Where in the World Is Your Finance Penetration?

Way back in 1971, C.P. Snow wrote about technology in the New York Times. He said, “Technology… is a queer thing. It brings you great gifts with one hand, and it stabs you in the back with the other.”Many dealers are voicing that sentiment these days. Far too few have done anything about it. Some have learned to use computer software with skill. They use the apps on iPhones, iPads, and Blackberries. They have created an effective Web site. They use Facebook and Twitter and LinkedIn for social networking. For others, these are merely words and technologies that test their ability to conduct both business and their private lives. Dealers, already feeling the brunt of the two-plus year recession and massive changes in the car industry, are becoming increasingly concerned about their ability to not only keep up, but to even remain in the playing field.Why should dealers bother with such things? Isn’t the old way good enough? Nope!Customers who always shopped on the lot are now shopping on the Internet before they take a step toward a dealership. They’ve researched every model in their price range and with the features they want. They’ve read a dozen articles about how to get the best deal. They’ve become more savvy than many sales people hired by dealerships; they know their credit score; they know where they can find the best price on insurance, window tinting, undercoating, you name it. Everything once sold to them by a finance officer from the menu is for sale on the Internet.Are you one of the dealerships where handwringing has become a daily pastime? Have you taken a close look at your bottom line? Have you noticed what would happen to your finance portfolio if you removed your sub-vent rated and nonprime customers? Have the numbers of your prime-financing customers dwindled to an all-time low? Perhaps you haven’t seen the drop in your captive financing yet, but beware, it’s coming just as surely as the first snowstorm.Snow was right, back in 1971! The Internet can either become a beacon for drawing in more satisfied customers to your dealership and vastly increase your bottom line, or it can stab you in the back. It can be your best friend or your worst enemy. How?Statistics show that 80% of car customers go online before they make the decision to buy and before they come to your dealership. What are they researching? Brands, models, features and, most of all, prices. Most of all, prices. The majority of Americans in today’s economy are deeply concerned about their budget. They have a fixed amount to spend on a car payment and all the other expenses involved in owning it. The vehicle they choose must fit within that fixed figure. They cannot afford to buy on whim or to make a careless mistake. They won’t take the chance of being bamboozled into buying things they don’t want, don’t need, and can’t afford by a fast-talking sales or finance mangerWhere do these savvy customers get their information? One of their first sources is Edmunds, the friendly consumer-shopping guide. Edmunds has never been and still isn’t the dealer’s friend. Edmunds does whatever is necessary to achieve the sale on vehicles and products from the Internet shopper… and then refers these buyer to specific retailers to obtain a fee! Banks. Finance companies. Insurance companies. You name it.Don’t let them get a strangle hold on your customers! If you haven’t already checked this article on Edmunds.com, perhaps you should do so right now!Confessions of an Auto Finance Manager In the Back Rooms of America’s Car Dealerships By Philip Reed, Senior Consumer Advice Editor and Nick JamesIntroduction”Congratulations, you’re getting a great deal!” the car salesman says, pumping your hand. “Let’s sign the paperwork and you’ll be on your way in your new car!”At first you’re relieved – the negotiating is over. But then the salesman walks you down a back hallway to a stark, cramped office with “Finance and Insurance” on the door. Inside, a man in a suit sits behind the desk. He greets you with a faint smile on his face. An hour later you walk out in a daze: The whole deal was reworked, your monthly payment soared and you bought products you didn’t really want.What happened to your great deal?You just got hit by the “F&I Man,” also called the finance officer. He waits in the back of every dealership for unsuspecting customers so he can increase the profit for the dealership and boost his commission.In this four-part series, written by veteran auto finance manager Nick James, you will learn the F&I man’s tricks and how to avoid them. When you’re done, you’ll be ready to safely navigate this crucial part of the car buying process, and the F&I man will never work his “magic” on you again.- The Editors at Edmunds.comAre you still ushering your customers into the office of your “F&I Man”? No? You have a Web site? You update it once a month? You have a tech-savvy employee who checks your e-mail messages every morning? BUT… how would you answer these questions?When your potential customers come to your Web site, what resources do you have available to steer them away from online financing? Do you have a quick reference guide for their buying the vehicle that fits their budget and your financing terms? Is the information presented in a complete, forthright and friendly manner? Does it enlist confidence and trust? Will readers feel they’d get a no-nonsense financing deal from you?If these online customers make a call to ask a few questions, does your finance manager answer them, or resort to the former game of “I can only reveal those options when you come in for an interview”? Does he or she become discouraged by the process of reviewing transactions over the phone? Does your Internet manager have direct access to your finance manager at all times; avoid posting rates and product pricing on your Web site; work well with your sales and finance departments? Have you utilized the I-chat technology now readily available to instantly answer your customers’ finance questions? How many phone calls to your finance department go unanswered on a daily basis? How are online customer calls being handled in your F&I office?Reducing your finance penetration will not only effect the overall performance of your dealership, but will negatively effective your reinsurance investment. If your customers are financing with someone else, they could also be buying their other products. Take a long and serious look at the insurance products you sell, the agent who works with you, and the changes that must be made to keep you competitive with the technology available to all your customers. You must remain competitive in products offered, their quality, and their prices. Should you be considering a new partner?What new and creative processes are you providing your current and potential customers within your Web site? Have you considered presenting your menu as a virtual finance manager? Do you have WebEx with a preloaded menu available for review with your customers whether they are onsite in your finance office or sitting in the comfort of their home? Why not?An upfront sales approach is the best way to reestablish a thriving business in today’s technological world. Teenagers and college students are facile in the use of every conceivable tool involving the information highway. They are your future customers. They will find Edmunds and every comparable site and use the information to their advantage. Provide them with a dozen reasons to buy their vehicle and products from your dealership. Ensure them that financing their dream car with you is the only sensible choice.Although computer use and Internet technology has been around for several decades, it has taken a giant leap in recent years as more and more consumers realize they can save themselves time and money by letting their fingers do the walking. Another great American journalist, Sydney J. Harris, who wrote for the Chicago Daily News and later the Chicago Sun-Times, died in the late 80s; but, he was savvy about where technology would take us. He said, “The real danger is not that computers will begin to think like men, but that men will begin to think like computers.”We’ve reached that point. Where in the world is your finance penetration? It’s time to find out! Do it… today.

