Sheffield Financial CEO Jack Snow has always spoken openly with the press, especially since the bank became a major player a couple of years ago. We capitalize on his candor further by moderating a Q&A exchange via e-mail between him and two Top 100 dealerships that are his customers.
About the participants:
Sheffield Financial underwrites programs for Arctic Cat, BRP, Piaggio Group, Kawasaki, Polaris, Suzuki and others. Sheffield’s parent company, North Carolina-based BB&T, has assets in excess of $168 billion.
Mike (standing) and Joe Resciniti are the owners of Xtreme Machines, a 35,000 sq. ft. dealership in Millstone, N.J., that’s franchised to sell BRP, Kawasaki, Polaris, Suzuki, Yamaha and Triumph. The store is about five years old.
Jeff Underhill is finance manager for City Cycle Sales, a 34,000 sq. ft. dealership in Junction City, Kan., that’s franchised to sell Harley-Davidson, Kawasaki and Suzuki. The store is about 47 years old.
We begin with the dealers’ questions (five each) for Snow.
Xtreme Machines: Have applicants’ credit scores changed since last summer?
Jack Snow: There has been a migration toward generally improving bureau risk scores. In May 2009, about 53 percent of our applicants met the regulators’ designated subprime threshold of less than 660, while in May 2010 only 40 percent met the threshold. (About three years ago, the regulators changed their broad bureau risk score definition of subprime from less than 650 to less than 660.)
City Cycle Sales: Several OEMs use Sheffield. Why are the rates so much different among the manufacturers?
JS: Manufacturers design promotions based on certain metrics to meet sales goals. It is a joint effort between Sheffield and the OEM to provide the most aggressive promotions based on said metrics. Because there are differing strategies among OEMs, promotions and rates will not always be identical.
XM: Are you committed to not paying participation points to dealers?
JS: At Sheffield, we design all programs and promotions with OEMs to achieve very specific goals at a reasonable price. It is also our goal to ensure that the dealer as well as the end user are offered the most competitive and aggressive finance promotions available. Sheffield and/or our manufacturer would be reducing our margins if we paid participation points, or the customer would have to pay a premium. However, having said all that, Sheffield is open to the concept of dealer participation. But it would have to ensure that the end customer is protected and our manufacturer strategies are maintained.
CCS: What is the difference between your installment terms and revolving terms? For the customer there is not much difference.
JS: It is true we designed our revolving platform to be very similar to our installment platform. We purposefully set the payments up on both revolving and installment to coincide with the selected term of the loan. With our product the customer would not be upside-down at any point within the terms of the contract, providing he does not become delinquent. Since new legislation was passed in 2010 regarding the revolving product, we are in the process of moving our revolving OEM partners to installment loans where possible.
XM: Other banks are financing our used bikes. Why won’t Sheffield?
JS: Currently we do not have a non-OEM-specific used bike program. We have experienced tremendous growth in our portfolio in the past several years concentrating all our energy and resources in financing new equipment. I do not foresee financing used units in the near future.
CCS: Do you have any plans to change your insurance requirements? And has insurance (or lack of) been an issue?
JS: My thoughts on insurance are probably not exactly what you want to hear. In my opinion, any customer that purchases a product, i.e. motorcycle, should insure it to protect themselves as well as the lender. However, that being said, I do not see us changing our terms regarding insurance because of the level of our competition. Sheffield strongly recommends that all our clients comply with all state laws and purchase required insurance and ample enough insurance such as GAP to protect themselves and the lender. We are constantly tracking losses due to no insurance and will make informed decisions as needed in the future.
XM: What is the most common mistake made by F&I departments?
JS: Cutting corners. There are many components of a deal that need thorough attention in the F&I office. Establishing policies that guarantee the integrity of loan applications and funding packages can increase efficiencies and reduce funding delays. F&I departments need to ensure lenders that proper due diligence is practiced with every deal, especially when it deals with proper customer identification.
