Stupid auto financing tricks
04-04-2006, 07:03 AM
#1
Stupid auto financing tricks
Buyers, trying to get more for the 'same money,' are putting themselves deep into the red.
April 4, 2006; Posted: 10:23 a.m. EDT (1423 GMT)
By Peter Valdes-Dapena, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) - New car buyers are taking out longer and longer loans to finance their vehicle purchases, according to data from the Consumer Bankers Association. More than half of new car loans made by the group's member institutions were for five years or longer.
Reference: http://www.cnn.com/2006/AUTOS/tipsan...eze/index.html
April 4, 2006; Posted: 10:23 a.m. EDT (1423 GMT)
By Peter Valdes-Dapena, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) - New car buyers are taking out longer and longer loans to finance their vehicle purchases, according to data from the Consumer Bankers Association. More than half of new car loans made by the group's member institutions were for five years or longer.
Reference: http://www.cnn.com/2006/AUTOS/tipsan...eze/index.html
04-07-2006, 11:09 AM
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Originally Posted by rxtrom
YA, last year they tried this trick w/ me. I saw right past it.
Beware the 72 month loans. You save 50-100 bucks a month, but pay more in the end.
Beware the 72 month loans. You save 50-100 bucks a month, but pay more in the end.
04-07-2006, 11:16 AM
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It also depends on how aggressively you repay the loan. I financed my car for 6 years so we could have a lower monthly payment. However, I've been sending at least $100/month extra since we bought it. If I stopped sending the extra money now, and only sent the actual payment, my car would be paid off in about 4 years. In the end it's really what works better for you, as long as you're smart about it.
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04-07-2006, 03:33 PM
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How is this a "stupid auto finance trick"?
Extending the terms is a negative for a dealership. Sure, it helps selling a vehicle now, but repeats and referrals is where a dealerships thrive for long term success. It's not the new "up" walking in the door that you typically make less profit on.
So, what happens when someone does extended terms typically?
1) He or she did it because they can't afford the payments for a shorter term, but they still want that type of car. I am not discussing the merits of if this is a good decision or not, but it's a fact. The car business is mostly payment driven and people want as much car as possible. They look at their monthly output, and extended terms makes it affordable. The big picture is not as important to most (which is foolish).
2) So, what's this mean to the dealership? As I stated above, repeats and referrals is where the money is. It's not the new up walking in the door that you will never see again. Extended terms are nothing but negative in this aspect. People owe more on the cars, so they can't trade as often. When they do, it's the "dealership's" fault that they owe so much, so there goes any chance of repeat or referral business. That or if they do come back in the future, the turnaround time for a new sale has been extended because of this. Extended terms mean less in the long run.
That and it's not the dealership's responsibility to ensure that a customer is making a sound financial decision. That's the customer's responsibility.
Extending the terms is a negative for a dealership. Sure, it helps selling a vehicle now, but repeats and referrals is where a dealerships thrive for long term success. It's not the new "up" walking in the door that you typically make less profit on.
So, what happens when someone does extended terms typically?
1) He or she did it because they can't afford the payments for a shorter term, but they still want that type of car. I am not discussing the merits of if this is a good decision or not, but it's a fact. The car business is mostly payment driven and people want as much car as possible. They look at their monthly output, and extended terms makes it affordable. The big picture is not as important to most (which is foolish).
2) So, what's this mean to the dealership? As I stated above, repeats and referrals is where the money is. It's not the new up walking in the door that you will never see again. Extended terms are nothing but negative in this aspect. People owe more on the cars, so they can't trade as often. When they do, it's the "dealership's" fault that they owe so much, so there goes any chance of repeat or referral business. That or if they do come back in the future, the turnaround time for a new sale has been extended because of this. Extended terms mean less in the long run.
That and it's not the dealership's responsibility to ensure that a customer is making a sound financial decision. That's the customer's responsibility.
