In the last five to six years, lenders have been competing for your business. They’ve loosened credit requirements, extended loan terms, provided software solutions for automatic approvals, and been willing to advance more money for your F&I managers to sell consumer protection products.
With them doing all the work, you’ve been able to pick and choose which lenders with which to do business. That is slowly changing in 2017. According to the latest Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, auto loan demand at banks is softening while lenders are tightening approval standards.
This means that you now have to put more effort into maintaining your lender relationships as lenders pull back on the amount of auto loans they are willing to fund.
So what does it take to develop strong lender relationships? When pondering this question, think beyond complete and accurate applications. It takes communication and the ability to manage expectations.
Do all your F&I managers know lender criteria like the back of their hands?
While most lenders operating in the franchise space utilize software to automatically approve or deny applications, it’s not a good idea to randomly submit an application hoping for an approval. This process increases each lender’s Look-to-Book ratio, and angers customers when they start receiving a bunch of denial letters in the mail. Each F&I manager needs to clearly understand each lender’s criteria and only submit loans they know will be approved.
How well do they manage each lender’s Look-to-Book?
Each lender has its own goals for Look-to-Book. Some want to book as much as 50% of the applications sent their way. Some are happy with less than 10%. Make sure you are meeting those Look-to-Book goals to help with your negotiations. And, don’t be shy about asking lenders what those are.
In addition, the majority of the business you send their way should always be within their specialty. If not, the majority of your applications will be denied and you could potentially lose that lender relationship.
How well do they maintain your floorplan lender’s loan volume expectations before sending loans to other lenders?
You know who your preferred lenders are, and your floorplan lender is always going to be at the top of the list. Set your monthly goals for the amount of business you send to each lender, and then work those goals, starting with your floorplan lender. Once you meet their benchmarks, move on to meeting the goals for the next lender. Managing your lenders this way will make it easier to negotiate with them for those applications that fall slightly outside of their specialty.
If an application is denied or approved but with less back-end margin, do they get on the phone with your preferred lender to find out why?
If your team is making sure to submit applications to the right lender, you should have few denials. And, if your team is managing lender relationships by meeting Look-to-Book goals, then it should be easier to ask for leeway. If a manager gets into a situation where they have a contract that they know will be denied, they should get on the phone with the lender as soon as the application is sent to begin negotiations. The last thing you want is to have a contract-in-transit for an indeterminate amount of time. The faster your team gets in contact with the lender, the faster the application can be processed.
In addition, if a loan application comes back approved, but the lender will only advance funds to cover the cost of the vehicle, your F&I manager should have a strong enough relationship with the lender to call them to rehash the approval. Once again, if the lender’s book of business is well managed, it should be easier to ask the lender to advance more money to cover the sale of F&I products.
Is your sales team trained in keeping finance objectives in mind when helping customers select vehicles?
There is a natural competition between sales and finance. But, the last thing you should want is for the sales team to feel like their margin is cut to accommodate your back-end margin, and vice versa. To avoid this scenario completely, your sales team needs to know how to steer customers to vehicles they can afford. This requires training your team to complete the Needs Discovery portion of the Road to the Sale before demoing any vehicle. They need to ask qualifying questions based on each customer’s driving habits, employment status, and the ballpark figure of what they plan to spend. Then, the salesperson needs to present the customer with vehicle choices that fall within their budget. Making sure the customer can afford the vehicle ensures more approved contracts and better margins for both sales and service.
With more than 40 years of experience helping dealers achieve their profitability goals, EFG Companies knows how to train your team to maintain quality lender relationships and foster growth. Contact us today to find out how.