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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Betul Ke Sakit Mata Boleh Berjangkit ?







Money 101 - Finance Lessons For Your Kids There's a growing initiative amongst the larger financial institutions in Australia to start educating children about money and finance from an early age. And judging by the apparent lack of financial acumen of the average adult in Australia, it's an idea that seems long overdue. According to a recent survey conducted by international credit card issuer Visa, Australians are among the worst in the world at keeping track of their discretionary spending dollars. The survey found that the average Australian couldn't account for $59 per week or a whopping 34% of the total discretionary cash they spent each week. That's more than double the international average in the survey! When you consider that equates to $3068 per year that simply disappears into the ether, it should act as a wake up call leading everyone to closely examine their budgeting habits (or lack thereof). When most of us "natural born consumers" don't have that much discretionary income to start with, blowing over a third of what little we do have without even knowing where it went has to be one of the definitions of insanity! Today, it's not uncommon for children as young as age five to receive some kind of pocket money or allowance. I don't have a problem with this phenomenon, as long as it is done wisely and used as a tool to teach kids some basic money and finance skills. But when it is done in a thoughtless and indulgent manner, it only serves to perpetuate the bad habits and ignorance that is common amongst adults today when it comes to all things financial. The key lessons that we all should be teaching our children, and practicing ourselves, with regard to money and finance fall into several broad categories. Have a read of the following seven basic financial concepts and see where your kids (and you) could learn some valuable lessons. The Value of Money Kids are notorious for not understanding the true value of money. Come to think of it, a lot of adults don't fare much better in this area either. The value of money is often expressed in terms of buying power or simply what you can exchange your money for in goods and services. But this expression of money's value is overly simplistic and, not surprisingly, focussed on a very materialistic viewpoint. Why do you think that so many teenagers (and twenty-somethings and thirty-somethings, etc...) can't resist spending every dollar of what they earn each week? People wrongly assume that the only thing money is good for is to go out to the mall with and spend on stuff. But what is money really worth? The ability to earn and accumulate money opens up a whole world of opportunities and the ability (financial freedom) to positively impact the lives of not only ourselves but others as well. Philanthropy and a desire to make the world a better place through non-consumer uses of our financial resources are concepts that are all too often ignored when we consider the value of the money we have. This is an area where we should be leading our children by example. And there are examples for us "big kids" to follow in the world today if we bother to look. Warren Buffett comes immediately to mind. As someone who has accumulated more wealth than almost anyone else on the planet, he has truly embraced the concept of the value of money lying almost entirely in its ability to make the lives of people everywhere better. Years ago, when he had already become a titan of the investment world, he became renowned for picking up the businessmen that came to his hometown of Omaha, Nebraska to do multimillion dollar deals with him at the airport himself in his beat up old Cadillac. To this day, he lives a life that is the ultimate antithesis of the "I have the cash, so I might as well spend it" mentality. How You Earn Money Everyone should teach their kids from an early age that you earn money by working. You exchange your time and effort for a paycheque. Just like every other parent of a child younger than age sixteen, I have had to have the conversation with my kids that explains to them that cash doesn't come from an ATM. In my parents' and grandparents' generations, the work ethic was much more deeply entrenched in the culture. Nowadays, everyone is more vulnerable to the enticements of a multitude of "get rich quick" schemes and promises of "passive" income. Today, it is possible to earn money outside of a traditional 9 to 5 job, and these options are becoming more common in the post-industrial world, but the idea of a day's work for a day's pay is by no means past its use by date. Most of us still go to work every day to keep food on the table and a roof over our heads. A huge problem today is the ever more pervasive idea that is out there that says anyone who doesn't work for themselves or earn a "passive" income in some fashion is a "sucker" and has lost the plot. Savings You know that savings habits have hit rock bottom when the CEO of Westpac Bank writes an op-ed piece saying that Australians need to save more and borrow less. And Gail Kelly did exactly that in the Australian Financial Review this week. Be honest, when's the last time you socked any cash into your savings account and kept it there for longer than a month? Savings is like paying yourself a paycheque that will be there for you in the future - plus interest! It is never too late to teach children the magic of compounding interest. And there are numerous excellent savings accounts for kids that pay above average interest rates and can really help teach your kids the power of saving. You can start teaching savings habits on a small scale, too. Say your kid wants a new XBox 360. And assume he's one of the three kids on the continent that don't already have one. You can start the teaching by taking them to the shops and showing them the price tag on one and explaining the value of money (albeit in a consumerist sense of the concept). Explain to them how many hours you would have to work at your job to earn enough money to buy the XBox (how you earn money). When I did this for my kids (pre "360"), my hourly wage was roughly enough to pay for one XBox game, never mind the console and other paraphernalia. That made an impact, let me tell you. Then, arrange for your child to "get a job". Any odd jobs or chores around the house that they can do in order to earn some pocket money will do nicely for this purpose. Don't make their "hourly rate" too high or too low - you