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F&I: Maximizing Sales Through Smart Desking

As it is spelled out in the definition, there is a lot more to a deal than just the selling price to complete a transaction.

Let me start by providing the definitions of the two fundamental dealership terms that we all regularly use.

Deal — This is term for the transaction of purchasing a vehicle at a dealership.

Desking a Deal — During a vehicle purchase, this is the process of presenting options to a customer in order to come to an agreement on the selling price, monthly payment and financing terms for the transaction.

As it is spelled out in the definition, there is a lot more to a deal than just the selling price to complete a transaction. When we all shop as consumers, especially for the small ticket items, we mainly pay attention to the price since that is what we pay for the purchase. This creates a habit of focusing on the selling price, and your customers will naturally do the same thing when they are at your dealership. 

As the dealer, we need to be the professionals, understanding the function of all the variables going into a deal and guide our customers accordingly. 

There are three parties to a financing deal — dealership, customer and the bank. Understanding what matters for all three parties is essential to close more deals and that’s what I call “smart desking.” 

Customer

Even though your customer might be a financing customer, they may think that they will get the best deal by negotiating a discount. You should steer the conversation with questions to find out the following:

– Their credit profile (prime, near-prime, sub-prime)

– The amount they are prepared to pay at closing

– The target monthly payment

– The desired length of keeping the vehicle

When desking the deal, your goal should be getting as close as realistically possible to what your customer shared, and you will not only increase your chance of closing the sale, but also minimize the need for discounting.

Dealership

As the dealership, you have a target amount you want to make from a deal. You need to know your vehicle cost, what you are prepared to take in the front end as well as how you can increase it in the back end with the F&I products. 

Bank, Finance Company

When you are desking a deal, the bank is underwriting the application to minimize the risk of not getting paid for the credit extended to the customer. It is important to understand how the banks underwrite an application to maximize the chance of your deal getting funded by the bank. 

Here are some basic underwriting terms:

Approval with contingency: Some banks may also call it pre-approval, which means that the bank is prepared to approve the deal based on the provided information with the condition that they will confirm the accuracy of the information provided. 

Stips (Stipulations): The banks may request supporting documents to confirm the accuracy of the provided information on the application such as copy of driver’s license, proof of residence, copy of paystubs, etc. These stips are verified by the bank underwriting/verification teams to remove the contingencies from an approval.

Approval Amount: The maximum credit the bank is willing to provide for the vehicle.

Backend Margin: The additional credit that the bank is willing to provide for the F&I products such as extended service contracts, GAP policies, etc. If the bank approval comes with 20 percent backend margin, it means that on a $8,000 vehicle, the dealer has room up to $1,600 for the F&I products. 

Credit Tier: Banks assign a credit tier to a customer based on an internally calculated credit score or a commercially available credit score such as FICO or Vantage. The credit tier represents the credit profile of the customer.

Advance Rate: It is the finance amount versus the book value of the vehicle that typically can range anywhere between 50 percent and 140 percent based on the credit profile, income and other variables. You need to know which commercially available book is used (such as NADA or KBB) and if the provided rate is based on retail or wholesale value tables. So, if the advance rate is 100 percent for a vehicle with $8,000 book value, it means that the bank is willing to finance up to the full book value of $8,000. 

DTI (Debt to Income Ratio): The banks want to make sure that your customer has enough available cash after their monthly obligations for not only their living expenses but also to make the monthly payments to the bank. Banks usually have DTI limits such as 50 percent or 60 percent and they may deny a customer even with a prime credit profile if they are above the provided threshold. 

PTI (Payment to Income Ratio): The banks want to make sure that the customer can comfortably make the monthly payments within their budget and they have enough income to catch up with late payments if they ever have a failed payment. 

Most banks may not share their secret sauce of how they assign an internal credit score but they usually include their generic underwriting guidelines in their program sheets to guide the dealers about how to desk a deal.

You should study these program sheets and ask many questions to your bank contact to understand the underwriting fundamentals better. Your bank contact will gladly assist you because they know that the better you understand their underwriting, the more likely you will desk your deal to meet their requirements and get funded. 

If you are desking your deal online using the bank’s provided platform, you should have the program sheet handy so that you can compare it to your deal structure, which will reduce the chance of back and forth with the bank underwriting department for a fast and painless process for all parties involved. 

There is a fine balance between meeting the customer expectations and addressing the bank requirements. You should learn from each funded deal but more importantly from the deals that the bank didn’t fund. You should ask questions when you are not sure why a stip is not accepted or a PTI is not calculated in a certain way or some other reason that stopped the bank from taking the deal. The more familiar you are with the bank underwriting practices, the better you will get at closing your next sale and getting funded by the bank.

Emre Ucer is the managing partner of MotoLease LLC. He oversees the development of solutions for the motorcycle and powersports industry to fit even the most credit-challenged riders.

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