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34 AM June 26 2009 www. am- online. com Best practice Part- exchange By Tim Rose T he trade- in can be a major hurdle in the buying process if the customer has over- valued their own car. Absolutely essential to effective negotiation, and the profita-bility of the deal, is an expert appraisal and valuation. Starting the appraisal by asking the customer how much they want for their car will weaken the sales execu-tive's position as the customer will inevitably state the price they want, not the price they'll actually take. Instead, sales executives should open negotia-tions by stating what the car is worth, starting at full profit margin, then observing the customer's reaction. Sewells' Best Practice Guide to Sales Management recommends a process whereby the executive keeps the customer with them during the appraisal, not to point out any criti-cisms, but to keep them aware that the trade- in has been considered carefully and professionally. This will make them less likely to suspect the valua-tion is a figure plucked out of the air. The appraisal can even play into the sales executive's hands - if the customer has documents with them it indicates they're ready to buy, and any accessories on their trade- in could hint at upsell opportunities with their new car. Overcoming the unrealistic value The customer will usually have a misguided price in mind for their trade- in. With preparation and care-fully marshalled arguments the sales executive can attempt to negotiate down the customer's inflated part-exchange demands. One way around the issue is to share Keeping a part- exchange customer on your side Car owners often over- estimate their vehicles' worth but there are ways to win them over more information with the customer about the process of selling cars and the costs involved. Explain to them that, logically, if they advertise it privately at their wanted price, they will invariably take around 10% less, plus they have the costs of adver-tising it and shining it up for the sale. Also point out that a professional dealer might take up to 45 days to sell it, so as a private seller they may have it on the market for a couple of months, during which time its book value will be dropping and they may even still be paying finance on it. This ammunition could help to persuade them that the appraisal valu-ation wasn't unreasonable at all. Retail or trade? With the deal done, the dealer needs to decide quickly whether the part-exchange is to be traded on or retailed. While the economy was strong, most franchised dealers focused on new and young used cars. However, the reces-sion has led many to consider the profit opportunity in the older, cheaper end of the market. Peugeot dealer Wokingham Motors is one example. Since 2006, it has retailed its trade- ins under a separate brand, Runarounds. The cars are priced between £ 995 and £ 6,995 and most are sold for profit before reaching a 45- day cut- off, at which point they are traded out. The dealership makes additional profit from value- priced services and MoTs for the buyers. ?? ?? For more on handling trade- ins, email sewells@ bauermedia. co. uk for a copy of Sewells' Best Practice Guide to Sales Management. Unless dealers look at the number of part- exchange appraisals completed and start targeting their staff on this, it is unlikely that the dealership will reach its full potential. For a medium- sized volume brand dealership with a 5- 6% market share, the benchmark given by Sewells' Best Practice Guide to Sales Management is 12 appraisals per person per week. If the dealership has 20 or more people coming into the service department every day, it shouldn't be difficult for the sales executives to find enough prospects to achieve that number of appraisals. Sewells' guidance is that 75% of those appraisals should lead to test drives and, from industry averages, will convert to at least four sales. Part- exchange appraisal benchmarks 12 Number of daily appraisals needed to achieve four sales Having the customer with you during the appraisal keeps them aware that the trade- in has been considered carefully and professionally

Powered by www. am- online. com June 26 2009 AM 35 Maximise finance sales to increase profitability Appointing a business manager can provide dealerships with added focus for F& I sales By Tim Rose C ommission from finance and insurance sales is an impor-tant part of a dealership's prof-itability. Around three in four car buyers use borrowed funds of some sort. \ With strong advertising of attractive finance deals demonstrating monthly or weekly payments, it should be possible to generate up to 25% of captive customers who want to use the dealership's finance facilities. ?? ?? The customer will often query a payment, particularly if it is higher than the original budget. However, by quoting two payments, such as through differing deposits or contract lengths, the business manager is more likely to continue negotiations with the customer. ?? ?? If the customer asks what rate the offer is and wants to compare it with another lender, the internet or a file of marketing material collected from rival/ high street lenders could enable the business manager to continue negotiations by presenting the added benefits of the dealership's offering. ?? ?? If the customer has turned down extended warranty, GAP, PPI or even paint protection when placing the order, the business manager should be present at the handover of their car in order to offer them again. Overcoming objections car sales to ensure they have had an opportunity to meet all customers. Sales executives should ask finance-related open questions during their routine conversations with prospects. Examples cited by Sewells include how the customer funded the purchase of their current car, what extended warranty did they have on it, and what is their budget for a monthly payment. The responses will qualify how likely the customer is to require finance ahead of being referred to the busi-ness manager. Extended warranties, GAP insur-ance and payment protection insur-ance ( PPI) will all bring extra profit for the dealership. For warranties, 45% upsell should be regarded as a minimum KPI for the used cars department. With new cars the sell is KPIs for F& I Penetration Number of finance/ warranty/ insurance contracts multiplied by 100 then divided by number of retail deals. Income per retail sale Total F& I income multiplied by 100 then divided by number of retail sales. Around 75% of car buyers borrow money to fund their purchases Best practice Finance sales Although many dealers are tied into a manufacturer scheme, choosing a supplier partner for secondary finance provision, such as for used cars, must entail consideration of the income structure, standards, service and support and how quickly it will pay. One element is absolutely crucial - base rates must be competitive. The best commission structure in the world will not help if penetration is so low as a result of customers defecting to other lenders. Appointing a business manager will give medium and large dealerships added focus on F& I sales. Increases in penetration, income per retail sale and income per contract should be the business manager's key drivers and should be measured by the sales manager. Sewells' Best Practice Guide to F& I Management recommends adopting a sales process which aims to refer 100% of prospects to the business manager. Measure and grade the level of referrals to the business manager, from a face- to- face introduction down to no referral at all, to allow the dealer-ship to identify any problem areas. Incentivise the sales staff on referrals to the business manager, and even consider requiring the business manager to sign off all new and used a tougher challenge, particularly for those brands already providing five or seven- year warranties. However, in the current climate, if a customer is signing a four or five-year finance deal on a car with a three-year warranty the upsell opportunity is obvious. ?? ?? For more information on this topic read Sewells Best Practice Guide to F& I Management. For details call Sewells on 01733 468254 or email sewells@ bauermedia. co. uk