So you’re in the market to purchase a new or used vehicle, and you’re contemplating on whether to trade your vehicle into the dealer or sell it yourself privately. Most people know that a car dealer is only going to give you trade value, or wholesale value for your trade-in verses getting retail value by selling it privately. The question is how much is the difference between what the dealer will give you and selling the vehicle privately? $500.00? $1,000.00? $2,000.00? or even more? Suffice to say, if it was only a $500.00 difference or $1,000.00 difference then trading the vehicle into the dealer would probably make more sense.

Let’s look at an example: Suppose you were trading in a 2009 Honda Accord 4 Door LX with an automatic transmission with 36,000 miles. According to NADA online, the retail value on that vehicle is $16,000, and the wholesale or trade-in value is $13,000 assuming the vehicle is in pristine condition. Based on those numbers, if you could get $3,000.00 dollars more by selling the vehicle yourself then that would pretty much be a no brainer. But now the question is can you get $16,000 for the vehicle by selling it yourself?

A cursory look on Autotrader.com revealed that most dealers were listing that vehicle for about $16,900. The key word there is “Listing” or asking price. Are they selling for $16,900? No. So how much will a dealer discount that vehicle? It varies from dealership to dealership, but it’s logical to think that if push came to shove, you could get the car for $14,900 or even less. Even at $14,000 the dealer is still making money, but of course they would most certainly want to sell the vehicle for closer to $16,000. The next question is, “What can Mr. Consumer sell that vehicle for if he were selling it privately?” Let’s say he could get $15,500.00 which would be $2,500.00 more than what the trade-in value is from the dealer. For $2,500.00 more from a private sale, I’d have to say that falls into the “No Brainer” category. But, is the net difference really $2,500.00? There are basically 5 reasons why the differential is probably closer than you think. Lets break it down…

“Get The Vehicle In Tip Top Condition”

First of all, to get top dollar retail for selling the vehicle privately, the vehicle must be in near perfect condition. When a dealer takes that vehicle in on trade, they are going to recondition the vehicle so that by the time they are done with that process, the vehicle looks brand spanking new. Their average investment in reconditioning cost is about $500.00-$700.00. If the vehicle needs tires, they will put a new set of tires on the car. If it has minor dings in the door panels they can have those taken out without painting the car. Long story short, if you’re going to sell your vehicle privately and get top dollar retail, it needs to be in near perfect condition. In other words you’re going to put some money in the car to get it to that point. If nothing else, you’d probably have to spend a few hundred dollars to have the vehicle professionally detailed.

“Advertising The Vehicle For Sale”

In order to sell your vehicle privately, you’ll have to place a ad to find someone that will be interested in making a purchase. How much will that cost you? Not a whole lot, but placing a ad brings with it additional issues. First of all, you pretty much have to turn into a salesperson to sell your vehicle. You have to answer phone calls and emails. Then you have to set appointments for people to come look at you car. Just like in a dealership, when people set appointments to come in and look at a vehicle, they don’t all show up. So you’d have to deal with “no-shows” as well. Time is money so you’d have to factor in a monetary amount for your time of setting appointments and showing the car.

The other factor that comes into play is who’s coming over to your home to look at your vehicle? Are the people that are coming over to look at your vehicle really interested in the vehicle or do they have ulterior motives? Your home and family is priceless; enough said there.

“Depreciation” 

Your used vehicle will never be worth more than it is today hence used vehicles drop in value on a daily basis. If your vehicle is close to passing a threshold (i.e., going from 49,000 to 50,000 miles) in terms of mileage, the value of the vehicle could drop by several hundred (or even a thousand) dollars. It could take up to 90 days to sell the vehicle, and there are no guarantees that it will even sell.

“Tax Savings”

The biggest savings of trading your vehicle into you local friendly neighborhood car dealer could be the potential tax savings. When you trade your vehicle, you’re only taxed on the trade difference (in most states). So in other words, let’s say you’re looking at making a purchase on a $25,000.00 vehicle. Assuming a tax rate of 7%, your taxes on a $25,000.00 vehicle would be $1,750.00. Using the 2009 Honda Accord LX, and a $13,000.00 trade value, the taxable amount would only be $12,000.00 ($25,000.00 minus the trade of $13,000.00 equals $12,000.00). Taxes on $12,000.00 at 7% would only be $840 or a net savings of $910.00.

“Leverage For Making The Deal”

You could use your trade-in as leverage of making a deal a deal. If you make the purchase without the trade, the only negotiating power you have is on the new or used vehicle. Factoring the trade into the equation gives you the potential to make a better deal especially if you have a nice trade that the dealer would want on their lot. You can leverage your trade to get a better overall deal.

“Conclusion”

It makes more sense to trade your vehicle in almost all cases. You could net out more by selling it yourself, but there are no guarantees. You could miss out on a better deal. How much could that cost you? You’ll miss out on the tax savings. How much will that cost you? You have to place ads and pay for getting your vehicle in tip top condition. How much is that worth? No worries about depreciation; another savings.

If you sell a product or service, closing more sales equates to making more money which opens the door to myriad opportunities both good and bad. The good is the additional income allows you with more money to buy the things you need and want. Maybe it’s an avenue for that special trip you’ve dreamed about. Maybe it’s a car you’ve had your eye on, or perhaps it’s a way to start an IRA. The bad is more income equates for more opportunities to go in debt by over extending yourself financially. However that’s a whole other topic so let’s assume that you’re a good money manager, but your primary goal is to make more money by increasing your closing percentage.

