Credit availability for subprime customers is still low, but the well is not dry. In fact, there are signs that special finance is making a comeback, with the bankruptcy niche leading the way. Finance sources with an established history in the bankruptcy segment know the payoff is worth the risk. They know those consumers will be relatively debt free at the end of the process and motivated to reestablish their credit.

That makes BK customers an ideal candidate for financing. And with bankruptcy filings soaring to heights not seen since 2005, this is a segment that’s ripe with opportunities. In 2009, bankruptcy filings shot up 32 percent to more than 1.47 million for the year. The surge mirrors what happened five years ago, when consumers were trying to take advantage of older, less restrictive filing guidelines before revisions to the U.S. Bankruptcy Code took effect.

Getting Them Early

The two most common forms of bankruptcy in the United States are Chapter 7 and Chapter 13. Chapter 7 is, for all intents and purposes, a debt liquidation program. The 2005 revisions were designed to send more consumers toward Chapter 13, which requires consumers to set up repayment plans with their creditors. Chapter 7s are typically discharged after 90 to 120 days. Chapter 13 bankruptcies can take several years to complete.

Dealers tend to find more success with Chapter 7 customers. To understand why, you need to know the two key events in the process: the filing date and the 341 meeting.

• Filing date: This day kicks off the process, and it’s the single most opportune time to reach out to a customer in this segment. They’re hungry for knowledge and competition for their business is minimal.

• 341 meeting: About 30 days after filing, the customer will appear for what’s called a 341 meeting. He or she will be sworn in to testify to the state of their finances and learn whether their bankruptcy will be contested. Depending on the number of creditors and the complexity of the case, the bankruptcy stands to be discharged 60 days later. However, lenders specializing in the segment can begin approving customers for loans immediately after the 341 meeting ends.

When sending out letters to consumers, make sure the letter directs them to a Website that not only provides hope for an approval, but information about going through bankruptcy. Pictured above is a Website created by the author of the article.

Marketing to pre-discharge bankruptcy customers is unique compared to customers who have already been discharged. The ideal marketing plan for this customer segment goes like this:

• Day 1: Send out a letter with all the information the customer’s attorney didn’t tell him or her. The letter should drive a customer to a Website that can answer his or her questions while providing hope for an approval.

• Day 25: Send out a 341 meeting letter that tells the customer what to expect from the meeting. Encourage him or her to visit your store after the meeting for a free appraisal.

• Day 45: Send out a letter that let’s customers know it’s not too late to get help from your store. Offer advice on their current auto loans before the bankruptcy is discharged. Also make sure to sell the fact that you can help them begin the process of reestablishing their credit.

Depending on the size of your special finance department, it’s a good idea to hit customers with a couple more letters during the process. However, the plan detailed above is a good starting point. And don’t forget about your local bankruptcy attorneys — they can be an excellent source for leads. For the customer, a referral or custom flier from their attorney lends credibility to your operation.

BK Customers Require Educated Sales Approach

Consumers who file for bankruptcy often don’t realize they may qualify for an auto loan or understand their options. That means they may believe they have to hold onto whatever vehicle they have, even if it’s experiencing mechanical problems.

Your ultimate goal is to get the customer to buy a car from your dealership, but your immediate objective is to build a relationship by educating them about their options. Pre-discharge bankruptcy customers are unlikely to be upside down on their vehicle, which means grosses are typically higher.

“We are still seeing huge grosses on open bankruptcy deals,” said A.J. Ager, sales director at Al Serra South Chevrolet in Colorado Springs, Colo. “The numbers have gotten tighter due to tighter lender guidelines, but that has started to change since the beginning of the New Year.”

Rob Hagen is the founder of SpecialFinanceCoach.com, a Houston-based consulting firm specializing in department setup and growth. He can be reached at rhagen@special-finance.com.

ORLANDO – Not yet out of the hospital, subprime auto financing at least has left the intensive-care unit.

The credit crunch that hit in 2008 hurt virtually all levels of financing. Subprime suffered the most, making it tough for people with low credit scores to get car loans.

