Why We Hate Salespeople "How Not To Close & Loss Leaders"

and some other sidenotes before we finish the Sales Process...

Published on April 6, 2004 By Sean Conners aka SConn1 In Consumer Issues

After the info has been presented, and you have taken your test drive. Perhaps you had a trade valued. The deler at the earliest opportunity, will move into "closing' mode.

There is an old acronym in sales called "A.B.C." or "always be closing." Meaning that at every point from the greeting to the end, always be looking for the opportunity to get a commitment and complete the transaction.

When I was in electronics retail, there was a small exception to that. All big ticket retail stores, outisde the car realm, will almost certainly advertise a "loss leader." A loss leader is something that is advertised at a price below cost. The company would then slash that commission to as little as the law would allow. I remember some 3,000 dollar big screen TV's paying a literal 25 cent commissions. Next to it, may be another similar one that would pay a healthy 5% of that price or 150 bucks. So you can guess that if you walked up to one of the advertised loss leaders, that your instant declaration of "i'll take it" wouldn't be met with the eagerness from the sales staff that you anticipated.

Instead of zooming in and "writing it up" the salespeople get all concerned and start explaing why your money is better spent elsewhere. From your perspective, you are offering to buy and spend 3 grand without any hassles. You would think that they would be crawling over each other to complete the transaction as soon as possible. From their perspective you are someone who is going to add 3,000 dollars to their "volume" numbers without producing a relative commission. Also in the back of his mind is how his warranty percentage will be affected. More volume, no warranty (the thinking is that people who buy advertised loss leaders are too cheap to warranty is long term). All of these things will affect his job stability. And while he's explaing all the intricate features to you for an hour, other salesmen are grabbing "ups" where they have real commissions and warranty commissions to earn. We will examine warranties later in depth, for now, it's just important to understand what the salesperson may be motivated by.

This doesn't mean you shouldn't buy the loss leader, that is up to you. But understand that when you go in to buy the piece, you may have to actually push the salesperson into writing it up. If you walk into a place and the salesperson is doing everything they can to get you to buy something else, you have found a loss leader. You should at least know why you are being treated like a 2nd class citizen. It may not be right, but the situation was set up by management. If you want to complain, complain to them, letting them know you know that their sales staff is sluggish to help you because of the system they have in place.

And the situation is one where they feel ok in advertising that product to you to get you come in and buy it, but you really don't want to sell it. Therefore, you disallow any salesperson from making a living from selling that product that was used to get the customer in the door.

One might call this "bait and switch." And it is. But many companies do technical little things to skate the regulations. Salespeople are not allowed to disparage or put down any advertised loss leader. They must be creative in their wording to try to show you "better values" than the advertised piece. The loss leader isn't a bad product in their presentation, but everything else is better.

Simple logic would suggest that no one would actually advertise the worst product they had to get people to patronize their store. And they don't. But somewhere between the Sunday paper and you coming into the store, that happened. Stores will put a token stock in a distant "warehouse" to keep within technical boundries concerning bait and switch regulations. But the fact that everyoone is trying to make this purchase as difficult as possible, certainly more difficult than trying to buy any other product that they aren't advertising at a loss, shows that you are being baited and switched. You probably won't be able to prove it in court, but it's still happening.

Back in our car dealer, the situation is a little different than most retail outlets that pay commissioned salespeople. On the whole (although i am sure there are exceptions) most dealers will not pay a quarter for selling any car. Usually car salespeople are paid at least a "mini" or minimum commission, even if the car loses money. That amount can vary, depending on the volume of the dealership and the usual margin on typical sales. If it is a dealership where most cars sell at around or below invoice, the minimum will be higher, like 100 or 150 bucks. If it is a dealership where the salespeople are expected to hold more margin and the delaer does less volume, it will be smaller, like 50 or 75 bucks.

Conversely, if the mini deal is larger, the dealer won't pay a commission above a flat rate unless there is significantly more margin in an individual sale. For example, in a dealer that is selling cars for the most part between invoice and 500 above, they generally will pay the same flat fee. But if you held 1000 or more , they may kick you back 25 percent or so to keep you around.

When we move to used cars, the situation and pay rate often varies. Dealerships will typically pay a 25% commission on the gross margin of the sale. That is the amount of the difference between the car's total cost and what the customer paid for it. In figuring gross margins, the ownership and management pull some stunts in many facilities to not only maximize the profit from the customer, but to also shave the salesperson's commission if they can get away from it. We will go over what everyone makes in these tranactions for real down the road, but this info will help in showing motivations.