04-07-2006, 05:07 PM
#10
Another trick to auto financing is to have a credit union or bank approve the financing on a car, let the dealer sell the car to you then turn around and have the credit union or bank take over the financing. Car dealer give you a higher rate and make money financing the car (points or yeild spread) so they will lower the price if they can screw you in the financing office. When the car pays off the lender they used goes back to them to get the yeild spread back. Auto dealers make about 2% of the amount financed when they do the financing.
04-07-2006, 05:24 PM
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Originally Posted by Dialn24
How is this a "stupid auto finance trick"?
Extending the terms is a negative for a dealership. Sure, it helps selling a vehicle now, but repeats and referrals is where a dealerships thrive for long term success. It's not the new "up" walking in the door that you typically make less profit on.
So, what happens when someone does extended terms typically?
1) He or she did it because they can't afford the payments for a shorter term, but they still want that type of car. I am not discussing the merits of if this is a good decision or not, but it's a fact. The car business is mostly payment driven and people want as much car as possible. They look at their monthly output, and extended terms makes it affordable. The big picture is not as important to most (which is foolish).
2) So, what's this mean to the dealership? As I stated above, repeats and referrals is where the money is. It's not the new up walking in the door that you will never see again. Extended terms are nothing but negative in this aspect. People owe more on the cars, so they can't trade as often. When they do, it's the "dealership's" fault that they owe so much, so there goes any chance of repeat or referral business. That or if they do come back in the future, the turnaround time for a new sale has been extended because of this. Extended terms mean less in the long run.
That and it's not the dealership's responsibility to ensure that a customer is making a sound financial decision. That's the customer's responsibility.
Extending the terms is a negative for a dealership. Sure, it helps selling a vehicle now, but repeats and referrals is where a dealerships thrive for long term success. It's not the new "up" walking in the door that you typically make less profit on.
So, what happens when someone does extended terms typically?
1) He or she did it because they can't afford the payments for a shorter term, but they still want that type of car. I am not discussing the merits of if this is a good decision or not, but it's a fact. The car business is mostly payment driven and people want as much car as possible. They look at their monthly output, and extended terms makes it affordable. The big picture is not as important to most (which is foolish).
2) So, what's this mean to the dealership? As I stated above, repeats and referrals is where the money is. It's not the new up walking in the door that you will never see again. Extended terms are nothing but negative in this aspect. People owe more on the cars, so they can't trade as often. When they do, it's the "dealership's" fault that they owe so much, so there goes any chance of repeat or referral business. That or if they do come back in the future, the turnaround time for a new sale has been extended because of this. Extended terms mean less in the long run.
That and it's not the dealership's responsibility to ensure that a customer is making a sound financial decision. That's the customer's responsibility.
agree with most of this except the fact that you said fresh up arent money. a little off there...
fresh lot traffic (ups) are where the higher gross is. repeat/referal is where the volume is. about 70% of the dealerships traffic is repeat/referal. now it is true that as you make each sale to a repeat customer or a referal that each time that person buys from you they will let you make a little more money. for 2 reasons. 1 they are comfortable and they know how you work. and 2 they like you and people will typically pay a little more if they like someone.
just my .02 as a dealer
04-07-2006, 05:50 PM
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Originally Posted by tonylittell
agree with most of this except the fact that you said fresh up arent money. a little off there...
fresh lot traffic (ups) are where the higher gross is. repeat/referal is where the volume is. about 70% of the dealerships traffic is repeat/referal. now it is true that as you make each sale to a repeat customer or a referal that each time that person buys from you they will let you make a little more money. for 2 reasons. 1 they are comfortable and they know how you work. and 2 they like you and people will typically pay a little more if they like someone.
just my .02 as a dealer
fresh lot traffic (ups) are where the higher gross is. repeat/referal is where the volume is. about 70% of the dealerships traffic is repeat/referal. now it is true that as you make each sale to a repeat customer or a referal that each time that person buys from you they will let you make a little more money. for 2 reasons. 1 they are comfortable and they know how you work. and 2 they like you and people will typically pay a little more if they like someone.
just my .02 as a dealer
As a dealer, I am sure you have access to trainers such as Joe Verde, etc. I am too lazy to pull up statistics, but you will see the numbers will be broken down quite well regarding closing percentages and grosses.
