Before I get into negotiations and some of my thoughts about it, I want to talk a bit about what the new salesperson knows. I'll tell you what most new salespeople know: nothing. I know that you may be hiring someone that sold some other type of tangible item. They may have a pretty decent understanding of how deals are done and how profit is calculated and maybe even how commissions are figured in retail. And that's fine. The salesperson I'm talking about is your typical new hire-someone who has worked in a factory or a restaurant, or even in some other form of basic retail. They don't understand how a car deal works, they don't understand what a "good deal" is, or even how their pay is computed. And I think that's sad. I am not saying that we need to educate new salespeople so much that they question everything, think they are getting penciled left and right, and are always crying about the pack. I just think they need to be taught a few things.
1. What is a "good deal"?
2. What kind of profit does a salesperson generate in relation to other industries?
3. What is a manager doing when he/she does a wash sheet? (How does the manager compute profit or determine whether he/she will or won't accept a customer's offer?)
4. What does managing my own deal mean?
What is a good deal to a customer? A good deal is nothing more than a state of mind. It is not when the customer is happy or when the manager is happy or when we have a big profit. It's simply whatever the customer thinks is a good deal. If I were selling you $50 rubber hose flange gaskets for $38, that might be a great deal, if you need rubber hose flange gaskets. If you don't, there is no such thing as a good deal. I say this so you can impress upon your salespeople that they must sell the heck out of every vehicle and make sure they have done a complete job. That will make convincing customers that they are getting a good deal much less difficult. Before you start working deals with your salespeople, be sure their customer reallllly wants the unit.
What kind of profit does the auto industry make in relation to other industries? Now, these are very hypothetical and there are lots of variables, but after reading this, I think you'll understand. If you were to buy $10,000 worth of furniture at Manufacturers' Suggested Retail Price, how much profit do you think the store is making? I sold furniture and by my estimate, $5000. Buy $10,000 worth of clothes and the retailer probably makes in the neighborhood of $6000. There was a clothing store in the Midwest where the owner became a millionaire selling two for one! Buy $10,000 worth of jewelry and how much are they making? $7000 is probably conservative. Borrow $10,000 from the bank for four years and they will tell you right up front they are going to make nearly $3000 on you (they call it interest) and you gladly sign away.
I know that nowadays there are not many new cars with an MSRP of $10,000. (Kia and Festiva, maybe?) But a few short years ago, there were. And the typical profit on those cars was 8 to 12%-$800 to $1200! Does that sound like we're trying to rip anybody off?
You need to remind your salespeople of this. They are selling a good service at a fair price. To some, a fair price (good deal) is right on the window. To some it might be less. But it should never be lowered because your salesperson thinks it's too expensive. And it will never be a good deal if the customer doesn't want it.
What is a manager doing when he/she does a wash sheet? (How does the manager compute profit or determine whether he/she will or won't accept a customer's offer?) Your managers need to show a salesperson how a deal works. Very rarely, if ever, have I seen a sales manager sit down with the new salesperson and explain the whole thing before the salesperson gets into a deal. We all know how it works and it is easy to take a few minutes and run down the numbers of a typical deal. Include the trade, the amount owed, the taxes. Even the negative equity if such is the case. Giving the salesperson confidence will help them. It also puts them on the same playing field as the manager. They feel like they are part of the team.
What does it mean to manage my own deals? I firmly believe that a salesperson should never manage their own deals, the reason being that the only way they can do that is to know what you have in a vehicle. And if a salesperson knows how much you have in a vehicle, they'll sell it for less, or write a weak or no-profit offer...every time, guaranteed. You know it and I know it. There is a fine line between having the salesperson understand how profit is determined and actually telling them how much you have in a car. So once you know that your new salesperson understands how a deal works, they only need to know the sticker price and work from there down.
After you or your managers have explained all of the items above, you can confidently send a salesperson into negotiations. They will negotiate from a position of strength because they have the knowledge and understanding. It all makes sense to them.
All dealerships negotiate deals differently and there is no way I can sit here and tell you how to do it. You have been in business for a long time and whatever you are doing must be working. What I will caution you on, though, is new management. Whenever you hire a new manager, they bring along with them ideas and techniques from all of their previous experiences, some of them good, some of them not so good. What you need to do is make absolutely sure that they are doing it your way, and that all the managers are doing it the same way-not that their ideas might be worth incorporating, but you can't have three managers working deals three different ways. I've seen it happen. The new guy comes in with an offer, the manager pencils back a counter offer and the salesperson says, "The new car manager usually goes in for the first bump for me." Make sure everyone is looking out the same window.
Now back to negotiating. I told you that everyone does it differently. The three tips I can offer are
1. Make sure your salespeople start out all deals at list (or the advertised price).
2. I would suggest that your sales manager give the salesperson a starting price. "If the guy won't commit at list, drop $300 and see what he says."
3. Make sure your salesperson NEVER asks a customer what he's thinking! "So what are you thinking you'd like to pay for this car today, sir?" We've all been in the business long enough to know that if this is a $10,000 car, the guy is thinking $7500. Why would we have the salesperson ask the guy what he's thinking? We already know what he's thinking and it's ridiculous! The key to good negotiations is the ability to let the customer save face. If a customer says, "$7500," the salesperson can't say, "How about $9500?" and expect the customer to say OK. It will never happen. The customer would look foolish. Be sure your salespeople always drop and sell.
When it comes to the art of negotiating, you and I know how tough it is and how tough it can be on new people. I can't teach how much to drop with each customer on each car. That depends on the customer. If the guy stands up and says to the salesperson, "You're crazy, I would never pay that!" I might drop $500 on my next offer. But if the customer is wishy washy, I might drop $50. I can't teach that and I don't think you can either. I think your salespeople need to learn that by doing deals, by working closely with management on every one-and then they'll get it. In the next issue we will talk specifically about some of the techniques involved in negotiating, including taking the car away, splitting the difference, and more.
Good luck and good selling.
A 22-year veteran of the automotive industry, Jack Bennett is the author of "You Can and Should Sell Cars," a book which has sold thousands of copies and is being used in sales training by dealers from the Bahamas to Canada.