The total cost of the used car will include a bunch of add ons similar to the invoice of a new car. Since laws usually don't require it, the dealer bundles these costs instead of listing them out like on a new car invoice. All the things like advertising costs and costs incurred to make the car ready for sale are gathered and reffered to as the "pack." The pack is the amount added on to the trade value to figure the costs. Also, like the holdback, most delaers also "pack in" a little money assuring them of not losing their shirt, even if the car loses money. Some dealers will seperate the dealer pack from the other costs, and some don't. If you are buying a certified car, you can count on the pack being the trade cost, plus reconditioning, which is usualy a "minimum" of 500 bucks charged by the shop, the cost of the "certified warranty" from the manufacturer the dealer represents on the new car lot and any other costs associated with the car whatsoever.

So, if a car traded for 12000 bucks, it would then incur the following mark-up. Say 700 for the warranty, 800 for the shop bill and 300 to vendors who repaired interior and exterior cosmetic flaws. Then the owner's pack of say 300 dollars is added on. Our 12000 dollar trade in now has a cost of 13,800. This car would probably have a starting price of 15,995 on most lots. Some may ask a little more and give themselves a little more cushion, some maybe a little less to try to turn it over quickly.

But most used car managers are going to figure on haggling away 500-1000 with the customer. Let's say the car sells for 15000 straight up ( plus tax / tag fees of course). The dealer would see this as a 1200 profit. In this scenario, as long as the numbers corresponded with the market value of the car in question, I would say all sides won. The dealer made a fair profit, the customer got a vehicle that was reconditioned with a warranty backing it for a fair price and everyone at the dealership got paid, ensuring the lights can stay on another day. By the way, the salesperson would get paid 25% on the first 1000 of gross and perhaps 30% or 35% on the amount over 1000. Some dealers might just pay a flat 25% on the amount, others may pay more on the whole amount. But you get the idea.

Strangely enough though, many times that 1200 gross will somehow become a 900 dollar gross in between the sale and by the time the dealer pays the salesperson. Dlealers are notorious for slipping in costs to lower commissions after the sale, especially to take them just below levels where they would pay a higher amount or percentage. It may not be ethical, it may not be legal, but it happens every day in car dealers everywhere. And usually the salesperson has little recourse as the numbers are thrown around and kept hidden in such a way that no one knows the real cost except the owner and his managers.

The salesman does know that whatever he gives up in the negotiation will come out of his pocket, therefore, he does have some motivation to hold some margin, especially on a used car sale. The manager, by the way, will be paid by the owner, usually on a bulk number instead of an individual sale. Catch a used car manager on a day where he may have already hit a home run or 2, and he may be willing to bend a little further with your car. But if you are not sure, the end of the month philosophy is much more foolproof.

If you have a used car manager actually showing you his cost numbers, which are packed, but not totally illegitimately, you may be in a situation where the deal isn't going to get any better come the 31st. More likely, this below cost car will be gone by the time you are done thinking about it.

Those lines have been used by salespeople of all types over the years, but sometimes, they are true. If you have done your market research and know the going rate for the car you are pursuing, you should have an idea of when the negotiation has hit the bottom line. At that point, stop playing games, especially the one that irreseponibly tells you that "if they dropped to here, they will go further" like every negotiation is a bottomless pit. It isn't. I have personally blown many people out the door as both a sales consultant and a manager when a customer got unreasonable or was trying to push the costs to an unreasonable level.

I got my 1st taste of this when I honeymooned in the Bahamas a long time ago. They had a market in Nassau, called the Straw Market, that was a haggler's paradise. And being a young eager salesperson with his new bride, I went in there haggling on everything. And I was gonna show them how a pro does it. I did manage to get some good deals, but after awhile, I noticed something else. I noticed the local merchants avoiding me. After a few times of this treatment, being a bold salesperson, I approached one of the merchants and asked her why the cold shoulder now. She responded by telling me that they were happy to accomodate me on some things initially, but it was becoming obvious that I was pushing too far and selling me things below cost didn't do anything for her and she would just as soon wait for the next customer.

Of course, that wasn't a quote, but it was the essence of her words. I didn't believe her, and went across the market to speak to another merchant. This gentleman, in his own words, put it about the same way. In a reletively short time, I became the customer I resented. I also became the customer that the salespeople would rather avoid than sell to. I knew that feeling, and after hearing it independently 2 times, I knew it was true. I knew that I was just like the guy who tried to push me into selling him a product on my salesfloor for a below cost, below market price for no good reason except "didn't I want his business?". And I knew that there were some people who just weren't worth dealing with and depite old cliches about customers always being right., the reality was that sometimes customers are indeed wrong.

I tried to "out expert" my salesperson. In doing that, all I did was cause their pride to kick in at some point. The same thing happens when a customer tries to tell a salesperson what they can sell the car for. Not an offer, but saying something like "sell me it for 12000, I know you can do that, you;re probably making thousands off me" will only cause the salesperson to back his numbers even harder. No one likes to be told how to do their job, or anything of the sort. Trying to muscle yourself into the deal by claiming such expertise and knowledge only shows how much you are lying and trying to "fool" the salesperson. Even if you actually do know everything and more than your consultant, don't show it. Let him think that he is the expert and maintain your knowledge of having ultimate control.