S&P 500 Biotech Giant Vertex Leads 5 Stocks Showing Strength

Your stocks to watch for the week ahead are Cheniere Energy (LNG), S&P 500 biotech giant Vertex Pharmaceuticals (VRTX), Cardinal Health (CAH), Steel Dynamics (STLD) and Genuine Parts (GPC).

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While the market remains in correction, with analysts and investors wary of an economic downturn, these five stocks are worth adding to watchlists. S&P 500 medical giants Vertex and Cardinal Health have been holding up, as health-care related plays tend to do well in down markets.

Steel Dynamics and Genuine Parts are both coming off strong earnings as both the steel and auto parts industries report optimistic outlooks. Meanwhile, Cheniere Energy saw sales boom in the second quarter as demand in Europe for natural gas continues to grow.

Major indexes have been making rally attempts with the Dow Jones and S&P 500 testing weekly support on Friday. With market uncertainty, investors should be ready for follow-through day breakouts and keep an eye on these stocks.

Cheniere Energy, Cardinal Health and VRTX stock are all on IBD Leaderboard.

Cheniere Energy Stock
LNG shares rose 1.1% to 175.79 during Friday’s market trading. On the week, the stock advanced 3.1%, not from highs, bouncing from its 21-day and 10-week lines earlier in the week.

Cheniere Energy has been consolidating since mid-September, but needs another week to forge a proper base, with a potential 182.72 buy point formed on Aug. 10.

Houston-based Cheniere Energy was IBD Stock Of The Day on Thursday, as the largest U.S. producer of liquefied natural gas eyes strong demand in Europe.

Even though natural gas prices are plunging in the U.S. and Europe, investors still see strong LNG demand for Cheniere and others.

The U.K. government confirmed last week that it is in talks for an LNG purchase agreement with a number of companies, including Cheniere.

In the first half of 2021, less than 40% of Cheniere’s cargoes of LNG landed in Europe. That jumped to more than 70% through this year’s second quarter, even as the company ramped up new export capacity. The urgency of Europe’s natural gas shortage only intensified last month. That is when an explosion disabled the Nord Stream 1 pipeline from Russia that had once supplied 40% of the European Union’s natural gas.

In Q2, sales increased 165% to $8 billion and LNG earned $2.90 per share, up from a net loss of $1.30 per share in Q2 2021. The company will report Q3 earnings Nov. 3, with investors seeing booming profits for the next few quarters.

Cheniere Energy has a Composite Rating of 84. It has a 98 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share price movement with a 1 to 99 score. The rating shows how a stock’s performance over the last 52 weeks holds up against all the other stocks in IBD’s database. The EPS rating is 41.

Vertex Stock
VRTX stock jumped 3.4% to 300 on Friday, rebounding from a test of its 50-day moving average. Shares climbed 2.2% for the week. Vertex stock has formed a tight flat base with an official buy point of 306.05, according to MarketSmith analysis.

The stock has remained consistent over recent weeks, while the relative strength line has trended higher. The RS line tracks a stock’s performance vs. the S&P 500 index.