But so-called special financing “is on the way back,” says dealership consultant Rob Hagen, CEO of SpecialFinanceCoach.com. “It’s a second coming.”

Showing faith but less zeal is Tim Zierden, a divisional general manager at DealerTrack Inc., provider of indirect-lending services to dealerships.

“Subprime has made a little bit of a comeback,” he says “The feedback is getting a little more positive.”

Signs of life: Some finance firms say they’ll consider car-loan applications from consumers with relatively low Fair Isaac Corp. credit scores of less than 500.

“I thought, ‘Wow, I haven’t heard that in a while,’” Hagen says at the F&I Management and Technology conference here. FICO scores range from 300 to 850.

If auto financing has changed, so has the profile of the subprime customer who in the past typically was someone with a checkered credit history or deadbeat tendencies.

But lately, many people with good credit ratings have seen their once-high credit scores fall because of unemployment, underemployment, upside-down mortgages, over use of credit cards and other recessionary ills.

“Many prime customers became casualties of the economy” dropping into near-prime and subprime categories, says Hagen, a 15-year dealership veteran before becoming a consultant.

“Dealers need to know how to handle those customers, how to deal with the transitional situation and explain why their interest rate is now 15% and no longer 5%,” he says.

Some consumers with respectable 780-750 scores a year ago saw their credit ratings “bruised” Zierden says.

Customers whose scores dropped 100 points from the mid-700s aren’t goners, he says. “It’s just a matter of finding the right car for them. They remain good customers.”

Read more at:

http://wardsdealer.com/latest/subprime_auto_lending_091203/

Well, there are several approaches that work well. One is to get their attention during the filing process itself. This can be done several ways.

Signing up with a tax preparation service like TaxMax is a great way to have control of the funds. A.J. Ager, Finance Director from Al Serra Chevrolet in Colorado Springs, agrees. “We are signing up with TaxMax and have used them the last several years with a lot of success. We have control over the customer’s refund and that obviously means we have control over their purchase. All you do is enter the information into their system; they file the return and send the customer’s refund.”

One other great thing about TaxMax is they have a fourth quarter program that allows you to file a refund based off the customers last check stub. This will get the ball rolling faster for them to be able to get their money faster. TaxMax also has marketing materials that you can purchase and put on your lot letting customers know you can file their refunds and sell them a car all at the same location.

Another great tip that I have done is forming relationships with local tax preparation companies and setup referral programs. I would create brochures every year and pass them out to tax preparation companies close to the dealership so they could give them to potential customers. Then, we would spiff them when customers showed up at our store.

A.J. again agreed. I am pretty sure he got this from me at a Twenty Group several years back but he won’t admit it. “We set up referral programs with all the Jackson Hewitt, Liberty Tax Services, and HR Block locations within about 15 miles of the dealership. We pay their preparers every time a customer shows at our store regardless if they buy. If we can’t sell them, that is not their fault and we want them to keep sending us customers!”

Cindy Christensen, General Manager of Herbie’s Auto Sales in Greeley Colorado, has a marketing tip that works well for them. Herbie’s does a great job of taking care of their customer base and the majority of their sales each month come from referrals or repeat customers. “During tax season, we send emails to our database of customers letting them know we will match their down payments up to $1000,” says Cindy. “Plus, we also have flyers all over our showroom and in our service departments about this incentive so even if a customer isn’t in the market now; they can refer a friend or family member to take advantage of our Herbie’s Family Rewards program. Lastly, we make sure our BDC contacts all of our buy here pay here customers with low balances (under $2000) to invite them to take advantage of this opportunity to get a new vehicle.”

Lindsey Ford of Wheaton in the D.C. metro area has another approach to getting customer in their dealership that has been influenced by the current economic times. “We are focusing on marketing to less people but marketing to the multiple times”, says Mark Law, Finance Director. “There is a lot of mistrust with customers these days on if they can get approved so we try to reassure them by marketing to them with the same message just a couple different ways and through a couple of different mediums.”

