of the company's applicants display a FICO score above 500, the paper noted. Furthermore, given the low credit quality of many of the applicants, researchers indicated that the company has invested heavily in proprietary credit-scoring technology.
Turning to another fact, researchers wrote, "Within credit category, buyers who have higher incomes, have bank accounts, do not live with their parents and have higher raw credit scores are all less likely to default. However, the fact that these characteristics predict default and are not directly priced does not necessarily imply a serious adverse selection problem in financing choices. "For example, buyers who live with their parents tend to make larger down payments, but have a greater likelihood of default later
CAMBRIDGE, Mass. — A recent report from the National Bureau of Economic Research analyzed the trends of subprime auto defaults at a large U.S. financial institution The data taken into account during the analysis included applications and sales from June 2001 through December 2004. This information was combined with records of loan payments, defaults and recoveries through April 2006.
"This gives us information on the characteristics of potential customers, the terms of the consummated transactions and gives the resulting loan outcomes," officials indicated. "We have additional data on the loan terms being offered at any given time as a function of credit score, and inventory data that allows us to observe the acquisition cost of each car, the amount spent to recondition it and the list price on the lot," they continued.
Overall, the researchers said there were more than 50,000 applications in the sample period. The average applicant was in his mid-30s with the monthly household income of $2,411. "Just over one-third of applicants purchase a car," the writers reported. "The average buyer has a somewhat higher income and somewhat better credit characteristics than the average applicant. In particular, the company assigns each applicant a credit category, which we partition into high, medium and low risk. The applicant pool is 26 percent low risk and 29 percent high risk, while the corresponding percentages for the poof of buyers are 35 and 17. Furthermore, the officials pointed out, "A typical car, and most are around three to five years old, costs around $6,000 to bring to the lot. The average sale price is just under $11,000 (negotiated price rather than list price). The average down payment is a bit less than $1,000, so after taxes and fees, the average loan size is similar to the sales price."
As many would suspect, researchers indicate that many purchasers would rather put down less of a down payment instead of more. "Forty-four percent make exactly the minimum down payment, which varies with the buyer's credit category, but is typically between $400 and $1,000. Some buyers do make down payments that are substantially above the required minimum, but the number is small. Less than 10 percent of buyers make down payments that exceed the required down payment," according to the report.
Moreover, the paper discovered that more than 85 percent of the loans had an annual interest rate of more than 20 percent, with about half of the loans showing the state-mandated maximum APR. Researchers highlighted that the most states, according to the data, had a standard 30-percent cap. "Our data ends before the last payments are due on some loans, but of the loans with uncensored payment periods, only 39 percent are repaid in full.
Moreover, loans that do default tend to default quickly," the analyzers found. In fact, they said, "Nearly half of the defaults occur before a quarter of the payments have been made, that is, within 10 months."
Another commonly known trend identified in the paper was the fact that demand for subprime auto loans tend to occur in a certain season, closely around the time tax rebates are released. "Overall, demand is almost 50 percent higher during tax rebate season than during other parts of the year. This seasonal effect substantially varies with household income and with the number of dependents, closely mirroring the federal earned income tax credit schedule," officials said. According to the report, applications are 23 percent more common in February than in other months, with the approval rate coming in at 40 percent, as opposed to 33 percent during the rest of the year. "These seasonal patterns cannot be attributed to sales or other changes in the firm's offers. In fact, required down payments are almost $150 higher in February, averaging across applicants in our data, than in other months of the year," the paper said. "Indeed, we initially thought these patterns indicated a data problem until the company pointed out that prospective buyers receive their tax rebates this time of year," officials mentioned.
Breaking it down further, the analysts discovered that households with monthly incomes below $1,500 and at least two dependents, meaning the rebate could be about $4,000, the number of applications doubles during February, with the number of purchases tripling. On the other hand, for households with incomes above $3,500 and no dependents, meaning the rebate is likely zero, the number of applications and purchases shows no increase whatsoever. "About 65 percent of February purchasers make a down payment above the required minimum, compared to 54 percent in the rest of the year," writers said. "Moreover, we estimate that after controlling for transaction characteristics, the desired down payment of a February buyer is about $300 higher than that of the average buyer. This is an enormous effect given that the average down payment is under $1,000.
