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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Encouraging Bible Verses and Bible Messages on Personal Finance
Encouraging as well as inspiring messages can be discovered in Bible verses but oftentimes we choose instead to follow worldly advice.
We rationalize as to why a certain principle does not apply to us. In so doing, believers may unconsciously imply that we know better than God.
Take, for example, our personal finances. The Bible tells us that God owns all the wealth in the world. He instructs us to give 10 percent of our income back to Him. Yet many times christians ignore this command to tithe. Or they rely on ungodly advice that discourages generous giving. However, no investment strategy can compare to God's master financial plan. If we tithe faithfully, the Father will generously provide for us.
God's plan differs from the world's plan. Secular wisdom encourages us to amass as much wealth as possible. The reasons for doing so are self-serving, such as satisfying our desires and trying to ensure financial security. A pond with no inlet or outlet will produce stagnant and slimy water. Money can create a similar and unhealthy result. An individual who doesn't manage financial resources God's way inevitably wastes them. A self-centered attitude regarding finances diminishes a person's quality of life and often causes friction within families.
The Lord wants His followers to be generous givers. We shouldn't view ourselves as reservoirs-stockpiling money for our self-serving desires. Instead, we need to be channels for good works, willing to share with and be encouraging to others. In God's plan, believers receive in order to give. You and I must utilize our money for basic needs, but we should also contribute to our church, to missions around the world and to those who are suffering financially. Generous people are happier, more peaceful, content, and secure.
Luke 6:38 reads: "If you give, you will receive. Your gift will return to you in full measure, pressed down, shaken together to make room for more, and running over. Whatever measure you use in giving-large or small-it will be used to measure what is given back to you." The Bible message is clear. Choose to view your bank account as a channel rather than a reservoir. Then watch the Father abundantly supply all you need.
What are the components of God's financial plan for Christian living? Giving one-tenth of our income to the Lord is an integral part of biblical stewardship. Malachi 3:10 states, "Bring all the tithes into the storehouse so there will be enough food in my temple. If you do," says the Lord Almighty, "I will open the windows of Heaven for you. I will pour out a blessing so great you won't have enough room to take it in!. Try it! Let me prove it to you!"
Don't wait until all your bills have been paid before tithing. God's people should give the first and best of what we possess. Proverbs 3:9 reads: "Honor the Lord with your wealth and with the best part of everything your land produces." This is one area in which the Lord encourages us to test Him. Those who tithe witness how God miraculously provides for their needs. When we trust God in this area, He provides all we need. Our faith increases as we grow closer to Him. The Lord teaches us about His trustworthiness when we tithe.
Here are four benefits you can expect to receive as a result of tithing:
- Abundance. Prosperity, monetarily and otherwise, results from giving one-tenth to the Lord. - Protection. With God as your financial manager, He guards your supply. As you give back, the Father generously provides everything you need. - Provision. If money is tight, don't try to figure out if you can afford to give to the Lord. Your budget might not work out on paper, but you will experience His provision if you are obedient. - Personal testimony. Adhering to God's master financial plan will bring you contentment, joy, and peace. The changes in your life will create a great opportunity for you to testify about the blessings given as a result of obeying biblical principles.
2 Corinthians 9:7 reads: "You must each make up your own mind as to how much you should give. Don't give reluctantly or in response to pressure. For God loves the person who gives cheerfully." Believers should give willingly. Don't fall into the trap of accumulating money, thinking that more of it will buy you happiness. Take a look at the lives of wealthy celebrities, for example. Many of them don't experience fulfilling relationships, genuine peace, or lasting joy.
Be cautious. You can't violate the Lord's instructions without experiencing the consequences. Malachi 3:8-9 reads: "Should people cheat God? Yet you have cheated me! But you ask, 'What do you mean? When did we ever cheat you?' "You have cheated me of the tithes and offerings due to me. You are under a curse, for your whole nation has been cheating me." A decision not to tithe means losing the four-fold blessings associated with giving: abundance, protection, provision, and personal testimony.
Our Father's instruction is for us to return one-tenth of what He gives us. When we reject tithing, we are keeping what belongs to Him. The Lord promises to provide for our needs. A refusal to tithe suggests a lack of trust in God's promise to provide all of our needs. When someone elects to ignore this command, greed is often a motivating factor. The Wonderful Counselor grants us the endurance, intelligence, and talent to earn and invest money.
Tithing, as a biblical principle, makes no sense to the material world. Many financial advisors will argue that people can't afford to give away 10 percent. Tithing is a vague matter even within the Christian community. Some believers will contend that this Old Testament principle is no longer valid. Don't let their arguments sway you from giving to the Lord's cause.
Truthfully, there is no financial plan more sound than the one outlined in these encouraging and inspirational bible verses. I've done my best to outline these principles in my best-selling eBook. As we give cheerfully, generously, and systematically, the Father blesses us with abundance, provision, protection, and a powerful testimony. Test God. He will pour out unimaginable blessings on you.
Robert M Smith, Christ-follower, entrepreneur, author and writer, delivers encouraging and inspirational messages on how to better cope with fear, worry, stress, anxiety, money and other life challenges, based on verses from the bestselling book of all time-the Bible.