If you have read more than one of my previous blog posts, you are fully aware that I am a lover of profit. I know 2015 is about to wind up being the highest volume new car sales year in the history of the U.S., but it is profit that gets us paid and keeps the doors open.
So where does that profit come from? For the dealership, there are programs even on the heavily-discounted new cars that allow them to put profit in the vault, and a well-ran service department can provide substantial profit as well.
For the salesperson, though, these two areas do little to add to our paychecks. Sure, you will have the opportunity to hold gross on a new car or hold a customer to a trade allowance under A.C.V., but with manufacturers like GM advertising month-long Black Friday deals and Ford with the Friends and Neighbors (X-Plan) for everyone, that is getting increasingly more difficult. Your greatest opportunity is selling used cars, specifically those you and other sales professionals at your dealership trade for.
Why Trade-ins?
It is likely that your used car inventory is made up of a mix of vehicles that were traded in by your customers and vehicles that were purchased at auction by your general manager or used car manager. Despite the fact that every manager who is responsible for making these auction purchases believes they have the golden ticket to profitably buying used cars, the truth is that of the 8 buyers I have worked closely with during my time in the car business, only one consistently bought profitable units. I'll be able to explain why a little later on.
Oftentimes, those fantastic auction purchases arrive with problems that generate a very high service bill. This is no problem for the dealership, but they'll gain the profit through their service department fixing the car. For the salesperson, however, this means slim margins.
Cars that are traded in, though, can be a little better inspected, and you and the other sales professionals in your dealership have the opportunity to ensure you buy it for a price that takes the impending service bill into consideration and allows for the vehicle to be reconditioned to stand tall on your lot and have a margin for profit.
Know Who is Trading For What
As I mentioned before, one way to add profit to a new car deal is to work a deal where the customer trades their vehicle for less than the value that your used car manager determines it to be worth (A.C.V.) Some salespeople have gotten very good at this, and you need to know who those people are in your dealership.
Here's a scenario that explains why this is important. Sales Pro Adam has a customer trading in a 2010 Honda Accord and so does Sales Amateur Paul. Both Hondas are worth $10,000 according to the used car manager, and both are given initial valuations to show the customer of $9,000.
Sales Pro Adam is great at convincing his customers that his manager's valuation is market-based and more than fair. They settle on $9,500, Adam adds $500 to the gross profit on his deal, and the dealership initially owns the Accord for $10,000.
Sales Amateur Paul, however, is not able to confidently present the number, and a customer who came in believing his car was worth $12,000 is offended by the $9,000 offer and "definitely won't take less than $11,000." After about an hour of haggling, the customer agrees to take $10,500. With all of the discounting out in the open on the new car, there is no room to overallow on the trade value so the used car manager bumps his appraisal to $10,500. The 2010 Honda Accord may actually be worth that, but that is an extra $500 in profit you will have available for you if you sale the car Adam took in on trade, instead of the car Paul traded for.
The CPO difference and Premium Makes
Most used cars these days are financed. That being the case, you need to know which vehicles will qualify for the highest amount of financing compared to what the dealership's cost of the vehicle is. No dealership is going to open their books to you and show you the cost of every used car in their inventory. There are, however, a few categories of cars you can often assume are going to meet this requirement.
The first is Certified Pre-Owned Vehicles. Typically, the manufacturer's finance company has agreed to offer higher advances on certified units (allowing the buyer to borrow 130% of the vehicle's value as opposed to 120%, for example.) That, coupled with the fact that most used car buyers leave room in their budget to purchase an extended warranty - and usually do just that after they have worked you for all of your profit and step into the finance office - means that these cars with their built-in warranties have more value in the eyes of the buyer and you can close them at a higher payment, keeping more of the profit on the front-end and in your pocket.
The other group is what is known as "premium makes" in the eyes of the finance companies. This is the same idea the certified units, but the higher advances are available through banks other than the manufacturer's finance company. These brands tend to be your imports like Honda, Nissan, Toyota, and Hyundai, but check with you dealership's finance office to get a full list. These vehicles can be sold for higher prices, higher payments, and if they are not certified, may be owned for less than a similar certified option.
You won't have a killer deal on every used car, you are going to have some "minis," but if you are able to keep these rules in mind, you are more likely to make the right vehicle selection to put at least one or two $500-$800 commissions each month. Could you use an extra $7,000-$10,000 over the next year?