"Second, we find that the demand is highly responsive to changes in minimum down payments. A $100 increase in the required down payment, holding car prices fixed, reduced demand by 7 percent. In contrast, generating the same reduction in demand requires an increase in car prices of close to $1,000." The paper found that a $1,000 increase in loan size ramps up the rate of default by more than 16 percent. "This alone provides a rationale for limiting loan sizes because the expected revenue from a loan is not monotonically increasing in the size of the loan. We find that borrowers who are observably at high risk of default are precisely the borrowers who desire the largest loans," the researchers described.
"The company we study assigns buyers into a small number of credit categories. We estimate that all else equal, a buyer in the worst category wants to borrow around $200 more than a buyer in the best category, and is more than twice more likely to default given equally sized loans," they pointed out. The analysts found that risk-based pricing can only help a lender within "observably different risk groups."
"We also look for, and find, evidence of adverse selection within risk groups driven by unobservable characteristics. Specifically, we estimate that a buyer who pays an extra $1,000 down for unobservable reasons will be 8 percent less likely to default than one who does not given identical cars and equivalent loan liabilities," the writer explained.
Offering a word of caution, the paper highlights, "So, while there are limits to what we can conclude with data from a single lender, we think that our results highlight the empirical relevance of informational models of consumer credit markets."
Returning to the company at hand, the officials said, "Almost all buyers finance a large fraction of their purchase with a loan that extends over a period of several years. What makes the company an unusual window into consumer borrowing is its customer population." More specifically, the customers are generally low-income workers, and most are subprime borrowers. Fewer than half of the company's applicants display a FICO score above 500, the paper noted. Furthermore, given the low credit quality of many of the applicants, researchers indicated that the company has invested heavily in proprietary credit-scoring technology.
Turning to another fact, researchers wrote, "Within credit category, buyers who have higher incomes, have bank accounts, do not live with their parents and have higher raw credit scores are all less likely to default. However, the fact that these characteristics predict default and are not directly priced does not necessarily imply a serious adverse selection problem in financing choices. "For example, buyers who live with their parents tend to make larger down payments, but have a greater likelihood of default later
Wednesday, January 9, 2008
Do You Know Where Your Special Finance Leads Have Been?
by Jim Wagner.
Have Your Special Finance Leads Been Around the Block?
As you probably know, special finance leads have become big business. The other day I was talking to someone very involved in the automotive lead business who told me that there are over 1.5 million leads generated every month. That, he believes, is a conservative number. Four or five years ago there were only a handful of players in the auto lead business. Now there are over two dozen.
A side effect of this expansion is that marketing firms not primarily associated with automotive leads are entering the space. They are generating leads that are not necessarily genuine auto shoppers, but consumers who are initially interested in other products. These leads are being disseminated on the wholesale market. With the average cost of leads currently over $20, it pays to learn how to distinguish genuine auto shoppers and leads from people not primarily looking for auto loans. How do you go about doing so? In an article you’ll never find in a trade magazine, we’re going to tell you how.
The Wholesale Lead Network
Most of the leads that you’ve been purchasing are generated when a consumer starts searching for alternate finance options on the internet. Most of the time, these shoppers will use a search engine, such as Google, and use keywords like “auto loan” or “car finance“. Special finance lead generators pay big money to ensure that their landing pages, like the one below, come up high on the page when these terms are submitted.
If your lead provider is sending 100% of these leads to you, then you’re getting what you were promised. Of course, you’re not going to close every one of these leads, but at least you’re getting your money’s worth.
Wholesale Leads and Coregistration
When you sign a contract with a lead generator and ask for 150 leads a month, his goal is to organically produce these leads on his own landing pages. Let’s call him Generator A. However, he may have several dealerships in your area. Or, you may exist in a lead scarce market. If that’s the case, and he does not have enough “inventory”, then he’s going to look to the wholesale market for more leads to meet your demand.
