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Managing a profitable special finance department is not difficult when approached properly. Successful managers and dealers pay close attention to both the department numbers plus the information received from lenders. The most important daily numbers other than gross profit are: Phone Ups, Appointments Set, Appointments Kept, Walk In Traffic, Turnovers from sales and finance department, Write UP's, and Deliveries. Each category will alert managers to possible problems that can and should be corrected immediately. Managing by the numbers alerts you to these problems as they are occurring as opposed to waiting until the following month when it is too late. Let's take a moment to outline benchmarks for each category and how to recognize possible problem areas. Phone Calls When this number shows a decline for more than 2 days advertising needs to be reviewed. |
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Appointments Set This number should be 80 % of all phone calls. Appointments Kept This should be 70% of all appointments set. Note: If either the number of appointments set or appointments kept begins to drop, training is needed immediately to correct the problem. Often times your staff will be very proficient at making appointments but weak at setting appointments that actually show up. Train by listening to staff handle calls. Is too much information being given? Did we call back to confirm the appointment? Remember: Telephone interaction accounts for better than 90% of the results we try to achieve through advertising. Walk In Traffic Again, examine your advertising. Is your advertising bringing in customers who qualify or just lots of customers who require too much time and will not qualify due to income, job stability or other factors? Turnovers from sales and finance Department If this number drops it usually indicates staff training issues or misunderstanding about how the department functions. Pay close attention to not only the numbers but also the quality of each prospect. Make sure advertising is netting the results you desire for the total dollars spent. Write Up's In every case the number of write-ups should be 70% of the combined number of appointments kept, walk in traffic and turnovers from sales and finance. When this number drops it usually indicates a problem with advertising to customers who cannot qualify or the result of staff members taking short cuts and not following procedures. Deliveries Deliveries should average 60% of all write-ups. When this number falls it means we either did not properly interview the customer in order to obtain an approval we can live with or the inventory is out of balance and customers do not find vehicles they want to buy. Often we see this drop when lenders change program guidelines and finance staff is not aware or educated on what lenders are now buying. It's amazing what a small increase in these numbers will do. In one instance, I demonstrated to a dealer that by increasing his appointments to calls ratio to 50% he would gross, based on his average gross profit, close to $20,000 in additional profit each week. Numbers are also important when building relationships with Lenders. The following are a few of the most important numbers to review monthly on each lender. Average Days to Fund Experienced and well-trained dealers pay very close attention to this number for many reasons. The most important is Cash Flow. The lifeblood of any company is cash. When packages take too long to fund it causes several problems including inability to replenish inventory in addition to pressure from management that may cause future department growth to be limited. Slow funding creates other problems such as extra time spent by staff members cleaning up sloppy deals, poor lender relationships, first payment defaults, problem spot deliveries and increased management pressure on good special finance managers that result in reduced deliveries due to the time being spent on cleaning up old business. Records should be maintained on each lender and reviewed monthly. If slow funding of "clean" packages persists the issue should be addressed with Senior Management of the lender. Funded to Reviewed (Looked to Booked) This percentage is becoming more of a factor with lenders each month due to the rising cost of doing business and the level of service lenders are trying to provide for quality dealers. Lenders want this number to be 10% or better. When this percentage drops often lenders will visit or call the dealership and place the dealership on "watch" until its "looked to booked ratio" improves. This ratio is determined by dividing the number of funded loans by the total number of applications. Refrain from sending lender applications that will not fit their guidelines, commonly known as "shotgunning", this will only lower your looked to booked ratio. Funded to Approved Top dealers consistently average 35% or better in this category. Lenders provide enhanced levels of service for elite dealers who maintain high Funded to Approved and Looked to Booked ratios. Portfolio Performance With delinquencies and defaults increasing each quarter for lenders this is becoming a very important number to review with each lender your dealership does business with. Included in this number is the percentage of "First Payment Defaults". Lenders will sever relationships with dealers when portfolios reach above average levels in these areas. Dealers should contact each lender they do business with and review their portfolio plus learn more about the benchmarks they expect. As you can see by the above outline, numbers make the difference between operating an "average" or "great" department. Managing by the numbers alerts you to training needs, advertising effectiveness and your staff's strengths. Being on top of the numbers allows you to make necessary changes immediately. By striving to exceed high standards and benchmarks you can achieve maximum results without the problems often incurred by dealers who are not in touch with their operation because they don't manage by the numbers. The special finance department is an additional profit center and deserves the same respect and commitment as other departments. All departments in dealerships are managed by the numbers; special finance should not be an exception. The increased volume, gross and referrals represent high possibilities when managed properly and effectively. -Automobile Dealer Magazine, Sept/Oct 1998 
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