Mr. Law continued, “We did a mail piece from our customer database and then did an email blast with the same message to the same customers. Also, we purchased an email list of customers in close proximity to our dealership and sent them four separate emails. We anticipate the multiple contacts will strengthen customers trust in us and make them are more likely to visit our dealership.”

These are all some great ideas but let me mention, marketing to your existing database should not just happen this time of year. Your database is your most precious sales asset and it should be treated that way. I truly believe a new position will be created soon in dealerships as Database managers.

Next week, we will dive into some things that you can do to make sure your inventory is ready for the tax rush. Until then, I wish you and your families a Happy Thanksgiving!!!

I have had the pleasure of interviewing several well run special finance operations and will share tips from them in the coming weeks. Plus, I will be sharing tips from my over 17 years of special finance experience. This will be broken down into a six part series that talk about pertinent subjects like marketing, inventory, and sales processes.

In general, tax season seems to start earlier and earlier every year. People file for refund loans based off their last check stub and this has caused dealers to start their preparation earlier.

Recently, I spoke with B.A. Nerison, owner of Wheel City Auto Sales in Sioux Falls South Dakota. Mr. Nerison had this to say about the upcoming tax season. “Be prepared because it will come and go fast! Customers are getting their money sooner (via electronic filing) and the tax window is short, unlike a few years ago. No more can we count on two solid months of tax money. It’s turned into a month long event at best.”

With economic times the way they are, there are sure to be other challenges that are unique this year as opposed to past years. “Customers that are unemployed or have fallen behind on bills will have their money spent before they get it,” said Nerison.

One person who echoed that sentiment is Dustin Jones, Finance Director for Boch Honda outside Boston. “Now, more than ever, families across America need their tax refund checks,” said Mr. Jones. “Our company is focused on meeting customers’ needs and through our advertising, we have portrayed that we are not looking to seize the customers tax refund but help them purchase a vehicle utilizing as little of their refund as possible.

“We know that a lot of people are struggling this year and taking more of a community service approach in aiding them,” continued Jones.

When I asked Mr. Jones when they started preparing for tax season, he responded “At the end of September”.

As an indication of how early tax season is starting these days, TaxMax offers a program called their “Fourth Quarter Program”. It is a program that estimates what a customer will get back on their tax return, look for reasons that would prevent them from getting a return, and offers loans based off their tax refund amount.

Al Serra Chevrolet has used Taxmax for years with great success. A.J. Ager, Finance Director in Colorado Springs, loves the program. “ We signed up for TaxMax again this year. It is a great way to control your customer’s refund.”

It is easy to see how powerful it could be if you control the customers refund. You know how much they are getting and the money comes to you first!

“You enter the information into their system”, continued Mr. Ager. “They file the return and send you the customers refund.”

This is great for customers that walk into your showroom but is it also good to go find your local tax preparers as well as local H.R. Block, Jackson Hewitt, and Liberty Tax Services offices. Make sure they know you are a dealer that helps credit challenged customers and give them a bird dog on customers they send to you.

I will share some great marketing tips to get a bunch of customers from these local tax preparation companies in my next edition of the tax season checklist. Until then, take a look at your operation and see if you are ready for tax season. Tax season is the equivalent to cash for Clunkers for a special finance department!

Repossessing a vehicle is never a good thing, but technology has certainly come a long way in helping dealers do just that. The Special Finance Coach discusses how to keep customers on time with their payments, as well as how social networking sites like Facebook can help when they’re not.

Contrary to popular belief, repossessing a customer’s vehicle should be the last resort when it comes to the buy-here, pay-here (BHPH) business. It’s bad for business and it’s an outdated philosophy.

Unfortunately, some dealers are ready to “hook” a customer’s vehicle if they are one day late on a payment. What a dealer needs to remember is these customers have a history of not paying on time. That means they need to be trained on how to stay current on their payments, which is what payment assurance devices are designed to do.

Another common misconception is that all devices are created equally. There are two basic types of devices: GPS devices and payment reminder devices. Both tout shut-off features, but they vary greatly in how they’re used.