When it comes to closing sales there are bestselling authors that have written thousands of books on “How to close the sale” by mastering several of the closes that they teach in their books and tape programs. Anybody heard of the Ben Franklin Close? How about the “Reduce to Ridiculous” close? Or the “Cost vs. Price” close? Those are 3 that come to mind, but there are hundreds more I could list. The next question is…do they work? My answer…in a word *YES! Notice the asterisk before “yes.” They will work if you know them and you can effectively execute them in a confident compelling manor. The only way to do that is to learn them backwards and forewords, and then practice them until you know them like the back of your hand. Nothing wrong with that except it involves that four letter word that most people don’t like…Work. Most people don’t want to work as taking the path of least resistance seems like the “The Road Most Traveled.”

So with all that being the case, what’s the path of least resistance that will pay the biggest dividend in terms of attaining a higher closing ratio? Or to put it another way, what can you do that won’t take hours to learn and you won’t have to memorize in order to execute? In a word, “Rapport.” Rapport and the ability to create a high level of rapport will close more deals than any close you’ll learn in any sales closing book. Why is this true, and how do I know this is a fact? Let’s say that you have a closing ratio of 20% meaning that for every 10 prospects you speak with you close 2 deals. In the automobile business that’s pretty much “spot on.” If you’re really good maybe you can up that to 3 out of 10, but from people walking in the door that you meet for the first time 20-25% is about average.

Now let me ask you this…If everybody that you got in front of to sell your product or service was a friend, relative, or a neighbor what do you think your closing ratio would be? Ever heard of the 80/20 rule? Suffice to say, those people would probably close at a much higher rate; 80% certainly wouldn’t be out of the ordinary. So now the rhetorical question is why? Why, because they like you and trust you AKA as already having a high level of rapport.

A friend, relative, or a neighbor won’t put up much resistance when it comes to price for instance. If they come up with a price objection and all you should have to say is something like, “Hey Man, I’m gonna take care of you. You know that.”  Assuming that you have a high level of rapport that should be all you have to say. What close would that fall under? Just remember this when it comes to closing. “The more objections you get from your customers, the more stalls you’re getting from your customers, and the more hoops your customers are making you jump through simply means the less trust you’ve built with your customer.” Trust and rapport go hand in hand, and you can’t have one without the other.

The best salesperson I’ve ever worked with had about an 80% closing ratio on first time customers. How did he do it? Why was he so good? In a word…Rapport. He was the best at building rapport with his customers. He was able to build such a high level of rapport that people wanted to buy from him. People would go out of their way to buy from him. In a short period of time his customers perceived him as a close friend, neighbor or relative.

So if you want to close more sales, you don’t have to learn more closes.  Build a higher level of rapport with your customers, and your closing ratio will rise in direct proportion. So now the question is how do you build that exceptional level of rapport to the point your customers will perceive you as a friend, relative, or neighbor? Stay tuned…

“Gap Insurance Doesn’t Cover Breakdowns”

Gap Insurance is sometimes often confused with extended service coverage. In other words, some people think that if they have Gap Insurance and their vehicle breaks down then the breakdown will be covered by the Gap Insurance; that is totally erroneous. Why? Because Gap Insurance doesn’t cover break downs, it covers the “Gap” between the loan amount and the actual cash value amount of a vehicle.

Let me give you an example of how Gap Insurance works: Let’s say that you’re trading your three year old car in for that brand new sparkling model that you’ve had your eyes on for the last several months. The loan amount on your trade-in is $12,000, but the car dealer gave you a trade-in amount of only $8,000 meaning you had $4,000 in negative equity.

This scenario is quite common when you trade a vehicle in that has a balance, and since you did comparison shopping you know that this was the best deal you could get. The new vehicle that you are buying has a MSRP of $23,990, but you negotiated a deal at invoice (you’re such a good negotiator) which was $21,600. Once you add your tax, title and any fees, your total balance to finance is about $27,000.

“But The Accident Wasn’t Even Your Fault”

Let’s say that six months down the road when you’ve only made 5 or 6 payments you get in an accident. You’re fine, but the vehicle is “totaled.” Your insurance company states that the replacement value of your vehicle is $16,000. Let’s say that your loan balance is now down to $26,000 which means you have a “Gap” of $10,000 between the insurance company’s replacement value and the current loan balance on the vehicle.

When you took the loan out on the new vehicle, you promised to pay (the contract you signed has “promise to pay” in the verbiage) the bank back in full. They said that upon full payment they would then send you the title to the vehicle, and release you from the lien.

“Now That My Car Is Totaled, I Guess That Means My Loan Is Satisfied…”
Not!!

Just because your vehicle was totaled doesn’t mean that your obligation to the bank is now terminated. The bad news is, you still owe the bank the balance of the loan and have a vehicle that you can’t even drive anymore. Not the kind of scenario you want, but many will face.

“Good News…Your Insurance Company Just Settled Your Loss…Bad News, It’s $10,000 Less Than The Loan Balance Payoff On Your Loan”

Your insurance company cuts you a check for the replacement value of the vehicle for $16,000, but in order to pay the bank off you need another $10,000. Where are you going to get $10,000? And how would you feel if you had to come up with $10,000 to pay a car loan off on a vehicle that you can no longer drive? Not a good situation for anyone to have to deal with.

