Finance and Insurance - The Profit Center I would like to make myself clear on a few items of interest before I get too deep into the sales processes at any dealership, including: automobile, recreational vehicles, boats, motorcycle, and even furniture or other big ticket items. A business has to turn a fair profit in order to stay in business. I believe that they should make this profit and use it to pay better quality employees a premium wage in order to serve you better. The financial strengths or weaknesses of any business can definitely have a dramatic effect on your customer service and satisfaction. I do not, in any shape or form, wish to hurt a dealerships profitability, as it is essential for his survival. I merely want to advise people how to negotiate a little better in order to make the profit center more balanced. Let's get right down to this! Every dealership has a finance and insurance department. This department is a huge profit center in any dealership. In some cases, it earns more money than the sale of the automobile itself. Profits are made from many things that most buyers do not understand. You as a consumer should understand the "flow" of the sales process to understand the profit centers that are ahead of you. Most negotiating from the consumer seems to stop after the original price is negotiated and agreed upon. Let's examine just a small portion of what leads up to that point. The first thing that every consumer should understand is that when you go to a dealership several things come into play. One of the most important things that I could point out to you is that you are dealing with a business that has been trained to get the most amount of money from you as they can. They are trained and they practice these tactics everyday, day after day, week after week, month after month, and year after year. Let me point out a couple of important facts that I have said in this paragraph. First, you'll notice that I said a dealership and not a salesman and secondly, I emphasized times of day after day, week after week, etc. etc. This was done to let you know that the salesman is working very closely with the sales managers in order to make as much money as he can. Your interests are really not their objective in most cases. One tactic that is used heavily in the business is that the salesman says he is new to the business. This may be true or not, however; keep in mind that he does not work alone. He is working with store management, who gives him advice on what to say and when to say it. These guys or gals are very well trained on how to overcome every objection that you may have to buying from them. They have been trained in the psychology of the buyer and how to tell what your "hot buttons" are. They listen to things in your conversation that you may say to one another as well as to the salesman. They are trained to tell their desk managers everything that you say and then the desk manager is trained to tell the salesman exactly what and how to answer you. A seasoned salesman does not need as much advice from his desk and may negotiate a little more with you directly without going back and forth. The process of negotiation begins the moment that you walk into the front door or step foot out of your car and begin to look at vehicles. Different stores display inventory in different ways. This is done for crowd control or more commonly known as "up control". Control is the first step in negotiating with a customer. Ever who asks the questions controls the situation. Let me give you an example: A salesman walks up to you and says "Welcome to ABC motors, my name is Joe, and what is yours?" The salesman has just asked the first question- you answer "My name is George." He then asks you what you are looking for today, or; the famous "Can I help You?" As you can see, step after step, question after question, he leads you down a path that he is trained to do. Many times a well trained salesperson will not answer your questions directly. In some cases, they only respond to questions with other questions in order to avert the loss of control. An example of this could be something like you asking the salesman if he has this same car with an automatic rather than a stick shift. Two responses could come back to you. One would be yes or no, the other could very well be something along the lines of: 'don't you know how to drive a stick shift?" In the second response the salesman gained more information from you in order to close you. Closing means to overcome every objection and give your customer no way out other than where do I sign. The art of selling truly is a science of well scripted roll playing and rehearsal. We have established that the negotiating process begins with a series of questions. These questions serve as two main elements of the sales process. First and foremost is to establish rapport and control. The more information that you are willing to share with you salesman in the first few minutes gives him a greater control of the sales process. He has gathered mental notes on our ability to purchase such as whether you have a trade in or not, if you have a down payment, how much can you afford, are you the only decision maker (is there a spouse?), how is your credit, or do you have a payoff on your trade in? These are one of many pieces of information that they collect immediately. Secondly, this information is used to begin a conversation with store management about who the salesman is with, what are they looking for, and what is their ability to purchase. Generally, a sales manager then directs the sales process from his seat in the "tower". A seat that generally overlooks the sales floor or the sales lot. He is kind of like a conductor of an orchestra, seeing all, and hearing all. I cannot describe the entire sales process with you as this varies from dealer to dealer, however; the basic principals of the sale do not vary too much. Most dealerships get started after a demo or test drive. Usually a salesman gets a sheet of paper out that is called a four square. The four square is normally used to find the customer's "hot points". The four corners of the sheet have the following items