Even with the knowledge I give here, one should not take it into a dealer and announce that they know how everything works and this is the amount that they should charge you. If you do that, you will be me in the Bahamas. Even if they aren't polite enough to just walk away without any harsh words, you have now assured yourelf of never getting that price, unless desperation sets in for the dealer or some other freak occurence.

To see this better, think of your own life and occupation. Imagine someone coming in and telling what was what and this is what you will do. Most people would make sure they put a wrench in that person's ideas. Most people would make sure they got to correct that person telling them how to do things and show them that they don't know how everything works.

But someone might say, what if I really do know how it works? I say so what. It doesn't matter. First off, if you really did have that much inside knowledge, you wouldn't be dealing with a stranger. If you had that much inside knowledge, you would be working with one of your connections that got you that knowledge. The salesperson knows that. Or at least knows that to be true 90% of the time. Therefore, he knows that 99% of the time, he shouldn't give into those demands. As I have mentioned before, a professional salesman will use things he sees as obvious lies against you when it comes time to talk numbers. He won't call your bluff necessarily, as he is doing everything he can to avoid heated confrontations and appear friendly.

It is rather you having knowledge and playing along with their game that will assist you positively in getting the deal you want. Next time, we will finish the sales process by looking at the "trial close", "handling objections and reclosing", and" follow-up. "But by knowing what you know now, you will be able to control this final process and get the deal you want with less hassle.

stay tuned...

for more on how to get your dream deal on anything,,,go here and check out my "Why We Hate Salespeople" series...
Link

Comments

Dynosoar

on Apr 07, 2004

Well done, a little wordy, but well done.
I asume you have been out of the car biz for a while, as commissions are dwindling to the 18 to 20% range market wide, and used cars
are the only profit centers for the sales department.
I must question the warranty charged to the gross however, wouldn't this be a backend or F&I charge/profit ?

I am so glad I escaped the trap of car sales, moved into management, and then into ownership. People do not realize the stress or
the turnover in a sales force ( last I remember was around 300% annually ) It's a tough business where even the owner is lucky to see a
2 or 3% profit..................

Sean Conners aka SConn1

on Apr 07, 2004

thanks for the comments dyno...to answer your question, no, i have not been out for a while...the last 2 dealers i worked for did and still pay at least a 25% commission on used cars. one paid 30% on grosses over 1000 and 35% over 2000.

i will be getting more into profit centers soon as well as all the other behind the scenes stuff...yeah, some of it may be a little long winded, but they are basically rough drafts for a book (thus, it isn't really even in order yet)...by the time i finalize it and submit it for publishing, it will have no typos or run on sentences and i will clean up any unnecessary words.

any additional info or comments you have would be greatly appreciated...you can post here or email me @ sconn1@aol.com if you don't wish to be public with your statements.

one of the motivations behind this book is all the bad advice that consumer guides and such provide...i have seen over and over again people trying to follow their advice and just get eaten for breakfast by the pros. i can tell someone who is following consumer reports advice or edmunds by the questions they ask and such...i am sure you have sim. stories.

and when i get to talking about profit, i will be talking about the "ponzi" nature of many dealerships as well as actual net margins and such.

Sean Conners aka SConn1

on Apr 07, 2004

one more note dyno...the certified warranty i was referring to in the scenario of the used car was always charged to the used car dept. ...i wasn't referring to an extended warranty, but the one that a manufacturer offers and advertises on lower mile used cars.

although many of these warranties are in fact exteneded warranties, like the ones that are bought in F & I, they were charged to the used car dept. at both chrysler dealers and saturn dealers (both contributing to the bulk of my experience) that had certified programs. maybe you did some things differently at your place,,,i would be interested to hear about it...again, you don't have to publicly post, just email me.

sean:)
sconn1@aol.com

Wahkonta Anathema

on Apr 08, 2004

Book is just what I see here. This is a great series, filled with insights. It should be mandatory reading for any American, or consumer for that matter. I am a former sales person and find no flaw in your work. Carry on, you got a winner here. I'll recommend the series and look for it in stores when it comes out.

One section I would recommend is the high-pressure of resort/time share sales techniques. They have two hour verbatim sales pitches. It leaves them ulcerated from pressure, and often, Defendants in Court. They're a study for real.

Sean Conners aka SConn1

on Apr 08, 2004

thank you very much wah...if ya know any publishers , let me know, lol...

i will be venturing further into different sales environments including timeshares...thank you very much for the encouragement

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