Fresh ups is the lowest across the board as a norm, and my experience as a dealer definitely supports that quite a bit. Sure, you are going to have your lay downs that end up being huge pops from fresh ups, but that's typically not the case.
and repeats/referrals have one other HUGE advantage. The dealership is already sold. Be it the service department, the comfort level with the salesperson, etc. Quite simply, they trust you more and are MUCH more unlikely to shop you and leave.
If you are doing that well with fresh ups, that's great, but it's not the most profitable for a dealer normally. In fact, that's one of the biggest reasons there is so much turnover with new salerspeople. No established customer base, no follow up system, etc. You simply have to rely on fresh ups to survive, and that can be quite tough. On the other hand, some of the most successful salespeople making the higher salaries really should never have to take ups to continue to be successful. That is, as long as complacency doesn't come into play.
Last edited by Dialn24; 04-07-2006 at 06:35 PM.
04-08-2006, 03:29 AM
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Originally Posted by Dialn24
Going to have to disagree here regarding fresh traffic (ups) being the most profitable and me being off here.
As a dealer, I am sure you have access to trainers such as Joe Verde, etc. I am too lazy to pull up statistics, but you will see the numbers will be broken down quite well regarding closing percentages and grosses.
Fresh ups is the lowest across the board as a norm, and my experience as a dealer definitely supports that quite a bit. Sure, you are going to have your lay downs that end up being huge pops from fresh ups, but that's typically not the case.
and repeats/referrals have one other HUGE advantage. The dealership is already sold. Be it the service department, the comfort level with the salesperson, etc. Quite simply, they trust you more and are MUCH more unlikely to shop you and leave.
If you are doing that well with fresh ups, that's great, but it's not the most profitable for a dealer normally. In fact, that's one of the biggest reasons there is so much turnover with new salerspeople. No established customer base, no follow up system, etc. You simply have to rely on fresh ups to survive, and that can be quite tough. On the other hand, some of the most successful salespeople making the higher salaries really should never have to take ups to continue to be successful. That is, as long as complacency doesn't come into play.
As a dealer, I am sure you have access to trainers such as Joe Verde, etc. I am too lazy to pull up statistics, but you will see the numbers will be broken down quite well regarding closing percentages and grosses.
Fresh ups is the lowest across the board as a norm, and my experience as a dealer definitely supports that quite a bit. Sure, you are going to have your lay downs that end up being huge pops from fresh ups, but that's typically not the case.
and repeats/referrals have one other HUGE advantage. The dealership is already sold. Be it the service department, the comfort level with the salesperson, etc. Quite simply, they trust you more and are MUCH more unlikely to shop you and leave.
If you are doing that well with fresh ups, that's great, but it's not the most profitable for a dealer normally. In fact, that's one of the biggest reasons there is so much turnover with new salerspeople. No established customer base, no follow up system, etc. You simply have to rely on fresh ups to survive, and that can be quite tough. On the other hand, some of the most successful salespeople making the higher salaries really should never have to take ups to continue to be successful. That is, as long as complacency doesn't come into play.
