Dealerships & Lenders - The Cost of Lost Opportunity
by Chris Hopkins, on Jan 14, 2021 2:46:28 PM
The primary goal of every auto dealership is to move metal and the easiest way to sell more cars is by offering finance. But is your dealership finance solution costing you lost sales?
In todays post we explore the impact of lender panel on dealership group car sales profits, outline the true cost of lost opportunity and show new car dealership finance managers an auto fintech solution that minimises lost opportunity and increases profits.
Is your dealership lender panel killing profits?
We all know that new car dealerships focus their customer financing efforts towards their branded dealership financing solution and with good reason. Brand finance is part of selling the full brand experience, and keeping the customer inhouse for the entire journey definitely has some financial benefits.
But what happens when the customer and the brand finance solution are not a good fit?
Traditionally, new car dealerships engage a few secondary lenders to pick up the slack, but if the customer doesn't qualify with the back up lender the customer walks and the sale is lost. Sound familiar?
When viewed as a lost sale for the individual finance manager it may appear to be of little significance. When aggregated across a dealership groups finance management team however, the cost of lost opportunity begins to soar.
So how much could your dealership potentially be leaving on the table? What opportunities are you missing?
To help you visualise the true cost of lost opportunity we've put together a formulaic illustration of missed opportunity based on a dealership group with 20 finance managers.
We've also included the average conversion rate on missed opportunities / lost deals at 40%. This is the minimum number of deals we close using our propriety finance software Zink, on behalf of dealerships whose customers don't qualify for their inhouse financing solutions.
Infographic: How much opportunity is your dealership missing?
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How to calculate the true cost of your dealerships lost opportunity?
So now you've seen a working example of how to calculate lost opportunity in the infographic above here is how to calculate your dealerships lost opportunity.
|A.||What is the average gross per car sold including Car Care excluding finance?|
|B.||How many Finance Managers (FM) in your team?|
|C,||How many deals does each FM realistically miss because they cant get the client approved for finance?|
|D,||How many financed deals have you missed as a group due to financier decline. ( Deals only not finance income) Formula: B X C|
|E.||How many lost deals could Ausloans help you win. Formula: D x 40%|
|F.||Total missed deals income you are missing out on, (excluding finance income) Formula: E X A|
|G.||Finance referral income paid by Ausloans @$500 per settled finance deal. Formula: E x $500|
|H.||Total cost of missed opportunity. Formula: F + G|
So now you know how much opportunity your dealership is missing, the question is how do you reduce the churn and maximise sales?
The simple answer to this is to get out of your comfort zone. Most finance managers and brokers tend to stay in their comfort zone and stick with the few lenders they know. But after calculating the true cost of your dealership groups lost opportunity, is your current financing game plan costing you too much?
To succeed in maximizing finance penetration dealership finance managers need to look at a more diverse range of lenders to find appropriate solutions for customers who don’t fit the lending criteria of their mainstream lenders. As a finance aggregator with arguably the best auto fintech - Zink, we make accessing a larger lender panel easy.
Why dealership lender panel size matters
Australia is a car driving nation. As at 31 January 2020 there were 19.8 million registered motor vehicles in Australia. Given the population of Australia is just over 25 million that's a huge slice of our adult population that drive cars and at some stage all of these drivers will need car finance.
The point here is that your dealership customers are a diverse group with significant variances in personal credit histories. Credit history impacts a customers access to finance and limiting your lender pool just compounds the problem.
To not only survive but thrive dealerships need to provide financing solutions not just for blue chip or prime clients, but for a wide range of customer profiles and the fastest way to do this is to expand your dealerships lender panel.
At Ausloans we are specialists in the auto finance space and as an asset finance aggregator have access to a large and diverse lender panel, giving us the capability to source lenders for all types of customer profiles.
So what does the ideal car finance lender panel look like?
Composition of the ideal dealership lender panel
To maximise dealership finance penetration and increase sales, ideally a dealerships lender panel needs to include 3 types of lenders; prime lenders, sub-prime lenders and commercial lenders.
Prime Lenders- refer to lenders who focus on borrowers who have high credit scores, and present a low risk of default. Prime borrowers are characterised as having healthy incomes that comfortably cover their required monthly loan payments. In return for low default risk, prime lenders offer attractive, low interest finance.
Subprime lenders, often referred to as second chance lenders, typically focus on borrowers that have a higher risk of default and as a result charge higher interest on loans to help mitigate risk.
Commercial lenders refer to lenders who focus on providing finance for business assets like cars, office equipment and plant and machinery. Traditionally commercial lending was the sole domain of the big banks, however in recent times the number and type of lenders offering commercial finance has expanded greatly and there are now prime and sub-prime lenders in this space.
So how does your dealership lender panel stack up?
Expanding your lender panel to meet the needs and circumstances of all customer profiles greatly increases the probability of closing a sale, however increasing your lender panel is only part of the success equation. To learn more about how Ausloans Zink financing solution for dealerships delights your customers book a free demo today or click the banner below to get started with Zink today.
Have you calculated your missed opportunity cost? Join the conversation by adding your thoughts in the comments section below. Finally if you think this posts adds value don't forget to hit the share button .