Tuesday, Oct. 17, 2006, 08:00 PM UPDATED 11:59 AMBy Nick Zulovich
LAS VEGAS -- Representatives from lenders such as HSBC, Credit Union Direct Lending, Westlake Financial and Tidewater discussed their business practices and shared tips with dealers on developing lender relationships at Leedom and Associates' 11th Annual National Special Finance and Buy-Here, Pay-Here Conference in Las Vegas last week.
Ben Reynolds, of HSBC; Brent Hollingsworth, of CUDL; Bruce Newmark, of Westlake Financial; and Dedra Muffly, of Tidewider; all took time to serve on the Special Finance Lender Panel at the event to share insights with dealers.
One the biggest questions at the conference itself, in addition to those questions independent dealers asked specifically of the Special Finance Lender Panel, was, "What can I do to create a relationship with a lender and get through the door as an independent? Oftentimes, I'm told no when I first call. What can I do to at least get them to look at us objectively?"
Overwhelmingly, lenders responded by saying that dealers need to be persistent in getting their business information in front of someone at the lender. Networking is another key to getting through the door.
For example, HSBC said it is reaching out to independent dealers via 20 Groups. By belonging to a 20 Group, a dealer can network with other independents who have had the same issue and discovered a way around it. These group dealers can share the information for the lender executive they work with, giving a specific for the frustrated dealer to get in touch with.
Gus Camacho, who sat on the Special Finance Best Practices Dealer Lender Panel at the event, pointed out, "I added three lenders thanks to 20 Groups."
Another dealer on the panel said his store joined a 20 Group five years ago, and it has been so helpful to his business that he wishes they had joined a few decades ago.
In response to independents who shared their frustration with trying to develop relationships with lenders, Reynolds, on the Special Finance Lender Panel, said, "Thank you for your patience in pursuing HSBC. Seek out some of our salespeople. We want to do business with independents."
Newmark pointed out that there is some turnover in the lender industry, especially for companies that specialize in serving independent dealers. One of the preventative measures dealers can take to avoid losing such a lender is by thoroughly researching a company before approaching them for business, he said.
Dealers shouldn't focus on the short-term when it comes to lenders, Newmark noted, saying they should focus on the long-term and companies that have been around the industry longer than a few deals.
Meanwhile, Hollingsworth suggested that dealers should look for lenders who have a strong base in their local area to develop a relationship with.
"Structure deals so they meet lender requirements," he said. "They (lenders) want to build relationships with dealers. Take a look at your customers and community and look for a lender that will fit your needs."
As for HSBC, Reynolds said his company just began working with independents last year, developing relationships with about 250, and said the company plans to add that many relationships again this year. He noted that his company is looking for dealers who will be around for the long haul.
"We work to understand our dealers and they know what our needs are," Reynolds told independents in attendance. "We're not just looking for a dealer who will have a contract here or there."
Criteria for Working with Specific Lenders
One of the top requests from independent dealers in the audience was for the panel to explain signing criteria. All lender executives overwhelmingly told dealers to analyze what types of loans a lender looks to finance and work to meet those goals. Moreover, when it comes to lenders who use consumer credit scores to analyze an applicant, all agreed that they use the bureau that is most popular in each state.
"Are you originating the types of loans we want to finance?" Reynolds questioned. "We work in the 510 to 700 range.
"Having a business prospective is half the story," he added. "Anything you can put together that helps us sleep better at night is good."
Reynolds also said HSBC does some manual decisions, meaning while it first looks at credit scores, two people with the same credit score may be given different rates depending on other factors.
With the changing technological environment, Reynolds said his company doesn't necessarily need a landline from a consumer applicant. He said a cell phone will work.
"We do want to talk with the customer," Reynolds said. "We also verify employment."
Newmark chimed in, noting that his company made a commitment to work with independent dealers more than 25 years ago and still lives up to that.
"We look at the dealer principal and his credit," he explained. "A lot of our dealers were small guys and started out with us when they were brand new. We work to be resource in the market for independents. We like our dealers to have a slightly better credit than our customers."
Westlake has 75 representatives throughout the country in various states, Newmark said.
"They look at your lot," he told attendees. "Is your inventory well-reconditioned? What type of units do you have? Our representatives can tell how well a dealer pays attention to his business and reports back to us.
"Dealers who put together a business prospective are more likely to succeed in the long run, but it isn't necessary a requirement for us," he continued. "How long has a dealer been in business? Who is he flooring with? What's the history of the dealer? Is he looking to stay in one location? What does see when he looks down the road? What's his credit quality and reputation? We want dealers with the best reputations."
Newmark went on to say that Westlake does not have any specific consumer application criteria.
"We let you play with the program on your end," he said. However, Newmark noted his company does not use consumer credit scores in its application analysis.
According to Hollingsworth, CUDL looks for dealers who have been in business at least three years, meaning the store has had the same principal for that period of time.
"Dealers need a credit union sponsor," he pointed out. "We also look at financial statements, as well as demographics and the Better Business Bureau."
As for Tidewater, Muffly said a large portion of the company's business includes open Chapter 7.
"We're not a score-driven lender. If a consumer meets the minimum income requirement, their application goes in front of buyers," she said. "There's a lot of gray area with our business. We'll do two deals a month or 20. Both are OK. For dealers who want a five-second response on an application, we're not the lender for you. We're reasonable, and we'll get you our decision in about an hour, though, and share what we need to close a deal."
She also said some of the company's business includes open Chapter 13.
"We like to see these open a minimum of two years," Muffly explained. "We're still ironing out the wrinkles of this, but we're doing this to supplement the reduced number of bankruptcy filers since the reform went into effect (Oct. 17, 2005). We do some interviews of customers."
More and more, she said Tidewater is accepting cell phone information instead of landlines.
Understanding Consumer Applicant Turndowns by Lenders
For dealers who have issues understanding why lenders turn down certain deals that dealers think should have been accepted, HSBC, CUDL, Westlake and Tidewater all said they're willing to help by answering questions.
"We abandoned efficiency levels," said Reynolds. "A consumer needs at least $2,000 in income and at least one of the applicants needs a 510 score. We're not going to penalize you for taking a look at a deal.
"We don't have efficiency ratios," Reynolds reaffirmed. "If you want to call and rehash a deal, you're welcome to. We won't do this 10 times, but for two or three, we're more than happy to explain to help you understand."
Hollingsworth said the same thing. "If you think this is an ideal candidate, we'll explain what needs to be tweaked."
Meanwhile, Muffly said, "Send everything that meets minimum income, and we'll teach you what we approve and don't."
As for Westlake, Newmark said dealers can simply continue tweaking what is entered into the program, such as different vehicles and more, until approval is offered. Given the way the program works, he said dealers can usually figure out how to get approval themselves.
All four lender executives also highlighted the need for dealers to make sure they get all stipulations in prior to letting a consumer leave the lot with a vehicle. Stipulations include proof of income, landlord information, whether or not the consumer is behind on his or her mortgage, and more.
"Take a look at the stip when the consumer brings it in," Hollingsworth said. "It becomes hard to get the customer back in the door after he leaves with the vehicle. Make sure you verify the package before you send to the lender."