“Your Gap Insurance Purchase Scenario”

Now let’s say we started this example from scratch with one difference: When you purchased the vehicle, you also purchased Gap Insurance. So now when the insurance company writes you a check for the $16,000, the Gap Insurance will pay the difference between the $16,000 insurance claim check, and the $26,000 loan balance. In other words, the Gap Insurance Company will write a check to your bank for $10,000 to pay your loan off.

When you financed the vehicle six months ago, the Gap Insurance might have been around $600, but that was assuming that you would have paid the whole loan off since it was part of your payments and included in the total amount financed to the bank. Since the vehicle was totaled only six months down the road, you actual cost for the Gap Insurance was next to nothing. Not to mention that it just saved you having to come out of pocket $10,000. That could have been the smartest investment you ever made.

Do Your Need Gap Insurance?

So now the question is, “Do you need Gap Insurance?” Gap Insurance is like any insurance. You’re covering yourself from a potential catastrophic financial loss. Why do people buy life insurance? If the bread winner were to die, that would cause a catastrophic financial loss to the family in terms of living. Health insurance is no different in that if you get sick enough, the hospital bills could cause you a catastrophic financial loss.

You have to look at Gap Insurance like any other insurance which is simply, “What’s the risk?” In the above example, without the Gap Insurance your potential out of pocket loss was $10,000 (or more). With the Gap Insurance your out of pocket loss is next to nothing. Why would someone take a risk like that when the out of pocket expense for the Gap Insurance is next to nothing versus having the potential to come out of pocket a substantial amount of money that they probably don’t have?

If in the above example you put a $10,000 down payment down when you bought the vehicle, you would have only had a loan balance of $16,000 at the time of the loss. That being the case, you wouldn’t have owed the bank a dime. So do you need Gap Insurance or not? It depends on your situation. Remember, most new vehicle depreciate at least $4,000 the day you drive it off the lot.

That means if you buy a new vehicle and don’t put any money down, you’re probably at least $6,000 “Upside Down” the day you drive it home. Gap Insurance would probably make a lot of sense in that case. It boils down to what’s the risk if the vehicle is deemed a total loss either by accident or theft.

Gap Insurance Guidelines: To Buy Or Not To Buy

To go by the rule of “Better to be safe than sorry” I’d try to stay around 70% LTV (Loan to Value) of amount financed at time of purchase. In other words if the loan value on a used vehicle is $10,000 or the invoice on the new vehicle is $20,000, you’d need to have a total amount financed on the used vehicle of $7,000. On the new you’d want to have an amount financed at time of delivery of about $14,000.

“Cash is King”

When it comes to trying to buy your next vehicle at a 70% LTV, the only way to accomplish that feat is to put a sizeable down payment into the deal. The problem with that is, most people don’t have a sizeable down payment to put down on their next vehicle purchase.

If you drive off the lot and have a sizeable “Gap” between what your loan balance is versus the actual value of the vehicle, and you don’t get the gap insurance, you’re taking the risk of having to come out of pocket a sizeable amount of money if your vehicle is deemed a total loss.

“Your Promise To The Bank…”

Remember, you still owe the bank the balance of the finance agreement in the event of a total loss situation on your vehicle. If the insurance companies paid claim is less than your loan balance payoff, you’re still responsible for the difference.

That in itself could be a potential way to ruin your credit as the bank will report the deficiency to the credit reporting agencies. If a outstanding loan balance deficiency  shows up on your credit report, then your credit score will take a major hit not to mention the fact that you will have an awful hard time getting another car loan if you can get one at all.

“Conclusion”

Follow the above guidelines on whether to get the Gap Insurance or not. If you’re not at 70% loan value on a used vehicle or Invoice on a new vehicle, then get the Gap Insurance. It could be the smartest insurance decision you’ve ever made.

“Become A Better Closer?”

As a sales trainer for a dealer group in Metro Atlanta, salespeople constantly ask me how to sell more cars. My answer isn’t the obvious of what many trainers might say which is learning to be a better closer. Sure being a better closer will help you sell more cars, but not the kind of numbers that will really affect your paycheck, and here’s why:

Let’s say for a 30 day period, a salesperson is able to get in front of 50 customers for the month. And let’s say their closing percentage is 20% which is about average for this industry. That represents 10 sales which is also about the average of what car salespeople sell in a month. At a $250-$300 average commission, that represents a $2,500-$3,000 paycheck at the end of the month.

The very best salespeople in this industry will have a closing ratio of 30-40%, but they are the exception to the rule. If you could raise your closing ratio by 10% that would add another 5 units to your monthly totals which is a significant increase, but at the same time not easy to achieve.

With that being the case, the best way to sell more cars is to see more people. Let’s say that a salesperson could get in front of 70 people for the month instead of 50. Without closing a higher percentage of opportunities, the salesperson would increase their output from 10 to 14 units.

“How To See More People”

So the question now is, “How does a salesperson see more people?” Quite frankly there are several ways, but maybe a better question is, “How can a salesperson see more people with the least amount of effort?” Let’s face it, salespeople work on commission. With that being the case, they could spend more time at the dealership to see more people i.e. they could work more hours. But that would take a considerable amount of effort, and more time away from home.

“Work Smarter, Not Harder”

The better answer is to work smarter not harder by working more hours. So what is working smarter? Working smarter in the realm of seeing more people would be to cultivate a database of prospects that will at some point be in the market to purchase a vehicle. This is where the “Numbers game” comes into play. Most salespeople only have a handful of prospects that they might be working with. In fact, for most salespeople only work the people that walk in the door each month.

