Print Friendly, PDF & Email
Hollis Goode Regional Vice President EFG Companies

Contributing Author:
Hollis Goode
Regional Vice President
EFG Companies

When I’m in a dealership talking about conversion rates, the team members often focus on the process of transitioning a potential customer to a confirmed sale. I hear about engagement rates and digital touch points. But often, the biggest struggle isn’t with closing a sale, but rather with effectively managing lender look-to-book metrics. This critical component can often make or break a sale. What are your lenders’ look-to-book requirements and how can F&I departments optimize their conversion rates?

Some F&I managers still feel tempted to use the “free-for-all” approach – offering all deals to every lender on their list. This approach relies heavily on automated approvals, but fails to factor in specific lender criteria. This often results in several denials, especially if a percentage of your business happens to fall in the subprime space. In the prime space, this approach can jeopardize lender relationships if your team sends several lenders applications that they all approve. Your team can only select one lender, which alienates the rest.

A more prudent approach is adopting a preferred lender process, wherein your F&I managers select a group of lenders to send the majority of your contracts. This requires that your team has good working knowledge of each lenders’ requirements to ensure that every deal submitted is approved. Dealers should approach preferred lender candidates based on the needs of their operations, as well as the types of lenders available including those who offer wholesale financing, retail financing, automated vs. manual credit decisions, etc.

Making the Cut

These days, lenders set volume targets and keep a close eye on losses. A lender using a look-to-book ratio considers it an indicator of efficiency, as well as the percentage of approved deals that are booked as loans. Lenders are also segmented into the type of loans they approve – ranging from super-prime to non-prime. It makes no sense to offer an application with a FICO score below 640 to a lender that is only interested in super-prime credit.

This all seems very elementary, but you would be surprised how many retail automotive dealerships fail to effectively manage their lender relationships.

There are two important steps to ensuring your deals get first look – obtaining a complete credit application and building a relationship with your lenders. Nothing stalls the loan process faster than an incomplete application.

Completing the Credit App

F&I directors should closely manage their team to ensure all credit applications are complete before submitting anything. While it may be their goal to minimize the time spent in the F&I office, missing information means a deal could be improperly rated or completely rejected. For example, get a career history, not just the name of an employer. Is the customer a job hopper? Remember to get more than one address if they’ve lived in their current residence for less than two years.

It’s also helpful to know an auto history. Is their vehicle paid off or are they still making payments? What’s their monthly payment? Finally, it’s important to find out all sources of income – such as special bonuses, tips, alimony, or disability. Remember, F&I managers can’t directly ask a customer about alimony, child support or disability. Instead, train them to ask, “Do you have any other verifiable income that you would want to use?” This allows the customer to bring up other sources of income, which then enables the F&I manager to probe into that criteria.

Finance managers should verify the accuracy of the credit report. And, make sure they can document their customer’s claims, proving such key details as residency, income and employment. Locking down these details before the deal is offered to the lenders speeds the approval process and builds credibility with the lender.

Building a Relationship

For dealers, knowing each individual lender is just as important as knowing the individual customer. Is the lender a career buyer or climbing the corporate ladder? Do they have a quota or monthly goal to hit? You have to establish rapport for them to trust you. Take the time to get to know them before you need them to say “yes.”

While you’re building this personal relationship with the lender, make sure you understand the lender’s goals and objectives. Does the lender have specific requirements? Where does your dealership fit? How are your deals characterized within the lender? How do you rate?

While building customer relationships to close the sale is critical, working with your lenders on their look-to-book expectations is also very important. And, if you successfully build your lender relationships, your conversion rates should drastically improve.

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

* Copy This Password *

* Type Or Paste Password Here *