• Welcome to SVTPerformance!

Behind the Scenes: The Dealership Finance Department

Discussion in 'Front Page Articles' started by 13COBRA, Oct 4, 2017.

  1. 13COBRA

    13COBRA JJG's Attorney Premium Member

    Messages:
    13,546
    Joined:
    Jun 4, 2012
    Location:
    Missouri
    Behind the Scenes: The Finance Department

    IMG_6438.jpg
    Every dealership has a finance department; some are made up of a single individual, while others have a director or directors with several producers under each. Have you ever wondered why you are more or less herded to their office even if you are stroking a check for your newer vehicle?

    Dealerships contain multiply profit centers under one roof that operate together (for the most part), like most businesses. The finance department is just one of the many departments within the dealership that is in place to turn a profit and streamline the customer experience.

    You may think that because you’re walking in to a dealership to write a check for your new vehicle, that you may be able to skip the finance department and cut your visit short; oftentimes, you’d be mistaken. From a legal standpoint, it is to the dealerships best interest to have a small number of employees that are trained on all of the current privacy laws and are organized with their paperwork. With the current privacy laws, if someone were to accidentally leave a completed credit application laying around, it could be up to a $10,000 fine.

    Those cases are far and few between, so there must be another reason you won’t be able to avoid the step in the process! The two main reason are: convenience and more importantly, profit.

    The convenience factor is not the main reason, so I’ll just touch on it. If the financing is secured in-house and the banks offer fits the signed contract, the contract is immediately cashable. If a consumer has to go to his own bank the day or two after, then it’s not as convenient for the consumer and the dealership has to wait another day or two to deliver the vehicle. A lot can happen in a day or two; often times more objections come up, early cases of buyer’s remorse, etc can all happen to throw a last second wrench in the deal.

    (In no way am I saying it is ok to ‘slam’ someone in a car that they aren’t sure about, but it is human nature to get ‘cold’ on a purchase after the initial excitement wears off.)


    PROFIT. Moo-lah. Cash-ola.

    Profit is the biggest reason that every customer will meet with a member of the finance department. There are two main ways that the finance department turns a profit: through the interest rate, and through selling products.

    Interest Rate.With the ever changing consumer protection acts, the ability for the finance department to make money on the rate is evolving. A lot of banks allow the dealership to make up to 2.5 points on a <60 month term, or 2 points on a <75 month term. What that means, is the bank approves the customer for a 3% interest rate, the dealership signs the consumer at 5% or 5.5% depending on the term. The bank then pays the dealership the 2-2.5% of the loan up front. The consumer protection acts are forcing banks to go to paying ‘flats’. What this means, is that instead of marking up the rate, the dealership is required to sell it at the rate that was approved by the bank, then the bank pays a small flat (either fixed or a small percent) to the dealership for sending them the deal.

    Buy Rate Sell rate.png

    In the example above, the buy rate is 6.49%, and the rate signed is 8.99%, yielding a $828.72 profit, just in rate, before any product is sold.

    Product.It’s a 50/50 split whether people believe in extended service contracts or not. I don’t personally purchase them on anything that I wouldn’t be willing to 100% cover the cost of a complete replacement (TV’s, computers, etc), however I do put them on my more expensive purchases (vehicles, UTVs, etc). Extended service contracts are not the only product that can be sold, other options include GAP insurance (covers the ‘gap’ from what an insurance company will pay on your total loss, and what the balance of the loan is), tire and wheel (very comparable to a road hazard plan, it will cover damage done to your tires and wheels caused by an obstruction on the road), a form of key/windshield replacement, door ding/PDR repair, maintenance (normal maintenance schedule covered at ‘no cost’) and an array of other products that differ from store to store.

    The majority of finance producers are on a stair step pay plan that is calculated by taking their average gross per vehicle signed, total product sold, and total gross produced. If a producer needs to sell product to hit his highest payout, and he’s already met his gross total, which means you are going to have a VERY good chance of buying product at cost.

    Add ons.png

    This example shows typical profit margins for a few examples of product.


