Someone finally asked me to explain to them how to structure a deal and when I asked them why their sales manager or GM hadn't trained them they said these people were too busy. Too busy to teach someone how to help your dealership make extra money? They just don't know and are embarrassed to admit they don't know how to structure a deal. Maximizing gross in this business requires some critical steps that the majority of managers in this business never seem to learn and they'd better catch on to it if they ever want to make the big money. There's big money in the bike business? Yes, there is but not for average managers or even above average. You've got to be good to great and those people definitely know how to structure a deal. This allows you to maximize the opportunities for gross profit.
So, how do we structure deals? I’ll simplify it with five steps and begin with the credit bureau to figure out which lender we’re going to use.
Step One: Look at the credit app and run the bureau. Does the payment fall within the debt to income parameters of the lender? Does the buyer have cash down? Take the score, 2 or 3 rate sheets of the lenders who are most likely to approve your deal and figure out who will finance all of it plus allow the buyer to purchase all of your back-end products, along with giving you some reserve or at least flat fee.
Step Two: Get your calculator out. Take the credit score, locate the range the it falls into on the rate sheet and make sure the term you’re going to offer falls within the lender's guidelines. Locate the rates the score qualifies for and then the LTV (loan to value). A FICO of 650 may qualify for 85 percent to 140 percent LTV (plus back-end products, plus t,t &l), depending on the bank you go with. Read the rate sheet.
Step Three: Figure the LTV. Start at the invoice if the unit is new (and if your lender guidelines say to base LTV off of invoice) and multiply the invoice by the LTV (don’t subtract rebates or any other incentives). If the invoice is $10,000 and the LTV is 140 percent it means your maximum amount financed is $14,000. Plus, your lender will likely let you add tax, title, doc and protection products. Often times the allowance for protection products ranges from 15 percent of the vehicle value out to $3,500. Most lenders have their own deal structure guidelines that they want you to follow.
Step Four: Submit your deal to a couple of the lenders that your deal qualifies for.
Step Five: Be prepared to rehash a deal with your lender. Oftentimes customers with marginal credit come in to the dealership looking for something to buy that they can’t afford. This is where a good F&I or sales manager always has a backup plan. For instance, your customer can’t get approved on the unit they want so a good manager will already have a second or third unit picked out to submit to a lender. You want to select vehicles that can be sold at full-maximum gross profit, as opposed to one where the finance company will cap the sale price due to advance or maximum allowed monthly payment. You should have your used bikes already booked out and sorted by monthly payment. This allows you to know which units will (at full gross-profit opportunity) fit into applicable payment range and have a strong chance of getting approved.
Using this process, you have now a structured a deal that when contracted will fall within the finance company’s guidelines and provide the maximum gross profit. By the way this isn’t an art, it’s just a set of rules to follow.
If you follow these rules, you’ll find additional opportunities to add more deals and significant thousands to your pay check. If you need more explanation on this, then check out the videos on it or send me an email with questions.
Tommy Ady is a powersports sales expert with more than 25 years in powersports retail business. He founded The WriteBack in 2013, which has become the #1 performing sales tool in the North America. Top 100-ranked dealers use his programs, along with the highest performing F&I managers in the country. His entertaining training shows are broadcast via YouTube to dealers every week.