Kelly’s Korner: The Car Dealer’s Secret
Q. Did you see the ABC show 20/20 on October 27, 2000? What are you thoughts on this issue?
A. The October 27 ABC 20/20 show included a feature on the automobile business called “The Car Dealer’s Secret.” The segment showcased the profitability of finance reserve. I have been receiving a steady stream of e-mail regarding this show. Here is my line of thinking.
Do we go into Nordstrom’s and ask what their dead cost is on their products? No, we do not. We look at the price tag and determine if the benefits of the product outweigh our fiscally conservative nature.
Do we ask the mortgage holder their buy rate when we sign loan papers on a home? No, we do not.
Nor do we go into Safeway and demand to know the markup on their groceries.
I understand that, at the time of signing a contract, the dealer is viewed as the creditor and remains such until the dealer sells the contract to the lender.
This topic has surfaced before. If your customer begins to question your profits on reserve, I recommend that you look the customer right in the eye and explain that every business runs on profit and that your business makes a fair profit on all your activities – just as their business does. Remind the customer that your business has overhead and that overhead is paid from profits.
Customers generally enjoy a nice place to come to when they shop, a well-staffed service department with all the necessary tools, and trained personnel to take care of their needs. Customers like seeing a varied inventory before they make their final selection. None of these benefits are free; they come with a price tag called profit.
These benefits beat the alternative – a vacant lot with weeds growing, the sound of the wind hurling through the broken windows of a once thriving business that contributed to the entire community.
Thank God we live in a free enterprise system where by the sweat of our brow and the creativity of our imagination each of us can excel and provide for our families. The profits we generate are commensurate with the level of risk we are willing to take.
Review with the customer the benefits of financing with your dealership. Talk about “Holder in Due Course”, dealership-financed loans as a tax deduction, and about the unit title as the only security requirement for the loan. When all the pros and cons are weighed, I am confident that most of your customers will choose to use your finance resources. You can provide the best customer protection and, in many cases, can help the customer secure financing.
Note that the mortgage brokerage industry has already lost the battle and now must disclose the amount of reserve profit on each contract they execute.
If you wish to see the 20/20 transcript, visit the web at www.abcnews.go.com and look for the show called “The Car Dealers Secret”. If you also want to view the court filings, visit the web at www.nclc.org and follow the links to current court cases that were referenced in the show.
I have no crystal ball in which to see the future. I do know that happy customers do not complain, while customers unhappy with the dealership and their buying decision try to find any reason to get out of their financial obligation.
Strive to improve customer satisfaction with full and complete disclosure in all your transactions. Stay in contact with your customers. Business is built upon relationships. How are your relationships with past customers?