Payment-reminder devices are for dealers who want to collect their money. They are also proactive tools that help dealers nurse customers along during rough times. GPS devices are for dealers who want to collect their collateral. They are reactive tools that allow dealers to quickly make repossession decisions.

Both products serve a fantastic purpose and can be great assets to any BHPH dealer. Deciding on which works best depends on that dealer’s business plan. “Dealers have different ways of managing their portfolios and we have products to assist them with any business model,” said Jake Frank, co-founder of PassTimeUSA. “In fact, our Elite product is unique to the industry in that it combines both the GPS and payment reminder technology.”

Payment assurance devices go a long way in eliminating “skip hazards,” but skips are going to be something every BHPH dealer has to deal with. Repos will happen to any portfolio, but at least you have your collateral to remarket or sell off at the auction to minimize your loss.

On a skip, you will have to write off the entire amount of the outstanding contract. If you are new to BHPH, one of your fundamental underwriting guidelines must be to eliminate possible skips. That means you need to be wary of customers with credit bureaus that list addresses from several different states.

One precautionary measure I always recommend to my dealers is to Map- Quest the customer’s address. If it’s an invalid address, this is the easiest way to catch it. That’s not to say I haven’t been fooled before, but most of those instances occurred before technology was available.

Cybertracking Revolutionizes Collections

I once had a customer’s phone bill with his address on it, which I thought was golden. I went to his house to collect payment on a bounced down-payment check, but the address did not exist.What a horrible experience that was. Turns out the customer went around writing hot checks after opening anaccount with $50.

Regardless of how diligent you are, this situation will still happen every once in awhile. Some customers will just try to get one over on the system whenever possible. I refer to these people as “credit criminals.” They will clean up their credit reports and lie right to your face just to be able to get into a car.

One time, I had a customer run on me when I was heading up a BHPH department in Louisiana about 15 years ago. It took a couple of months, but we finally tracked down the customer and repossessed the car in Trout Run, Penn.

Professional recovery companies specialize in “hunting” down your runaway customers, and the most common practice being used today by recovery companies is a process referred to as cybertracking. Cybertracking does not replace fundamental collections practices, such as calling references, but it is a powerful tool for when a credit criminal tries to run.

Ron Brown, president of Confidential Security Investigations (CSI Group), is a self proclaimed hunter. His company has been a leader in cybertracking. “In all the years that I have been in this business, one thing has held true throughout: Man’s ability to skip trace has always paralleled their ability to communicate,” he said. “Early on, hunters would track people on foot. Then, as years went on, they started to track people by the paper trails they left behind. Now, we follow their electronic trails.”

Collectors Employ Social-Networking Sites

There are several companies out there that are in the business of gathering data. Much of their efforts are fueled by their ability to track an individual’s interactions and conversations online. Some of these sources are pay-as-you-go sites that provide access to public records, such as MasterFiles.com. There are also sites that allow free access, such as brbpub.com or Black- BookOnline.info.

“The key is being able to decipher the data,” said Brown. “Some data can be very misleading. Have you ever pulled your credit bureau and saw a job you never worked at or a residence you never lived in? We are trained to see the difference between the real and fictional data.”

Social-networking Websites are also great tracking tools, said Brown. “People update their Twitter, Facebook, and MySpace accounts several times per day, allowing anyone following their actions the ability to know just where they are and what they are doing,” he noted.

Imagine a skip feeling like he or she got away with the car without paying for it, and then heads out to lunch one day and Tweets: “Off to lunch at my favorite Italian restaurant, Tony’s.” And just as soon as he hits send, the CSI Group intercepts the updated message and sends a local field agent to Tony’s restaurant to look for their collateral.

Technology is assisting many BHPH dealers across the country to increase their profitability and minimize their losses. These products require a small upfront investment for a huge long term profit.

