A Unique Approach To Car Buying
R. L. Bowman
Copyright © 2011 R. L. Bowman
No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior consent of the publisher.
The Publisher makes no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. Neither the publisher nor author shall be liable for any loss of profit or any commercial damages.
2011-10-20
Dedication
I dedicate this book to my Wife, Erma. Belief is a rare quality. She has always believed when others did not. Belief can become Reality.
Acknowledgements
I would like to recognize the many friends and family that took part in the creation of this book. It is my opinion that no great accomplishment in One’s life was ever created alone.
I thank everyone that took time out of their busy lives and schedules. All of you, in some way, have assisted in providing insight for the message this book contains.
In addition, I would like to thank my Publisher. They have endured the countless inquiries I have made during the creation of this book. I could not have turned a “simple thought” into “reality” this without their direction and support.
Introduction
This book is quite a bit different from any other book you may have read on the subject of “How to buy a car.” It was not written in anticipation of winning literary awards or establishing myself as a “Best Selling Author.”
With over twenty years of experience in the retail sales / automobile industry, I have held positions from the Top Sales Person, Finance Manager, Sales Manager, Finance Department Director, and General Sales Manager.
I have written this book in the same way that I’ve helped numerous friends and family purchase new and used vehicles, saving them thousands of dollars. I have also written this book assuming you know nothing about buying a car or the process.
As you begin to read his book, you may feel, as many of my friends did, that I am taking the side of the dealership because I’m not “bad mouthing” them, their tactics or practices. The truth is quite the opposite. I feel that it is time to speak the truth and reveal both sides of the equation. This includes the mistakes most customers make in car deal negotiations.
There have been many books written on this subject. Most of them, in my opinion, have been written by disgruntled ex-employees, that probably weren’t very good at what they did, and decided to “get even” with the dealerships by “divulging the hidden secrets” of the car business. The advice that they give creates a negative, adversarial relationship from the beginning. Nothing positive was ever created out of negative.
The approach that will be laid out in the following chapters is based on an understanding of how dealerships operate, profit and the selling systems they incorporate to sell you a car. This information is vital to your success. Most books on this subject usually never address this topic.
So many times I’ve listened to people claiming that they “beat up the dealership.” In most cases that’s just not true. Who do you really think is better at negotiating a car deal? Is it the guy that does it once every three years? Or the guy that does it five times a day? Car buying is an emotional purchase. The dealerships know that very well, and trust me; they use it to their advantage.
The purpose of this book is to understand how dealerships function. If you understand how they think and conduct business, it puts you on a level playing field when you are negotiating your car deal. In the following chapters you’ll learn how dealerships operate, profit, and how the selling systems work.
The second half of this book switches gears. Those chapters are devoted to showing you how to use the dealerships selling systems to your advantage. Also, I’ll explain what motivates a dealership to sell a vehicle thousands below their cost. Yes, I said below cost! It’s done every day. Read on and I’ll show you how and why.
How Dealerships Operate and Profit
Let’s start with understanding how dealerships operate and create profit. Most people don’t understand or even care how dealerships function as a business; that lack of understanding can be costly in the long run.
You may be thinking, “What does this have to do with buying a car?” An understanding of how a dealership functions as a business provides insight for possible future motivations the dealer may have for selling a car below cost, potentially saving you thousands.
A dealership’s operation is divided into three segments or departments; the Sales Department, Service Department, and Parts Department. Most people think that the Sales Department is the largest profit center for a dealership . In most cases, this is not true. Most Dealers consider the Service Department the largest profit center.
When you visit a dealership, look at the building. Look at the amount of square footage that is devoted to each department in the building. In most cases, the Service Department is allocated a larger percentage. The concept is “dollar profit per square foot.” Service Departments function as the profit center to cover the dealerships overhead.
A majority of people think the Sales Department generates the most revenue. They believe there are thousands and thousands of dollars of profit in every vehicle on the lot. The truth is, in today’s market that is not quite true. A dealership considers the profit from the Sales department as “gravy.” The Sales and Parts Departments exist to feed the Service department, the back bone of the dealership operation.
So, how is profit created in each one of these departments? Let’s start with the Sales department. I’d like you think of the Sales department as a type of investment, like the Stock Market. You make investments in different stocks, different industries, and the goal is to create a profit, buying low and selling high.
Not every stock you pick will accomplish that goal. Some of those stocks may lose money, and in some cases, you may sell them off at a loss. You may reinvest what’s left in another stock and realize a profit, Right?
The Sales department at a dealership is very similar. Instead of stocks, a dealer will invest in vehicles or what are called “units.” They will buy all different types of units, usually based off of past sales performance or what is referred to as a “sales model.”
New units are allocated to the dealer by the manufacturer, using that sales model. Used units are obtained from various sources, such as the auctions or units taken in on trade, again, utilizing the sales model.
Not every sales model is perfect. There may be shifts in customer needs, such as unanticipated rises in gas prices. This could possibly affect the sales of trucks or S.U.V.’s that were proven past performers. But what if the investment was already made prior to the shift in needs?
Usually, the unit sits on the lot waiting for a buyer. The longer the unit sits on the lot, the less potential profit will be realized. Vehicles are a little different than stocks. They are considered depreciating assets. New, as well as some used units are financed or “floored” through the dealership’s bank. Some examples of flooring banks would be Ally Bank, formerly GMAC, Ford Motor Credit or Toyota Motor Credit.
These flooring banks finance the units for the Dealer. Usually there is a grace period, such as sixty days, where no payment on inventory is due. This gives the dealer time to sell the unit, realize a profit, and pay off the flooring bank when the unit is sold.
If it goes beyond the sixty days, used in this example, the Dealer pays a flooring charge against that unit. This would reduce