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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How to Practically Apply the Secret to Your Finances
"The Secret" has recently had a huge impact on the world with its feature film and book and in this post I am going to show you how to practically apply the secret to your finances. I personally own a copy of both the book and the movie and I love them dearly.
The Secret basically states the Law of Attraction. That is that whatever you think about and feel you will attract into your life. So if you think about and feel wealth, then by default that is what you will attract into your life.
This is incredible news because it means that you can control what comes into your life simply by thinking about the things you want to have as if you already have them.
A lot of people, when they discover the secret, want to be able to use the secret in their finances so they can attract more wealth into their life. This is a great way to use the secret because money can often be such an important part of life and we need money to do the things we want to do. I want go and get my skydiving license but I need to raise $3,000 (that I don't currently have spare) to do it. By getting more of the green stuff you can live your life more freely and have more of the things you desire.
I wanted to draw out of the secret the 5 best ways you can use the secret practically in the area of finance. I must note that these are not the be all and end all tips to using the secret in your finances, but by using these practical steps daily you will be able to draw incredible amounts of wealth into your life.
1. The Blank Check
The blank check is a technique that was inspired by Jack Canfield, author of Chicken Soup for The Soul, who created a $100,000 bill and placed it on his roof above his bed and used it to attract money into his life.
You can get a free blank check from thesecret.tv and here is how you practically apply this technique. Print out the blank check and write out how much you want to earn on that check. Then place it somewhere where you will see it everyday (I like to place mine above my bed so I see it when I wake up in the morning). When you see the blank check you need to imagine the lifestyle you would have if you were earning that amount of money.
NOW THIS IS IMPORTANT - You need to imagine your lifestyle as if you already have it. If you are focusing on wanting to have an expensive lifestyle then you will attract to yourself more of the wanting of the expensive lifestyle. Imagine already having it and you will attract it into your life.
2. Convert Your Bills
Bills can often forge within us a sense of dread and can make us feel extremely bad about our money situation. That feeling you get is a very strong feeling and will attract more bills into your life. This practical tip is great for using your bills to attract more checks into your life.
Before you open your bill get in the mindset that when you see your bill you are going to pretend it is a check. When you open your bill add an extra digit onto the value of the bill and pretend it is a check, and give thanks for receiving so much money. Spend some time feeling the feelings of gratitude that comes from receiving such a large check.
Now your bill should look very small in comparison and you should be able to pay it with ease, continue to do this and you will actually attract checks in the mail.
3. I Can Afford That
If you want to attract money into your life you need to start to change the way you feel about money. Often we feel very bad about money because we feel like we do not have enough money. We talk to our kids about it and we tell ourselves over and over again that "I can't afford that". This practical tip will help you start to feel good about money so you can attract it into your life.
Whenever you see something that you want you need to say "I can afford that". When you see your dream house or you see your dream car drive by say to yourself "I can afford that". Do this for everything you see that you want. As you do this you will notice you will begin to feel better about money and by doing so you will attract more money into your life.
4. Give But Don't Sacrifice
There is a difference between giving joyfully and sacrificing. Giving joyfully is giving out of the mindset that you have more than enough, this therefore attracts more than enough into your life. However, giving out of an attitude of sacrifice says "I don't have enough" and therefore you will attract not having enough into your life. This practical tip is simple but will allow you to give joyfully not sacrificially.
Give to the things that inspire you most. This is the key to joyful giving. What has inspired you this week, has it been a friend or family member? Has it been a church or meeting? Was it a cause? Whatever has inspired you give to that and it will be much easier to give joyfully.
5. Imagine Your Lifestyle Daily
This is an extremely important tip. You need to imagine your future lifestyle daily as if you already have it, and give gratitude for already having it and feel the feelings of gratitude.
Here are a few practical tips to help you imagine your lifestyle daily and feel the feelings of gratitude:
See, Smell, Touch - Don't just imagine your lifestyle as a picture, but imagine you are in the environment. Smell the smells that you would smell, see the things that you would see if you were really there, touch things in your imaginary environment and feel their texture. By doing this it becomes so much more real and you can feel like you are really there
Get a Move On - Static pictures do not engage our senses, so it is best to keep things moving in your imaginary environment. If you are imaging your perfect kitchen then imagine opening the fridge door and grabbing something out of it, have other people in this imaginary environment to stimulate movement and make the scene more lifelike. By doing this you are engaging more senses and your imaginary lifestyle will become more real.
Imagine your perfect lifestyle every single day like you have already obtained it and by doing this you will attract that into your life. So these 5 practical tips should help you to use the secret in the area of your finances and should help you attract more wealth into your life.
You live in a time where getting rich has never been easier. We live in the information age and the ability for anyone to join the ranks of the rich and mega rich has gotten easier and easier. You just need to know how you can become rich. One of the best ways to learn how to become rich is to join a training program. There are loads of scammy training programs that will charge you thousands of dollars for useless information.