In the last two articles we reviewed two of the most important steps in the sales and finance process — the salesperson turnover and the customer interview.
The salesperson had just completed a proper turnover, and the finance manager was then able to do a complete customer interview. Now we’ll review some best practices on structuring a deal that banks can approve, and then the setup of the menu for presentation.
Structuring the deal
By reviewing the customer’s credit application, pulling the customer’s credit, reviewing the deal file, completing a thorough customer interview, having a brief discussion with the salesperson and sending the deal to some banks for at least one approval, the finance manager is then ready to set up the menu. Let’s take a look at these individual steps and the information gained from each, which are all integral to setting up the right menu for each customer.
Customer Credit: Longevity, Ability, Willingness
First, review the deal packet and what is loaded into the computer for the deal. Ensure the NADA book value is included, make sure the down payment is recorded properly, as well as any trade-ins, rebates and the actual sales price. The customer is the first one to know if his information is not accurately recorded. When the finance manager gets to the menu, he or she should review this information with the customer to ensure accuracy again. Accuracy is important; the deal should be sent back to the sales manager if this information is not accurate.
Review the credit score at each bureau — some banks accept more than one, and some only need one. If a Transunion score is over 700, and the Equifax is only 690, you may have an instant approval without even sending to a variety of banks; just send in the Transunion score for funding if it is accepted at that bank.
Make sure there are no derogatory items on the credit bureaus. If there is one, review that item with the customer to determine why, and see if it has already been fixed. Some banks will reverse their decisions with proof that the derogatory item has been cleared up, and others might approve even with the derogatory with a solid explanation from the customer.
Pay special attention to the customer’s monthly income, monthly fixed expenses according to the bureau and application, including monthly rent or mortgage, child support, any fixed credit payments and revolving credit. For lower credit scores, banks might not approve any deal based on debt-to-income ratios. For exceptional credit scores, banks might approve regardless of the amount owed. The credit bureau might give the finance manager additional clues that might benefit during the actual menu presentation.
If a customer is coming up slightly short on either debt-to-income or down payment, a second customer interview might help the finance manager discover something that will help with the ratios. Many times income is understated, and many times debts such as monthly rent are shared with others. Also, most customers can come up with a slightly higher down payment.
For those customers who simply do not have the longevity, ability or willingness to pay on their own, a second customer interview will help determine if the customer has a viable co-buyer who can be applied to the deal. A co-buyer usually needs to a relative, or someone with the same address. Explain to each buyer at that time, that each will be responsible for the loan, even though the buyer might be the driver/user. Sometimes the buyer and co-buyer need to change places on the bank contract and title; that does not change the responsibilities of each.
Once the finance manager has received the “calls” from the bank, he or she must now determine which bank to use. Some banks pay the dealership up to 2 percent of the sale price as a flat fee for signing out a customer at the bank’s buy rate, other banks may pay up to 2 percent in reserve to the dealership for marking up the rate. On the deal folder, the finance manager should discretely write what each “call” was from each bank. Also document whether a manual “review” with any banks were required to get to a certain term. It’s a reasonable expectation that if a “call” was made by a bank after “review,” that bank most likely should earn the contract. The finance manager must now create a win/win situation and present a rate that the customer is willing to accept.
Determined Information: The customer usually keeps his motorcycle at least five years, and drives it to work weather-permitting. At work there is no shelter for the motorcycle. Road construction is a constant in his state, with plenty of potholes and construction sites. On weekends, the customer’s 21-year-old son takes the motorcycle for a spin occasionally. The customer only uses his credit union for loans, even for his home loan. Middle aged with a few existing loans, the customer could come up with additional money down if required by the bank.
The customer has a 720 beacon score, and with accessories his price including taxes is now 115 percent of NADA. The customer’s credit union offers 2.99 percent interest.
By matching the credit union’s rate of 2.99 percent, the finance manager is able to get a base payment of $370.96 on a loan amount of $20,650 after a rebate of $1,000, fees and taxes of $1,450 and accessory purchases of $1,400. In this case it’s not the payment that is important, but the amount financed. Per the bank’s guidelines, the sell price must be a maximum of $19,000, or the down payment can be increased to $1,650. After adjustments, the payment becomes $341.32.
With all this information, the finance manager is ready to load the menu. Many menu systems integrate directly with DMS and even CRM systems. Information sometimes only needs to be entered once, and then it can be saved along with the entire deal. The menu should clearly specify exactly what is being purchased and what is being declined. Any printed menu should be kept with the deal for seven years, along with all the rest of the paperwork. It is not uncommon for customers to come back after looking at their paperwork a few months later and swearing that they never purchased GAP or a service contract. The menu is the first place to look if there is ever a question.
Here is the base payment information that should be documented on the printed menu:
Sell price: $20,200
Down payment: $1,650
Interest rate: 2.99 percent
Term: 60 months
Base payment: $341.32
Any trade-in would have been included in the down payment section. If any of the base information is incorrect, the finance manager will know immediately, as that is the first thing he or she will review before getting into the presentation.
Choose the menu specifics
Extended Service Contract: Five years, exclusionary coverage, $0 deductible — $1,700
The Extended Service Contract pays for mechanical failures once the manufacturer’s warranty expires. It not only pays for the repair of the vehicle but also includes rental, roadside and/or towing, and travel reimbursement.
GAP: Five years — $795
GAP pays the difference between what you owe and what your vehicle is worth in the event of a total loss.
Tire/Wheel/Roadside: Five years — $595
Tire & Wheel pays to repair or replace your tire and wheel if necessary if damaged while driving under normal conditions
Appearance Protection: Five years — $795
Appearance Protection not only protects your vehicle from oxidation and fading, but also tree sap, bird droppings, fall out and other environmental hazards. It also makes your vehicle easier to clean.
The single most important element to the menu is a place for signatures, clearly illustrating that the customer has declined the options or accepted some or all of them.
Even with just these four optional products, the finance manager can place them in columns, ranking from Premier or Advantage, down to Standard or Base, include pricing and benefits, while giving the customer some choices usually quoted in payment terms at the bottom of each column. The products and terms were chosen by the finance manager based on all the information he or she gained from the deal; other options or terms might come up during the menu presentation.
The menu presentation itself is the closing of the deal, many times the single point in time during the sales and finance process that will make or break the profitability for the store.
My next article will focus specifically on the menu presentation.
Brian Gallmeier, founder of Income Development Partners, uses his powersports experience at the retail level to train F&I departments. He can be reached at firstname.lastname@example.org or 612/616-8611.