Doug Watkins is an old-school guy. He’s been in construction all of his adult life, working his way from laborer to foreman in 10 years, and eventually to the owner-operator of a small licensed construction company specializing in kitchen and bath remodels.

He prefers to pay by check — especially at auto dealerships — and has never written one that has been declined at the point of sale.

Watkins has all the markings of a successful businessman — horses, vacations, modest home with acreage, and a few vehicles for his family. With credit scores hovering around 800, he was understandably shocked when a local auto dealership declined the check he wrote for a down payment on a new car. More specifically, the check was declined by the dealership’s check guarantee company.

The Devil Is in the Details

Processing companies decline checks based on a number of risk parameters including out-of-state checks, problems with the check writer’s driver’s license, or unreadable MICR codes printed across the bottom. In this case, the amount of Watkins’ check was over the limits authorized by the processor. Regrettably, he decides to take his business elsewhere, leaving the auto dealership in the wake of one declined check.

The Numbers Behind One Declined Check

Plugging in averages from reputable sources, the dealership that Watkins left behind will suffer far-reaching revenue loss. The following data will vary as a function of buyer choices and manufacturer, but make no mistake about it — losing a sale to just one declined check can severely damage the lifetime value of a customer.

For starters, the purchase that Watkins took to a competing dealership may be valued at $34,077 according to the 2016 average U.S. new-vehicle transaction price (Edmunds.com).

This figure may include a laundry list of dealership profit centers — finance charges, extended service contracts, GAP insurance, roadside service, auto alarms and protection plans for paint or fabric — but the cost can far exceed the averages if Watkins selects even more of these options in the F&I office.

The dealership that declined Watkins’ check may also lose factory-to-dealer compensation such as:

• Cash back or “packs” ($500 – 1000 per unit sold)
• Hold-back rebates (generally 2 – 3% of the MSRP)
• Programs tied to multi-month sales goals
• “Turn and earn” — Inventory rewards (earn) resulting from meeting/exceeding sales goals (turn) in a given period.

Next, the dealership’s parts and service departments will lose approximately $5,058.90 over the lifetime of Watkin’s purchase if the $766.50 per year maintenance (AAA) is factored into the 6.6-year average length of ownership (Automotive News).

At some point, Watkins is going to trade in the business vehicle that he just purchased and buy a newer one. For each auto that Watkins doesn’t trade in, the first dealership is losing the difference between the appraised value and what a new buyer is willing to pay. For example, if another dealer offers Watkins $10,000 for his trade in and later sells it for $16,000, then the dealership declining his check effectively lost $6,000 in gross revenue.

At another time, Watkins and his wife may want to trade in their old family car — cha-ching! — more lost revenue. Ditto for when the couple sends a child off to college with a car, representing another lost sale for the first dealership.

Word-of-mouth marketing has always been a powerful sales dynamic, but even more so in the social media era. Watkins lives and conducts most of his construction business within a 25-mile radius of his hometown. He publicly praises the second dealership that accepted his down payment check … and the first dealership?

Estimating one lost sale to a family member or friend, and one lost sale to a remodel customer, it is easy to believe how one declined check can parlay into a handful of lost sales spanning a decade or longer.

Summary

The above scenario paints a dismal picture of lifetime value loss that could top $150,000 for the dealership declining Watkins’ check. The following list only includes the revenue represented by Watkins' initial purchase, its replacement vehicle and the family car. The value associated with his college-bound child, family/friend and remodel customer would double these calculations:

• Three vehicle sales at $34,077 each
• Three trade-ins representing approximately $6,000 each in gross sales
• An unknown total of F&I add-ons above the averages
• Cash backs at $500 – 1,000 for each vehicle sold
• Hold backs of approximately $680 each
• Over $5,000 per vehicle in parts and service charges

Finally, factoring in the brand damage from one declined check is another liability to consider since most local businesses rely on their good reputations to reach more customers.

CrossCheck specializes in satisfying the needs of auto dealerships by assuming greater risks (including higher check limits) than most of the competition. With over 34 years in financial services, CrossCheck enables merchants to mitigate risk and complete sales instead of turning away customers.  

Our C.A.R.S. program helps dealerships turn accepted checks into completed sales. In addition, dealerships with an existing check guarantee provider can benefit from our Plus Sales program which approves most checks declined by the competition. Download our free guides to learn more.