In my training sessions, I stress developing a sales process specific to special finance and sticking to it. This includes completing the qualifying stage up front. When a customer walks in and says “I have a few issues with my credit,” my response is always the same: “Great! Let me get some information from you so I can give you some options for financing.” At this point, I’ll have two pieces of paper on my desk: A credit application and my needs analysis checklist. My goal is to find the unit that fits the customer’s needs and comes as close to their wants as possible.

For instance, let’s say a loyal Ford driver walks in and you’ve got an Expedition, an Explorer and a Taurus on the lot. The customer wants the Expedition but you know she can’t afford it. You stand to make the most out of the deal by selling her the Taurus, but, for $500 less in gross, you could put her in the Explorer. To me, it’s a no-brainer. For $500, you can get that customer a heck of a lot closer to the vehicle she wanted. That creates a happier customer, more referrals and, if she pays her note, a stronger relationship with the lender.

With that said, let’s take a look at the needs analysis checklist I’ve developed along with a brief explanation of why each group of questions is important.

1. Are you a full-time or part-time employee?

2. Are you a W-2 or a 1099-MISC employee?

3. What was your date of hire for your current job?

4. Do you have any job gaps in the past three years?

Let’s find out up front if the customer is self-employed or part-time. There is no point to working on a deal for three hours only to find out at the end that the customer’s employment status will limit his financing options.

5. What is your total monthly income?

6. What is your total household income?

If a customer’s monthly income is $2,500 but his household income is $4,500, you can reasonably assume that there may be a relative or friend available to boost the income, improve the customer’s credit picture or add a second vehicle. It’s a subtle way to ask for a co-signer without offending your customer.

7. Do you have any garnishments on your check stub?

8. If so, how much comes out each month?

It took me getting bitten in the butt a couple of times to add these questions. Wage garnishments can be sizable and you need to know about them up front.

9. Have you ever filed for bankruptcy?

10. If so, was it discharged?

11. Have you ever had a vehicle repossessed?

12. If so, by whom?

This is another great example of how a special finance manager often has to wear a counselor’s hat to get deals done. Let your customers know you accept the fact that there may be derogatory issues in their past. But to go into the trenches with the banks, you need the right ammunition.

13. Do you have a trade-in?

14. If so, do you owe money on it?

15. How much of a down payment can you afford?

Now we’re getting to the nuts and bolts. The customer’s equity — or lack thereof — on the trade-in is almost as important as the down payment. More importantly, a big positive in either column can make a bad deal look good. Many managers who pull a bureau with three repos will politely ask the customer to leave the premises. But if they had conducted a needs analysis that revealed $5,000 worth of down payment or trade, they might think twice.

16. Is this vehicle primarily for family or business?

17. Do you want a car, van, truck or SUV?

Find out what your customer has in mind without getting too specific. I once worked with a dealer who was using a needs analysis checklist that included questions about sunroofs and leather interiors. I crumbled it up and threw it away. Unless you’re determined to create objections for the customer to throw back at you later in the process, questions like that are useless.

18. What kind of payment can you afford?

I consider this last question to be optional. It’s easier in some regions than others to “bump” customers up to a higher payment. In such cases, I’ve seen managers get too wrapped up in the scheduled payment amount and wind up leaving money on the table or missing deals. In other regions, customers are simply harder to bump. In colder states, for instance, seasonal expenses such as heating bills don’t show up on a credit report. In those cases, previous car payments are a better benchmark.

If you conduct this analysis on every deal, you and your customers will be heading in the right direction from the outset. Where a customer’s needs meet his or her wants, lasting relationships are formed — and referrals are sure to follow.

Rob Hagen is the founder of Special FinanceCoach.com, a Houston-based consulting firm specializing in department setup and growth.

to grow. To really ramp up sales, experienced special finance managers get good at selling to “niche” markets. One such market that has been a source of profits for many dealers is customers who have recently filed for bankruptcy.

Bankruptcies have always been a fundamental part of any well-run special finance department, but most dealers tend to wait until a customer’s bankruptcy has been discharged — that is, their debts have been cleared — before they’ll make a move. One way to gain market share is to work with “pre-discharge” customers who are still in the process of Chapter 7 bankruptcy.

