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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Finances in a Blended Marriage - How to Avoid Money Potholes Second marriages have their own challenges and potholes, particularly concerning money, and especially when step-kids are involved. Any time a family is blended together the potential exists for conflict. And financial conflict is always the worst kind in any relationship. Indeed, money differences may well have been responsible for the breakup of the first marriage. When step-kids enter the picture the potholes get even deeper: Who pays for what? Whose kids are costing more? Is that our dental bill, your dental bill? Mine? Did your kid wreck the car, or did our kid wreck the car? These are all money issues, so blended families must have a system for sorting out who is responsible, and when. This is no small thing; According to the Stepfamily Association of America, 43% of unions are a second marriage for at least one partner, and about 65% of remarriages involve kids. "Blending kids, ex-spouses, money and investment styles--each one of them requires its own strategy," says Ruth Hayden, a St. Paul financial consultant, and author of For Richer, Not Poorer: The Money Book for Couples*. "That's how big a challenge a second marriage is." So money styles seems to be a place to start to unravel the knot of financially blended families. But is it? It may be more important to look first at whatever money issues are already on the books as the marriage begins. Particularly if there are different styles of handling finances, this is a critical issue to discover well before the nuptials. There are at least four different money styles, with overlap on most: there are savers, those who insist on having money set aside at all times; there are spenders, those who believe that if there are checks in the checkbook they still have money, and care little for cash on hand; there are the so-called money-effete, those who don't know about money and don't care to, because it's beneath them to deal with it; and there are those who combine at least two of the preceding, depending on their income level or fear of poverty. But where step-kids are concerned, money styles are only magnified, simply because financial issues themselves become more critical. It's estimated that it will require at least $250,000 to raise one child through college age in this country. Multiply that by two, or three or four and... You get the picture. Now imagine that only two of those four kids are your biological children, that the other two are part and parcel of your second marriage. Here are some tips on how to avoid the inevitable tension that can arise over where all that money is coming from, and where it's going day by day. 1. Make sure you understand who has what money style. Certain styles simply will not mix: a spender will have a tough time with a saver, for instance; a money-effete will have no interest in paying bills, so the other spouse had better be prepared to do it. Regardless of which stylistic tensions there are, when you're spending money on 'their kid' (see below) the irritation can come out of nowhere, causing incidents that can corrode the marriage. Knowing ahead of time what to expect helps ease the tension. 2. Make every effort to think of them as 'our kids'. This exercise will be difficult at first, for you and the kids, but it's more important than it appears. For a number of reasons, start using that terminology right away. The other side of this is to avoid the phrase 'your kid' at all cost. 'See what your kid did this time?', or worse, 'See how much 'your kid is costing us?' is a deadly way to start a conversation. When the child has caused a financial loss -- wrecked car, damaged property, lost personal item, dentures, private tutor, cello lessons, any kind of unexpected cash outlay, referring to the child in those terms is unacceptable. Use this occasion for the opportunity it is: Instead of 'your kid', hasten to say 'our daughter/son'. Your new spouse will be grateful for the consideration. 3. Avoid keeping score. Kids are an extremely expensive hobby. This is just reality; children cost a lot of money, and the costs seem to escalate the older they get. Step-parents who, subconsciously or otherwise, keep score of the overall costs are heading for a major disappointment. The ability to let go of financial reality, which will seem chaotic at times, is essential to family harmony. On the other hand, if the kids are old enough to understand, it isn't inappropriate to bring them into the discussion any time a major financial event has occurred. Indeed, it's detrimental to hide those events from them. When I was growing up, the second of ten kids, money was never discussed in our house, perhaps because there was little to discuss, perhaps because the issue was considered for adults only. But we do our kids--and step-kids -- a disservice withholding financial advice and understanding that will lead to their own financial literacy. 4. Don't keep secret cash or hidden accounts from your new spouse. This is a difficult adjustment for many people, especially those who consider themselves more sophisticated about money than their partner, or just more financially literate. The temptation is to hold back a certain part of our income or assets until the new relationship is established, and then possibly open up. This policy is fraught with peril. At what point do we decide to tell our new spouse about that private account? How do we tell them? And here's a major challenge: what if one of 'your kids' needs something in the meantime, and money appears to be tight? If the tendency is to want such protection, especially against possible encroachment from step-kids, there are prenuptial agreements to address that. Otherwise, full disclosure is always the best policy, even if it means taking the advice in number 5 below. 5. It may be a good idea to keep separate accounts. This works for a lot of blended families. Decide ahead of the marriage who pays for what; who is responsible for which children; how each major expense and financial responsibility will be assigned and handled. Depending on income, a simple sliding scale may work just fine. Blending families doesn't necessarily mean blending bank accounts. The only drawback to this arrangement is, that if one of the spouses lacks money handling skills, they may have to acquire them. Blending families is never easy. Money issues aren't either. The potential for both to arrive unannounced is always there, especially when step-kids complicate the picture, unless we prepare ahead of time.




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