Generator A will have pre-arranged partnerships, let’s say with Generator B and Generator C, where he can buy leads when his inventory runs out or sell when he has excess leads. This takes place automatically, so nobody feels the difference. As long as he’s done his homework about his wholesale partners and has investigated their lead quality, everyone wins. He gets the supply he needs and you are a happy paying customer.
However, the demand for leads has put pressure on everybody to source more and more volume. Let’s say, responding to this demand, A decides to start two new partnerships, with Generators D and E. Let’s also assume that D is in the payday loan business, and E is in the prepaid credit card business. Those leads are going to perform differently than the others because they are not organic auto shoppers. How does D and E generate auto leads if they are not in the auto business? Through a process called coregistration.
Coregistration
Coregistration is a common tactic online marketers use to generate many leads from a single customer. Simply put, a coreg lead is generated when a consumer, interested in a particular offer or product (such as the payday and credit card examples) is asked to “opt in” on related offers. If they agree, and choose “auto loans”, then a special finance lead is generated, sent through the wholesale network, and sold as a special finance lead to a dealership.
Before you panic and call your lead generator, understand that not all coreg leads are the same. For example, a consumer who subscribes to a free credit report service in order to prepare for an automobile purchase is a genuine auto shopper. This lead will perform as well as any other. I would feel good about buying these leads.
How can you ensure that the leads you buy are genuine auto buyers? How do you protect your close rate and maximize your return on investment? Unfortunately, there is no simple answer. You’re going to have to do your homework.
Have Your Special Finance Leads Been Around the Block?
As you probably know, special finance leads have become big business. The other day I was talking to someone very involved in the automotive lead business who told me that there are over 1.5 million leads generated every month. That, he believes, is a conservative number. Four or five years ago there were only a handful of players in the auto lead business. Now there are over two dozen.
A side effect of this expansion is that marketing firms not primarily associated with automotive leads are entering the space. They are generating leads that are not necessarily genuine auto shoppers, but consumers who are initially interested in other products. These leads are being disseminated on the wholesale market. With the average cost of leads currently over $20, it pays to learn how to distinguish genuine auto shoppers and leads from people not primarily looking for auto loans. How do you go about doing so? In an article you’ll never find in a trade magazine, we’re going to tell you how.
The Wholesale Lead Network
Most of the leads that you’ve been purchasing are generated when a consumer starts searching for alternate finance options on the internet. Most of the time, these shoppers will use a search engine, such as Google, and use keywords like “auto loan” or “car finance“. Special finance lead generators pay big money to ensure that their landing pages, like the one below, come up high on the page when these terms are submitted.
If your lead provider is sending 100% of these leads to you, then you’re getting what you were promised. Of course, you’re not going to close every one of these leads, but at least you’re getting your money’s worth.
Wholesale Leads and Coregistration
When you sign a contract with a lead generator and ask for 150 leads a month, his goal is to organically produce these leads on his own landing pages. Let’s call him Generator A. However, he may have several dealerships in your area. Or, you may exist in a lead scarce market. If that’s the case, and he does not have enough “inventory”, then he’s going to look to the wholesale market for more leads to meet your demand.
Generator A will have pre-arranged partnerships, let’s say with Generator B and Generator C, where he can buy leads when his inventory runs out or sell when he has excess leads. This takes place automatically, so nobody feels the difference. As long as he’s done his homework about his wholesale partners and has investigated their lead quality, everyone wins. He gets the supply he needs and you are a happy paying customer.
However, the demand for leads has put pressure on everybody to source more and more volume. Let’s say, responding to this demand, A decides to start two new partnerships, with Generators D and E. Let’s also assume that D is in the payday loan business, and E is in the prepaid credit card business. Those leads are going to perform differently than the others because they are not organic auto shoppers. How does D and E generate auto leads if they are not in the auto business? Through a process called coregistration.
Coregistration
Coregistration is a common tactic online marketers use to generate many leads from a single customer. Simply put, a coreg lead is generated when a consumer, interested in a particular offer or product (such as the payday and credit card examples) is asked to “opt in” on related offers. If they agree, and choose “auto loans”, then a special finance lead is generated, sent through the wholesale network, and sold as a special finance lead to a dealership.
