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.
Baru Ubah Gaya Sikit, Sufian Suhaimi Dah Dapat Pelbagai Gelaran
How to Multiply Your Company Finances
A successful business strategy should be easy to understand and apply in essence. Assuming you are in business, own a business and enjoy what it is you are doing these three stages discussed below if put into practice will change the way you think about your work and future. First of a few questions
What is your line of work?
Do you sell a product or a service?
Do you have a business & marketing plan?
If No why not?
If Yes look at it now, when was the last time you updated it?
The way to make money is to have a product that is of value and meets the need of your preferred market. Does this describe your product?
Assuming you passed the first test, you need to make enough people aware of your product in the most cost effective way possible. Some knowledge of marketing and advertising trends/medias are also required and or the hiring of a recommended expert.
Get these two right and you are on the way to making a comfortable living, But if you want financial abundance and security there are other steps to take, some people stop at this stage and think they have made it, and that's only the ones who get to that point. Each year thousands of new businesses go bust, not normally due to lack of effort or desire but a lack of knowledge about what is required for their particular situation.
I will rephrase the saying "Knowledge is power" to "The right knowledge applied is power". We all have knowledge up to a certain point.
The key is finding the right information and then applying it to your particular situation, the saying "horses for courses comes to mind" aim to be a horses for courses person not a blind leading the blind person.
The 3 stages for multiple growth are these, with a proviso have a plan (which is flexible) to;
1) Work in your business - Short term plan
2) Work on your business - Medium term plan
3)Work outside your business - Long term plan
"Failure to plan is planning to fail" Benjamin Franklin
If you cant see or plan for yourself in these phases it will limit how much your company can grow which will affect your growth also. Determine the minimum and maximum time frame these phases should be, generally speaking a short term plan is 0 to 2yrs, medium term is 2 to 5yrs and long term is 5yrs plus.
Stage1 - Working in your business
The start up phase, when you have been trying to get established and make a living in your business. You have more time than money and clients so you are able to perform many tasks within the company.
You don't want to stay in here to long mind you. However it is good experience to be involved in the many aspects, from working in them you will be in a better position to refine, tweak or remove your processes and systems for when you have someone else to do it. The quicker you learn your lessons the quicker you will move on.
In this stage your business cannot function without you.
Stage2 - Working on your business
The mid phase you are still doing many of your day today activities and your business is breaking even and better, you are more interested in how to promote and market your product better as you realize the potential gains in this investment.
You realize your true value has increased (would the director of Sainsbury's stack his own shelves or pay someone else to do it?) You realize the advantages of delegation to that end you plan towards it.
You are beginning to align your thinking to your new worth, to that end you are think inside and outside of the box and are being proactive not reactive. You have a plan which is exciting and achievable and stretching.
You welcome competition as it shows your potential clients just how good you are
Your business can function without you but only you are able to make major decisions or agree certain types of work, so you diminish your earning potential.
Stage3- Work outside your business
Your business is flourishing
Your stock has again increased,
You have people on hand to do the work you use to do
You are planning for the future ahead of the game,
You plan to expand and branch of into other areas.
You provide value and service
You understand marketing and people or have someone in your organization who does
You welcome competition as it shows your potential clients just how good you are
You are able to dip in and out of your company at ease and as hands on or hands of as you wish without loss of earnings.
Can the company work and generate finance without you? That is the true test of this stage. If not there are still some changes you can make if you so wish.
"If you realize the value of time and your expertise you will do the things that few can do and find someone to do the things that many can do" Roger Millar
On the articles section of my website I have a link to an extract from a book called "The hands of Manager" written by Steve Chandler for those who are struggling with the concept and benefits of delegating or outsourcing work, this may be helpful to you. http://www.7ask7.co.uk/e-books/Business_Coaching_Sample.pdf
Finally your business success or not is down to you at the end of the day, assuming you get the right advice and information, you need to apply and process it effectively,
We all have characteristics that hold us back and slow us down in some way, finding the right coach/ consultant for you will help deal with your personal issues as well as your business ones, a complete solution in one of the most efficient ways I know.
Think about all the advice you have received in your life from,
Parents being a child at home
Teachers at school
Lecturers at courses & classes
Speakers at seminars
Authors of books read
An expert in a field you knew little about
Writers of newspapers and magazines
Friends and family,
The list is endless imagine where you would be and what you would be doing today if you decided not to take the majority of the advice and instruction given to you and apply it to your own situation, the world is full of people who did not listen, listen enough, understand or have someone there to give them some knowledge, wisdom and guidance when they needed it most.
Ask yourself am I still learning? Or do I know it all?
Is there something I can learn from someone else?
Is the payoff worth the risk? i.e. your time and money against the potential return of personal and business growth.
If you are not sure is it worth a try?
Everything of value costs something to someone otherwise it would not be of value.
Can you afford not to invest in something or someone?
Sometimes the thing that separates those who make it and those who don't is the decision to invest in someone's expertise for a greater reward.
If this article strikes a chord with you, then look for someone who can help you get to the next level, find out what they can do for your specific situation. This article is generic, but when I work with businesses it will be specific that is the x-factor of working alongside someone, the solution is tailor made for your business and hence more effective.
Look out for future articles on how to give achieve a 200% financial growth.
To find out more about the Coaching service I offer, and an informal chat with no obligations, contact me using any of the details below. FREE 15min taster sessions are also available Roger Millar - Life, Success, Spiritual Coaching Tel no. 020 8357 9294