Data suggests that the likelihood a customer buys a car when he walks onto a dealership lot is above 50%. Good sales people have an arsenal of word-tracks, strategies and tricks to close you on a car and make sure they get the sale.
A Common Strategy to Close a Customer on a Car
The sales manager leans back in his chair behind the podium. He’s on the phone planning an upcoming golf trip with a friend. After a few minutes, he says: ‘Hold on a sec, Roger’ and puts the phone down. ‘What’s going on?’ … he asks the salesperson, Anthony, in front of him.
Anthony’s only been selling cars for four months, but he knows exactly what his boss means by this question. ‘Last name is Anderson, first name Meredith. I drove her on a Civic. She liked it, but the trial close didn’t work. Then, I drove her in an Accord, and she loves it. $1,500 down. Excellent credit, a first-time buyer approved at 3.99%. No trade.‘ Anthony summarizes the deal.
The sales manager goes into his computer and pulls up the the customer’s information and stock number of the vehicle. He prints out a four-square worksheet and hands it to Anthony who marches back over to where his customer Meredith is sitting. ‘Meredith. The 2011 Honda Accord we just drove has a market value of $15,000 out-the-door. If you were to put 20% down, i.e. $3,000, you’d be at $270 per month for only 4 years.‘
Anthony goes silent. His managers have taught him that whoever speaks first, loses. The silence doesn’t last long. Meredith, visibly disturbed, says, ‘I told you that there was no way I could pay over $250 per month. I have insurance, rent, student loans. $250 is the max I can pay.’
Anthony writes $250 on his four-square worksheet. ‘Ok, he says, if we could get you to $250 per month, we’d have a deal today?‘
Dealers call Anthony’s approach a trial close. Lot’s of ‘IFs’ and ‘COULDs’ and ‘WOULDs’ just to test the customers eagerness and intent. Anthony wants to avoid going back and forth to his sales manager unnecessarily and only if and when he has a deal the customer has already kind of agreed to.
The Dealer’s Goal is to Focus on Monthly Payments
Meredith did hours of research online and she knows this trick. She knows the dealership is trying to get her to focus on the monthly payment and forget about negotiating the top line price. She counters, ‘I’ve done a lot of research on Civics and Accords. I’ve seen them listed for around $10,500. I want to put $1,500 down – that’s all my savings – and be no more than $250 per month. If you can do that, we’ll have a deal.‘
‘OK, give me your credit card and I’ll present your offer to my manager. Wish me luck.‘
The sales manager listens intently as Anthony relays Meredith’s offer. He taps on his keyboard. ‘$10,500 doesn’t buy that car. She came in off the Internet price. We don’t have that kind of room in the prices. She knows that. Here’s your new four-square sheet. And a vAuto printout showing that we have the second best price in the region. Don’t be weak. Now, go close it up,‘ he says and moves onto the next salesperson waiting in line.
Anthony looks at the sheet. His manager has reduced the car to $11,500 out-the-door and with her $1,500 down it’s $225 per month for 48 months. Anthony smiles: he realizes that Meredith has made two mistakes, which he will now leverage:
- Meredith doesn’t realize that she has to pay tax and title (approx. 10% in CA) – dealers always hide out-the-door prices!
- Meredith told Anthony he has a deal if the the payments are at or below $250.
Playing a little bit dumb, Anthony walks back to Meredith and presents her the latest numbers his sales manager gave him: $11,500 for the car with $1,500 down. As expected, Meredith refuses to budge off her offer.
Anthony slumps back over to the podium asking his sales manager to introduce himself to Meredith and close the deal: ‘Hi Meredith, my name is Jim.‘ the sales manager introduces himself. ‘Nice to meet you. Let me ask you a question how did you come up with your number? The $10,500?‘
Meredith confidently says: ‘there’s one at another Honda dealer, same trim level and about the same mileage and they have it listed for $11,500, and I spoke with someone there who said it isn’t unusual to save at least a thousand dollars if I negotiated cleverly.‘
‘I can appreciate that‘ Jim looks at the sheet showing the competition. ‘It’s probably this one right here. About an hour away, right?’ She nods. ‘Let me ask you a question. You want to put $1,500 down right?’ Meredith nods again. ‘Does that mean you want to include your sales taxes and registration fees into the loan?’
Meredith hadn’t thought about that. She only wanted to put $1,500 down, so she answered in the affirmation. The sales manager hunched over, ‘Listen, we want to earn your business. You live right nearby. We have the best service facility in the area.’
We already included tax and title in our out-the-door price of $11,500. The deal you’re showing me from the other Honda dealer is worse, even if you manage to negotiate him down by $1,000. ‘Let me ask you this’ Jim proceeds: ‘if I can split the difference with you. I’ll do better even than that – if I can do $10,900 out-the-door – and get your payments to $250, you don’t have to drive, you can do your service right here where we have loaner cars, would $10,900 earn your business?’
Meredith paused to think. That price didn’t seem unfair. She wanted it to be over. ‘OK, I’ll do it.’
He pulls out a sheet of paper he’d been holding. ‘Congratulations!‘ Jim shakes her hand. ‘Now would you rather be at $249 for 48 months? Or $208 for 60 months? And Meredith, these figures are with only $1,500 out of pocket, includes all your taxes and fees.’
Meredith is tickled pink and thanks Jim for being so helpful. ‘I’ll take the $249 for 48 months, that’s right where I wanted the payments to be.‘
Little does Meredith know that the sales manager has calculated her payments at 8.99%, which lead to the ~$250 Meredith declared she was ready to pay for the car. When she goes into the finance office she’s already committed to a payment. His job is easy at that point, just fill up the buffer room with some products, drop the rate, and that’s why the F&I center is close to 40% of the gross profit of a dealership.