addressed, not necessarily in this order. Number one is sales price, number two is trade value, number three is down payment, and number four is monthly payments. The idea here is to reduce three out of the four items and focus on YOUR hot button. Every person settles in on something different. The idea for the salesman is to get you to focus and commit to one or two of the hot buttons without even addressing the other two or three items. When you do settle in on one of the items on the four square, the process of closing you becomes much easier. One thing to keep in mind is that all four items are usually negotiable and are usually submitted to you the first time in a manner as to maximize the profit that the dealer earns on the deal. Usually the MSRP is listed unless there is a sales price that is advertised (in may cases the vehicle is advertised, but; you are not aware). The trade value is usually first submitted to you as wholesale value. Most dealers request 25-33% down payment. Most monthly payments are inflated using maximum rate. What this all boils down to is that the price is usually always negotiable, the trade in is definitely negotiable, the down payment may be what you choose, and the monthly payment and interest rates are most certainly negotiable. If you do your homework prior to a dealership visit you can go into the negotiation process better armed. You still need to keep two things in mind through this process. The first item is that you are dealing with a sales TEAM that is usually highly skilled and money motivated. The more you pay the more they earn. The second item to remember is that you may have done your homework and think that you are getting a great deal and the dealer is still making a lot of money. The latter part of this statement goes back to the fact that it is essential for a dealer to make a "fair" profit in order to serve you better. Once your negotiations are somewhat settled, you are then taken to the business or finance department to finalize your paperwork. Keep in mind that this too is another negotiating process. In fact, the finance manager is usually one of the top trained sales associates that definitely knows all the ins and outs of maximizing the dealerships profit. It is in the finance department that many dealers actually earn more than they earned by selling the car, boat, RV, or other large ticket item to you. We will break these profit centers down for you and enlighten you as to how the process usually works. Remember that finance people are more often than not a superior skilled negotiator that is still representing the dealership. It may seem that he or she has your best interests at heart, but; they are still profit centered. The real problem with finance departments are that the average consumer has just put his or her guard down. They have just negotiated hard for what is assumed to be a good deal. They have taken this deal at full faced value and assume that all negotiations are done. The average consumer doesn't even have an understanding of finances or how the finance department functions. The average consumer nearly "lays down" for anything that the finance manager says. The interest rate is one of the largest profit centers in the finance department. For example, the dealership buys the interest rate from the bank the same way that he buys the car from the manufacturer. He may only have to pay 6% to the bank for a $25,000 loan. He can then charge you 8% for that same $25,000. The dealer is paid on the difference. If this is a five year loan that amount could very well be $2,000. So the dealer makes an additional $2,000 profit on the sale when the bank funds the loan. This is called a rate spread or "reserves". In mortgages, this is disclosed at time of closing on the HUD-1 statement as Yield Spread Premium. This may also be disclosed on the Good Faith Estimate or GFE. You can see why it becomes important to understand bank rates and financing. Many finance managers use a menu to sell aftermarket products to you. This process is very similar to the four square process that I discussed in the beginning. There are usually items like gap insurance, extended service contracts, paint and fabric guard, as well as many other after market products available from this dealer. The menu again is usually stacked up to be presented to the consumer in a way that the dealer maximizes his profitability if you take the best plan available. The presentation is usually given in a manner in which the dealer wins no matter what options are chosen. With the additional items being pitched to you at closing, your mind becomes less entrenched on the rates and terms and your focus then turns to the after market products. Each aftermarket item can very well make the dealer up to 300-400% over what he pays for these items. Gap coverage for example may cost the dealer $195.00 and is sold to the consumer for $895.00. The $700.00 is pure profit to the dealer and is very rarely negotiated down during this process. The service contract may only cost a dealer $650.00 and is being sold for $2000.00. The difference in these items are pure profit to the dealer. You see, if you only paid $995.00 for the same contract, the dealer still earns $345.00 profit from you and you still have the same coverage that you would have had if you had paid the $2000.00. The same is true for the gap coverage. You are covered the same if you paid $395.00 or $895.00 if the dealers costs are only $195.00. The only difference is the amount of profit that you paid to the dealer. Another huge profit center is paint and fabric protector. In most cases the costs to apply the product are minimal (around $125.00 on average). In many cases the dealer charges you $1200-$1800 for this paint and fabric guard. As you can see, these products sold in the finance department are huge profit centers and are negotiable. I also have to recommend the value of most all products sold in a finance department. It is in your best interest to get the best coverage possible at the best price possible. Always remember this: The dealer has to make a fair profit to stay in business. It just doesn't have to be all out of your pocket.
