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.
Home »
Anak Pembantu Makan Dibilik Mandi
»
Ibu Ini Menjadi Orang Gaji di Keluarga Kaya, Menyuruh Anaknya Makan di Bilik Mandi. Saat Majikannya Tahu, Hal Tak Terduga Dilakukan Sang Majikan
Ibu Ini Menjadi Orang Gaji di Keluarga Kaya, Menyuruh Anaknya Makan di Bilik Mandi. Saat Majikannya Tahu, Hal Tak Terduga Dilakukan Sang Majikan
Franchise Startup Costs - How Do I Finance Them?
Don't be surprised if a franchise executive wants to know three things about you when considering you as a franchisee. Franchisors want to know how much cash you are able to put toward the purchase, how much you can or will be willing to borrow, and your net worth (all of your assets minus all of liabilities.)
The cash you are willing or able to put toward the purchase, how much you will need to pay yourself during the critical startup months, your ability to borrow, and potential partners are just a few of the ingredients that will go into the unique funding mixture of your franchise purchase.
Just because you have cash, for example, doesn't mean that you should deplete it all on the purchase of a franchise. Like it or not, very few franchises are instantly profitable, so many new franchisees need to specifically plan to have adequate operating capital in place so that they can pay themselves a salary for several months or even years. This decision alone might cause you to borrow more and use less cash. Dave Ramsey proponents are likely to want to wait to purchase a franchise until after they can pay 100% cash. In short, how to finance your franchise opportunity has more to do with your personal needs than what franchise you are buying.
One option is to use funds in an existing 401k plan rather than borrowing money. The nuances of this demand a much longer article than this, but here are the basics. Money in an existing 401k plan can be transferred into a special type of 401k that will allow you to purchase stock in your own company. This often requires that your company be organized as a C-Corporation rather than an LLC or other type of business entity. Many companies such as Fran-Fund and Benetrends specialize in helping franchisees make this work. Done correctly this approach can be managed with ease, but it should never be undertaken without the advice of experience professionals and your attorney. It can create some interesting and potentially beneficial financial options, but again should be considered carefully. Some would consider using existing retirement dollars over debt as a conservative approach while others might consider it quiet risky. Consult your business advisers if this is a decision you are considering. One final note, using your funds this way will involve a rather significant one-time fee that often includes the establishment and registering of your corporation. Despite this, it is often a great choice for careful investors, but it is worth noting that if the amount you are going to use is less then $30,000, you could consider just withdrawing your 401k funds, paying the IRS penalty, and possibly end up spending less to obtain the funding. This decision, like any funding question that has tax consequences, should only be considered with the involvement of your CPA, your attorney, or both.
Many franchises can be operated with little or no real estate investment, but for those that require a retail space, part of your financing considerations will have to be related to leasing or purchasing real estate. Purchased real estate can often be self-collateralized, meaning the property will secure the note against it. Unless you are able to build the space from the ground up, and obtain a loan for the construction, you are likely to have to find a way to pay for or finance lease-holder improvements required by the franchise.
Similarly some franchises require significant equipment purchases while others do not. If your chosen franchise requires equipment, you will need to find a way to finance the equipment. Under many conditions lenders can provide equipment loans, or equipment leasing options to lenders who don't qualify for standard business loans.
Some franchise systems have in-house financing available to qualified buyers others do not. In-house financing is appealing in many cases, but often may include interest rates that are not as attractive as a buyer might obtain from other sources. Franchises that offer in-house financing are much more likely to spend time and energy evaluating your business expertise, motivation, sales skills, etc. as a means to pre-qualify you as a buyer.
The US Small Business Administration can assist new franchisees with loans. This is a topic that warrants a complete article, however, here are some limited basics. SBA loans often come from local banks, and other customary lenders, not actually from the SBA. Instead they are backed by the SBA. There are several types of SBA related loans available, but generally lenders want to loan over $150,000 rather than smaller amounts, and these loans will almost always require collateral similar to any other business loan. In some cases the equity in your existing home might fill this need. SBA loans often require increased documentation, but you might consider locating a Small Business Development Center in your area to help you evaluate your options and complete your paperwork. In some cases your selected franchise will assist you with the writing of the necessary business plans and documentation required for SBA loans.
When starting a new business there is always the option of seeking investment capital. In other words, you can sell a percentage of your new company to investors in exchange for the money to get started. While this is a fairly common approach to funding a new business, it is less common among new franchisees. This may be due to the fact that many new franchisees leave jobs and become franchise owners as a means to have more control over their own destiny, and perceive even minority investors as a potential threat to that goal. Similarly, using investment capital requires careful planning, the involvement of attorneys, and an understanding of C-corporations, LLCs and similar complex business structures. Venture capital substantially complicates a business arrangement, and new franchisees often choose to buy a franchise over starting from scratch as a way to reduce complexity.
As a franchise consultant, I always encourage potential franchisees to ask their selected franchise to help them consider funding options. Top franchises will almost always be willing to provide you information on financial options. Similarly, I advice clients to seek the advice of their CPA and attorney.