    The industry average per vehicle signed is about $850, which includes the rate payout, and product sold; if you add up the two examples I gave they add up to about $1,700, which is MUCH higher than the average.

    While this makes it seem like the dealership is out to take your hard earned dollars, the finance department is also able to save you money and an unnecessary trip to your bank or credit union. A lot of banks and credit unions offer dealerships discounted rates, because the dealership is going to be responsible for completing the paperwork. For example, you may be preapproved through U.S. Bank for a 2.99% rate for 72 months, but if you came into the dealership, we could sign you up through U.S. Bank for 2.69% and save you money. In this instance, U.S. Bank would pay the dealership a flat to make it worth our time to do.
     
    Last edited by a moderator: Oct 6, 2017
    CO Mack and DSG2003Mach1 like this.
  2. SID297

    SID297 OWNER/ADMIN Staff Member Administrator

    Messages:
    45,610
    Joined:
    Mar 27, 2003
    Location:
    Myrtle Beach, SC
    Thanks for the insights.
     
    13COBRA likes this.
  3. M91196

    M91196 Well-Known Member Established Member

    Messages:
    477
    Joined:
    Jan 1, 2015
    Location:
    New England
    Thanks for the peak inside to see how the sausage is made.
    In an example I experienced I had my credit union locked on a competitive rate, 2.8% and the dealer found one from another source for 2.5%.
    So the bank would have kicked back the dealer a couple points to them on that? That's awesome that they can do that and make $$.

    I'd like to request your next BTS article to be about service absorption and how the parts and service dept hauls the water for dealers.
     
  4. ZYBORG

    ZYBORG Let's roll.. Established Member

    Messages:
    9,334
    Joined:
    Feb 22, 2006
    Location:
    TX/S.FL
    13 adding value to the team like a set of freshly implanted and natural looking DD sized tits!
     
  5. 13COBRA

    13COBRA JJG's Attorney Premium Member

    Messages:
    13,546
    Joined:
    Jun 4, 2012
    Location:
    Missouri
    Correct. The bank probably paid the dealer anywhere from a flat $250 to a percentage of the total amount financed.

    The service absorption article would be interesting. Thoughts, @SID297 ?

    Full of goodness.
     
  6. sono

    sono Active Member Established Member

    Messages:
    375
    Joined:
    Sep 13, 2012
    Location:
    WPB
    Good info!
    My personal wish is that you just tell me what you want to make on the car. Points are available in many industries and totally screw up trust. The banks are at fault for pushing that crap in the 1st place.
    I want the guy to make something, so when I need a favor in service he picks up the phone.
     
  7. DSG2003Mach1

    DSG2003Mach1 Well-Known Member Premium Member Established Member

    Messages:
    7,591
    Joined:
    Apr 15, 2004
    Location:
    Central Fl
    interesting, is there anyway to if a specific bank is working with a given dealer? IE Ive got Navy Federal if say theyre advertising as low as 4% whats the best way for the buyer to go about it to know if you should get pre-approved through them vs financing at the dealer?
     
  8. 13COBRA

    13COBRA JJG's Attorney Premium Member

    Messages:
    13,546
    Joined:
    Jun 4, 2012
    Location:
    Missouri
    I agree with that to a point. Banks push it though so they can get the dealership to send them more business.

    I would get pre-approved the Navy Federal, then I would tell the dealership what they need to match/beat.
     
    DSG2003Mach1 likes this.
  9. P49Y-CY

    P49Y-CY grab 'em by the pussy Established Member

    Messages:
    9,892
    Joined:
    Jun 21, 2003
    Location:
    south oc, cali
    Op did you ever read the book, "Don't Get Taken Every Time", by Remar Sutton? I remember reading it in the 80's and thought that it was pretty good. Supposedly an insiders look into the goings on of a typical automotive dealership.
     
  10. 13COBRA

    13COBRA JJG's Attorney Premium Member

    Messages:
    13,546
    Joined:
    Jun 4, 2012
    Location:
    Missouri
    Yes I have. It doesn't really apply anymore though.
     
