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.
3 Makanan Viral Yang Berbahaya Kepada Kesihatan
Get Out of Debt: 5 Tips for Taking Charge of your Finances
Getting out of debt and creating a stable financial future may seem like an impossible feat. You could be wondering, “How did I get here?” or “How can I get out of debt when my income is the same as it was before, and I owe even more money?”
In order to gain a positive and realistic view of your finances, you should instead ask yourself, “What can I change to insure that I have savings, not debt, when I retire?” or “What is my attitude towards money, and how has it affected my financial situation?” By doing this, you can get to the root of the problem and begin tackling your debt in a practical manner. (Remember it may take a little time to get back on track). Here are five methods that can help you take charge of your finances:
1) Live within your means
This seems easy enough, but how many Americans have racked up hundreds or even thousands of dollars in credit card debt? If you have to use your credit cards, then you are clearly not living within your means. The most obvious and suitable way to get out of debt is by resisting the temptation to buy stuff you don’t need. Depriving yourself of things you want can be the most difficult thing to do. However, buying whatever you want can also the most damaging to your financial success. Maybe you did get a great deal on that DVD player, but is it worth that extra $50 to $100 interest that your credit card may eventually accrue? When you have the desire to buy something, think it through. Learn more about different ways you can save money [http://www.usfmgroup.com/articles/Financial-Planning-articles/Great-Ways-to-Save-Money.php].
You can also make lists before you go to the store to prevent impulse buying. Even if you are just going to get groceries, you should bring a list and stick to it. Otherwise, you may end up spending $50 more than you thought you would on unnecessary purchases.
Another change you can make to get out of debt is to start shopping for the holidays well ahead of time. Many people put off holiday shopping until the last minute and end up charging it all to their high interest credit cards. Why not start early this year and pay for all of your gifts in cash? Try buying one gift a week. By paying with money that you actually have, you will be saving yourself tons of money in credit card charges. You will also be less stressed when the holidays come around because you will already have your shopping finished.
2) Create a budget of all of your necessary expenses and stick with it
Notice how “stick with it” was added onto that sentence? That’s because almost anyone can sit down and write out a budget. The real challenge is tracking and maintaining it. If having a program on your computer helps, go for it. Just be sure to save all of your receipts throughout the day and then input them into your program. It is important to give each of your expense categories, such as rent/mortgage, food, and utilities, a realistic limit.
If you only buy according to your budget, you will probably find yourself with extra money each month. With this extra money you can take charge of your finances, get out of debt, and start saving for the future. It will also help you to figure out which items are draining money from your budget. For example, if you buy bottled water at work everyday for $1.25, you would be better off buying it in bulk at the store and then bringing the water to work. Just remember that it takes many small steps to resolve your finances and take charge.
3) Set Realistic Expectations for Your Future Wealth
Yes. The average person’s salary increase averages between 2.5% and 3.5% per year. And you may be beginning to expect that yearly raise or anticipating that big promotion because then you will be able to pay off your debt. Many people have the attitude that their debt is fine because they will have more money next year to compensate for their spending. It’s the adage, “Why do today what you can put it off until tomorrow?” They spend beyond their means because they are banking on the fact that they will be making more money later. And when they receive a raise, instead of paying off debt, they increase their spending because they think they have more money to spend. The reality is that living this way can extinguish any future financial stability. Also, what if the raise never comes? The promotion never happens, or something worse occurs, such as getting fired or laid off? Then you will be left with all this debt, out of control spending habits, and no money in the bank.
So, when you receive a bonus or small raise, take that money and pay off your debt or put it towards your savings. Even if you think that you have great job security, be prepared for the unexpected. If you expect that you will be making more money, you will spend it; however, if you acknowledge that your prosperity could end at any time, you will save it.
4) Pay your unsecured debt off—ASAP.
I know this can be a very daunting task, especially when you have several credit cards with large balances on them. You may think that you will never get out of debt Your best bet is to begin with the credit card with the smallest balance; pay as much as you can on it each month (try to make it at least double or triple your minimum balance) while maintaining the minimum balances on your other cards until the card is paid off. This will help you to work towards your goals and will help motivate you to pay off your other cards.
Remember, if you just pay the minimum balances, you are probably barely covering the interest. You could potentially end up paying double or triple for an item you bought a year or two ago.
5) Plan for the long term
It’s important to plan for your retirement now, so you can enjoy it later. Look into an IRA or 401(k) program. Usually your employer’s 401(k) program will simply deduct money from your paycheck each month. That is one of the easiest ways to do it because you’re saving money each month without really missing it. Some employers even have a matching program if you contribute enough to your 401(k) each year.
Also, in order to plan for the future, you need to calculate how much money you will need if you live for another twenty years after you retire. Be sure to take into account the cost of living in your area or the area where you plan to retire. You may be living well right now, but planning and saving so that you can retire comfortably is crucial. So read investment books, add to your 401(k) (or your Roth IRA if you are making under a certain amount of money), get out of debt and spend your money wisely.
John H. Tran has been an expert in the debt management industry for over ten years. He is also an entrepreneur and sits on the board of several corporations. He lends his expertise to informative articles on the topics of debt settlement, credit card debt, and achieving financial stability.
U.S. Financial Management, Inc.