At the same time as used car prices have been on the rise (especially on the wholesale market) margins have been shrinking and it has been the task of the business manager to try and maximise profitability on every deal. As we often report the business manager has become a somewhat pivotal player and it would come as no surprise to many customers when they hear tales of negotiations which no longer centre on the price of the car but rather monthly payment. The policy in many dealerships is to start quoting figures on a car with everything included i.e. retail price, road tax, payment protection, gap insurance, paintwork protection, alloy wheel cover and if and when that is not acceptable to a prospective buyer they will start to strip layers off. First decreasing the rate and then chipping away at the other elements until a customer agrees on an acceptable monthly payment.
This process can sometimes be so confusing that many customers are not even aware that the car they own comes with a certain policy until they trade the car in again and the dealer educates them. Whilst in some respects dealers most definitely need to explore new profit centres. As customers have the power to shop around on price margins have been eroded and, in order to remain profitable they need to sell other products alongside the car to make up for lost chassis profits.
This policy is fine if it is transparent and customers get a full breakdown of what each part is costing them and exactly what it covers and, most importantly given the recent mis-selling of many insurance policies, that it is relevant and beneficial to them. The problem is that the employees tasked with selling these products are under such pressure to deliver results that they can often go way over the top and if they are not monitored can jeopardize much of the chassis profit to produce those results. In other words they are effectively robbing Peter to pay Paul.
Although it is not necessarily a bad thing for buyers if they get a cheap car, it certainly is if in order to get that cheap car they have to buy overpriced products they don’t need in order to qualify for the cheap car in the first place.
Our advice is next time you go to a dealer make sure everything is broken down so you know what you are paying for each product and if £500 for a paintwork and interior protection system seems too much, that’s because it is and costs a fraction of that to apply.
I remember what happened to a colleague years ago who met a customer far sharper than him. He sold a car for virtually cost but with the extras was making nearly £1,500 profit. The customer signed up on the car on the understanding that the ‘extras’ were being sold at a great price. When the customer realised that he could get these products far cheaper elsewhere he cancelled them all, but still bought the car which he was entitled to do. This left the red faced salesman making no profit and no commission. He tried to mislead someone by trying to convince them they should have the extras because the car was so cheap. I’d like to report that the errant salesman learnt his lesson but unfortunately people like that rarely do.