Before you panic and call your lead generator, understand that not all coreg leads are the same. For example, a consumer who subscribes to a free credit report service in order to prepare for an automobile purchase is a genuine auto shopper. This lead will perform as well as any other. I would feel good about buying these leads.
How can you ensure that the leads you buy are genuine auto buyers? How do you protect your close rate and maximize your return on investment? Unfortunately, there is no simple answer. You’re going to have to do your homework.
Thursday, December 27, 2007
New FICO Score to be More Understanding
New FICO Score to be More UnderstandingDec 26, 2007 Consumers caught in the subprime mortgage crisis may find some relief with Fair Isaac’s new FICO 08. Aside from providing a more accurate risk assessment of consumer credit, the new formula also aims to reward customers for keep other credit accounts up to date.
“The main thing we tried to do with the score was to make sure it was in tune with current consumer behaviors,” said Fair Isaac’s Craig Watts. “We changed the formula to improve the predictiveness.”
The new formula takes into account consumer credit behaviors in all credit areas rather than focusing on accounts that have gone delinquent. Now, consumers who’ve fallen behind on one account could be rewarded for remaining in good standing with other credit accounts.
“If a person has a repossession or foreclosure on their credit score today, that casts a shadow over everything else. They are scored along with other people with serious delinquencies,” explained Watts. “But this new formula looks at not just serious delinquencies, but also at whether consumers have other accounts with positive credit histories. The consumer’s score is not penalized as much for serious delinquencies that are uncommon to his or her credit behavior.”
Although a consumer’s credit standing will vary from lender to lender, the new formula may present more opportunities for F&I managers to get consumer loans bought.
“Our expectation is that lenders will reduce the amounts of defaults on loans by 5 to 15 percent in certain demographic groups. It really helps with consumers who already have serious credit problems, those who are new to credit and those who are seeking credit.”
“The main thing we tried to do with the score was to make sure it was in tune with current consumer behaviors,” said Fair Isaac’s Craig Watts. “We changed the formula to improve the predictiveness.”
The new formula takes into account consumer credit behaviors in all credit areas rather than focusing on accounts that have gone delinquent. Now, consumers who’ve fallen behind on one account could be rewarded for remaining in good standing with other credit accounts.
“If a person has a repossession or foreclosure on their credit score today, that casts a shadow over everything else. They are scored along with other people with serious delinquencies,” explained Watts. “But this new formula looks at not just serious delinquencies, but also at whether consumers have other accounts with positive credit histories. The consumer’s score is not penalized as much for serious delinquencies that are uncommon to his or her credit behavior.”
Although a consumer’s credit standing will vary from lender to lender, the new formula may present more opportunities for F&I managers to get consumer loans bought.
“Our expectation is that lenders will reduce the amounts of defaults on loans by 5 to 15 percent in certain demographic groups. It really helps with consumers who already have serious credit problems, those who are new to credit and those who are seeking credit.”
Wednesday, December 26, 2007
The Tax Man Cometh…Only He Might Be A Little Late This Year
Late changes to the alternative minimum tax (AMT) provision of the IRS Rules could leave refunds delayed or worse. The AMT was originally intended for the wealthy few when it was created nearly 40 years ago. But because Congress never indexed for inflation the amount of income exempt from AMT and because it disallows a lot of popular tax breaks, tens of millions of middle-class taxpayers could get hit.
Early filers may be forced to submit amended returns in order to comply with any changes. The IRS needs at least seven weeks to analyze any changes in the tax laws, write the necessary software codes and test it. In addition, the IRS needs time to notify all tax professional and others affected. As such, IRS deputy commissioner Richard Spires has warned of a significant backlog in processing returns, as well as the ensuing confusion for taxpayers.
“There are a lot of people that file early and a lot of people that rely on getting those refund checks in that early February time frame,” Mr. Spires said in an interview. “If we’re not able to process those returns for them, we believe it will have a significant impact on them.”