What if a salesperson could cultivate a data base of 500 people that would eventually be in the market to purchase a new or used vehicle? Over a 12 month period that means that the salesperson would need to find about 42 people to plug into their database so that they could follow up with. That equates to about 2 new prospects a day.

“Where Can A Salesperson Find Two Prospects Per Day?”

There’s a word in the world of sales that makes salespeople cringe. It’s the “P” word and it’s called “Prospecting.” For many salespeople prospecting is what ends their sales career. Knocking on doors and “Cold Calling” is tough work, and a plethora of rejection. Most people don’t have skin that is thick enough to endure the constant bombardment of never ending “No’s” or “I’m not interested in your offer.”

When it comes to finding a good quality prospect for a car salesperson to find, they don’t have to look very far to find the best possible future prospect. They don’t have to knock on doors and they don’t have to cold call either. In fact, they don’t even have to leave the dealership, and they can do it while they are on their regular shift so they don’t have to work any additional hours.

“A Car Salesperson’s Gold Mind”

The best possible prospect for a car salesperson is someone that already likes and trusts the dealership. It’s someone that has done and or is doing business with the car dealership meaning that they have spent or are spending money with the dealership. Any idea who that person might be?

The service department in a car dealership is a “Gold Mind” for a car salesperson. Most the customers taking their car in for service bought the vehicle from the dealership. The ones that didn’t are having their vehicle serviced there probably because they like the service. That being the case, chances are those people are excellent prospects for future sales.

“Two A Day”

Being that each car dealership gets several service customers per day, a salesperson can easily find two service prospects per day. How you ask? They just need to go down there and start up a conversation while they have their vehicle in service. They aren’t looking to make a sale, although they will fall into a sale every now and then by hanging out in the service department. They just need to engage the service customer and offer them their own personal service which is something like, “If you have any questions, or if I can be of any service here’s my card. Feel free to call me. By the way, if we have a fire sale or some outrageous service special, how can I contact you?” Now keep in mind, this is after spending a few minutes building some rapport with the service customer.

“Let’s Do The Math”

If a salesperson hustles and works 24 days per month that would equate to 48 service prospects per month or 576 for the year. But let’s round it down to 500 due to vacations, sick time and maybe a little bad luck. Going into the second year, how many of those 500 prospects will come in to see about buying a new or used vehicle? Let’s say the salesperson could get 50 of those prospects to come in to see about buying a new or used vehicle.

Like in any selling situation, the closing ratio won’t be 100%, but it will be much higher than 20%. Let’s say for those prospects its 50% which equates to 25 sales. That’s two additional sales per month which means if the salesperson is doing average numbers of 10 sales per month, then now they’d have 12 deals per month.

“Year Three And Beyond”

If the salesperson consistently prospected the service department for 500 prospects for the following year, the number of potential customers the salesperson could expect to see will rise substantially due to the fact that more people will be in the market. If 240 of the 1500 service prospects (8%) came into look at a new or used vehicle, and the salesperson closed 50% that would be an additional 120 sales per year or 10 additional sales per month. That’s not to mention any additional referrals.

“Conclusion”

In order to sell more vehicles, one needs to have more opportunities; it’s a matter of “Numbers.” The more numbers that can be put in your “Database” or “Sales Funnel” the more people you can get in the door. The more people you can get in the door, the more selling opportunities you’ll have. The more selling opportunities you have the more vehicles you’ll sell. It’s a mathematical equation that works every time you play the game.

“Zero in on a vehicle”

Let’s say you’ve done your preliminary research, and based on your research you’ve decided on purchasing a two year old Honda Accord (2009 Accord at the time of this post). You’ve gone online to one of the car sites that list vehicles for sale like www.autotrader.com to see how many are for sale with the equipment that you’re interested in having. Assuming that there are several to choose from (and there are), try and zero in on your top three.

“Determine the Wholesale & Retail Values”

Determining the wholesale and retail values can be a little tricky if you go by what’s online at the big three automotive sites such as www.edmunds.com, www.kbb.com, and www.nadaguides.com. As you’ll see the three sites don’t really agree on the wholesale values for instance…

If you go to www.edmunds.com and punch in the information on the vehicle such as: 2009 Honda Accord, 4 door LX 4 cylinder Automatic with 24,000 miles. Here’s what you get:

Edmunds.com Figures…

$14,217 is the Trade-in amount
$15,580 is the Private Party Value
$16,694 is the Retail Value

Click Here to see the Edmunds.com page where I got that information from. Note: Depending on when you click on the link, the url for that page might not work if Edmunds.com decided to made some changes to their web site which is a possibility if you’re looking at this article somewhere down the road after I made the post. The same is true for www.kbb.com and www.nadaguides.com.

Next, go to www.kbb.com and punch in the same information for trade values, and here’s what you’ll get:

Kbb.com Figures…

$16,950 Excellent Condition
$15,950 Good Condition
$14,350 Fair Condition

Click Here to view the page from www.kbb.com. Remember, that could be a “dead” link.

Lastly, go to www.nadaguides.com and punch in the same information as you did above. Here’s the breakdown from nadaguides.com:

Nadaguides.com Figures…

$16,325 Clean Trade
$15,275 Average Trade
$13,975 Rough Trade
$19,400 Retail

Again, Click Here to view the page from nadaguides.com.