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Kantoi! Ini 4 Petanda Warung Kegemaran Anda Pasang Jin Sebagai Penglaris – No.2 Paling Senang Dikesan, Mengerikan!
















How to Secure Financing in a Cash Crunch Your cash is tied up, yet you are facing an opportunity you just can't pass up. A chance to expand into a new market or a capital investment you need in order to conduct your business efficiently and effectively. But these are wild and crazy times. You can hear the snap of the leather as business belts are tightening; banks and financial lenders being no different. Everyone is cracking down on their extensions of credit, and tightening up on their lending windows. You wonder what alternative options are available to you to move forwards with your plans. Where can you turn before your golden opportunity slips through your fingers? Have you thought of Accounts Receivable Financing? It is another route you may want to consider in order to be able jump on that opportunity which has manifested it's self to you. This is a form of short term borrowing, where an advance is made to a business as a loan or against the purchase of their accounts receivables. Most of the Fortune 500 companies have at one time or another opted for this form of financing, and it is currently an over three trillion dollar industry. It is prudent for you to know what you are heading into in order to negotiate the best arrangement for you and your business. After all this is a more expensive form of financing, and borrowing against your receivables inevitably lowers your profit margin. Your best strategy would be to mitigate those losses best you can. In order to do so, you should go into your meet and greet with your institution of choice armed with a fairly good understanding of where your portfolio's strengths and weaknesses lie. It would help to understand the different avenues of financial institutions you can approach, and what type of product they offer in terms of purchase or loan agreements. You have to weigh the cost of the missed opportunity against the cost of this form of short term borrowing /or relinquishing of your assets, so you can make a decision of what best suits you and your vision. Who do you go to? There are three options available to you and each on operates slightly different from the other. You can approach Banks, Financial Service Agencies, or the new kid in the block as of last year, "The Receivables Exchange." Each one offers it's pro's and con's in relation to the control and servicing of your receivable customers, the final costs of the agreements, the freedoms allowed you in terms of re-investing your cash allocations, as well as how they would qualify you and the receivable accounts you offer in trade. Everyone has their own benchmarks. It helps to have an idea where you fit before you decide to go in to negotiate. A bank's approach to Accounts Receivable/Inventory Financing (ARIF) is either via: a simple single advance note secured by a blanket lien on the receivables; or a fully followed assets based loan where the lender secures control over the borrower's cash receipts and disbursements, as well as the quality of collateral. Generally the borrower still manages the accounts receivables, but is required to report to the lending institution on regularly regarding the status of the collateral for the term of the agreement. The bank's advance rates are generally in between 70-80% of the receivables for what they define lower risk, but this depends on their view of the quality of the accounts. The rates can go down as their view of quality goes down. How the qualifications are applied will be looked at shortly. Safe to say the lower advance rates are applied when the lender perceives heightened risks of doing business with your accounts receivable clientele. They will look at the overall quality of your customer base, taking into account whether they are publicly rated companies, small privately owned companies, or individuals as consumers. Finally this type of financing is a loan, therefore you will be structured to payback the principle + interest + any service fees accrued. The rates on these types of loans are typically high so shop around! Financial Service Agencies(FSA) use a technique called Factoring. And there is certain flexibility in the different type of factoring arrangements they offer, again shop around! Factoring involves the direct purchase of certain approved receivables altogether. Accounts which these agencies assess as a good gamble to invest in. They purchase these accounts at a discounted price, say on average 80% of the face value which it will pay to you the seller minus their service fees. Unlike the banks, the FSA assumes all credit risks for the purchased amounts, frequently performing all accounting functions in connection with the receivables and purchasers are notified to remit payments directly to the factor, (the FSA..) Hunt down large organizations who can offer better percentages because of economies of scale. There is at least one out there willing to deal you 90% on your "upstanding" invoices; who just dropped a press release mid August announcing a new program called "Kick Start", which they say is an answer to the needs of small business in these recessionary times. It will provide working capital to help launch and grow small business... this corporation is Bibby Financial Services, and they are global. As mentioned previously, there is a new player on the scene, they entered the market on November 2008. They are the The Receivables Exchange (TRE) and they are an online marketplace boasting of taking the running around out of negotiating the best fit for your needs, because they house all under one roof accredited institutional lenders in the market for purchasing receivables. TRE is in the business of buying and selling receivables through real time auctions. Sellers post one or more receivables, controlling the pricing parameters, set the minimum amount of advance they are willing to accept, as well as the