don't want to distort the experience as a learning tool by creating an attitude of entitlement (it is still your money) or of being taken advantage of (slave labour). Go over with them how long they will need to keep their "job" to reach their goal of saving enough for the XBox. Then, go down to your bank and open a kids' savings account. In addition to teaching the discipline of putting the money aside physically to achieve their target, it will also be a great opportunity to show them how much the impact of compound interest will help them along the way by shortening the time frame over which enough money is saved for the purchase. Finally, when they go to withdraw the cash to buy the prize, you will be able to explain to them the interest they are going to be missing out on by making a withdrawal. Most of these kids' accounts pay "bonus" interest when you don't make a withdrawal, but pay a nominal rate of interest when you do take money out of the account. Great lessons, and it leads right into the next concept that I want to talk about. Spending Whenever your kids do spend money (yours or theirs, but preferably theirs), it is an opportunity to teach. And if we as adults paid more attention to each time we shelled out some of our hard earned cash, we'd be in for some education as well. If you don't believe me, start by keeping a spending journal for just one month. You'll soon find out how much unnecessary cash leaks out of your wallet for little or no tangible return. Spending can help us in teaching children about the lure of instant gratification and how quickly the "rush" wears off once we get that thing we couldn't live without home. Kids need to be taught in a literal sense that you can't have your cake and eat it too. Once money is spent, it's gone. What you want them to consider carefully is how long will it take them to earn that amount of money again and what they have to show for their purchase a couple of days or weeks after the shopping spree. Borrowing This lesson is a bit harder to teach firsthand, because banks won't lend to anyone under age eighteen. But the teaching opportunity comes from being able to explain the basic workings of any loans that you might have. And that necessarily requires that you understand the basic workings of your existing debts. As a banker, I am constantly amazed by the parade of people that I come across that don't understand the most basic elements of lending and interest. My oldest son is 12, and I have spoken to him about the mortgage loan on our house to help him understand what borrowing is all about in very basic terms. He knows how much we had to borrow and how much money we had to put in as a down payment. He also understands that we are required to pay the money back to the bank plus interest. I even went so far as to explain to him why it's better to pay the loan off on a fortnightly basis even though the bank only requires you to make monthly payments. Compound interest working against you is just as powerful as compound interest working for you. I told him why I always pay more than the minimum payment required by the bank and the positive impact doing so has on the payback term of the loan. Another important aspect of borrowing that you can discuss with your children is the benefits and drawbacks of different kinds of loans. You should try to help them understand that there is "good" debt and "bad" debt. At the most basic level, "good" debt is money that you borrow in order to purchase assets that increase in value or generate an income. "Bad" debt is money that you borrow to purchase items that decrease in value or that create expenses as a result of having purchased them beyond the repayments on the loan you got the purchase the items in the first place. One final piece of advice about borrowing that both kids and adults need to be aware of is that credit cards are loans, not a magic way of not having to pay for purchases. Investing I'm not suggesting that you introduce your eight year old to a stock broker, but there are ways to teach your kids about investing without grooming them as the next generation of Wall Street warriors. Many adults are not clear on how investing works, so I would suggest that it's a good idea not to try to teach that which you don't understand yourself, so the "keep it simple stupid" theory applies here. The simplest concepts of risk and return can be taught by taking some of your child's savings into longer term investment vehicles such as term deposits or savings bonds and then explaining the differences in the amounts of interest each one will earn in return for keeping their money locked away for a longer period of time. If they're a bit older, you can also give your kids basic examples of how stocks work on a basic level, with particular emphasis on the fact that money invested in a stock is not 100% secure - you can lose your capital in certain instances. Beyond the concepts of risk and return, teaching basic investment principles can also reinforce lessons about borrowing (in this example from their savings accounts) for income or revenue earning purposes as opposed to borrowing for things that lose their value (depreciate) immediately after you leave the shops. Budgeting Let's face it; a majority of people, regardless of age, could use some advice in this area. If you want to try to teach your children how to come up with and stick to a budget, you'd better have and be following a budget yourself. I've found that kids are great detectors of hypocrisy, and they are more than willing to point out every occasion on which you violate any principles that you have taught them to follow. That being said, I think that it's a good idea to start teaching kids early about allocating their resources to needs and necessities before "wants" and luxuries as a first step towards showing them how to put a budget together. And unless you're paying your youngster way too much allowance, they should be able to keep track of their income and expenditures without an Excel spreadsheet as a budgeting tool. These seven concepts should give you plenty to discuss with your kids, and more than likely will provide some food for thought for many adults. In any case, we can all stand to be reminded of the basics from time to time. One final word on financial education: it's never too late or too early to start teaching your kids (or yourself) the basics of financial management. It is a life skill that is far too uncommon and far too important to ignore. Alan Blair The Bankable Business Builder




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