Going after this market requires a little extra work, but it pays off in the margins. Grosses, for instance, are much higher due to the fact you don’t have to worry about negative equity from trade-ins. But to do it right, a special finance manager will first need to learn how bankruptcies work.

Bankruptcy basics

Dealers who work with pre-discharge buyers often have to take on two roles: credit counselor and dealmaker. That requires extensive knowledge of how bankruptcies work. For starters, let’s define the two main forms of individual bankruptcy protection:

• Chapter 7: This is the most common form of bankruptcy for individuals. Often referred to as a ‘liquidation,’ the debtor’s non-exempt property — the guidelines for which vary from state to state — goes toward repaying his or her creditors, after which most remaining debts are discharged, typically within 90 to 120 days. Certain debts such as income and property tax, child support and student loans typically cannot be discharged.

• Chapter 13: This less-common filing is, on the surface, somewhat more like debt consolidation. An income-earning individual can file for protection under Chapter 13 and set up a plan to repay his or her creditors, typically over a period of three to five years.

The Administrative Office of the United States Courts reports that bankruptcy filings and discharges are escalating. 101,753 American households filed or discharged a bankruptcy between Jan. 1–23, 2009, compared to 78,278 during the same period in 2008.

“The good news is that franchise dealers are working with lenders like Tidewater, CapOne, AmeriCredit, Wachovia and many others to offer loans to these individuals,” says Robert Davies, president of OnlineBKmanager.com. “It’s a win-win situation. Families are buying quality automobiles while re-establishing their credit with firms that report to the credit bureaus.”

The numbers project to at least 101,753 bankruptcy cases filed in January 2009, including 52,207 discharged Chapter 7s and 13s, a 20 percent increase from 2008. Chapter 7s accounted for more than 70 percent of all bankruptcies. As of January 6, 2009, there were nearly 1 million open bankruptcies being processed for discharge in the U.S.

Source: OnlineBKmanager.com

When it comes to their vehicles, filers often don’t know what they should do. They need their cars and they fear they’ll never be approved for another purchase. This may lead them to reaffirm outstanding debt on a vehicle that may have mechanical problems or they owe way too much on. For that reason alone, special finance managers who want to tap into the bankruptcy market must also take on a third role: marketing expert.

Marketing to the pre-discharge customer

Ideally, your first mailer will reach a pre-discharge customer within a few days of his or her filing. With a lot of other matters to cover, bankruptcy attorneys aren’t always able to convey all the pertinent information an individual needs to decide how to handle their vehicle situation.

You want to get them on the phone as close to the filing date as possible.

“Getting on these customers early and often is the key to advertising to the bankruptcy customers,” says J.P. Miller Jr., vice president of Paul Miller Ford Mazda in Lexington, Ky. “We start to send mail to them starting the day after filing and continue till discharge. It pays huge dividends for us as we average much higher grosses on these customers.”

Auto retail veteran Tom Martin agrees. He spent 10 years working with bankruptcy customers — at one point mailing 10,000 to 15,000 letters each month for a single Ford dealership in Ohio. He then founded Columbus, Ohio-based ACH Consulting LLC, a consulting firm that specializes in helping auto dealers start their own dedicated bankruptcy departments.

“The latest phase of this business has gone to the ’Net,” Martin says. “We’re trying to lead customers to a Website that will capture their information. We send out a mailer called The Top 5 Things Your Attorney Did Not Tell You. They log onto our site and submit their names, phone numbers and e-mail addresses before they can continue. Then we take their e-mails and put them into a series of auto responders to keep us in front of customers.”

Another part of Martin’s marketing plan is to get to know bankruptcy attorneys.

“Attorneys have been one of my best sources for leads throughout the years,” he says. “I have even done credit-building seminars for several attorneys’ clients so they could understand how to build their credit the right way.”

