All subprime lenders have specific parameters that ensure a fair selling price and the advance the dealer will receive on the vehicle you are selling. Therefore, the key factor in the entire lending process is accurately determining a vehicle’s value. This value, as we all know, can be found in any one of the three recognized used car pricing guides: Kelley Blue Book, NADA Used Car Guides and Black Book.
Some lenders accept values from any of these three used car guides, others use one guide. Do you book your inventory using all three guides? If so, are values all updated in a timely manner? If you don’t and they’re not, you’re probably leaving money on the table. Here’s how to avoid doing so.
Different Guides, Different Profit Potential
Let’s think this through. Consumer Portfolio Services (CPS), for instance, will consider any of the three used car guides. Does it matter? Let’s take a look at a specific example.
One of your units is a 2013 Chevrolet Malibu LS with 35,000 miles – a nice reliable vehicle for subprime buyers. Its mileage is low enough for good terms and a value that will put a buyer into the $300 per month payment range.
Now, let’s compare book values:
Black Book: $11,575.00
Kelley Blue Book: $11,420.00
NADA Used Car Guides: $10,800.00
All figures are all based on clean book and adjusted for the mileage. You’ll notice there’s a $775 spread between the highest and lowest values. At a 115% advance, that’s a difference of $891.25. More importantly, that’s $891.25 in additional advance from the lender that would have been missed if your special finance department only had the time or resources to book it through NADA Used Car Guides. But here’s where it gets interesting.
Both Kelley and Black Book values are updated weekly, while NADA Used Car Guides gets updated every month. Multiply those variables by the number of viable subprime units on the ground and you can see how the situation can get out of hand very quickly, leading to lost revenue or, more seriously, to bounced contracts.
Structuring the Best Deals
One way to eliminate these multiple issues is to use a subprime desking system like LotPro®. In this instance, your inventory is booked and updated simultaneously, using all three used car guides. Again using CPS as an example, LotPro’s integrated Deal Excelerator tool sweeps your entire inventory, giving you the book value that will result with the best deal structure.
The team at CarsDirect and Auto Credit Express understands the importance of finding the right lenders, maintaining the right inventory and using the right processes to get the job done. For a personalized market-analysis report for your dealership, fill out this form, or give us a call at 888-535-CARS (2277).