Car Dealer Finance Managers: The Best Of The Best
I was recently in a position to help a friend buy a car at a major car dealership. After she picked out her vehicle, test drove it, negotiated price, and filled out the initial paperwork, she headed into the business office. It was there that she and the Finance Manager completed the last of the paperwork—including for the DMV, thank God. The Finance Manager is often referred to as the F & I Manager, which stands for finance & insurance. I was surprised when friction arose between my friend and the burly Finance Manager sitting across the desk from us.
During a natural break in the process, I pulled my friend aside and tried to explain the Finance Manager’s role at a car dealership. When I was Internet Manager for a major car dealer, I worked closely with the one to four Finance Managers we had on duty at any given time. I ended up describing the position of Finance Manager as the ‘best of the best’ in car sales. The Finance Manager doesn’t actually sell cars, but is responsible for creating a significant amount of profit for the dealership on any given deal.
Save the Deal
Finance Managers almost always come up through the ranks of car sales. At some point in their career they were a “green pea,” or rookie salesperson being trained in the art of persuasion. Many have worked as Sales Managers, which is a crucial position at a car dealership with an enormous amount of responsibility. A Sales Manager works the “front-end” of the deal, guiding the salesperson through their duties, structuring each deal, and making the final decision on price, interest rate, cost of accessories, and so on.
When a Sales Manager quarterbacks a deal that effectively “gives away” a new vehicle for the dealer’s cost—or even at a loss—it’s up to the Finance Manager to save the deal by generating profit on the “back-end.” It was at this point that my friend became irritated with the Finance Manager. My friend was buying a pre-owned vehicle that was certified by the manufacturer. (By the way, I highly recommend you at least check out certified vehicles; see Buying Certified Pre-Owned Vehicles (CPO).
The specific point at which my friend became upset was when the Finance Manager kept coming back to the extended warranty he was trying to sell. Like a dog with a bone, he wouldn’t let go of trying to “close” her on the extended warranty even though she kept saying “no” to his offer. Having worked on the dealer’s side in this situation, I had a pretty good idea what was going on.
In the Trenches
A little more background: my friend knew that I used to negotiate car deals for a major dealership. At times, I acted as a “closer” for other sales people. She asked me to help her buy this used car because she simply didn’t know how to go about getting the best price, and assumed I would. It a good decision on her part.
I used the same techniques I teach on this website to get the price on her certified used car close to the dealer’s actual cost. In other words, I had sucked out virtually all the profit the dealership hoped to make on the “front-end.” It was now the Finance Manager’s job to get the profit back up to a respectable level by selling one of the many products he had at his disposal on the “back-end.”
My friend had clearly said “no” to every item he tried to sell and he was about to strike out. The last product on the list was the extended warranty. This was his last chance to save the deal and he wasn’t about to give up. Twenty minutes later he was still extolling the virtues of an extended warranty while my friend’s blood began to boil with frustration.
Did my friend buy the extended warranty? Did she get up and stomp out in frustration? Read how it ended in tomorrow’s column.
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The author’s The 8 Biggest Mistakes Used Car Buyers Make and How to Avoid Them is free at BayAreaCarGuy.com.
Buying Certified Pre-Owned Vehicles (CPO)
Anyone familiar with my previous automotive industry articles knows that I recommend that family and friends at least consider certified pre-owned (CPO) vehicles when buying used cars. If I make that recommendation to people I know and love, you can bet that I recommend certified used cars to just about everyone else.
Why Should You Buy Certified?
When you buy a certified pre-owned vehicle, you are getting a used vehicle that meets a higher standard. Peace of mind can be priceless. To qualify, a CPO vehicle can only be a few years old with a limited number of miles. It has to pass an extensive mechanical inspection with any deficiencies fixed. Then the manufacturer – not the dealer – adds an extended warranty. If something does go wrong, the buyer is protected.
In addition, there are usually other benefits that can include roadside assistance, trip interruption service, a free vehicle history report, and other goodies.
It’s Buyer Beware
In most states anyone can “certify” a used car. Because no watchdog agency governs its legal definition, any used car dealer can slap a “certified” sticker on any used car. So having a “certified” sticker does not mean a given vehicle has undergone an inspection or reconditioning process. It’s only the well-known manufacturer certified programs that I recommend. These are generally only available at like-minded dealerships. For example, Ford’s certified vehicles are only available at Ford dealerships. Honda’s certified used cars are only available at Honda dealerships. And so on.
Consumers generally pay a premium when buying a CPO vehicle from a dealer. When I was Internet Manager for a major dealership, the added cost for certified vehicles was in the range of two to five percent. Some luxury models were more, up to eight percent.
Good news for savvy buyers: the benefits of a CPO program don’t diminish even if you make a steal-of-a-deal on the certified car itself. So the actual added price to the consumer for a certified vehicle will depend upon how good you are at negotiating price.
Still, beware of dealers asking too much for certified vehicles. Yes, there is added value there. However, like any car deal, be prepared to walk away if the price is not reasonable. This is where savvy buyers do their homework. Use KBB.com and Edmunds.com to establish what other buyers in your area are paying for similar vehicles. Kelly Blue Book (kbb.com) allows you select the value of certified vehicles specifically.
Every used car is unique. No two cars are in the same condition with the same number of miles. However, the websites listed above at least allow you to have a targeted selling price to shoot at during price negotiations. Such comparisons allow you to know when your deal is reasonable or not.