as far as closing percentages you are right. fresh ups are the lowest percentage closed. but everywhere i have worked our fresh traffic is our highest gross. pretty safe to say each time a cousomer returns to "rework the deal" the gross goes down. Verde likes to use the "be back" traffic and classify them into the fresh ups catagory to pad his numbers. well those people arent "fresh ups" or "repeat/referal" they are "be backs" and should be figured into gross and closing percentages that way.. thats why i dont care for Verde..... Cardone is a much better trainer and truer numbers guy IMHO
i agree with everything else you say as i stated the same thing in my first post. but would like to add a little to the reason the turn over is so high. not only cause the new guys arent getting people closed. but it takes someone with a little money put away to be able to go a month with no pay. that and the fact a green pea hates to admit they need help/ t.o. and will let someone walk cause there are either to scared or to proud to ask for help. so they struggle for a month or two. i have a salesman that started about 5 1/2 years ago and he is a lot *****. has no kind of customer base and still makes 140k a year, year in and year out. gods honest truth. i have never seen someone work the lot like sam. his favorite time of the year is winter time cause it pushes poeple back inside and he is usually standing on the point by himself
04-08-2006, 07:01 AM
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The longer the term the smaller the payment - simple math. Most people do not care about total financing cost (which is the most important thing we need to consider)- they care about their monthy payment. By increasing the term dealer will be able to decrease your payment - thus making it more affordable to own a car (that is probably to expensive for you).
My situation (approximately): I bought my car with 15k downpayment and 17k debt @ 3%. My toal financing cost, if I finance it all 5 years, will be about 1.5k. In my case that would be not financially responsible to pay off the whole car. My average return on my investment is about 10% - so this 17k is making me 8.5% (after I pay 1.5 for car financing).
To sum it up:
If I had to finance my car at more then 5,6% I would never do this. Either pay in full or buy a car that you can afford. On the other hand if I had the opportunity to finance my car at less then 3% I would always fincnce it.
My situation (approximately): I bought my car with 15k downpayment and 17k debt @ 3%. My toal financing cost, if I finance it all 5 years, will be about 1.5k. In my case that would be not financially responsible to pay off the whole car. My average return on my investment is about 10% - so this 17k is making me 8.5% (after I pay 1.5 for car financing).
To sum it up:
If I had to finance my car at more then 5,6% I would never do this. Either pay in full or buy a car that you can afford. On the other hand if I had the opportunity to finance my car at less then 3% I would always fincnce it.
04-08-2006, 07:16 AM
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Thats what Im trying to say. High interest rates are the real problem. I financed the Z @ 1%. My total cost to finance my car for 5 years is/will be somewhere around $800. Why pay up front? I can make better use of my monies elsewhere.
What I dont get is people who finance at like 9% or something insane without thinking about what is really going on there.
What I dont get is people who finance at like 9% or something insane without thinking about what is really going on there.
04-08-2006, 07:29 AM
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People who finance their cars at 9%:
- have a bad credit
- have small (on no) downpayment
- are not smart
THEY SHOULD NOT OWN THAT CAR! THAY SIMPLY CAN NOT AFFORD IT!
- have a bad credit
- have small (on no) downpayment
- are not smart
THEY SHOULD NOT OWN THAT CAR! THAY SIMPLY CAN NOT AFFORD IT!
04-08-2006, 09:28 AM
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Originally Posted by tonylittell
as far as closing percentages you are right. fresh ups are the lowest percentage closed. but everywhere i have worked our fresh traffic is our highest gross. pretty safe to say each time a cousomer returns to "rework the deal" the gross goes down. Verde likes to use the "be back" traffic and classify them into the fresh ups catagory to pad his numbers. well those people arent "fresh ups" or "repeat/referal" they are "be backs" and should be figured into gross and closing percentages that way.. thats why i dont care for Verde..... Cardone is a much better trainer and truer numbers guy IMHO
i agree with everything else you say as i stated the same thing in my first post. but would like to add a little to the reason the turn over is so high. not only cause the new guys arent getting people closed. but it takes someone with a little money put away to be able to go a month with no pay. that and the fact a green pea hates to admit they need help/ t.o. and will let someone walk cause there are either to scared or to proud to ask for help. so they struggle for a month or two. i have a salesman that started about 5 1/2 years ago and he is a lot *****. has no kind of customer base and still makes 140k a year, year in and year out. gods honest truth. i have never seen someone work the lot like sam. his favorite time of the year is winter time cause it pushes poeple back inside and he is usually standing on the point by himself
i agree with everything else you say as i stated the same thing in my first post. but would like to add a little to the reason the turn over is so high. not only cause the new guys arent getting people closed. but it takes someone with a little money put away to be able to go a month with no pay. that and the fact a green pea hates to admit they need help/ t.o. and will let someone walk cause there are either to scared or to proud to ask for help. so they struggle for a month or two. i have a salesman that started about 5 1/2 years ago and he is a lot *****. has no kind of customer base and still makes 140k a year, year in and year out. gods honest truth. i have never seen someone work the lot like sam. his favorite time of the year is winter time cause it pushes poeple back inside and he is usually standing on the point by himself
For a new salesperson, getting started is definitely tough for many reasons, including what you stated. Too many new people are afraid to get help from the manager or get another salesperson involved and split the commission. When in reality, it would be better for several reasons. More sales, and really a good source of OJT regarding how to handle objections, etc.
