Selling add-on products such as finance, service plans and other insurance backed products has become almost as profitable as selling the cars themselves.
This trend has been steadily growing for years now and. with an unprecedented selection of ‘extras’ on offer, customers are likely to be distracted and possibly unhinged by them. Car buyers are programmed to concentrate on getting the best deal on the car but have limited experience on negotiating on interest rates or driving the costs of all the other “add-on” products down.
Of course many of the products on offer do represent good value for money and, like many insurance backed policies, only really prove their worth when you need to make a claim, but dealers needing to fill the profit gap of reduced showroom footfall and lower volume sales clearly need to make up the margins with the sale of these extras.
This has the effect, on one hand, of encouraging customers to buy because the deal on the car looks very tempting but on the other hand can lead to them losing much of that saving by being sold extra products on top.
Of course the clever dealers will introduce these extras in “packs” hoping to mask the true lifetime costs of these products.
For example 3-5 products which, if sold individually, might look prohibitively expensive but as part of a “pack” look great value, the perception being the more you buy the better the price. Often this is all wrapped up in a nice little monthly payment; “for £5 more a month you can have this…” (Don’t be seduced by the monthly payment)
There are cars being sold today both new and used where the profit is actually zero and in many cases even at a loss, but if the canny business manager can encourage a buyer to take some products the deal can often lead to hundreds of pounds of profit.
Buyers should not necessarily be alarmed by this as its really just a redistribution of income for the dealer, they have to make the profit somewhere and if they can generate footfall in their showrooms by making their cars less expensive than the competition they give themselves a chance of seeing more buyers and selling more products as a result.
The key for the car buyer is to understand what they are being offered and decide if it’s really relevant to their circumstances and the use of the car they are buying. It’s also a good idea to play the sales exec at their own game by negotiating on the products which are relevant and discarding the ones that aren’t.
With extended warranties, service plans, paintwork protection, gap insurance, MOT insurance, tyre insurance (and the list really does go on and on) there can be an awful lot of cost in there; some representing value for money some not so.
Car buyers, as always, should do the research first and ensure that before taking out these products they really are of benefit.
For a breakdown on many current products and what they mean to you look at our add-ons section for more information.