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Beware False Prophets of Profit

‘Da Man’ says it’s time for dealers to stop believing in the flawed logic that says it’s impossible to make a profit in today’s Internet age.

September 2011, F&I and Showroom - Feature

by Jim Ziegler

There are so many defeatists in our industry telling you that it’s impossible to make gross profits on car deals because of competition and the information available to today’s car shoppers. Personally, I think that’s ridiculous. I refer to those naysayers as the “prophets of low profit.”

As a general manager, dealer principal or general sales manager, there are several adjustments you can make to the way you negotiate with customers that will dramatically increase your profitability. Let’s review four simple changes that can have an immediate impact:

Stop apologizing for making a profit: Full price is a fair price, especially on new cars and trucks. Dealers are operating with less than 6 to 8 percent markup on new cars and trucks, while furniture and jewelry stores are allowed to mark up their products 300 percent without a complaint.

The root of most blown deals and lost profits is a premature discussion about figures. Salespeople, you need to stop this, because what you’re really doing is giving away all the profit before management is even aware of the customer or the deal.

Stop qualifying on anything but income and credit: The main reason you’re not as profitable as you should be is because your salespeople — and, in some cases, even your managers — are overqualifying customers with all of the questions they’re asking. By asking questions that are basically designed to find out why they can’t buy, all you’re doing is disqualifying your customer rather than qualifying.

So, instead of finding out how much they’d like to pay, how much they have budgeted and how much they want for their trade, try asking your customers if they can afford the vehicle they want and whether their credit report agrees.

Think about it: Are customers really going to tell you the highest amount they can pay, or the least they’ll take for their trade-in? Remember, customers have a strategy, too.

Profit is a state of mind: The biggest problem with asking too many questions is it tends to saturate the salesperson’s mind with every reason why the deal won’t get done. That kind of thinking tends to rub off on the sales manager, who then gets gun shy about pulling the trigger on the deal.

Think about this: Isn’t it amazing how much higher our current gross per unit is these days because of the shortage of quality used vehicles? Customers are paying a premium for pre-owned cars, which allows us to hold a higher profit, right? My question to you is: Why weren’t you able to do that all along? Well, because it’s all about one’s mental state.

See, it’s important that customers see our numbers before we delve too deeply into what they want to pay. Try this line: “Mr. Customer, we prefer to make the first proposal to you. Let’s wait and see what management offers before you tell me what you have in mind.”

No matter what they believe or say, customers are going to want to negotiate. And you can bet they brought their “A” game to the table. See, there’s no such thing as a no-haggle dealership. Every deal moves the numbers somewhere, even if it’s just a second look at the trade.

Never ask how much they want to put down: Down payment is the key to profit and getting more deals approved. Never ask a customer how much down payment they have. Instead, tell them how much they need before you hear their number. Here’s an example of what I mean:

“Mr. Customer, as you know, the banks in our community and ABC Captive Credit would like to see 20 percent cash down for preferred and premium financial programs. In your case, we’d like to get a check for $3,824.”

By using this method, customers will negotiate your number down instead of you having to bump their number up. It’s also a much more customer-friendly approach.

Again, most blown deals are the result of sales staffers being afraid of the numbers or overqualifying customers. Remember, every deal has a heartbeat with a rhythm and a pulse, so you know when it’s still alive and when you’ve lost it. The key is confidence, because a lack of it is like blood in shark-infested water. So, be sure of yourself and follow the advice I laid out, because it really is OK to make a profit.

Jim Ziegler is the president of Ziegler SuperSystems Inc. E-mail him at jim.ziegler@bobit.com.

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