CCS: Sheffield has created special tiers for people with limited credit, but customers still get turned down for lack of credit. What are some minimum requirements?
JS: The program we designed is for those who aren’t new to credit, but are building on a limited credit history that is already in place. A prospective applicant should have several trade lines, no delinquencies, and with at least one trade line that equals a certain percentage of the amount he wishes to borrow, as well as a stable employment record.
XM: Does Sheffield have plans to automate its dealer’s website to give instant approvals/declines?
JS: We have had the ability to make auto approvals and declines for several years now. However, I am under the opinion that if we use sophisticated score cards and programs that provide the probability of a customer repaying a loan, we would decline a lot of consumers that need to be approved, and we would approve applicants that need to be declined. Our computer programs do predict the probability of repayment, and our software recommends approvals and denials to the underwriter, but the underwriter has the personal responsibility, armed with this information, to look at not just credit, but also the stability of the customer. If we automate the entire process, taking out all human aspects, I think it would be devastating to the profitability of our company because bad debt would surely rise. In addition, Sheffield would become just like a lot of our competitors, just another me-too. It is in our logo: Personal Service, It’s That Simple.
CCS: Do you have major policy changes coming soon regarding insurance requirements, minimum down payment, etc.?
JS: At this time, we have no plans of any major changes at Sheffield. Since our inception in 1992, it has been our plan to remain profitable, maintain a level of comfortable growth and provide the best quality service to our end users, dealers and manufacturers. We have never exited any line of business whether it be financing lawn mowers, trailers, personal watercraft, ATVs, UTVs, snowmobiles and now motorcycles.
And now, Jack Snow asks the dealers his own set of five questions.
Jack Snow: What are the top five qualities you look for in a lender from most important to least?
Xtreme Machines: 1) Approval rate; 2) the ability to mark up points at reasonable interest rates. 3) speed of approval and contract finalization. 4) products available for finance (some banks do new and used, while others do new only); 5) being able to speak with finance reps about customers.
City Cycle Sales: The top qualities we look for in a lender are:
- Ease of contracting/funding.
- Taking on a wide range of credit scores.
- Calling and speaking to a person.
- Hours of operation.
JS: If Sheffield were willing to share profits via dealer participation points, would you be willing to share in a portion of bad debt?
XM: I'd prefer not to, but I'd rather have some money than none at all.
CCS: [Editor’s note: The store did not reply to this question.]
JS: How has your dealership reacted to the changes in retail finance over the last two years, and what have you done to maintain profitability?
XM: We now suggest installment loans for consumers, because they are easier to understand and the rates and monthly payment are fixed.
CCS: Some changes we have made in the past couple of years: We have stopped using traditional revolving financing with “promo” interest rates because our customers would owe more than the retail value after the two-year special rate would go up to the standard rates of 20-plus percent.
JS: What is your favorite aspect of doing business with Sheffield Financial?
XM: The person-to-person contact instead of a computer-generated approval/denial only.
CCS: My favorite aspect of Sheffield is the fact that they have several tiers/rates that allow us to get more people financed. One thing that I would ask Sheffield to do is offer different terms, such as 72 months or 48 months.
JS: Would you sacrifice rate for more approvals? In other words, which would you rather have, more approvals at a higher customer interest rate, or fewer approvals at a lower rate?
XM: This is a tough one. I want to say more approvals at higher rates, but I know firsthand customers will not buy at high interest rates even if they are approved. We have had many approved customers go to credit unions or settle for a used bike they bought privately in cash. We need reasonable rates at reasonable terms. For example, 1.99 percent is a great rate, but if the loan term is only 24 months, the payment is too much for most consumers. Also, someone with a 780 credit score doesn't want to hear their interest rate is going to be 10.99 percent.
CSS: Yes, we take higher rates for more approvals. Most of our customers don't care about rate, just the monthly payments.