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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Personal Finances Getting Tighter? If your personal finances feel tighter right now, just like last years swim suit, get the message quick. If you ignore just simple exercise during the course of your day, you'll plump up and when you go to put on your swim suit, it will be tighter than how you remember it fitting a year ago. Personal finances, just like your body, will swell up if not attended to on a regular basis. Do you feel strapped right now? Trapped? Nowhere to turn? Confused? Now that you're in this mess, you want some fast and easy to implement solutions to your overhead bulge. Sure, I'll show you some solutions, but I will warn you that there will be some pain. 1) Right now, stop living on tomorrow's income. Spend now pay later is what got you into this bind and complaining about the price of gasoline like so many other losers isn't going to help matters. It's not the price of gas; it's the fact that you can't afford fuel for your car(s). The problem is not with the cost of fuel, but your lack of managing your money. Don't spend what you haven't earned; because once you're in that spiral, it never ends. 2) Quit complaining. What good is complaining? It is a complete waste of time. So stop wasting time. It's easy to join in with the rest of the criers and blame and complain. You only add to the misery of your own existence by complaining. We can all complain about something, but so far in my life I found it to be useless, so I gave it up years ago and you should too, right now. 3) You weren't prepared for the jump in the cost of living. Most people live paycheck to paycheck, spending all that they earn on many things that they really don't need, but really just want. They don't even understand why they want stuff, but the media all around them, along with a heap of peer pressure, puts them in the "pull out the plastic" mode. The more important question should be; why weren't you prepared? The answer to this question is a bit vague because you can go off on any number of tangents and in different directions. The truth, which isn't easy to face, is that you were not paying attention and now you are paying through the nose. Could you have changed the course of world events? Perhaps, but it's unlikely that you could have. You have to just etch it in your brain that no matter how good times are, there will be a downturn. If you look at the economic condition of any country in the world, there are hills and valleys. True, some countries appear to be stuck in a valley, but the bigger, much bigger, story says something else. Remember that expression; saving for a rainy day. Rainy days happen and once you get zapped by a downpour of luck, circumstance, or situation, it can take years to recover. Five dollar coffees just didn't happen, you aided the cause by standing in line and rattling off some concoction to the clerk who smiled and took your money. Your car needed a repair, but you chose to replace and accept a payment schedule with a smile. (Oh boy! My new car!) Ten pairs of shoes wasn't enough, you needed twenty, apparently to go with your forty pairs of jeans. Cable TV wasn't good enough; you thought you could build a bigger and better DVD movie collection. You needed surround sound and a bigger screen to view your movies on. The payments came with the gear, because you pulled out the plastic and signed your name. (You love credit.) This list of your weaknesses could continue, but I promised to show you how to get out of the spot that you are in, stuck in, or heading toward. Unfortunately, these are things that are not taught in schools. Fortunately, you discovered this article to help you. Here comes the pain. Why do you go to work? If your answer is "to make money," than you have to adjust your thinking. Change your mindset to, "the reason I'm going to work is to become wealthy." In both situations, you are going to work, but the first situation is to survive, the second situation describes that your purpose of going to work is to become wealthy. Same job, same pay, but it's the different mindset that can change the reckless path that you have been walking down everyday. Now that your mindset is in the right gear, I have to slap your hand like your mother should have when you went into a store with her and started picking up everything that you saw. Maybe that's why you buy so much stuff, because nobody is around to tell you no and slap your hand. From now on, you have to have a real reason before you buy anything. I'm hungry, is not a reason. Hey, I'm always hungry and can eat, but I don't. Schedule when you are going to eat and eat well, this will curb your impulse to buy a candy bar, five dollar coffee, or eat junk food that will make your bathing suit, fit a little too tight. What are you spending money on each day? If you don't know what you are spending money on, you'll never know how to modify your spending. The quicker you stop buying without thinking, the sooner you'll have more money in your wallet. Why do you think all the gas stations have counters of goodies and coolers of beverages, it's because they know you are trained to impulse buy. Now, and I mean right now, put yourself on a budget. We have to fix the leak before we can mop up the mess. Be reasonable with your budget, you're in charge and you are responsible. This leads us to responsibility. You and you alone are responsible for your current situation. It's not the government, the price of gas, your job, your spouse, your education, or your neighborhood. It is you and you alone. To sum up what you have to do right now; 1) Take responsibility for your life. 2) Adjust your mindset from working to becoming wealthy. 3) Stop the impulse buying habit. 4) Know what you are spending your money on. 5) Create a budget that you can handle with just mild discomfort. Now we'll dig out of the whole you have dug. When there's too much month left when you run out of money, you have to make a radical adjustment. 1) Liquidate everything that you possible can to raise cash. You can buy a new version of whatever it is that you sell once you build your personal empire. For now, sell and raise cash. Don't take this lightly. Rather than having a modest garage sale, run ads, approach people that you know or know have an interest in the things that you have. An extra television for the kids' room, an archery set for the sportsmen, your coin, bottle, and plate collection should all go. If you just said no, you're missing the point. If you want out of this downward spiral of debt, you have to get liquid. You've collected it for years, now it's time to cash in. Since it is painful to sell a collection, it should be more painful spending the money that you get from selling it on things that you really don't need. 2) Eliminate the payments. I'm not saying reduce, I'm saying eliminate. You want a vehicle that you own, not one that is a negative cash flow alligator. Work out an arrangement with a neighbor or relative so that you can share one vehicle between you. 3) Go for the big money. Just because you are selling things that you own, doesn't mean that you have to give them away at dirt-cheap prices, hold out and get the money, unless you are that desperate. 4) Those little monthly memberships and subscriptions have to go. Sell or terminate your gym membership, you can bench press a sack of potatoes. How much are you spending on subscriptions, memberships, cable, lawn care, pool service, trash service, and baby-sitting? Are you talented? Do you have more skills and intelligence than you are being compensated for? Does your job just make you want to throw in the towel, because you hate it so much? Clean up, write a new resume' and get a better job. You need to increase your money supply. 1) You can beg for a raise. 2) Do nothing. 3) Get a second job. 4) Get off your behind and get a better job. 5) (My favorite and the easiest.) Reduce the amount of money that you spend on a daily basis. 6) Do a combination of the above 5 items. In closing, I'll tell you simply; hard times come into all of our lives. You can sit and complain, adjust your lifestyle, increase your income, decrease your expenditures, or make a serious plan to live better on less and give up the useless frills. Watching television probably won't help you earn more, but it will help you escape, but when the alarm goes off in the morning, it's the same world. If you are lazy and full of excuses you will probably go down, but if you are smart, willing to make some adjustments, and can see that it really isn't that hard with a little discipline, you'll do fine. All your big creditors will work with you to help take the monthly pressure off, but if you see the brick wall coming, do something now... don't wait until after you crash. Even if you move in with your in-laws, just swallow the humility and promise yourself that once you're out of the predicament, you're never coming back to destitute flats. Lazz Laszlo is a former Investment Executive and Radio & Television Financial Reporter with many entrepreneurial endeavors to his credit. He spends his time as an emcee, public speaker, enjoying life and writing articles and eBooks about business, travel, retirement, strategy, and pleasure.




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