Vertex Q3 earnings are on due Oct. 27. Analysts see EPS edging up 1% to $3.61 per share with sales increasing 16% to $2.2 billion, according to FactSet.

The Boston-based global biotech company dominates the cystic fibrosis treatment market. Vertex also has other products in late-stage clinical development that target sickle cell disease, Type 1 diabetes and certain genetically caused kidney diseases. That includes a gene-editing partnership with Crispr Therapeutics (CRSP).

In early August, Vertex reported better-than-expected second-quarter results and raised full-year sales targets.

S&P 500 stock Vertex ranks second in the Medical-Biomed/Biotech industry group. VRTX has a 99 Composite Rating. Its Relative Strength Rating is 94 and its EPS Rating is 99.

CRISPR Stocks: Will Concerns Over Risk Inhibit Gene-Editing Cures?

Cardinal Health Stock
CAH stock advanced 3.2% to 73.03 Friday, clearing a 71.22 buy point from a shallow cup-with-handle base and hitting a record high. But volume was light on the breakout. CAH stock leapt 7.3% for the week.

Cardinal Health stock’s relative strength line has also been trending up for months.

The cup-with-handle base is part of a base-on-base pattern, forming just above a cup base cleared on Aug. 11.

Cardinal Health, based in Dublin, Ohio, offers a wide assortment of health care services and medical supplies to hospitals, labs, pharmacies and long-term care facilities. The company reports that it serves around 90% of hospitals and 60,000 pharmacies in the U.S.

S&P 500 stock Cardinal Health will report Q1 2023 earnings on Nov. 4. Analysts forecast earnings falling 26% to 96 cents per share. Sales are expected to increase 10% to $48.3 billion, according to FactSet.

Cardinal Health stock ranks first in the Medical-Wholesale Drug/Supplies industry group, ahead of McKesson (MCK), which is also showing positive action. CAH stock has a 94 Composite Rating out of 99. It has a 97 Relative Strength Rating and an EPS rating of 73.

Steel Dynamics Stock
STLD shares shot up 8.5% to 92.92 on Friday and soared 19% on the week, coming off a Steel Dynamics earnings beat Wednesday night.

Shares blasted above an 88.72 consolidation buy point Friday after clearing a trendline Thursday. STLD stock is 17% above its 50-day line, definitely extended from that key average.

Steel Dynamics’ latest consolidation could be seen as part of a larger base going back six months.

Steel Dynamics topped Q3 earnings views with EPS rising 10% to $5.46 while revenue grew 11% to $5.65 billion. The steel producer’s outlook is optimistic despite weaker flat rolled steel pricing. STLD reports its order activity and backlogs remain solid.

The Fort Wayne, Indiana-based company is among the largest producers of carbon steel products in the U.S. It engages in metal recycling operations along with steel fabrication and produces myriad steel products.

How Millett Grew Steel Dynamics From A Three Employee Business

STLD stock ranks first in the Steel-Producers industry group. STLD stock has a 96 Composite Rating out of 99. It has a 90 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share-price movement that tops at 99. The rating shows how a stock’s performance over the last 52 weeks holds up against all the other stocks in IBD’s database. The EPS rating is 98.

Genuine Parts Stock
GPC stock gained 2.8% to 162.35 Friday after the company topped earnings views with its Q3 results on Thursday. For the week GPC advanced 5.1% as the stock held its 50-day line and is in a flat base.

GPC has an official 165.09 flat-base buy point after a three-week rally, according to MarketSmith analysis.

The relative strength line for Genuine Parts stock has rallied sharply to highs over the past several months.

On Thursday, the Atlanta-based auto parts company raised its full-year guidance on growth across its automotive and industrial sales.

Genuine Parts earnings per share advanced 19% to $2.23 and revenue grew 18% to $5.675 billion in Q3. GPC’s full-year guidance is now calling for EPS of $8.05-$8.15, up from $7.80-$7.95. The company now forecasts revenue growth of 15%-16%, up from the earlier 12%-14%.

During the Covid pandemic, supply chain constraints caused a major upheaval in the auto industry, sending prices for new and used cars to record levels. This has made consumers more likely to hang on to their existing vehicles for longer, driving mileage higher and boosting demand for auto replacement parts.

Fellow auto stocks O’Reilly Auto Parts (ORLY) and AutoZone (AZO) have also rallied near buy points amid the struggling market. O’Reilly reports on Oct. 26.

IBD ranks Genuine Parts first in the Retail/Wholesale-Auto Parts industry group. GPC stock has a 96 Composite Rating. Its Relative Strength Rating is 94 and it has an EPS Rating of 89.

Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?