New 1040 and 1040A tax booklets and instructions have already been printed. But 12 related tax forms, including one for the AMT and others for a variety of tax credits, must be revised and put through a new printing cycle if Congress approves new legislation. The credits include those for education expenses and for child and dependent care expenses.
What does this mean for auto dealers? Typically, taxpayers who expect refunds tend to file earlier than others. For tax year 2006, 103 million filers out of 135 million got refunds averaging $2,259 Consumers who traditionally rely on their tax return money for down payments may be forced to wait for their returns longer than usual. The rush of customers who file early to receive quick refunds may be delayed until the IRS sorts this all out.
Early filers may be forced to submit amended returns in order to comply with any changes. The IRS needs at least seven weeks to analyze any changes in the tax laws, write the necessary software codes and test it. In addition, the IRS needs time to notify all tax professional and others affected. As such, IRS deputy commissioner Richard Spires has warned of a significant backlog in processing returns, as well as the ensuing confusion for taxpayers.
“There are a lot of people that file early and a lot of people that rely on getting those refund checks in that early February time frame,” Mr. Spires said in an interview. “If we’re not able to process those returns for them, we believe it will have a significant impact on them.”
New 1040 and 1040A tax booklets and instructions have already been printed. But 12 related tax forms, including one for the AMT and others for a variety of tax credits, must be revised and put through a new printing cycle if Congress approves new legislation. The credits include those for education expenses and for child and dependent care expenses.
What does this mean for auto dealers? Typically, taxpayers who expect refunds tend to file earlier than others. For tax year 2006, 103 million filers out of 135 million got refunds averaging $2,259 Consumers who traditionally rely on their tax return money for down payments may be forced to wait for their returns longer than usual. The rush of customers who file early to receive quick refunds may be delayed until the IRS sorts this all out.
Friday, December 21, 2007
Appropriate Subprime Inventory
A far too common objection heard when discussing Special Finance is, “We just don’t have any Subprime inventory!” or “All our used cars are out of the book!” By far the most difficult part of special finance can be to get the “right vehicles”. The list seems to change daily.
Obviously, any vehicle that can be obtained “behind book” is the right vehicle. Current year program cars, which can be sold from like invoice, are good units to have. Typically, the best vehicles are trade-ins, since these are the units you tend to own best. Keep in mind that SFI vehicles don’t have to be movie stars. If they run good, this can overcome some objections to minor imperfections (a dent or a ding) and if done correctly, Special Finance is about selling the loan, not selling the vehicle, Sell the concept of rebuilding credit. Qualify for a loan and then get a car!
The ideal vehicle is 3-4 years old, with less than 50,000 miles. Look for family type vehicles, i.e. 4 door sedans, SUV’s and minivans. Base pickups are good units as well. Stay away from the high lines and sports cars. These have limited appeal and tend to be tough to insure. Remember that the cost of insurance can make or break a deal – and the down payment for full coverage may have to come out of the gross. Don’t necessarily overlook the need to have some older, higher mileage units on the lot. These units don’t need the full reconditioning but need to be safe and functional. They are perfect for those deeper lenders as well as customers who simply need basic transportation. Create a “Credit Corral” to supplement standard Sub prime inventory. These are units that might typically be wholesaled but, with a minimal shop investment, can be made saleable and turn what might be a wholesale loss into retail profit. This can result in a few extra units sold each month.
Be flexible. Having a wide spectrum of used cars is a safe bet. The worst scenario is to have an approval without a vehicle to show. Make sure there is an adequate amount of used car inventory on the lot. As a general of thumb is a sales-to-inventory ratio of 2:1. For example having 60 vehicles available for sale is typically what is needed to sell 30 subprime units. Keep a good mix of vehicles on the lot to have the ability to land the right cars on customers.
Make sure the Used Car Manager knows what’s hot and what’s not with lenders. Certain vehicles may be restricted (limited advance) or ineligible (unable to finance) with a particular lender. Keep the used car manager up to date on model year change-over as well (when the lender considers current year models to be 1 year old and so on down the line.) The Used Car Manager is the inventory lifeline. Take a short deal on a 60+ day old unit every now and then, especially on a short deal, to help level out the used car inventory.
