Rethinking The Problem Of Serving Subprime Customers
Industry analysts estimate that subprime customers account for about 25 percent of used vehicle financing deals in the past year.
With this stat as a backdrop, many dealers are eyeing the subprime segment in the current year as they extend their goals for used vehicle market share and sales.
To achieve this goal, some dealers have charged their F&I departments with doing a better job of getting more subprime customers “bought” by lenders. In some cases, this means re-upping efforts to work with a wider array of lenders who specialize in subprime financing deals.
But I would submit that dealers who solely look to F&I for increased subprime success are missing the bigger picture. In fact, the difficulties dealer’s encounter in subprime often owe to shortcomings in their used vehicle inventory management and sales processes—not the F&I office.
I’ve come to this understanding after many discussions with dealers about their difficulties serving subprime customers. In most cases, the dealers have not made subprime-worthy vehicles a priority as they acquire used vehicles via the auctions or trade-ins. In addition, the dealers have not provided their sales teams with the ability to efficiently and effectively match subprime customers to vehicles that will satisfy lenders.
With subprime inventory acquisition, dealership appraisers and buyers need to be aware of exactly how far “back of book” they need to purchase vehicles to fit subprime lending parameters. Without this knowledge, it’s no wonder that dealers have difficulty getting subprime customers “bought” in the F&I office, because the cars weren’t acquired with an emphasis on a subprime-oriented exit strategy.
Similarly, every dealer knows the frustration that follows a sales associate working with a customer to select, test drive and work up a deal, only to learn the customer’s in the wrong car due to their credit and financial position.
The good news is that dealers now have technology and tools to help them address both the inventory acquisition and sales process challenges. These tools can arm your appraisers and buyers with the lender parameters to instantly know if a used vehicle acquisition makes sense as a subprime unit or not. Similarly, the tools can give your sales associates instant access to a list of subprime-eligible vehicles in your inventory when they determine a customer really should be financed through a subprime lender.
Of course, your sales associates also need to know how to effectively assess a customer’s budget and payment needs early in your sales engagement process, and use those findings to align customer expectations with available financing and vehicle options.
But when dealers correctly address the subprime inventory acquisition challenge, and properly match subprime customers to the correct cars, they typically find that the F&I office has little, if any, difficulty getting deals “bought.” Likewise, the dealership will be better able to use its ability to serve subprime customers as an avenue to achieve its goals for expanded used vehicle market share and sales.