Without Credit, and Clueless

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j0309203“What do you mean I don’t qualify for a loan? I can easily make the monthly payments. My motor home was just repossessed a few weeks ago.”

Ever hear something like that?

David Damron, owner of Chaparral Motorsports in San Bernardino, Calif., has — many times. “People got some excess cash, so they think they can finance,” he told me in August. “And they seem to have somehow forgotten about the two repos. It’s unbelievable the amount of people that are coming in filling out credit apps that are in the high 400 scores and wanting to know why they couldn’t get financed because they’ve got the cash flow now because they’re obviously not having to make the payment on the boat or the car or the truck. They don’t understand.”

Heidi Byers, finance director for RideNow Powersports, a network of 26 dealerships, told me in July that the average credit score of walk-ins had dropped so much she suspected that the bureaus had changed their scoring methods. More likely, the dropping scores are the result of the mortgage meltdown and high unemployment.

I don’t pretend to understand precisely how the bureaus and lenders operate (I know it’s complicated), but it seems as if many people don’t even have a clue. Which is kind of surprising considering all that’s been written about the credit crisis since last fall — and all the commercials for free credit reports. Perhaps even these clueless people are starting to learn.

Until then, how should your employees handle these walk-ins? I’d be interested to know.

Some stores work directly with last-chance lenders like Help Me Ride. Other stores only refer their denied customers to these lenders. Dealership staff who offer these loans directly may also need special training. After all, 18 percent to 30 percent discount fees must outrage a lot of people.

Dealership staff could also be trained to educate customers on credit bureaus — and, more importantly, the lenders. Many customers assume YOU are the lender. And you certainly don’t want them blaming you for their denial. Someday they may have the credit or cash to buy something.

I recently came across an example of this confusion between dealers and lenders. For a survey we conducted to find out how the military views dealerships, one soldier wrote back, “I think the best thing that a dealership could do for the military is get no-questions-asked financing for soldiers.” Uh-huh. Wouldn’t all dealers love to obtain this if they could?

Consoling people who can’t be financed can be tricky, especially when they have relatively high credit scores but are nevertheless denied. More than one F&I manager has told me that applications seem to be denied and accepted for no rhyme or reason. But I’m guessing people usually want to hear a reason. What a crappy position to be in.

Considering that average acceptance rates have been below 50 percent for some time, dealership employees are getting plenty of practice at consoling people. After explaining the bureaus and lenders, the employee could also suggest credit counseling, perhaps recommending a website like the one for the National Foundation for Credit Counseling (www.nffc.org).

Or would that be offensive? It may be best to show you care without coming across as patronizing.

Now, I’m assuming consolation occurs after all hope of financing is lost. Your employees have suggested local credit unions, family loans, co-signers, etc. But many dealerships, either through a small number of lender relationships or incompetent employees, let people walk away who should have obtained financing.

This was one point made during a webinar I attended last week hosted by ADP Lightspeed’s Hal Ethington. The webinar offered seven ideas for a more efficient sales department. One idea pertained to customers seeking credit. Ethington said: Work the credit applications. Know your lenders. Interview your customer.

Dealers must learn the scoring system of each of its lenders, Ethington said. As an example, he presented a credit-risk scorecard used by a real lender to determine the grade of paper for which a customer qualifies. With this particular system:

  • A customer living at the same address for one year, seven months gets three more points than a customer living at the same address for one year, six months. But if employees don’t try to get precise answers, customers are likely to round down and lose the points.
  • Similarly, customers need to be precise when reporting how long they’ve had their job.
  • If they answer “no” to whether they have a “home phone” because they have a cell phone only, they lose 10 points instead of gaining seven, even though cell phones are perfectly acceptable as a home phone.
  • If customers don’t have a bank account for some reason (a major point deduction), Ethington suggested spending $20 to open one for them.
  • Accuracy with the occupation code is also important with this particular scorecard. A registered nurse scores higher than a nurse without qualification.
  • Finally, just a modest increase in the down payment can make or break a deal.

Ethington said the scorecard example was courtesy of F&I consultancy Reahard & Associates, which he recommended.

(Go to www.dealernews.com/lenders for a short list of secondary lenders you may want to start using.)

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3 Responses to “Without Credit, and Clueless”

  1. Matthew Says:

    “A customer living at the same address for one year, six months gets three more points than a customer living at the same address for one year, seven months. But if employees don’t try to get precise answers, customers are likely to round down and lose the points. ”

    Did you have this backwards? Why would someone living somewhere a month longer get less points?

  2. Arlo Redwine Says:

    Yes. Thanks for catching that.

  3. dealers truck Says:

    dealers truck…

    […]Without Credit, and Clueless « Dealernews Blog[…]…

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