A sympathetic ear

In the counselor role, a special finance manager must be willing to get to the bottom of each customer’s credit situation. Bankruptcies, more than any other form of negative credit, are influenced by outside factors. Whether it’s an unexpected medical expense, job loss or divorce, many of your pre-discharge customers never planned to file for bankruptcy — they just ran out of options.

In 1993, one of the first special finance customers I ever worked with walked into my office with a perfect credit bureau report … except for a Chapter 7 bankruptcy. Everything else was paid on time, and I had to ask what led to the filing. He and his wife explained that their daughter was born with a hole in her heart and they had racked up $500,000 in medical bills almost overnight. They tried to work out some kind of settlement, but the hospital was preparing to sue them and they had to seek protection.

Every time I start to get frustrated by the job, I remember how I helped those people and how grateful they were. There are a lot of people who have to file bankruptcy for similar reasons. They’re not all deadbeats or career debtors, and a good special finance manager will be ready with a sympathetic ear. Remember that these customers are under a lot of stress and can lose sight of their goals.

“Whenever I hire someone for a bankruptcy department, I look for a person who is not a car person, and I typically prefer to hire ladies,” Tom Martin says. “I find that women are more willing and able to gain the trust of customers in bankruptcy.”

Cindy Christianson, general manager of Herbie’s Auto Sales in Greeley, Colo., agrees.

“We have one lady who only handles our bankruptcies,” Christianson says. “She pulls fresh filings every day and starts sending the first of our four letters to them. Then she handles all the incoming phone calls and helps calm the customers’ nerves.”

Specialty lenders

The last part of the equation is having lenders that will approve these customers. Just about every subprime lender has programs for recently discharged customers, but far fewer are equipped to handle a pre-discharge.

Virginia Beach, Va.-based Tidewater Motor Credit has been financing pre-discharge customers for many years. The performance of those loans over time has justified their focus on that market.

“We are still buying open Chapter 7s and discharged BKs,” says Dedra Muffley, Tidewater’s marketing supervisor. “In fact, the open BKs represented the majority of our business last month. In this critical time, it became necessary for all of us to re-evaluate how we are operating and become as efficient and effective as possible. During this evaluation, we had to make some painful decisions regarding staffing and dealer clients.

“We confirmed for ourselves that lending to those people whose credit problems are behind them is what makes the best business sense for us and what pays out better. Generally, we are still buying those customers in the same way.”

When asked if that strategy will hold up through what promises to be a difficult year, Muffley is adamant.

“We absolutely expect this to be the bread and butter for ’09,” she says, “and we hope that those slices become loaves as we are able to add more dealers little by little. We remain hopeful that in the coming months, we will once again have a ‘green light’ as far as growth is concerned.”

Due to an expanding market for dealers and high profitability for lenders, bankruptcy business is sure to be an area that grows faster than other areas of the special finance business as it rebounds from a shaky 2008.

Rob Hagen is the founder of SpecialFinanceCoach.com, a Houston-based consulting firm specializing in department setup and growth.

My one stabilizing customer was one of my first customers back in 1993. Their credit was perfect except they had filed bankruptcy. Special finance was in its infant stages and bankruptcies were not as easy to get around as they are today. I sat down with them and asked them what happened. They told me their daughter was born with a hole in her heart and almost overnight they had a half million in medical bills and the hospital was trying to sue them. It gave me great personal satisfaction to help these people purchase a tan Dodge Caravan.

Unfortunately, this was the minority of the customers that I helped get financing over the years and it was pretty easy to label the majority as irresponsible or something to that effect in regards to the reason they have credit issues; however, that will be changing in the very near future.

With unemployment astronomically high, foreclosures happening at an alarming rate, and the general overall recession in the economy that has hampered this country, the demographics of a special finance customer is changing greatly. Every dealership in the country is going to need to be prepared to handle the new breed of special finance customer.

Why? Because the customers that are used to buying high line vehicles are not going to all of a sudden start driving starter transportation. A lot of these people will be coming out of leases and needing new cars but now they have credit issues. High line dealers have been creating this flow of repeat customers for years by recommending leasing so they have to buy every couple of years. What are they going to do with a customer with credit issues that wants to lease a new BMW? How are they going to tell this customer that got 5% APR on their last auto loan that their rate is now 18%?

