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Capitalizing on the Used Market

November 2009, F&I and Showroom - Feature

by Ronald J. Reahard - Also by this author

We hear the same complaint in classes, workshops and F&I offices all over the country: “How can I make any money in F&I when all we’re selling is used cars, half of which are certified, and the other half aren’t even eligible for a service contract?” Hey, want some cheese with that whine?

Every time I hear these complaints, I think of that line Meg Ryan once uttered: “People are always telling me that change is good. But all that means is that something you didn’t want to happen — has happened.”

In virtually every dealership today, there has been a significant shift in the volume of new vehicles versus used vehicles. In the past, the typical new-car dealer sold one used vehicle for every new vehicle sold. Today, many dealerships are selling two, three, or even four used vehicles for every new vehicle delivered. Many dealers who lost their franchises in the GM and Chrysler bankruptcies have remained in business, but now sell only pre-owned vehicles.

Due to our current economic downturn and stricter lender guidelines, a lot of former new-car consumers are now being forced to buy used vehicles. As a result, a lot of F&I managers are experiencing a huge drop in both their product penetrations and income per retail unit. In other words, something we didn’t want to happen has happened.

Fewer new-car sales and more used-car sales does not have to mean a reduction in F&I income per retail unit. It does mean you need to find a company that offers a high-mileage service contract and extended coverage for certified vehicles. It may require adding another F&I product such as biweekly payments, or becoming better at selling the products you already have at a higher profit. In times like these, F&I professionals adapt and overcome. They look for ways to improve their odds, hone their skills, and maximize every profit opportunity. What they don’t do is make excuses.

‘Want To’ vs. ‘Have To’

With a pre-owned customer, it’s important to determine if you have a “want-to” or a “have-to” buyer. In other words, are they buying a used vehicle because they want to, or because they have to? There is a big difference between a doctor buying a five-year-old, high-mileage used car for her teenage son — who she knows will wreck it sooner or later — versus an hourly worker replacing his 15-year-old clunker with a five-year-old, high-mileage used car because it’s all he can afford. While both customers are buying the same vehicle, the doctor is paying cash. The hourly worker needs you to hold a check for the down payment until he gets paid next Friday.

Every customer is unique. While some pre-owned customers could easily afford a new car, they choose to buy used to save money, or reduce the amount of depreciation. Others buy used because it’s all they can afford. Different customers have different needs. Products that may be important to one customer may have little or no value for the next customer.

Needs Discovery

Needs discovery is the foundation upon which we have to build the sale of every F&I product. Whether or not you’re able to sell a pre-owned customer anything depends on the quality and size of your foundation. The whole idea of needs-based selling is to show a customer how a product will benefit them. It’s not about spewing verbal vomit in the form of memorized word-tracks and a generic sales pitch.

We have to discover a need that each F&I product will fill or a problem it will solve before it is presented. Doing so gives us a basis for talking about the product with the customer. In order to do that, we have to utilize open-ended questions and engage the customer in a discussion to answer that all important question — “Why does this customer need this product?”

For that wealthy doctor buying the used car for her son, financing would help her 18-year-old son establish credit, which is going to be important when he needs to get his own car insurance, credit card, or student loan. Plus, when he has that accident, which we both know is going to happen sooner or later, guaranteed asset protection (GAP) will allow her to transfer the risk of excess depreciation from herself to the GAP provider.

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