There’s no greater feeling than watching a customer sign off on a platinum menu option that includes every product you have to offer. You’re so excited after the customer signs the contract and goes motoring down the road that you check your back-end profit and poke your chest out a bit, right? Well, what happens 18 months later when that customer loses his or her job or files for divorce?
Ah, the charge-back. It’s a nasty word, right? It’s a sobering reality, because it “ain’t” what you gross that matters; it’s what you keep.
There isn’t much you can do in situations like the one I described. The loan goes into default, the vehicle winds up on the auction block after being repossessed, and a huge charge-back makes its way onto your dealer’s financial statement. Now, guess whose check will be affected at the end of the month? Again, not much you can do here. However, there are some scenarios you can at least prevent. The following is a short checklist of areas you need to monitor to cut down on those pesky charge-backs.
System Check
Believe it or not, today’s dealership management systems don’t always get it right. That’s why it’s important you obtain from your controlling office a copy of all bank reserve statements at month’s end and compare them to the anticipated reserve. If the two don’t match, compare the buy rate you entered into your DMS against the lender’s approval. If they match up, then call your provider and have them review your system’s internal reserve calculations to correct any mistakes. You also need to be certain that the VSI (vendor’s single insurance) fee some finance sources charge is printed on the contract. If it isn’t, the lender will short you at funding time, so get it fixed.
Check Your Sources
Finance sources aren’t perfect either. When a lender sends you a charge-back, make sure their product refund calculations matches the refund you’re expecting from your product vendor. This is especially true for lenders that include a clause in their dealer agreement that allows them to calculate their refund for cancelled products when a vehicle is repossessed and add it to your monthly statement. From there, it’s up to you to get a refund from your provider.
Again, although charge-backs due to repossession may be beyond your control, you need to examine the lender’s refund request carefully. Be certain their calculations are accurate and that their expected refund matches what you’re expecting back from your product provider.
Special finance-related lender fees are another hot spot. Some sources have multiple fees, so be certain you’ve entered the correct amounts. Quite often, the fee on the callback may not include the “assignment fee,” so review your lender policy guidelines to make sure everything is in order before sending it to your accounting office.
Checking Product Providers
It’s critical that you review the various vendor statements to make sure you’ve entered the correct pricing for a sold product. Like banks, vendors will make mistakes, so get on the phone with them when you catch an error.
Will you ever eliminate charge-backs? Well, not unless you’re writing deals with no profit. An achievable goal is to keep charge-backs within 5 to 7 percent of your departmental gross profit. I know of a dealer group in Michigan that managed a 2.4 percent charge-back rate for all of 2010. The director there has a simple philosophy of treating the customer well, truly selling the products and using common sense when administering rate to prevent early payoffs.
Remember, managing charge-backs is the responsibility of the finance department, not the accounting office. So, be proactive and don’t rely on them to do your job, because running an F&I department is really no different than running a business. And as I previously mentioned, it “ain’t” what you gross; it’s what you keep that matters.
Marv Eleazer is the finance manager at Langdale Ford in Valdosta, Ga. E-mail him at marv.eleazer@bobit.com.