As you can see, it can be a little confusing trying to come up with a wholesale/trade-in value that makes sense. Edmunds.com says the trade-in amount is $14,217 while kbb.com breaks their trade values down into three categories; excellent, good and fair. The kbb.com figures go from $14,350 for a fair value, to $16,950 for excellent trade value.

So based on all those figures, what’s the wholesale/trade-in amount? Edmunds.com gives only one trade-in figure which is $14,217. Kbb.com gives three amounts: $16,950 is excellent. $15,950 is good, and $14,250 is fair. Nadaguides.com also has three wholesale/trade-in figures which are: $16,325 clean trade. $15,275 average trade and $13,975 is rough trade.

So what’s the verdict?…

When it comes to appraising and purchasing vehicles, car dealers don’t go by the above sources to make their decisions. They use what’s called a “Black Book.” When it comes to placing values on vehicles, car dealers rely on “Black Book” to make their decisions. Why? Because the values in the “Black Book” guide is based on actual sales of vehicles at local auctions. In other words, it’s a better representation of the real wholesale value of the vehicle. They also will go online to see live auction sales of comparable vehicles.

Below are “Black Book” figures on the 2009 Honda Accord LX that we’ve been talking about:

$12,650 Rough
$14,700 Average
$15,900 Clean
$17,000 Extra Clean

When it comes to placing a figure on a particular vehicle like the Honda Accord, the dealer will want to stay around average “Black Book” which in this case is $14,700. Assuming the car was in great shape for a two year old Honda, average book (or a little less) is where they would put the initial figure on the car. $14,500 would be realistic here.

However, if they needed to put a deal together they could “Step-Up” in the trade and put clean “Black Book” in vehicle which is $15,900; it just depends on the deal. This is a variable that you won’t know, but this much you do know if you can get your hands on a “Black Book” (or know someone that can like me).

Here’s The Wholesale Value For The Honda…

Based on the “Black Book” figures, that vehicle is worth $15,000. Why $15,000? Because with 24,000 miles and the condition, it’s worth a little more than average “Black Book.” When the dealer trades for the vehicle they will have some reconditioning costs. When everything is said and done they might own the car for $15,300. Again, there are some variables here, but that’s the number to go with.

So what’s the Retail Value then?…

When it comes to retail values, you’ll see numbers all over the board. If you go to autotrader.com and pull up the information on the Honda, you’ll see retail figures anywhere from $15,000-$20,000. The average on the first page is $18,300. You need to look at retail figures with more of the mindset of “How much mark-up is in the car?”

Car dealers mark up their used vehicles anywhere from $3,000 to $5,000 on a car like the Honda. Highline vehicles and specialty vehicles could be as much as $10,000 or more. $3,000 to $4,000 is more typical so with that being the case, you now have the ammunition you’re looking for when it gets time to crunch numbers. So now what?

To Be Continued…

“Is Best Price The Same As Best Deal?”

In an earlier article I wrote about getting the “Best Deal” on a used car (Click Here to see that article if you missed it). This article will detail how to get the “Best Price” on a used vehicle. But first keep in mind that the “Best Price” and the “Best Deal” could mean two totally different things to different car buyers.

I think consumers get hung up on what a good deal is, and sometimes they pass up a deal because in their mind the proposed deal isn’t what they expected. For example, let’s say that a dealer is selling a 3 year old used vehicle. They have a price on the window of $12,498. You come in maybe looking for something else, but see this car “On Sale” and decide you’ll take it home providing, the dealership gives you a “Good Deal.”

When it comes down to negotiating the price, the dealership tells you that they’ve already discounted the vehicle down to the “Bare Bones.” They might say something like, “We don’t have any more room to discount that car. $12,498 is less than trade-in value. That’s the “Best Price” we can do.”

Since they won’t “Wheel and Deal” with you, you tell them you’ll go somewhere else to shop. Somewhere that will give us a “Good Deal” you say. Now the $12,498 price that they had on the windshield might have been the lowest price on that vehicle (or a comparable one) anywhere in the continental United States of America. It very well could have been the “Deal of the Century.” But just because the dealership wouldn’t discount the vehicle further, you passed on the deal and went elsewhere.

“Lesson #1: Know The Used Vehicle Values”

The lesson here is rather simple; you need to know the values of whatever used vehicle that you might be considering. Had you been in the market for the above mentioned example vehicle, and knew the retail prices as well as the wholesale prices, you would have known that the price of $12, 498 was a deal.

The problem with many used car buyers is that they go out looking for one vehicle, and come home with something different. If you haven’t done your homework on that “Something Different” vehicle, then you might get “High Grossed” (pay too much), or in this case lose out on a deal.

Always do your homework when shopping for a used vehicle. If you see something that you like, but haven’t done any research, then don’t make a buying decision until you know whether you have a good deal or not.

“What’s The Best Way To Determine The Values On Used Vehicles?”

Go online first and check out www.kbb.com and then www.edmunds.com to find the retail and wholesale values. These sites will give you a pretty good idea of the retail and wholesale value. Knowing someone in the business always helps as they can give you “Black Book” values which is what all dealers use, and they can also access local auction reports which most dealers use too.

With “Black Book” values and auction report values, you could come real close to the actual value of what a dealer owns a particular used vehicle for. Much the same as going online to find out what dealer cost is on a new vehicle.