It can be done but it has to be done with a lot of sensitivity. Keep in mind that most people are embarrassed of having credit problems especially someone who has never had credit issues! These customers are going to ask questions and you need to be prepared to handle them. If done well, you will have customers for life but done wrong, you will lose out on this sale and future sales when this customer’s credit improves.

Now is not the time to shy away from special finance but to embrace it. A lot of lenders are getting more aggressive in their buying and this trend will continue. A lender that sponsors my training seminars (ACC) recently launched a foreclosure program. This is an indication where special finance is headed and the only question is are you ready?

During the first three months of this year, ABI reported a 34.5-percent jump in bankruptcies as compared to the first quarter of 2008. Data ABI received from the Administrative Office of the U.S. Courts noted that all filings in the quarter totaled 330,477.

That figure easily surpassed what the office compiled for the first quarter of 2008. A total of 245,695 new bankruptcy cases were reported during that three-month span.

The bankruptcy total for the first quarter of 2009 also showed an increase as compared to the final quarter of last year. That span had 301,317 reported bankruptcies. The most-recent quarter is a 9.7-percent increase.

When broken down by business and consumer filings, percentage increases on year-over-year and quarter-to-quarter comparisons were again evident.

Business bankruptcy filings in the first quarter of this year totaled 14,319. That figure represents a 64.3-percent jump from the amount for the same time period of 2008 when 8,713 cases were filed. The most recent quarter also had 11 percent more filings than the fourth quarter of 2008. That’s when 12,901 business bankruptcies were filed.

When analyzed by the types of business bankruptcies reported in the first quarter of 2009, 9,700 were Chapter 7, 3,431 were Chapter 11, 102 were Chapter 12 and 1,045 were Chapter 13.

Among consumers, that bankruptcy total came in at 316,158 during the first quarter of this year. That figure represented a jump from the total in the first quarter of last year, which was 236,982. It also shot up from the 2008 fourth quarter total, which was 288,416 nonbusiness filings.

When examined by types of consumer bankruptcies reported in the first quarter of 2009, a total of 223,760 were Chapter 7, 248 were Chapter 11 and 92,150 were Chapter 13.

Altogether for a 12-month period that ended March 31, a total of 1,202,503 bankruptcies were reported.

“Consumers and businesses are increasingly seeking bankruptcy protection in order to shelter themselves from the financial storms brought on by the current economic climate,” explained Samuel Gerdano, executive director of the American Bankruptcy Institute.

“As unemployment figures continue to rise and financing remains elusive, we expect filings to surge past 1.4 million cases by year-end,” Gerdano concluded.

May 28, 2009

HOUSTON — SpecialFinanceCoach.com founder and trainer Rob Hagen has launched Coach’s Talk, a weekly, one-hour, call-in radio show. Offered via Blog Talk Radio, dealers can listen live via the Internet each Thursday at 1 p.m. ET or download archived episodes.

“In this economy, dealers have had to reduce their training budgets to try to keep profits in line,” Hagen told Special Finance. “We understand the tough decisions dealers have had to make but we also understand that dealers are still hungry to learn and remain students of their business.”

The program is focused on the benefits and challenges of subprime auto finance and buy-here, pay-here. According to Hagen, a 17-year auto retail veteran, these segments can no longer be ignored by any dealer.

“For years, special finance has been optional for a lot of dealers,” he said. “But after the current recession subsides, we are going to see increasing numbers of customers who had 700 Beacon scores a year ago walking in and looking for financing. This new breed of special finance customers is going to be stressed over their current credit situation. We’re going to talk about how dealers can build relationships with those customers and the lenders who finance them.”

Last week, Hagen was in Philadelphia, where he conducted the first-ever dealer training seminar for the Special Finance Institute, a joint venture presented by Special Finance, SpecialFinanceCoach.com and PassTime USA.