So where does that profit come from? For the dealership, there are programs even on the heavily-discounted new cars that allow them to put profit in the vault, and a well-ran service department can provide substantial profit as well.
For the salesperson, though, these two areas do little to add to our paychecks. Sure, you will have the opportunity to hold gross on a new car or hold a customer to a trade allowance under A.C.V., but with manufacturers like GM advertising month-long Black Friday deals and Ford with the Friends and Neighbors (X-Plan) for everyone, that is getting increasingly more difficult. Your greatest opportunity is selling used cars, specifically those you and other sales professionals at your dealership trade for.
Why Trade-ins?
It is likely that your used car inventory is made up of a mix of vehicles that were traded in by your customers and vehicles that were purchased at auction by your general manager or used car manager. Despite the fact that every manager who is responsible for making these auction purchases believes they have the golden ticket to profitably buying used cars, the truth is that of the 8 buyers I have worked closely with during my time in the car business, only one consistently bought profitable units. I'll be able to explain why a little later on.
Oftentimes, those fantastic auction purchases arrive with problems that generate a very high service bill. This is no problem for the dealership, but they'll gain the profit through their service department fixing the car. For the salesperson, however, this means slim margins.
Cars that are traded in, though, can be a little better inspected, and you and the other sales professionals in your dealership have the opportunity to ensure you buy it for a price that takes the impending service bill into consideration and allows for the vehicle to be reconditioned to stand tall on your lot and have a margin for profit.
Know Who is Trading For What
As I mentioned before, one way to add profit to a new car deal is to work a deal where the customer trades their vehicle for less than the value that your used car manager determines it to be worth (A.C.V.) Some salespeople have gotten very good at this, and you need to know who those people are in your dealership.
Here's a scenario that explains why this is important. Sales Pro Adam has a customer trading in a 2010 Honda Accord and so does Sales Amateur Paul. Both Hondas are worth $10,000 according to the used car manager, and both are given initial valuations to show the customer of $9,000.
Sales Pro Adam is great at convincing his customers that his manager's valuation is market-based and more than fair. They settle on $9,500, Adam adds $500 to the gross profit on his deal, and the dealership initially owns the Accord for $10,000.
Sales Amateur Paul, however, is not able to confidently present the number, and a customer who came in believing his car was worth $12,000 is offended by the $9,000 offer and "definitely won't take less than $11,000." After about an hour of haggling, the customer agrees to take $10,500. With all of the discounting out in the open on the new car, there is no room to overallow on the trade value so the used car manager bumps his appraisal to $10,500. The 2010 Honda Accord may actually be worth that, but that is an extra $500 in profit you will have available for you if you sale the car Adam took in on trade, instead of the car Paul traded for.
The CPO difference and Premium Makes
Most used cars these days are financed. That being the case, you need to know which vehicles will qualify for the highest amount of financing compared to what the dealership's cost of the vehicle is. No dealership is going to open their books to you and show you the cost of every used car in their inventory. There are, however, a few categories of cars you can often assume are going to meet this requirement.
The first is Certified Pre-Owned Vehicles. Typically, the manufacturer's finance company has agreed to offer higher advances on certified units (allowing the buyer to borrow 130% of the vehicle's value as opposed to 120%, for example.) That, coupled with the fact that most used car buyers leave room in their budget to purchase an extended warranty - and usually do just that after they have worked you for all of your profit and step into the finance office - means that these cars with their built-in warranties have more value in the eyes of the buyer and you can close them at a higher payment, keeping more of the profit on the front-end and in your pocket.
The other group is what is known as "premium makes" in the eyes of the finance companies. This is the same idea the certified units, but the higher advances are available through banks other than the manufacturer's finance company. These brands tend to be your imports like Honda, Nissan, Toyota, and Hyundai, but check with you dealership's finance office to get a full list. These vehicles can be sold for higher prices, higher payments, and if they are not certified, may be owned for less than a similar certified option.
You won't have a killer deal on every used car, you are going to have some "minis," but if you are able to keep these rules in mind, you are more likely to make the right vehicle selection to put at least one or two $500-$800 commissions each month. Could you use an extra $7,000-$10,000 over the next year?