Pay trade liens off within time limits. Besides the monetary penalties for not paying off trade-in liens on time, the more substantial cost is the bad publicity brought about by customers angered when they get a call because of a late payment.
Do not float on flooring. Pay off sold units promptly. If you’re short on money, instead of possibly angering your most important creditor, try to obtain a loan from another lender. Ethington suggests that dealers also turn to a more affordable lender as soon as interest kicks in on flooring.
Sell F&I. Ethington conceded that some products like credit life have been taken over by the lenders, but there are still things like tire-and-wheel coverage and extended warranties. He particularly likes prepaid maintenance programs, saying that dealers need to take action instead of just talking about it. Dealers need to figure out the cost of maintenance on each unit, give a substantial discount, and then offer it with every deal.
Ethington also shared statistics pertaining to LightspeedNXT users, which are typically large and franchised. He said the average F&I per metric unit sold in August 2009 was $357, down from $423 during the same month last year. The average F&I per Harley unit sold in August 2009 was $876, down from $903 in August 2008.
Maximize your gross margin percentage on unit sales. Ethington quoted Duane Spader, founder of Spader Business Mangement: “Sales are the result of marketing. Margin is the result of your attitude.”
Ethington said dealers must do what they can to keep their average margin reasonable. He noted that just an increase of 0.25 percent to 2 percent can lead to large increases to the bottom line. He then shared averages for LightspeedNXT users: The average gross margin at metric stores in August 2009 was just 9.4 percent, down from 11.3 percent during the same month last year. The average gross margin at Harley stores in August 2009 was 15.8 percent, down from 17.0 percent during the same month last year. Ethington said he wasn’t sure whether these percentages took into account holdbacks.
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.