Check the lot everyday for new arrivals. Used Car Managers should lets the Special Finance department know what was bought or traded for in the last few days. Book out every retail unit to determine which ones have the best loan to value. (Loan to value or LTV is the cost of the unit versus the book value.) A unit with a strong book has a loan value significantly higher than its cost, which generates higher profit or allows the absorption of negative equity or high discount fees. Remember that, while most lenders use NADA trade for their book values, some lenders use Kelly Blue Book for their valuations.. Be careful not to “power book” a vehicle (add options that are not on the vehicle). Lenders may verify the equipment with the customer during their interview, and will seek to chargeback any over-booking they find.
Many dealerships have software to book out your inventory. Dealer Track and Route One both have modules available for this purpose. Keep a binder on your desk, with a sheet for each vehicle on the lot that is “retail ready”; these sheets can be used as part of the funding packages. Update this book daily, removing sold or wholesaled units and adding in fresh trade-ins or purchased units. There’s nothing worse than structuring a deal on a unit that is no longer on the lot. In addition, by having the inventory booked out in advance, it is easy to find which units have the greatest markup potential which helps overcome major negative equity for a customer as well as turn substantial profits.
Don’t be afraid of new vehicles in a franchised dealership. Vehicles with substantial dealer cash (not consumer rebates, but money paid by the manufacturer directly to the dealership if it meets sales objectives on a particular model) may allow a structure on a new car deal which makes it very attractive to a lender. Use any manufacture’s rebate as part of the down payment. Often, with a minimal customer down payment, a deal can be structured at 80% loan-to-value (the amount of the loan versus the invoice of the vehicle), which is that magic number which gets a lender’s attention. Keep up to date on incentives, as they may get better as the month goes on.
Obviously, any vehicle that can be obtained “behind book” is the right vehicle. Current year program cars, which can be sold from like invoice, are good units to have. Typically, the best vehicles are trade-ins, since these are the units you tend to own best. Keep in mind that SFI vehicles don’t have to be movie stars. If they run good, this can overcome some objections to minor imperfections (a dent or a ding) and if done correctly, Special Finance is about selling the loan, not selling the vehicle, Sell the concept of rebuilding credit. Qualify for a loan and then get a car!
The ideal vehicle is 3-4 years old, with less than 50,000 miles. Look for family type vehicles, i.e. 4 door sedans, SUV’s and minivans. Base pickups are good units as well. Stay away from the high lines and sports cars. These have limited appeal and tend to be tough to insure. Remember that the cost of insurance can make or break a deal – and the down payment for full coverage may have to come out of the gross. Don’t necessarily overlook the need to have some older, higher mileage units on the lot. These units don’t need the full reconditioning but need to be safe and functional. They are perfect for those deeper lenders as well as customers who simply need basic transportation. Create a “Credit Corral” to supplement standard Sub prime inventory. These are units that might typically be wholesaled but, with a minimal shop investment, can be made saleable and turn what might be a wholesale loss into retail profit. This can result in a few extra units sold each month.
Be flexible. Having a wide spectrum of used cars is a safe bet. The worst scenario is to have an approval without a vehicle to show. Make sure there is an adequate amount of used car inventory on the lot. As a general of thumb is a sales-to-inventory ratio of 2:1. For example having 60 vehicles available for sale is typically what is needed to sell 30 subprime units. Keep a good mix of vehicles on the lot to have the ability to land the right cars on customers.
Make sure the Used Car Manager knows what’s hot and what’s not with lenders. Certain vehicles may be restricted (limited advance) or ineligible (unable to finance) with a particular lender. Keep the used car manager up to date on model year change-over as well (when the lender considers current year models to be 1 year old and so on down the line.) The Used Car Manager is the inventory lifeline. Take a short deal on a 60+ day old unit every now and then, especially on a short deal, to help level out the used car inventory.
