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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Pharmacists As Models: Medicine, Technology and Finance
Students who are making college and career decisions should know that working with medicine, technology and finance are respectful ways to make a difference in his or her community. In fact, proficiency in these three areas allows workers to better support patients by providing better services at lower costs through easier access to information. It can also bring comfort to a community as word gets out that a certain professional with these blended skills is offering help to his or her community. Students planning to enter health care can learn much about the total industry by studying pharmacists.
Pharmacists are important for a variety of reasons including their ability to keep patients aware of medical supports that are available. They also assist in ensuring that appropriate medications are dispensed and reducing prescription errors. Technology helps pharmacists keep track of patients and their medical needs. It also helps track all the medications a certain patient might need.
In neighborhood pharmacies, pharmacists dispense medicine, advise customers on the use of various medications, and actually advise doctors about medication therapy. Pharmacists are also very important researchers as pharmaceuti¬cal manufacturers develop new drugs. Pharmacists are often involved in testing the effects of drugs before they are approved for widespread distribution. Others work to promote products, providing customers with advice on use, effectiveness, and possible side effects.
To E or Not to E? That Is the Question
Today's students are naturally compelled to use technology. This could be beneficial to the future of health care. "Despite the spread of increased internet availability, e-commerce, and a whole system of global communication made available by the internet, many doctors seem reluctant to offer online services to their patients" (Hodai, 2007). There are many people (not just doctors) who don't use technology routinely. This may be because some haven't prioritized technology as a necessary tool for work in everyday life. They may prefer sticking with basic applications that they consider to be helpful in performing routine tasks.
"According to a 2006 survey conducted by Manhattan Research, only 25 percent of doctors said that they had any internet communication with their patients. Some doctors are reluctant to conduct an online relationship with patients because they fear that they will be inundated with patient e-mails..." (Hodai, 2007). Doctors and patients can have appropriate relationships supported by the use of technology that creates, organizes, manages, and contains patient information. Doctors should be a part of organizations of other medical professionals that create and follow specified controls and procedures to limit security breaches or irritating situations such as being overwhelmed by e-mails and other information.
New Requirements for the Future
The federal government has recently initiated efforts to modernize processes used to maintain medical information in the United States. According to Pat Arlotto (n.d.), there are seven strategies healthcare organizations should adopt to prepare for the implementation of the Health Information Technology for Economic and Clinical Health Act (HITECH):
• Build HITECH awareness (i.e. HITECH requirements should be reflected in the organizations plans, staff members and systems should be aligned with HITECH, and procedures for training staff and measuring effectiveness should be in place.)
• Invest in a transformation infrastructure (i.e. the organization's leaders should lead transformation from old systems)
• Build clinical informatics expertise (i.e. train practitioners to understand the new relationships among reimbursement, better quality, and clinical systems)
• Develop a business intelligence strategy (i.e. creating new knowledge by collecting, managing, analyzing, applying data)
• Invest in physician business services infrastructure (i.e. revenue management, human resource management, practice management, credentialing and EHR deployment, and operations support)
• Explore a medical trading area health information exchange (i.e. CEOs, CFOs, CIOs, and chief medical officers from key MTA provider organizations share information and lessons learned to optimize system-wide functioning)
• Design an e-strategy for engaging patients (i.e. building a culture of patient health self-management via the new technology)
Following the lead of Medicare and Medicaid, some commercial payers plan to develop pay-for-performance programs that base payment to providers partly on whether they demonstrate appropriate use of electronic health records (EHRs).
It is important for administrators, technology staff, and finance staff in hospitals to work as a team to implement new systems that use technology to maintain records. If only one person or department is assigned responsibility for the EHR process, there is a greater chance of poor communication, ineffective organization, and problematic data quality. This translates into higher costs and waste. Ultimately, all of this affects the quality of patient care. In some health organizations, however, the CIO is solely responsible for HITECH readiness. Given the long-term implications of efficient use of EHRs on revenue, however, many organizations require that the CFO also understands and is involved in HITECH readiness.
Pharmacists are Pioneers
As stated earlier, patients have benefitted from ways in which pharmacists have already linked technology to record keeping and quality care. Most pharmacists already maintain confidential computerized records about patients' prescription histories. This prevents harmful drug interactions that many times doctors are unaware of. Pharmacists ensure the accuracy of every prescrip¬tion that is filled, but often rely on pharmacy techni¬cians who assist in dispensing medications. Due to pharmacists demonstrating the three skills discussed, patients perceive an immediate and full effect of quality health care. Good relations among pharmacists and patients give patients confidence in not being over-medicated or over-charged. They also feel that having one pharmacist as the reviewer of prescriptions (that could come from several doctors) reduces the risk of taking medications that may be harmful to them. Today's technologies more strongly enable pharmacists to be advocates for patients in these ways. HITECH can make this happen throughout the health care industry, and tech-savvy and business savvy students will fit well in this new environment.
HITECH is of significant importance within the ranks of health care administrators. Pharmacists can inform HITECH policy in valuable ways. Pharmacists, naturally, have a broad view of health care administration. Pharmacists "advise their patients, physicians, and other health practi-tioners on the selection, dosages, interactions, and side effects of medications..." (U.S. Bureau of Labor Statistics, n.d.). In hospitals, pharmacists sometimes advance to supervisory or administrative positions.
Many people believe there are benefits to improving health care management through the use of technology because of the efficiencies in managing funds and patient records. With new technologies and procedures, patients and those who care for them will benefit from more informed relationships and improved quality of care. HITECH paints a clear picture of things to be expected of those entering the health care industry in the future.
References
- Arlotto, P. (n.d.). 7 strategies for improving HITECH readiness. Retrieved November 10, 2010, from http://www.hfma.org/Templates/InteriorMaster.aspx?id=23547.
- Hodai, B. (n.d.). Conventional medicine astonishingly slow to adopt online technology, e-mail. Natural News.
- U.S. Bureau of Labor Statistics (n.d.). Pharmacist. Retrieved November 9, 2010, from http://bls.gov/.
Colleen N. Nelson