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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Are Your Personal Finances in the Toilet? How to Take Back Your Financial Life in Nine Easy Steps Step One: TAKE ACTION!! Reading about how to improve your personal finances is a start. Going to financial seminars is a start. Buying tapes on financial independence is a start, but you have wasted a lot of time, energy....and money if you don't take ACTION from what you have learned. Before you can get anywhere with your personal finances you need to take steps right NOW. Don't procrastinate any longer. Maybe all you need is to make some minor changes in your spending habits. Do you really need those new pair of shoes? How many times do you stop at Starbucks to get your pick me up? Think about it..if you would go to Starbucks one time a day (I personally know people who go many times a day) you probably spend at least $20.00 a week; that's at least $80.00 a month on coffee. Since you are reading..or at least skimming this article you know that you probably should be taking at least a few appropriate steps to get your personal finances in order. What I suggest for you is to print out this entire list and keep it in a place that is highly visible to you. You need to remind yourself each and every day that action needs to be taken in the area of your finances to improve your situation. It is known that habits take at least 30 days of consistent and persistent attention and action to change. You can change your financial situation...if you change your habits. Step Two: Stop Charging everything on your credit cards. Cut them up, shred them, do whatever is necessary to get them out of your wallets and then take steps to start to pay them off. Depending upon your credit score you are more than likely paying anywhere from 15% (if you are lucky) to 23%..sometimes more of interest on your balances per month. Ouch!! Here are the facts about credit cards and our debt: We, as a nation, are putting a -1% (that's NEGATIVE) of our money into savings. We are spending more and saving less, and much of our spending is done through credit cards. Just one generation ago, our grandparents were saving on average of 20% of their income. Quite a change.. Step Three: Start to really understand the difference between your Needs and your Wants. What you might want to do for a month or so is literally write down everything you spend your money on. Kind of like you were on the newest diet that I just heard about. I mean everything from your daily stops at Starbucks to the newest Wii attachment you had to have. At the end of the month go through everything that you spent. Make two lists: one list for your Needs and then one list for your Wants. Let's define Needs and Wants. Needs are those items that are necessary for your existence. Your rent or mortgage, the water, the electric, paying off your credit card debt, food. Wants are the items that you normally have cash for and at the end of the week you are saying to yourself, "hum, I wonder where all of my cash went?" The bottles of designer water, the Starbucks, your manicure and pedicure, going out to dinner many nights out of the week, etc. These are the items that you can easily live without. Tally both your Wants and your Needs, then take a long look at your Wants and see what you can do without that month. I would venture to say that you will save quite a bit of money at the end of the month. I know that I did!! Take Action. Transfer what you save from your Wants column and put it into a savings account or to an investment account. Start to make Your money work for you..not against. Step Four: Live On Less Than You Earn. It is truly that plain and that simple: Live On Less Than You Earn. What this means to you is either purchase items that are less than what you make, or find a way to increase the income that you bring home on a monthly basis. Again, track your spending for a month and find out where your money is really going each month. I was talking to a friend today and she said that she spent over $400.00 on gas for just one car. Since she charged the gas all of the time she really had no idea that was how much she was now spending. Believe it or not, most people can balance their budget without making drastic changes to their current lifestyle. Step Five: Pay Yourself First. In Robert Kiyosaki's best seller; Rich Dad Poor Dad, he devotes a portion of his book to go into detail of this practice. You should really pay yourself a minimum of 10% of your take-home pay. This money should not be part of your monthly spending budget. If you can, go to your bank and set up a direct deposit account for your paychecks. After you do that you can then set up an automatic payment..to yourself of no less than 10% of your paycheck. I know this might be hard for you, but the beauty is after a few paychecks, you will get used to not having that money for expenses. It is the old adage of if you don't see it; you don't really know it is there. You will be amazed at how quickly those funds can start to build up. The account that you set up should be one that is interest bearing and of course the higher the interest, the better. Step Six: Set your financial goals. Where do you want to be at the end of the year, in 5 years, 10 years and for retirement? "A goal without a plan is just a wish." Do you know what you will need for