Check the lot everyday for new arrivals. Used Car Managers should lets the Special Finance department know what was bought or traded for in the last few days. Book out every retail unit to determine which ones have the best loan to value. (Loan to value or LTV is the cost of the unit versus the book value.) A unit with a strong book has a loan value significantly higher than its cost, which generates higher profit or allows the absorption of negative equity or high discount fees. Remember that, while most lenders use NADA trade for their book values, some lenders use Kelly Blue Book for their valuations.. Be careful not to “power book” a vehicle (add options that are not on the vehicle). Lenders may verify the equipment with the customer during their interview, and will seek to chargeback any over-booking they find.
Many dealerships have software to book out your inventory. Dealer Track and Route One both have modules available for this purpose. Keep a binder on your desk, with a sheet for each vehicle on the lot that is “retail ready”; these sheets can be used as part of the funding packages. Update this book daily, removing sold or wholesaled units and adding in fresh trade-ins or purchased units. There’s nothing worse than structuring a deal on a unit that is no longer on the lot. In addition, by having the inventory booked out in advance, it is easy to find which units have the greatest markup potential which helps overcome major negative equity for a customer as well as turn substantial profits.
Don’t be afraid of new vehicles in a franchised dealership. Vehicles with substantial dealer cash (not consumer rebates, but money paid by the manufacturer directly to the dealership if it meets sales objectives on a particular model) may allow a structure on a new car deal which makes it very attractive to a lender. Use any manufacture’s rebate as part of the down payment. Often, with a minimal customer down payment, a deal can be structured at 80% loan-to-value (the amount of the loan versus the invoice of the vehicle), which is that magic number which gets a lender’s attention. Keep up to date on incentives, as they may get better as the month goes on.
Monday, December 10, 2007
Mailing Lists and Pre-approved Credit
In the days of direct marketing, businesses prepared a single mail piece, sent it to virtually everyone, then waited for consumers to buy. Today, most companies develop a description of their ideal customers and then tailor unique sales offers to fit those customers’ needs. This approach is called target marketing.
The right mailing list helps a business reach only those consumers who are likely to be most interested in its products and services. Target marketing reduces “junk” mail – advertising mail that does not relate to their interests or needs.
The right mailing list helps a business reach only those consumers who are likely to be most interested in its products and services. Target marketing reduces “junk” mail – advertising mail that does not relate to their interests or needs.
By eliminating consumers who don’t fit a specific description, a company can mail fewer but more effective offers.
How consumers get on a mailing list
There are three main ways a name might get on a mailing list:
Magazines, credit card companies, clubs and organizations, charities, manufacturers, and retailers make lists of their subscribers, customers, members, and donors available to other businesses for a rental fee.
Companies purchase information from various public and private sources to develop consumer databases for specific marketing purposes. These companies are called list compilers. Nearly everyone’s name appears on compiled lists.
Credit reporting agencies (including Experian), under legally specified conditions, provide lists of creditworthy consumers for companies to offer credit. These are called prescreened lists.
Why consumers receive pre-selected credit offers
From a credit grantor’s perspective, prescreening is a cost-effective way to secure new customers who are most likely to use credit wisely and repay their debts on time. It allows a credit grantor to define an “ideal” consumer, decide how much credit to give that potential customer, and then send a pre-selected offer to thousands or even millions of consumers who match this description.
If a consumer receives a pre-selected credit offer, all that has to be done to accept it is sign and provide a few other limited pieces of information. The responding consumer will be given a line of credit provided they still meet the predetermined criteria. However, the federal Fair Credit Reporting Act allows creditors to review credit history when a consumer accepts the offer. If the consumer no longer meets the criteria, the application may be denied.
Protecting consumer rights
The entire process of ordering lists, generating mailing labels and sending offers to consumers is automated by the use of computer tapes and computer processing. Large numbers of names – from a few thousand to many million – are processed at one time.
Marketers don’t review individual records. In fact, they rarely even see consumer names. Third-party companies generally print mailing labels, attach them to the advertising mail and take the mail to the Post OfficeTM.
The prescreening process contains additional consumer protections:
Consumer credit information is summarized and coded for confidentiality.
Federal guidelines require that consumers who are selected by the prescreening process receive a “firm offer” of credit or insurance.
Federal law requires credit grantors to extend credit in a fair and consistent manner. They cannot consider such factors as your sex, marital status, race or religion.
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