When performing the role of F&I Manager, it was usually pleasant to deal with someone who was buying a new car. Despite the fact that there seemed to be an endless supply of documents to review and sign, the customer was normally excited about their new ride and couldn't wait to show it off to friends and family.
After the paperwork was signed, keys and handshakes were exchanged, and the customer and dealership were enjoying what both believed would be an ongoing, amicable if not friendly relationship. The dealership had worked hard to put the person in the car they wanted and pledged to provide friendly service and great deals on future purchases. Customer's promised to make their payments on time, send referrals, and to return to the dealer when they were ready for their next vehicle.
In too many cases, it was the beginning of the end of a beautiful relationship.
You see, after you sold your customer a car, you turned them into a debtor. Someone who will owe you a lot of money for several years to come. Someone who in the course of those years is all but certain to miss a payment. Or two. Or three. Or... Well, you get where I'm going.
In the BHPH, nonprime lending industry missed payments are inevitable and an expected part of doing business. But is it the part of the business that you really want to deal with? Is debt collecting what you want that hard earned customer who promised referrals and repeat business to associate with your business?
No matter what causes your customer... oops, I mean, debtor, to fall delinquent, you must now remove the hero's hat of the friendly car dealership and put on the hat that represents the most despised villain of the nonprime borrower, "The Debt Collector!"
Sure, in some cases you can collect a delinquent payment or two with minimal effort on your part while creating no or little bad will with the debtor.
In some cases.
But far too often that is not the case. For those that aren't easily cured with a quick phone call, debt collecting is an expensive and time-consuming operation that almost always creates bad will between you and your customers. No matter the circumstances that are preventing your past due accounts from paying on time, you’re likely to be the target of their frustration when you contact them for payment.
Of course, this isn't the case for every delinquent customer. But for the those who regularly remain past due, the prospects of repeat business is now gone, and the promises of repeat business have devolved into negative remarks about your dealership to anyone willing to listen.
Most auto dealers are pros at selling cars but have little desire to run a collection shop for the reasons I've covered above, and the dozens that I haven't. Instead, many of these dealers chose to sell all or parts of their loan portfolio.
When you sell loans, you're not only reducing the need, expense, or liability of in-house collections; someone else has now assumed the role of "villain" when bad things happen. If the customer loses their job and can't make payments: not your problem. If the customer files bankruptcy; not your problem. If the vehicle breaks down or is totaled; you guessed it! Not. Your. Problem.
Ok, it's not exactly a fairy tale, but if you don't have to do so much tedious collection work on your portfolio, you can live happily ever after.
In fact, as soon as you have sold that debtors contract to a finance company, they cease being a debtor and are instantly transformed back into a customer. From a Prince to a Frog and back to Prince, it's like a fairy tale. Ok, it's not exactly a fairy tale, but if you don't have to do so much tedious collection work on your portfolio, you can live happily ever after.
Besides eliminating or reducing the need to run an in-house collection shop, there are many benefits to selling your loans, and I will be covering more of those in future posts.