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.
Malas Nak Keluar? Tips Cara Baik Untuk Tolak Ajakan Rakan
Creative Marketing/Financing - Businesses Become More Creative in Tough Economy
Small business owners are turning to more creative ways to market or to finance their businesses in order to remain competitive.
And yes, this is being done more out of necessity than just the typical result of business competition. Not only are businesses looking for more creative ways to attract and retain customers but they are also looking for alternative ways to fund business improvements, pay for advertising, purchase inventory or buy new equipment and more.
It's been said that "necessity is the mother of invention" and in today's economy business owners are finding that creativity and resourcefulness are just as necessary as a great service and product. Necessity has spurred a few interesting ideas for business owners looking for ways to grow or stay in business.
We can look at any number of factors for the falloff in the economy and say 'that's where the problems started', whether it was the "housing crisis", "job layoffs", "banks not lending" and on and on. The bottom line is people are not spending like in "better times" and a lot of business owners are feeling the impact when they see the "percentages" that their business has dropped off from past years.
In dealing with a wide range of business types I have watched different businesses take a lot of creative approaches to improve business. I've had auto repair shops do things like hire a decorator to remodel waiting areas or to decorate the restrooms because statistics show them that a large percentage cars are being bought in for service by women. They feel it is very important to keep the waiting area and restrooms fresh and clean to offer a shop that women will be comfortable coming into. And in many of these cases the shop owner never even thought about how the shop looked before, he only cared about doing quality auto repairs.
More auto shops are looking for Customer Financing to help their customers who need "emergency" short-term financing to get and keep their vehicles on the road. This has proven to be an extremely effective way to attract new customers as well as up-selling existing customers on repairs that they need.
Now owners are in many cases paying attention to "other" details, like what will attract new customers. Owners are focused on what they can do in their advertising that will differentiate them from the competition.
You see restaurants offering special discounts that you never would have seen two-three years ago.
We see more medical offices offering Customer Financing programs in addition to programs, like Care Credit, GE and Chase that are based on a patients credit rating because they are finding that even some of their patients that last year had great credit have run into issues that have left them with less than perfect credit now. And that patient will no longer quality for financing that require a 650 or better FICO. They need an alternative to help those without great credit to get financing for needed health care.
Attracting new customers and patients is important but being able to provide the additional services when the customer does patronize your business is just as important. One of the most effective resources that many owners are starting to finally to utilize to attract new business is "LOCAL SEARCH MARKETING". Here's why: and it's important that you think about this as if it happened to you.
Imagine you recently got a puppy for your son or daughter. And at 1 am on Saturday your child woke you saying something was wrong with the puppy. Now you need "Emergency Veterinary" service. Your kids are crying the Vet you would normally go to is not open. Do you look in the "Yellow Pages" or do YOU go online and type in the search term "24 hour Emergency Vet in your zip code"? Or perhaps you need a dentist or a doctor for a specialty whether in an emergency or not, do you search online? If you answer yes, then imagine how many of your "potential" LOCAL customers do the same.
To research a product or service in their area 97% of consumers use the Internet. And 90% of those use search engines compared to 48% who use the Yellow Pages. And MOST of those will make a "Buying Decision" based on their Internet search results. That is very powerful! And it's amazing that more businesses are not EFFECTIVELY using Local Search Marketing when taking into consideration how inexpensive it is. (By the way, I'm not talking about expensive pay-per-click campaigns that can cost a small fortune).
Now, let's talk about the most important thing that "many" businesses at some point want or need. A CASH INFUSION - WORKING CAPITAL - A BUSINESS IMPROVEMENT LOAN - whatever we want to call it, many businesses at some point need money to grow, remodel, expand or stay afloat. But banks are tightening credit or not lending and the reality is many businesses still need to borrow.
In today's economy a lot of business owners are looking at "creative" short-term solutions like "Credit Card Receivable Financing" or "Merchant Cash Advances" which are based on your businesses future credit card sales or a fairly new funding option that is based on your "Business Banking History".
These funding options can get an existing business $5000 to $500,000 in as little as 5 days with no out-of-pocket fees for an owner with a FICO score as low as 500. The lenders look at the businesses cash flow and not on collateral or solely on credit score.
You know your business. How many times have you thought 'if I had the money right now I could buy that inventory for $20,000 and easily sell it for twice that' or 'if I had such and such equipment I could add another $10,000 per month in revenue'. But as we all know, that's not how the banks look at lending.
With these creative alternative financing options your business can get approval in 24-48 hours and have funds wired to your bank account in days - not weeks or months. The lender will want to know if you have been in business at least 1 year, and will require very little documentation.
Just for reading!
GET YOUR FREE LISTING in City Directory On Line. List under your business specialty, it's easy to use and its FREE advertising.
The Business Directory provides an easy to use "directory" without intrusive advertising. City Directory On Line is the only patent pending, simple to use, local city online business directory of its kind. And it's ALREADY ranked and placed on page one of Google search. It's quick, it's easy and it's an absolutely free listing.
Author Description:
David Claggett Executive Director
Don't let money walk out of your business!