As far as your boy Sam, that's how I was when I first started. Winter to me was just an excuse for some people not to do well, when in reality, it was easier. Not many people are going to be messing around looking at cars when it's 10 degrees out, snow is falling, and the wind is blowing it around. Some of my best days was when the weather was crap. Less competition from salespeople "acting" like they are busy to stay warm or dry, and I just went out of my way to make it easier for the customers (using the front of the service department to show them the car where it's warm, etc.).
Anyway, it sounds like Sam is doing a solid job, but just imagine if he did have a solid follow up system. He would work not nearly as hard and likely would be making even more money.
04-08-2006, 10:07 AM
#19
The argument I can get a loan for 5 percent and make 10 percent on my investments is pretty damn weak. First, who has the cash and discipline to borrow $30,000 to buy a car, then invest the $30,000 that they do have? Second, what fixed rate security is guaranteed to pay 10 percent?
Read the threads titled:
Got into a financial bind. Have to sell he 350Z.
Too many bills. Have to sell the 350Z.
Can no longer afford 2 cars. Have to sell the 350Z.
I bet $100 that none of the owners above paid cash. None.
Read the threads titled:
Got into a financial bind. Have to sell he 350Z.
Too many bills. Have to sell the 350Z.
Can no longer afford 2 cars. Have to sell the 350Z.
I bet $100 that none of the owners above paid cash. None.
Last edited by davidv; 04-08-2006 at 02:45 PM.
04-08-2006, 02:32 PM
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Rule number 1: you can not afford it - don't buy it.
Debt enables people to "afford" things. Instant gratification is the appropriate word - why wait if I can get it right now. Savings rate in US is negative... people spend more then they make. At least economy is growing
I deal with investments. And I can assure you that I know many people that could buy a house with cash, but instead they get a 30 year fixed mortgage and invest the money. They are better off this way - they make money.
My example was to prove that sometimes it is good to take debt - but if you have cash (or eqivalent) on your account. Taking a debt just to but thigs (and improve your image) is just plain stupid.
If you want something secure... just look at CDs. you can get a 6,7 month cd paying about 5%. => still more than 3% on the car loan
I believe in paying cash and being financialy responsible. Thats why I drive a Z and my friends drive BMWs...
Debt enables people to "afford" things. Instant gratification is the appropriate word - why wait if I can get it right now. Savings rate in US is negative... people spend more then they make. At least economy is growing
I deal with investments. And I can assure you that I know many people that could buy a house with cash, but instead they get a 30 year fixed mortgage and invest the money. They are better off this way - they make money.
My example was to prove that sometimes it is good to take debt - but if you have cash (or eqivalent) on your account. Taking a debt just to but thigs (and improve your image) is just plain stupid.
If you want something secure... just look at CDs. you can get a 6,7 month cd paying about 5%. => still more than 3% on the car loan
I believe in paying cash and being financialy responsible. Thats why I drive a Z and my friends drive BMWs...
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