retirement? The statistics are a bit scary out there. The average age of living continues to go up, but our retirement resources are either staying the same or diminishing. This is why so many people after the age of 65 either cannot retire or are going back into the work place. Wouldn't you rather be financially set when you are 65 and not have to worry about how you are going to be able to afford to live? The only way to do that is start to plan today. Trust me, it is never too early to start to plan for your future and for your retirement, nor is it ever too late. I know of people that started their plan in their 50's and 60's and are still able to retire in relative comfort. Of course they sought out the proper help, but the key is that they got the help and answers that they needed. If you are in your 20's and reading this article..don't delay!! If you plan properly, you might even be able to retire by the time you are in your 50's...or sooner, if you choose to do so. Nobody can determine your goals except for you. You need to take the time and if needed, find the resources to figure out exactly what your financial goals need to be so you can take the steps to reach everything that you want. Step Seven: Save and Invest on a regular basis. Take your 10% that you are paying yourself and either put it in a savings account, or better yet, invest it to make your money grow for you and work for you and your future. If you happen to be carrying credit card debt, invest in that high interest account first. Pay your credit cards off as quickly as possible. If your company matches 401(k) contributions, contribute up to the match. You might also consider maximizing your Roth IRA contribution. Most people do not have an emergency fund started and built up. Start one..NOW. What would you do if you needed a new hot water heater that cost around $800.00, or your car broke down and you needed a new engine or transmission? What most people do is they put it on their credit card..creating more debt for themselves with very high rates of interest. Start an emergency fund that you contribute to on a monthly basis. It needs to be liquid, so you can get to your money quickly, and you only use the money for true emergencies. Not your groceries or a new outfit, but for unexpected medical bills, car repairs, etc. Once these emergencies pop up, you won't have to use your credit card, saving you hundreds in interest if you are not able to pay it off immediately. Step Eight: Protect your Finances. Take the necessary steps, usually through insurance, to make sure that your assets are protected in case of a disaster. Make sure that your insurance is enough to cover your house and all of your belongings. You may want to take your camera and photograph you furniture, jewelry, your electronic equipment; anything with value. If you can, attach the purchase price for your item, if not, estimate what the purchase price was and keep this information in a fireproof filing cabinet along with your other valuable documents such as your will and birth certificates. This is good evidence for your insurance company if a disaster does occur. Fireproof cabinets are very inexpensive and save you a world of heartache if a disaster such as a fire or flood would occur. They help to make those extremely important documents be preserved. Once you have the appropriate amount of insurance on your home and your belongings secured, make sure that you re-evaluate your situation every few years or whenever a major life change occurs, such as marriage, divorce or a new addition to the family. You might also want to compare insurance rates on a regular basis, since this is a very competitive business. Step Nine: Give back...donate to worthy causes and those less fortunate. When you give, you will get tenfold in return. When you tithe, the universe takes care of you. No matter how desperate your finances may appear to you, there are always people that are far worse off and less fortunate than you in the world. It is important to nurture a sense of giving and be thankful for the small things that you do have in your life. If you feel that you cannot give monetarily, then give of your time. Volunteer at soup kitchens, shelters or youth centers. Do you have a talent in knitting or crocheting? Make afghans, shawls and hats and donate them to homeless shelters, pregnancy clinics or to churches that send these types of items oversees. If you don't really have a favorite charity that you would like to donate your time or money to you can go to Charity Watch and there you can find many different charities with different needs. You should be able to find one or two that resonate with you. Have a terrific and profitable day, Jen Gilbert Disclaimer: You shouldn't make any investment decision based solely on what you read here. This is not an offer to buy or sell a security. Should you choose to invest in the markets, it should be only after exhaustive due diligence and possibly in consultation with a licensed investment advisor. Jennifer Gilbert is the author and editor of JBSCommunications, an e- newsletter for serious entrepreneurs who know without any hesitation that they are on their way to earning six figures and multiple six figures a year from their home and want a directional in Wealth, Health and Wisdom....the essence of any 6-figure income.




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