How much do finance managers make at car dealerships?
Having the qualifications and experience to set you up as a finance manager makes the world your oyster. Every industry needs a finance manager, so you can choose the one that excites you the most.
If you are a car enthusiast, then what better place to look than in the auto industry! The industry has seen steady growth year on year, albeit that the pandemic years saw sales drop significantly, as with all industries. The second-hand car industry started booming during the pandemic, which saw some eyebrow-raising prices in that sector.
Here is information on where dealerships make money and what the money-man, a.k.a. finance manager, can expect to earn.
What is a dealership’s primary income?
The biggest portion of profit in a car dealership is not from the cars. This is not a car industry anomaly, but it is an anomaly to industries that sell on credit. Money is more profitable than ‘things’.
When it comes time to buy your beloved, or practical, vehicle, there are perhaps only a handful of people who can walk in and pay for the vehicle, in full, upfront. The methodology mostly used is to use the credit facilities of a car dealership for the full amount or, at least, for the difference you can’t cover. This is where a finance manager plays a leading role in the agency.
The dealerships depend heavily on finance managers to source the most profitable finance tools, educate the sales staff of the upfront details of financing, explain and close the loan deals, and be the biggest boost to the company’s profits via interest earned.
What does a car dealership finance manager job entail?
A finance manager’s job in the car dealership industry is primarily to satisfy a customer’s need for appropriate, vehicle-related finance whilst protecting the dealership against bad debt. They must assess the suitability of each customer with finance tools, then explain the costs and obligations of the finance deal directly to each of the suitable customers. They must also complete all the related paperwork and upload it.
They will take steps such as completing the application forms and sales contract on behalf of the customer but in the customer’s presence. They will pull the customer’s credit score related to the principal amount What does principal mean in finance, guide the customer in reaching the most viable repayment amounts, and do title checks. At this stage of the conversation, a lot of dealerships require finance managers to also engage in purchase creep, i.e. add extra products sold by the dealership to the deal.
Not all customers qualify for finance as it is subject to income, credit experience, credit scores, number of credit facilities or loans taken out recently, and other factors. The finance manager is usually an intermediary between finance companies, the dealership, and the dealership’s clients.
The finance manager becomes a master craftsman of solutions whereby the customer gets the dream car, and the dealership gets the maximum profits.
Dealership earning opportunities
There is another opportunity that arises in deals for car dealerships to make a profit. The new vehicle customer usually has an old vehicle which they trade in to offset the loan amount they need to take out. The sales team must work closely with the finance manager in order to ensure that the dealership gets the maximum profit possible from new car sales, trade-ins and financing.
The customers are not obliged to take on financing from the dealership. They might have shopped around prior to coming in to test drive their preferred vehicle. It is the finance manager’s job to close a finance deal with every car sold. And customers with sterling credit ratings are not necessarily their favourite customers. A customer with a suboptimal credit profile may still qualify for a credit facility if they are prepared to pay a higher interest rate. This means much greater interest earnings for the dealership, and the client is happy to drive off in their new car.
Another profit-boosting strategy is for finance managers to add a markup to the interest rates obtained from the underwriter or agent giving the loan. They could also propose a cashflow easing solution whereby a customer opts for a longer loan term to drive down the monthly repayment amount. This, of course, comes with a slightly higher interest rate = more profit.
The previously mentioned purchase creep is a great source of income. The additional items sold could be paint protection insurance, service and maintenance contracts, and gap cover.