More Help
Buying a pre-owned vehicle can be like finding your way through a mine field. That’s why I wrote The 8 Biggest Mistakes Used Car Buyers Make and How to Avoid Them, which is free at BayAreaCarGuy.com. I complied a list of the major mistakes my customers made in one, easy to read PDF that you can download for free.
Good Luck!
Beware Bait And Switch Car Dealer Tactics
As an Internet Manager for a major car dealer, I was asked about “bait and switch” tactics in the auto industry on a regular basis. What is “bait and switch?” It’s a tactic that car dealers use to entice customers into the showroom with a low priced ad car—one that usually doesn’t have the features most buyers need—and then switch them to a higher priced model. Car dealers are not breaking the law as long as they are willing to actually sell you the lower priced car. This kinder, gentler bait and switch is simply good old American marketing ingenuity where it’s up the buyer to beware of such schemes.
Use Caution When Reading the Ad
When I worked in the industry, most dealers were careful to follow the exact letter of the law when placing ads. This works in your favor if you know what to look for.
For example, is the model of the ad car listed? It should be. Do a search on the Internet for that specific model to make sure it has the features you want. Does it have a manual or automatic transmission? Air conditioning? Power windows? Is the color listed, and if so, is it acceptable?
You want to make sure that the car listed in the ad meets your expectations. Then, confirm that there are no hidden terms that you find unacceptable. Read the fine print at the bottom of the ad to confirm that you understand all the terms as set out by the dealer.
Finally, does the dealer list how many of the cars at this price are in stock? Are the last digits of the Vehicle Identification Number (VIN) in the ad? If so, write them down and take this information with you to the dealership.
What Is Wrong with this Car?
We discovered in yesterday’s article that customers who don’t do their homework often find themselves at the dealership looking at a car that doesn’t fit their needs. This can be exactly what the dealer intended. If it happens to you, you’ll probably find yourself surprised and disappointed with the car that was advertised: manual transmission and no air conditioning. At this point you can expect a sales person to cleverly switch you to a car that has all the features you want, but also has a much higher price tag.
At this point, you have two options:
- Stand up and walk out. After all, do you really want to do business with a firm that goes out of its way to manipulate customers in this manner?
- Realize where you are at in the buying process: you were sucked in by a successful bait and switch marketing ploy. Nothing illegal; just irritating. The car that enticed you into the dealership does not have the features you want. The car that does have the features you want is priced significantly higher than what you want to pay.
Realize that when you walk into a dealership without pre-negotiating the selling price—or it having a super low price like the ad car—you will usually begin negotiating from the Manufacturer’s Suggested Retail Price (MSRP) or higher. If you contact a dealer’s Internet department by email, you will probably begin the process closer to invoice price, and in some cases below invoice.
Where do you want to begin negotiating? At a high price or one that’s lower? If you prefer to begin closer to invoice, then stand up and walk out.
In the end, this is a pretty good rule to follow: if the deal changes by the time you arrive at the dealership, turn around and walk away. You’ll keep more of your hard-earned money in your pocket that way.
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The author’s The 8 Biggest Mistakes Used Car Buyers Make and How to Avoid Them is free at BayAreaCarGuy.com.
Watch for Bait And Switch Tactics When Buying A New Car
Let me make something clear right at the beginning: most car dealers do not engage in illegal bait and switch activities. True bait and switch tactics are fraud and therefore illegal. They are deliberate misrepresentation of the facts relating to the product being sold or the terms of the sale. If you experience a true bait and switch scheme, call the police.
Most car buyers experience a kinder, gentler bait and switch, one that is not illegal, but instead, is simply a marketing ploy that entices buyers with a remarkably low priced, usually new vehicle. The dealership then cleverly helps the customer realize they don’t want that car, but instead want a more lavishly equipped vehicle with a higher price tag. The latter usually provides more profit to the dealership.
Watch the Marketing
How does this soft-sell bait and switch happen? Car dealers place an ad for a popular model, except the advertised car does not have the features that most buyers want. The ad car may have a manual transmission, be a coupe or 2-door model, or lack air conditioning or power windows. If you’re not familiar with all the models that a particular manufacturer offers, you can be easily fooled.
Consumers end up happily walking into the dealership and ask to see the ad car. They experience surprise and disappointment when they realize the car they’re looking at is not what they had in mind. At this point, the salesperson cleverly points to a nearby vehicle that has all the features they want. The prospective buyer is relieved. Their expectations are now met, and they eagerly take this better-equipped vehicle for a test drive.
This kinder, gentler bait and switch seems to have worked. The consumer came into the dealership for one car and–for whatever reason–switched to another model. Nothing illegal took place because the dealer was more than willing to sell the ad car at the advertised price. It’s not illegal if not many people want a manual transmission with crank windows and no air conditioning.
However, the actual success of this ploy won’t be known until the buyer encounters the higher price of the switch car. Too much sticker shock could send this car buyer running back home looking for another, less expensive vehicle. However, the ploy works often enough that dealers around the country continue to play this game.
Tomorrow we look at what you can do so you don’t fall into this marketing trap.
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The author’s The 8 Biggest Mistakes Used Car Buyers Make and How to Avoid Them is free at BayAreaCarGuy.com.
