Cash Is King Cash And Shorter Term Financing Support Profit

Vehicle manufacturers, in an attempt to sell more cars while limiting rebates, have been promoting a one-price strategy . . . to give your customers a better deal! If your sales personnel are unfamiliar with the one-price system, they are probably falling short and are unable to negotiate the vehicle price properly, to their advantage. Too often, they attempt to back into the deal by working payments and down payments on the lot. They begin to qualify their customers by asking them what payment or down payment they have in mind. They expect their customers to tell them the truth—to tell them exactly what they need to know in order to sell them a car. We all know this won’t happen.

Customers read articles in their daily newspapers and on the Internet in an effort to learn how to buy a car more effectively. Before they step foot in your dealership’s showroom or on the lot, they know how they are going to go about it. Your sales personnel need to be as informed as these customers. Savvy customers are not going to tell your sales personnel how much they are planning to put down on the vehicle of their choice. Even the lay downs are smarter than that! Their natural response will be, “Do I have to put anything down?” Not a good way to start out, if your goals are to sell more cars at a greater profit.

Teach your sales personnel not to discuss payment, down payment, and terms on the lot. Doing so will ultimately sabotage profits and potential sales. Instead instruct them to qualify buyers, through casual conversation of vehicle features and benefits. Establishing a common bond with their customers is the most effective method. By asking the customer if they live in the area, how long they have been a home owner or renting, if they currently have a vehicle they are financing and, if so, with whom, if they are locally employed and what they do for a living will allow you to gather the most important information. It’s not important to learn what payment or down payment these customers might have in mind for a new or used vehicle. It is far more important to learn if the customer can buy a car and the answers to these questions will establish that.

To increase income in sales and finance, dealers must endorse a process that keeps sales personnel on track. Not only should sales personnel be taught to avoid quoting figures on the lot, they should not be allowed to dictate or negotiate the sale to their sales managers. A consistent process supports a presentation without prejudice and is very similar to menu selling, where all options are offered to the customer 100 percent of the time. In a one-pricing dealership, the price cannot be negotiated; however, the trade can be presented at fair market value, with payments of 48 or 54 months . . . and with a 20 percent down payment! Yes, you read that correctly, a 20 percent down payment with shorter term payments. Do not present longer term options with no money down and expect to maximize profits.

Payment options are figured on an established average rate factor and not on a tier-one basis. Your sales manager can no longer bank on their customers having superior credit and on penciling payments using tier one financing. Dealership personnel should learn the customers’ payback history prior to quoting any tier-one or lease options. Dealership personnel shouldn’t allow customers to dictate the sale because the customer will undoubtedly counter offer with less than was originally discussed. Doing so will cause your profits to remain static.

Unless you just don’t like making money, make it policy to use shorter terms (less than 60 months), when presenting payment options to customers. Remember, no matter what the vehicle price, down payment, or monthly payment presented, your customer will certainly make a counter offer. It makes sense to begin negotiations with terms that are to your benefit and reasonable. The only reason you won’t be able to present payment options of 48 and 54 months, with a 20 percent down payment, is if your sales staff has already discussed finance options on the lot. The sales person will then be dictating to your sales manager or finance manager how to pencil the worksheet and the loss of sale or gross is eminent.

Are you already feeling the pain? If you call a meeting to inform your sales staff of your 2006 policy of no payment, down payment or finance options on the lot, they will respond with a litany of old arguments. They will tell you that the marketplace is too competitive and customers will never agree to a cash down payment. Nothing could be farther from the truth. If you ask for it, you will get it. Your sales staff may claim that every customer wants their payments at 72 months. Again not true, no one wants to be in debt for six years if they can they can afford it in four. Your sales people may roll their eyes and complain to each other of losing creditability with their customers, if they are not allowed to talk about payment and terms on the lot, additionally they will try dictate to your sales manager what terms should be presented to the customer. They will insist that many of their customers step out of the car on the lot and state that they want to be at $350 a month, with no money down and 72 months, because the dealer up the street told them it was possible!

Don’t listen. Be firm. You’re establishing a new policy to be enforced because it’s the best policy that will increase sales and profits immediately if followed 100 percent of the time! Allowing your sales personnel to call the shots minimizes your sales and earnings. Ironically, this is the norm for stores that are struggling to sell cars or that report less than average backend profits. Instruct your sales personnel to always begin negotiations in the store, with shorter term options and with a minimum of 20 percent cash down. Remember, cash always solves problems. More cash down lowers payments and improves your likelihood of having the advance picked up by a bank.

Instruct your sales personnel that shorter term financing offers several advantages to customers, too. It puts them in a better trade cycle, allows them to build equity faster, and encourages the budgeting for additional products. Shorter term financing with down payment builds profits and creates a win-win situation for your dealership and your customers. Try it. There is no such thing as humbug!

Vol 3, Issue 2