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.
» » 10 Larangan Dalam Bulan Ramadhan

10 Larangan Dalam Bulan Ramadhan










Property Valuations, Replacement Value And Equity Finance Mortgage It is hard to gauge the mood of the moment. Some agents have mentioned that they are experiencing a short lull - possibly due to the election and the rate rise - while others are saying they have not stopped. Who knows - but my guess is that some people are waiting for the new year to make any big decisions. Property Valuations Last mail-out I said I was going to talk about property valuations. When property values start to rise a buyer needs to know that they are paying fair value for a purchase and not be taken in by what agents hype or what is known as "undue vender expectation". As you know an agent is expected to get for his client (the vender) the best possible price and will never tell a potential buyer that they are paying well over market value. That is the job of the buyers agent who is working solely for the buyer. So - how is a property valued? Mostly it is just an agreement between the listing agent and the seller on what they both think the property is worth. It is easier to value a normal suburban house in a busy neighborhood as you can go on previous sales of a similar nature. But when a property is unique or different, renovated or highly sought after then different rules may apply. An agent will be happy to come to your house and value it for free. However, (Shock! Horror!) it has been know that some agents may inflate their market valuations in order to get the business. The Internet has changed the real estate business in many ways. It is now possible to get your own approximate market valuations online. Three sites offer this service and they have managed to collate information on previous sales and activity in the market you are in. They stress that the computer modeling cannot take into account all the factors like a building's condition or recent renovations. They are: Australian Property Monitors $69.95 RP Data $79.95 Residex $65.00 Another way to have a property valued is to get a professional valuer in. A valuer can attain a better estimate of the property because they break down a property into its three main components: 1. the cost of the vacant land 2. replacement value of the house and any other improvements 3. landscaping Sometimes it can be a subjective decision on how much premium to add on for having these three factors together in one place. Also how do you value a view? Is it possible to pay an extra $100,000 to have an ocean view. Around here - it seams so. Or how much is it to see the Byron Light House or the sound of the ocean to help you to sleep? It can vary form person to person. I know of people who hated the light of the lighthouse flashing through their windows or the sound of the ocean kept them up at night. Its horses for courses and the valuation of these factors are open to interpretation. A valuer can cost you anything from around $300 for a normal 3 bedroom home to over $1000 for a property above $1M or for farmland or large acreage. The main valuers in the Northern Rivers are: Hoolahans in Ballina and Lismore 6686 6130 Allsops in Lismore 6621 8933 Bennett and Frogley in Byron 6680 9969 My rule of thumb is to deduct 5% off the valuation provided by an agent and add 5% to a valuation provided by a professional valuer. They often are fairly conservative in their estimates. Replacement Value Another interesting variable in home valuation is costing the replacement value of a building. This cost has changed mainly because of the rapidly escalating cost of building materials. Also good builders in this area are not short of work so have just been escalating their prices. I have had a few stories come across my desk of people delaying plans to build only to find that costs have gone up so much they have not been able to proceed. I find it amusing that everyone hears about the wealth pouring into the big aussie companies like BHP and Blue Steel but fail to realise how that impacts them until they decide to go and build a house. Builders have told me that materials like colorbond roofing and copper wiring have risen over 50% in the last couple of years. So these costs have caused building expenses to rise quite substantially. A project home builder like Parry Homes have been impacted less than independent builders. They used to be able to build brick veneer on concrete slab for under $800 a square metre and now are around $1000 M2. To build a good quality home with hardwood floors and better than average fittings will now cost between $1500 - $2000 M2 - less for the garage and decks. A couple of years ago you could build a good quality, architect designed home for $1000 to $1200 a M2. Equity Finance Mortgage One of the newer finance options being offered by boutique loan lenders is the Equity Finance Mortgage - EFM. I don't see the advantage of this one for anyone other than people who find it hard gathering the full deposit. Basically the lender coughs up some of the depsoit money but then shares in the equity increase when the property is finally sold. Of course, the banks cut themselves a good deal and for investing 20% of the deposit money and then having the mortgagee pay 100% of the interest payments they can expect to earn up to 40% of the capital gain come selling time. But still this may be a good option for first home buyers who just need a little leg up with that deposit. Please give me a call if you are in this position. We will put you in the best deal available at least - either an EFM or something else that can get you in the deal without too much pain. This is not true for the other specialty loans I have talked about in the past. Both the Cash Flow Loan and the Reverse Mortgage can be quite onerous for the borrower unless looked at the fine print closely. The Cash Flow Loan is where you can get a discount on the interest paid in the first couple of years but is then added on when the honeymoon rate expires. This is the loan variety that was oversold in the States and is the main cause of the sub prime debacle over there. As these low rates expire and the poor punters that where suckered into these loans wake up to the increased rate, many will have to sell into a rapidly deflating property market. The reverse mortgage has been developed to assist the large number of retirees who are sitting on substantial equity in their home. The idea is that they can have a single payout or a monthly stipend so they can access that equity without having to worry about interest payments. But of course there is no free lunch and come time to settle the bill when the owner shuffles off the mortal coil and their heirs find out that a substantial slice has been eaten up with higher than normal interest rates and broker fees. This loan may suit some elderly people who are not astute money managers but for the majority there is a much better way to access a line of credit for this purpose without being saddled with the extra costs.




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