“What Kind Of Deal Do You Want & How Bad Do You Want It?”

As mentioned before, a “Good Deal” means different things to different people. The question is, “What does it mean to you?” But more importantly, how much are you willing to go through to get the very best possible deal? The more of this process you’re willing to endure, the better the deal.

You have to be willing to “Play the Game” a little with the dealer as well. The better you are at playing “Their Game” the better deal you’ll get as well. What do I mean by that?

“ Lesson #2: Attitude Is Everything”

You have to have the right attitude if you want the best used car deal (new car deal too). Don’t go in with attitude of being an “Ass.” Dealers don’t like dealing with those types, and they just as soon tell you to leave than sell you a car. They want to become friends with you so become friends with them. It only makes sense even though you’re going to work them really hard for a “Deal.”

This is one of those techniques that you probably never heard anyone else mention, but trust me… “Attitude is Everything” when working a car deal. The old saying, “You get more bees with honey than vinegar” definitely applies when buying a car from a car dealership.

Mirroring is a sales technique that works very effectively, and is used by many top producers in sales. “Kill them with kindness” and make a friend will “Mirror” the car dealership putting you on the same page. Once you’ve established that, you’re well on your way to a “Deal.”

To Be Continued…

“An 18 Pound Deal = $18,000 In Gross Profit”

Now a 18 “Pounder” or a $18,000 deal (Click Here for the definition of a “Pounder”) certainly isn’t a record by any stretch of the imagination in the annals of the all time biggest car deal, but it was my personal record. My total commission on that particular deal was over 2 “Pounds” ($2,000). Suffice to say, that deal made my month. I don’t think that was a record month, but it turned out being pretty good.

“What’s The Point Of This Article?”

So why am I sharing this with you? No, I’m not bragging and I’m not patting myself on the back. If you’re in the market to buy a new or used vehicle, you might want to use this as an example of what not to do as a car buyer.

Do your homework and don’t be a “Lay Down.” The bible is filled with stories and examples of what to do, and what not to do. This would fall under the category of “what not to do” when buying a new or used vehicle.

“Not Just Another Mundane Thursday Afternoon”

It was Thursday afternoon, and the dealership was as dead as a doornail. It was the middle of summer, and the afternoon heat index was probably over 100.

When I woke up that morning, I had no idea about what was going to happen to me that day. For some people when they wake up in the morning, they have no idea it will be their last. With others, they have no idea that they are about to hit the lottery. I didn’t hit the lottery that day, but you might say I did hit a “Home Run” in terms of a big fat commissionable car deal.

No, this wasn’t just a “Home Run.” The bases were juiced, and I hit the ball completely out of the park. The ball cleared the fences, the upper deck, and the roof.  It was a momentous shot that would have made the “Babe” envious. That ball didn’t land for quite some time as my commission on that one deal was reason for a big celebration.

“The Ultimate Lay Down”

I was standing inside the dealership by the front door, and I saw a customer pull in the parking lot. Since it was a slow Thursday afternoon, I figured I’d go out and see if I could sell them a car. Besides, they looked like a good “Up” and I needed a deal.

They told me they were getting ready to retire and they wanted to look at a couple of conversion vans that we had in stock. They said that they were looking at motor homes, but at over $100,000 they didn’t want to spend their whole nest egg on a motor home. They decided that a conversation van would be the next best thing to travel the country in, and at less than half the price it made perfect sense to them.

Conversation vans are something that we didn’t sell that often. In fact I never sold one, but I knew that when they were sold the commissions were pretty good as they usually had several thousand dollars in markup. We had two in stock, and I was getting excited about landing them on one.

We had a 2003 Emerald Green Ford Conversation Van with about 12,000 miles. As soon as they saw the van I could see their eyes light up. They said it looked nice so I went and got the keys. While we were on the test drive, I could sense their enthusiasm. They both said that they liked it and wanted to see if I could work a deal out for them.

They had 01 Ford Expedition with about 60,000 miles. When we got back from the demo drive, I had their Expedition appraised. I went to the sales manager’s office to get all the figures regarding the deal. When I got back, I sat down in front of the customers and went over the numbers with them.

“Presenting The Figures & Closing The Deal”

The price on the Conversion van was $59,988. I told them their trade appraised for $14,000 and with $10,000 down payment I told them their payments would be $825 per month. After I presented the figures they asked, “When will my first payment be due?” I said it could be due in either 30 or 45 days. They said 45 days would work and I told them I needed to get a copy of their driver’s license and insurance card. The deal was closed that fast and that simple. So let’s look at the profits…

“The Front End Gross Profit”

The cost on the conversation van was $51,200. At a $59,988 selling price that was $8,688 profit. We held back on their trade-in because I told them $14,000 was the appraisal, but the Actual Cash Value (A.C.V.) was $16,000. The $2,000 difference was tacked onto the $8,688 profit which made the total front end gross profit a whopping $10,688.

“The Back End Gross Profit”

When it comes to car deals, there is a front end gross profit (like above), and then there is what’s called “Back End Profits.” The back end consists of what’s made on the financing part of the deal which is what happens in the finance office. The finance department makes money on the interest rate spread. They make money from extended warranties, gap insurance, and some other add ons. On this particular deal this is what was made in the back end financing:

I think the finance manager sold them everything but the kitchen sink. Had he been able to sell them a sink, they probably would have bought that too. They bought an extended warranty, gap insurance, accident insurance, life insurance, window etching, and paint protection.