maximum fee they are willing to pay. They also determine the length that their receivables are open for bid, (average 3-10 days.) There are entry requirements you have to meet in the application process, like having your doors open for business for a minimum of two years, as well as a minimum annual sales of no less than half a million dollars. If you fit into these benchmarks it will be well worth your time to look into the TRE's website to get the full picture at: receivablesexchange.com. They are a good fit for the business who plans to finance through the selling of receivables more than once. There is a one time application fee, but no restrictions on how many times you use the exchange, but be careful to add up all the costs and see if it is worth it for you, if you are planning this type of financing as a one tome occurrence. What information do you need to provide? You will be bringing with you your Financial Statements, recent tax returns, as well as your "aged" accounts receivables in the form of a report listing your accounts which details the current status of delinquency of the balance owed. Delinquency is commonly defines as 30, 60, and 90 days over due relative to the terms listen on the invoice. How will your accounts receivables be valued? It is important to understand before hand what all of these institutions will look at when determining what they are prepared to offer you and how they will structure their product package based on the information you provide. For you to effectively be able to negotiate and decide if you are getting a fair deal, understand what they are looking for as qualifications. If it is a loan that you are looking to take out against your receivables, then the banks will take into consideration your purpose for the loan, your anticipated source of repayment as well as the quality of the receivables you lay down. Infarct all of the institutions will give a close look at this.. In addition, they will all look at your Cash Conversion Cycle. Even the Receivables Exchange will, when they qualify you in their application process. (I n it's simplest terms, the cycle refers to the number of days between when a business pays for it's materials/ inventory, and receives cash for these goods. It represents the time in which working capital is "tied up"). None of them will even look at delinquent receivables older than 90 days, and would prefer to bargain on the cream of the crop sitting at 30 days. In fact they will look closely at delinquency trends within the receivables base. Rising delinquency means increased risk, and may signal problems with the borrower and their capacity to collect. That is going to affect your advance percentages if not your eligibility altogether. They will scrutinize your business, your industries performance in the current economic environment at the time of the application, as well as your position within this industry, along with your customer base. In general the greater amount of financially sound companies, the better the quality of the customer base. They will also look for concentrations within this base. If a few number of companies or people produce the majority of the receivables it is frowned upon, because if they take their business elsewhere, you might fall flat on your face. They will check for lien searches some will even ask for a criminal records search, and they will be looking in particular for registrations of "purchase money interests" and "tax liens," because these take legal priority over a lender's lien, or an outright purchaser. What would put a smile on everyone's face is if the receivables have a 3rd party guarantee or insurance. This is a good card up the sleeve for negotiations, because these guarantees reduce the risks, and there by justifiably support higher advance percentages. Some examples of these types of guarantees or insurance are government sponsored and private insurance programs. No doubt these can significantly influence eligibility considerations. Big, big red flags! Accounts which are government receivables; foreign receivables (because they hold legal risks); affiliate transactions (because financial conditions of the affiliates mat deteriorate simultaneously); or contra- accounts (when you both sell to and purchase from the same customer.) All these accounts are deemed intelligible for consideration. And finally compliance risks are taken into account as well. For example: the possibilities and risks for non-compliance with federal or state laws, rules, or regulations, which may cause your business to suffer setbacks. What if you violate or fail to conform to environmental, health, safety, or labor laws? In addition litigation and other legal remedies that may arise when the lender/purchaser seeks to have a debt liquidated. Know what you hold in your accounts receivable portfolio. Even if you are not at the moment considering Accounts Receivable Financing, it may serve you well to look at some of the issues put forth and tighten up on the areas that you feel may currently not stack up in respect to these accounts, it can only improve your bottom line right off the bat. In addition you will be in a better position to jump onto any opportunity that may present itself without any warnings, by negotiating with receivables that are considered to be cream in the industry.. Carla M Dummerauf is the owner of CHICKMELIONfreelance who offers a triple threat advantage for small business such as writing, design and marketing services, ensuring you get the complete package. CHICKMELIONfreelance specializes in: Article Marketing, Press Releases, Newsletters, E-brochures, Banner Ads, Squeeze pages and much much more at affordable prices.. It is Carla's belief that no business is too small for the best of services, and no budget is too small for the best of solutions. Carla has held a Marketing Degree for over 20 years and lives to watch small businesses grow. After all it is the backbone of our country, don't you think?.




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