When the economy is in decline, inflation or refinancing rates rise, and as a rule, the profitability of dealerships and financing companies begins to deteriorate. As an owner or manager, you start thinking about how to get a new source of income and increase the profitability of current operations. And if you are facing one of these problems, this article is for you.
In this article, we gathered the experience of many car dealers who use the mechanism of selling their accounts to increase business profitability and regularly improve their financial results.
Many subprime dealers know that, as a rule, they will face a delay in debt payments for every 4-5 clients. And this means that debts will become problematic. And this means that you will need to collect these debts, make a repository, sell them at auction, and after a while, the money will come back to you. BUT! How much time has passed, and how many internal resources have you spent to collect them? This is the inefficiency that can be a big problem for your business.
Many auto dealers prefer to sell those debts that they are not sure about collecting. They exclude unnecessary operations and receive money for issuing new loans that give new sales.
The difference in the price of performing and non-performing debts is 5-8 times. Based on this, the best practice is to sell debts while they are still good. The optimal time for a sale to maximize profitability is 5-7 months after issuance because the debts are already seasoned so that buyers will pay the highest cost for them.
To sell, you need to upload the auto loan portfolio to Excel. And the most important thing is to provide the data that is most required for evaluation by your potential buyers. The absence of this data will lead to a decrease in the sale price.
So, what data is most important: information about the debtor and his FICO score, the presence of a guarantor, history of payments, information about the car, including VIN and GPS, if installed. These indicators will have a more significant impact on your profitability.
Thus, there will be from 25 to 60 data fields in the data tape. For an example of the file, see below:
After signing the sale agreement, you must hand the documents to the buyer. The most optimal is the transmission in scanned form because the new owner will be able to significantly speed up the process of getting started and reduce their costs for preparing files. Therefore, buyers are willing to pay more for documents in electronic form.
The best practice of sellers is to prepare documents for debtors in advance and put them on the end-to-end encrypted share drive so that the transfer can be carried out quickly and safely.
Sellers who use these simple rules achieve a sale price 10-15% higher than those who do not follow them. But! There is also an important life hack to increase the price - regular sales. This allows you to form a network of buyers who are confident in the quality of the paper. Thus, in each subsequent purchase, they are willing to pay more and more.
Good Luck and Happy bidding!