The cost on all those products was $2,650. The finance manager sold all the products for $6,500 leaving a profit of $2,850. They also made 2 points on the interest rate spread. So with financing about $45,000 over 72 months, the finance manager made $3,800 in finance reserve (what the bank pays the dealership for making 2 points in interest rate).

That means the total back end gross profits were a whopping $7,650. When you add the front end profit of $10,688 and the back end of $7,650 that’s a massive total gross profit on the whole deal of $18,388.

“Okay, Here’s The Lesson So Pay Attention”

Like I said earlier, this isn’t an all time biggest car deal in history, but it was my personal best. So what’s the lesson and or lessons to learn here? First of all if you’re reading this and you’re a “Lay Down” then you probably won’t learn anything.

So lesson number one is stop being a “Lay Down.” I know that could be easier said than done, but try asking for a discount because you’re getting ready to retire (or whatever). There is nothing wrong with the dealership making money, but you should be able to save some at the same time too; a win win.

But the biggest thing to learn here is that everything in a car dealership is negotiable. That deal’s gross profit of $18,388 could have been much, much less. Suffice to say it could have been cut in half pretty easily with a little negotiation. With some “hard ball“ negotiating, the deal could have been cut by a third.

So remember to negotiate everything…The price of the vehicle, the trade amount, the interest rate, and all the other back end products. You’ll save yourself a bundle of money. You can handle that can’t you?

If you’re the type that doesn’t like to do all the negotiating, then I would highly recommend using an auto buying service. I highly recommend TSA Auto Brokerage Services. Click Here for their site.

“Using All The Terms In One Short Story”

I was going into work one day and my thoughts were focused on selling a car. I had a couple of bad days where it seemed like everything went wrong. The “Up” I had turned out to be a “Bogue” that was also “Upside Down” in his trade…No deal.

The next “Up” I got wasn’t much better off…He was “Hooked” so bad he didn’t have a chance of doing anything. Then I had a “Be Back” that wasn’t much better off than the first two

“Fresh Ups” I had earlier…He was “Clobbered” and reminded me of the guy I had last week that was “Buried.”

I figured the next “Up” would either be “Hammered” or I’d put a deal together and it would be a “Roll Back.” Yeah, my attitude wasn’t the best so I needed to find a way to get pumped up about selling something. I needed a “Lay Down” bad. Someone that by the time I got done with them, they’d be completely “Laid Away” and it would be a “Spot” with no chance of being a “Roll Back” or a “Re-Con.”

Actually, a “Mind Deal” or a “Get Me Done” wouldn’t be bad either as long as we can get the deal done. I know those are usually “Full Boat” deals, and most of them are “Full Pops.” The last “Get Me Done” I had was a Seven “Pounder.”

We didn’t have to “Bump” the trade either, and I closed the deal myself so I didn’t need a “T.O.” The finance manager had plenty of “Leg” and he even thanked me for the “Juiced” payment.

So there you have it…in under 300 words I was able to use all the words mentioned in the previous articles. Do you know of any I left out?

“The Finance Departments Language & Lingo”

When it comes to Car Business Language & Lingo terms and jargon, the finance manager and sales managers have a couple of terms that they like to throw around. Sure, they use all the other terms that we already talked about, but they have a couple of terms that are more directly related to the specifics of working a deal. The first term is called…

• “Leg”—When it comes to “Leg” the more the merrier for the finance manager. If a deal comes back to the finance office without any “Leg” then the finance manager will not be a happy camper. For most finance managers, their performance can be directly related to how much “Leg” they consistently get or can create. Or in other words, their paychecks can be directly related to how much “Leg” they get per deal. So what exactly is “Leg” you ask?

“Leg” can be defined as a quoted payment that is inflated. For instance, let’s say that a customer made a purchase of a new vehicle. Their total amount financed is a flat $15,000 which represents tax, title, fees minus their down payment. If their interest rate is 6.9% at 60 months—financing $15,000, the payment would be $296.31. However, when the salesperson worked the deal, he told the customer that their payment would be $325.00 a month.

That would be a “Leg” of $29.00. So why is that so important and why would the finance managers paycheck be bigger? The finance manager makes money on selling things like extended warranties, gap insurance, and other products. If the customer thought that their payment was going to be $325 a month the finance manager would have a “Leg Up” on selling their products.

In other words, the finance manager could sell $1,500 worth of products and keep the payment exactly the same. They could sell $2,000 worth of products and the customer’s payment would only go up $10.00 a month. The finance manager could tell the customer that for a 5 year 100,000 mile warranty and Gap Insurance their payment is only going up $10.00 a month. For the customer that’s a no-brainer being able to get a 100,000 mile warranty and Gap Insurance for only $10.00 a month more.

The long and the short of having “Leg” is that it gives the finance manager a “Leg Up” when selling their products. If the deal came back with enough “Leg” the finance manager could sell $4,000 or more of products and not even get to the quoted payment from the salesperson. It makes selling finance products really easy. The next term used is…

• “Juice”—When it comes to “Juice” where not talking about “Orange Juice” here. “Juice” is also a payment that has “Leg.” You could hear a conversation such as this in a finance manager’s office…

“Does that deal have any “Juice” in it Scott?” Scott might say, “Yeah, Tom. It’s “Juiced” $50.00. You should make a home run on that deal.”

