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.
Ngeri ! 9 Hari Lipas Duduk Dalam Telinga Wanita Ni
The How and Why in Financing Gold and Other Commodities Secured in Russian Warehouse Facilities
In the recent past there has been a good deal of interest generated in the capability of utilizing Russian commodities as acceptable collateral by Western financial institutions. The obvious problem has been the perception of Russia as a wild west where the acceptance and enforcement of law is nonexistent. The fact is that nothing could be further from the truth. The Russian Federation is not blind to such perception and has taken steps and passed laws that are strictly enforced to specifically deal with the capability of Western financial institutions to be safe, secure, and comfortable when conducting business and utilizing Russian commodities as collateral in global finance.
The Russian Federation has instituted law undertaken specifically to enhance trade financing and the protection of investment by third parties in Russian trade commodities and activities. The new Civil Code of the Russian Federation was written in two parts between 1994 and 2008 and is a combination of German Law, Roman Civil Law, English Common Law, and US Commercial and Constitutional Law in an effort to accomplish this goal. The result is a system that is fair, transparent, and protects the investor as well as the depositor. Aims have been taken to assure that no third party claims or liens can be placed on commodities pledged for financing. If the lender holds the warehouse certificate, and thereby ownership, he can immediately dispose of the commodities should there be a default. These strong changes have resulted in Russian warehouse certificates used as bank undertaking.
The pledge of commodities stored in warehouses is one of the security schemes requested by lenders proposing to enter into structured trade finance commodity transactions. Such a pledge is a well-established security device in most west European jurisdictions. Russia too has a developed system.
Some of the following has been excerpted from Christophe Jacomin's work concerning the use of Russian warehouse warrants in financing schemes. Mr. Jacomin is a partner in the firm of Gide Loyrette Nouel in Paris. Gide Loyrette Nouel is an international law firm founded in Paris in 1920 with twenty four offices located throughout Europe, Asia, Africa, the Middle East, and North America. With more than seven hundred attorneys and legal consultants Gide Loyrette Nouel offers some of the most respected specialists and offers legal opinions to both governments and the private sector in each of the various sectors of national and international finance and business law. The reader will notice that the securities instruments issued by the Russian Federation licensed warehouses are referred to both as Warehouse Certificates and Warehouse Warrants. The terms are interchangeable and refer to the same warehouse issued document.
Warehousing activities in Russia are regulated by Chapter 47 of the Civil Code of the Russian Federation. Pursuant to Article 907 (1) of the Civil Code, under a warehousing contract, the warehouse undertakes, for remuneration, to keep goods deposited by the possessor of goods and to return these goods in their original condition. The depositor must be the possessor of the goods irrespective of the ground of such possession. This precludes any third party liens or claims on the goods deposited. The depositor can be either a legal entity or an individual.
The article terms a warehouse as an organization engaged in storing goods and rendering related warehousing services as an entrepreneurial activity. The use of the term 'organization' means that the warehouse is always a legal entity, not an individual entrepreneur. Warehousing activities in Russia are subject to various licensing depending on the kind of goods held in safekeeping.
Under Article 912 (1) of the Russian Federation Civil Code warehouse documents are:
• warehouse receipt;
• simple warehouse certificate (the SWC);
• double warehouse certificate (the DWC).
Warehouse Receipt: This confirms acceptance of goods for storage under the warehousing contract and determines their quantity (number of units or pieces, or weight and volume measurements) and external conditions. It is issued by the warehouse to the depositor personally. The only title certified by the receipt is the right of the depositor indicated therein to take the goods back from the warehouse in their original condition. This right cannot be assigned to another person neither by handling the warehouse receipt to him, nor by endorsement of the warehouse receipt, but only in accordance with the procedure as provided for by paragraph 2 of Chapter 24 of the Civil Code related to assignment.
Simple Warehouse Certificate Pursuant to Article 917 of the Civil Code, the SWC is issued in bearer form and must indicate the following:
• name and location of the warehouse accepting goods for storage;
• serial number of warehouse certificate in the register of the warehouse;
• name and quantity of goods accepted for storage - number of units and/or pieces of goods and/or measurements (weight or volume) of the goods;
• period for which goods were accepted for storage, if such period is established, or an indication that goods were accepted for storage on demand;
• amount of compensation for storage or tariff on the basis of which it is calculated and the procedure for payment for storage;
• date of issuance of the warehouse certificate.
According to Article 917, the SWC must also contain an indication of the fact that it is issued to a bearer. The SWC must have identical signatures of the authorized person and the seal of the warehouse.
Pursuant to Article 146 (1) of the Russian Federation Civil Code to transfer to another person rights certified by a bearer security, such as the SWC, it is sufficient to hand the security over to such a person.
Double Warehouse Certificate The DWC consists of two parts - the warehouse certificate and the pledge certificate (warrant), which can be separated from each other.
Each part of the DWC should equally indicate:
• name and location of warehouse accepting the goods for storage;
• current number of warehouse certificate in the register of the warehouse;
• name of legal entity or individual from whom goods were accepted for storage and location (or residence) of goods-possessor;
• name and quantity of goods accepted for storage - number of units and/or pieces of goods and/or measurements (weight or volume) of goods;
• period for which goods were accepted for storage, if such period is established, or an indication that goods were accepted for storage on demand;
• amount of compensation for storage or tariff on the basis of which it is calculated and procedure for payment for storage;
• date of issuance of warehouse certificate.
Both parts of the DWC must have identical signatures of the authorized signatories and the seal of the warehouse. Each part of the DWC may be transferred by way of endorsement.
NOTE: The SWC and the DWC both evidence two types of rights to the goods:
1. The right to take the goods back from the warehouse.
2. The right to dispose of the goods stored at the warehouse.
Pursuant to Article 914 of the Russian Federation Civil Code the holder of the warehouse certificate separated from the pledge certificate has the right to dispose of goods, but may not take them from the warehouse until he repays the credit granted.
Pledge on stored goods According to Article 914 of the Civil Code "goods accepted for storage under the double or simple warehouse certificate may be the subject of pledge during their storage by means of pledge of the corresponding certificate".
Such pledge over the goods is regulated by paragraph 3 of Chapter 23 of the Civil Code, in particular by Article 357, and by the Law of the Russian Federation on the pledge of May 29, 1992.
Pursuant to Article 339 of the Civil Code a pledge agreement on goods stored in a warehouse shall be in writing and shall indicate the object of the pledge (the goods), its value, substance, scope, and performance time of the principal obligation. The pledge agreement shall also indicate the party that shall keep the pledged property. Pursuant to Article 357 of the Civil Code, under a pledge agreement on goods, such goods are left in the warehouse. Pursuant to Article 47 of the Law on Pledge, a pledge agreement on goods, in addition, shall indicate the kind of the pledged goods, their generic characteristics, the location of the warehouse and the kinds of goods by which those being stored may be replaced by.
We will see the day when the use of Russian Federation warehouse warrants becomes not only commonplace, but may well be the preferred methodology of securitization for these types of structured finance transactions.