  11. thatdude305

    thatdude305 Active Member Established Member

    Messages:
    247
    Joined:
    Jun 30, 2007
    Location:
    Ft. Lauderdale, FL
    I worked at a Ford dealership in sales for years and was a top seller 90% of the time. Finance departments will typically match or beat rates any day. Even if they get paid a flat or a small percentage. If you buy a car and get your own outside and dont buy any products in finance that individual that helped you with your paperwork makes a big fat $0. They basically worked for free for that hour which sucks. Obviously they make up for it because at the end of the month a good finance manager will make around $8-$10k avaerage throughout the year. Its the sales people that are really starting to get screwed thats why I got out of the business. New car profits are about $300 per car which means the salesman is getting mini flats ($100-$200). And more and more manufacturers are putting a lot of emphasis on these surveys and if you leave a bad survey the salesman could either lose his commision or go to a lower percentage of his overall commission. Which sucks even worst. Meanwhile the dealers are getting fat money from the manufacturers. Anything else you would like to know, please feel free to ask.
     
  12. 03cobra#694

    03cobra#694 Want to play a game? Staff Member Super Moderator

    Messages:
    46,066
    Joined:
    Aug 12, 2008
    Location:
    SW FL.
    I'm only here to troll Nick.
     
    gimmie11s, 13COBRA and Zemedici like this.
  13. 13COBRA

    13COBRA JJG's Attorney Premium Member

    Messages:
    13,546
    Joined:
    Jun 4, 2012
    Location:
    Missouri
    You're right on a few things, but wrong on others.

    If a finance guy makes $0, more than likely, he moves backward on his payplan (so he/she loses money).

    Ford hasn't had a manufacturer kickback program in over a year. A lot of manufacturers are going away from it.
     
  14. thatdude305

    thatdude305 Active Member Established Member

    Messages:
    247
    Joined:
    Jun 30, 2007
    Location:
    Ft. Lauderdale, FL
    No they don't move back or lose money. They get a small % of all back end profits. They have quotas that they must meet, but they don't lose anything. Ford did have the volume bonus program for dealers about a year and a half ago they stopped. It was horrible for sales people. Ford does kick back money to dealers but nothing you will ever see. Its very minut
     
  15. M91196

    M91196 Well-Known Member Established Member

    Messages:
    477
    Joined:
    Jan 1, 2015
    Location:
    New England
    Interesting, I know very little about the banking business so I figured if a loan had total interest of $1200 that there was no way they carve off hundreds as a spiff to a 3rd party.
    Auto loans must be the ultra competitive low margin end of the consumer lending business.
     
  16. gimmie11s

    gimmie11s Dont be a Hybred Premium Member Established Member

    Messages:
    6,126
    Joined:
    Jun 1, 2004
    Location:
    so cal
    He's trying to get promoted. :p

    Seriously though.. I learned a couple things from this article. Great info and thanks a ton for sharing!
     
  17. 13COBRA

    13COBRA JJG's Attorney Premium Member

    Messages:
    13,546
    Joined:
    Jun 4, 2012
    Location:
    Missouri
    They do move back, and lose money.

    Finance pay plans are based on total gross, gross per car, product sold, etc.

    If you take a $0 gross and don't sell any product, your power rating drops, which can kick you to the next lower pay scale. It's all tiered.


    VGB was terrible, and it really wasn't that beneficial to dealers either, that's why Ford axed it.

    Ford does NOT kick back money to the dealers currently. Trust me, I'd see it.
     
  18. 03cobra#694

    03cobra#694 Want to play a game? Staff Member Super Moderator

    Messages:
    46,066
    Joined:
    Aug 12, 2008
    Location:
    SW FL.
    Good job Nick, honestly.
    Still trolling. lol
     
    13COBRA likes this.
  19. SID297

    SID297 OWNER/ADMIN Staff Member Administrator

    Messages:
    45,610
    Joined:
    Mar 27, 2003
    Location:
    Myrtle Beach, SC
    Do it.
     
    13COBRA likes this.
  20. tones_RS3

    tones_RS3 I like members members. Premium Member Established Member

    Messages:
    11,101
    Joined:
    Jan 29, 2016
    Location:
    MA
    Good read.
    Thanks for posting.
     

Share This Page