The next term could also be used in the finance office or on the sales floor. It has nothing to do with a Big Mac although it might sound like it has something to do with a hamburger. The next term is…

“A Quarter Pounder With Cheese????”

• “Pounder”—When it comes to “Pounders” the more the “Pounder” the more the money. “Pounders” typically are more closely related to even numbers of $1,000 denominations. In other words there are One “Pounders” Two “Pounders” Three “Pounders” Four “Pounders” and so on. A Four “Pounder” would mean that the dealership made $4,000 in gross profit.

So the next time you’re in a car dealership and you hear a couple of salespeople talking, and one says to the other…”You should have seen that last deal Scott. It was Seven “Pounds.” That means the salesperson is bragging about a $7,000 gross profit deal he made.

The last term (actually there are more, but I think it’s time I wrap this series up), is also a term that can be used in the finance office and on the sales floor. It’s typically used more on the sales floor though. It’s called…

“Time Out???”

• “T.O.”—First of all “T.O.” stands for “Turn Over.” It means to “Turn Over” information or “Turn Over” a customer (“Up”) to another salesperson or a manager. If a salesperson can’t close a deal, they’ll get a “T.O.” to see if their manager or another salesperson can close the deal.

A “T.O.” is an old sales ploy to get another face in front of the customer to see if someone else can close the deal. In many situations, the “T.O.” man will close the deal. Typically they are an experienced closer or the “Go to Guy.” The concept is to get another face or an authority figure in front of the customer to close the deal. In many cases it works, that’s why car dealerships insist on “T.O.s” with every customer that the salesperson can’t close which is usually 80%.

So there you have it…Car Business Language and Lingo. The next time you’re in a car dealership see how many times you hear some of these terms. You might want to even use some on your salesperson. It will let them know that you know a thing or two of what’s going on which will work in your favor.

Stay tuned for my epilogue, where I’ll make an attempt to use all the terms and jargon in one or two paragraphs. This might take a day or two so be a little patient.

“The Myriad Terms of Negative Equity”

So you’re looking for a new or used vehicle, and you have a vehicle that your trading in. The problem is, you know that you’re “Upside Down” in your trade. You are well aware that you have negative equity of say $5,000 (at least that’s what you think it is), but no problem…You’re gonna trade anyway.

When it comes to having negative equity and or being “Upside Down” there seems to be several other terms in a car dealership that salespeople use to describe your problem. In fact, having negative equity and the related car business language and lingo that go along with it probably wins the prize in terms of different phrases for negative equity which leads up into the next term which is…

• “Hammered”—In terms of severity, which sounds worse… being “Upside Down” or being “Hammered?” I think most would agree that being “Hammered” is more severe than being “Upside Down.” One would think that maybe being “Upside Down” might be easier to over come. After all, it’s only being “Upside Down.” Just turn it right side up. But being “Hammered” is like being nailed to the cross. You’re not getting out alive. If you were the fly on the wall in a car dealership, you might hear the following conversation between salespeople…

“Hey Scott, I saw you workin that “Up.” I figured that since you didn’t put the deal together they must have been a little “Upside Down.”

“No, those people weren’t just a little “Upside Down” my friend…They were completely “Hammered” in their trade. They owed $18,000 and the piece of shit was only worth $10,000.”

The next term could have been used in that last sentence, because sometimes salespeople will use several different terms to describe just how far “Upside Down” or “Hammered” the customer is which leads us to the next terms which is…

• “Hooked”—Now being “Hooked” really doesn’t sound too bad in terms of having negative equity. But the reality is, it’s worse than being “Upside Down” or being “Hammered.” Personally I’d rather be “Hooked” than “Hammered” but either way, you’re stuck with you trade. The only way to make a trade is to come up with a sizable down payment. In the verbal exchange above, I could have added this to the last sentence:

“They owed $18,000 and the piece of shit was only worth $10,000. They were just too “Hooked” to do anything.”

As you can see, with the negative equity terms you can keep em coming which brings us to the next term which is…

• “Clobbered”—Now being “Clobbered” is bad news; it even sounds bad and it is. If there was any chance of putting a deal together with your negative equity, you’d have to be either “Upside Down, Hammered, or Hooked” to have any chance of trading.

But if you’re “Clobbered” it’s lights out and game over…Do not pass Go and do not collect $200.00. “Clobbered” means you’re at least $10,000 “Upside Down” and without any money down it’s time to move on. And speaking of moving on, here’s the next term…

• “Buried”—Believe it or not, there is something worse than being “Clobbered.” If you’re buried it’s a foregone conclusion on what that means. Your name is in the obituary column, and you’re six feet under with your vehicle being your headstone. Being “Buried” means you’re over $15,000 “Upside Down.” Being “Buried” is by far the worst of the worst. Unless you’re Jesus, you ain’t comin back to life to trade your vehicle.

Now you might be thinking, “What if someone is over $15,000 “Upside Down?” Well at that point, you’d have to use a combination of terms. Let’s say that you’re $25,000 “Upside Down.” The conversation in the showroom would sound something like this…

“Scott, that last “Up” I had was a joke. They were “Clobbered” big time. They said that they’d come back in a year, but they’ll sill be “Buried.”

I know I said that I was going to finish this up with one more article, but I’m trying not to get too wordy with one particular segment. I don’t want to bore the plethora of readers on this site, and I know long wordy articles would make me lose readers. I promise, I’ll finish it up with the next one…