"An assignment for our class was to go to a dealership and critique a salesman or woman who waited on us. We weren't supposed to tell them this was for a class or that we were car salesmen. We were merely supposed to evaluate their performance in relationship to what we had learned. I chose a German car dealership along a street near my home. As I walked inside, it occurred to me that this was getting complicated. I was an undercover car salesman for Edmunds.com, sent to a dealership, which sent me to a seminar, which sent me to another dealership as an undercover shopping evaluator. I guess that made me a triple agent. Very good lines.
...
The next step in my training involved the use of the "4-square work sheet." Michael told me the 4-square was my friend, it was the salesman's tool for getting "maximum gross profit." As the name implies, the sheet is divided into four sections. When you have a prospect "in the box" (in the sales cubicle) you pull out a 4-square and go to work.
The information about the customer is written along the top together with the make, model and serial number of the car they want to buy. Then the salesman writes the sticker price of the car in large numbers in the upper right square on the worksheet. Michael stressed that the price of the car should be written in large clear numbers to give it a feeling of authority. He added that we should always write "+ fees" next to the price of the car (This includes license fees and sales tax.).
"Good penmanship is essential," he said. "This makes it harder for them to negotiate. "You're saying, 'Mr. Customer, if you want our beautiful new car, this is the price you're going to have to pay.'"
The other boxes on the 4-square are for the price of the trade-in, the amount of the customer's down payment, and the amount of the customer's monthly payment.
"When you negotiate, this sheet should be covered with numbers," Michael said. "It should be like a battleground. And I don't want to see the price dropping five hundred dollars at a pop. Come down slowly, slowly. Here I'll show you how."
The process begins by asking the customer how much they want for a monthly payment. Usually, they say, about $300. "Then, you just say, '$300... up to?' And they'll say, 'Well, $350.' Now they've just bumped themselves $50 a month. That's huge." You then fill in $350 under the monthly payment box.
Michael said you could use the "up to" trick with the down payment too. "If Mr. Customer says he wants to put down $2000, you say, "Up to?" And he'll probably bump himself up to $2500." Michael then wrote $2,500 in the down payment box of the 4-square worksheet.
I later found out this little phrase "Up to?" was a joke around the dealership. When salesmen or women passed each other in the hallways, they would say, "Up to?" and break out laughing.
The final box on the 4-square was for the trade-in. This was where the most profit could be made. Buyers are so eager to get out of their old car and into a new one, they overlook the true value of the trade-in. The dealership is well aware of this weakness and exploits it.
The opening numbers were now in place on the 4-square. At a glance, Michael said, you could see the significant numbers of this deal — purchase price of the car, trade-in, down payment and the monthly payments. As you negotiated you could move from box to box, making progress as you went. It allowed you to sell a car in different ways. For example, if the customer was determined to get full value for his trade-in, you could take extra profit elsewhere — in the purchase price or maybe even in financing.
The first numbers that go on the 4-square come from the customer. The down payment and the monthly payment are only what they would like to pay. Now, it's time to get the numbers that the dealership would like the customer to pay. These numbers are called the "first pencil" and they come from a sales manager in the tower. Michael said that the first pencil was the dealership's starting position. "You have to hit them high," Michael explained. "You have to break them inside — make them understand that if they want our beautiful new car, they're going to have to pay for it."
Here's how we were supposed to get the first pencil from the tower. After the customer test-drove the car we brought them into a sales office and offered them coffee or a Coke to relax them. Then we filled in the information about the car on the 4-square. We then picked up the phone and called the tower. Michael held his hand like a phone receiver with his thumb and little finger sticking out. "You say, 'Yes sir. I have the Jones family here with me and they have just driven a beautiful new whatever model, stock number blah blah blah.' Then you say, 'Is it still available?' Of course you know it is. But you want to create a sense of urgency. So you pause, then say to the customer, 'Great news! The car's still available!' Then the tower will give you the first pencil. Write it in each of the boxes."
I later found out that the first pencil is arrived at by the dealership in a very unscientific way. For every $10,000 that is financed, the down payment they try to get is $3,000 and the monthly payment they try for is $250. In this way, a $20,000 family sedan would require about $6,000 down and a $500 a month payment. (These payments are based on very high interest rates calculated on five-year loans. These numbers are so inflated that a manager I later worked with laughingly called them, "stupid high numbers.")
"But here's the beauty of this system," Michael said, "these numbers aren't coming from you — you're still the good guy. They're coming from someone on the other end of the phone. The enemy."
Michael returned to his scenario. "OK, so when you give these numbers to the customer you say, 'Here's a pretty good deal for you.' But Mr. Customer says, 'Oh man! Michael, I told you I can only put down $3,000.' So you cross out the $6,000 you wrote and put down $5,750. You say to the customer, 'Is that more what you had in mind?' And you nod as you say this. Try to get them agreeing with you."
This reminded Michael of something and he laughed. "Here's another thing. Never give the customer even numbers. Then it looks like you just made them up. So don't say their monthly payment is going to be $400. Say it will be $427. Or, if you want to have some fun, say it will be $427.33."
While Michael was training me, he didn't ever say, "Here's how to cheat the customer," or, "This is how we inflate the prices." In fact, he stressed that I was supposed to treat customers with respect to build a strong C.S.I. (Customer Satisfaction Index). But manipulation and overpricing was inherent in everything he said. The reason for this was simple — without overpricing we couldn't make a living. What we were selling was profit. Or, as Michael put it, "This is money for you — money for your family."
At times Michael became very excited as he thought of new things to teach me. At one point he said, "Oh! This is a good one! This is how you steal the trade-in." He looked around quickly to make sure no one overheard him. "When you're getting the numbers from the desk, they'll ask if the customer has a trade-in. Say it's a '95 Ford Taurus. And say you took it to the used car manager and he evaluated it and said he would pay four grand for it. If you can get the trade for only three, that's a grand extra in profit.
"So what you do is this," Michael pretended to pick up the phone again, "you ask the desk, 'What did we get for the last three Tauruses at auction?' Then they'll give you some figures — they'll say, $1,923, $2,197 and $1,309. You don't have to say anything to the customer. But he sees you writing this down! And he's going, 'Holy crap! I thought my trade was worth $6,000.' Now it's easy to get it for $3,000. That's a grand extra in profit. And it's front-end money too!" (I later learned that front-end money was what our commissions were based on. Back-end money was made on interest, holdbacks and other elements of the deal.)
...
I was already beginning to see the impact of the Internet because of something that happened during my first few days there. I was sent to the service department to talk to customers waiting for their cars to be fixed. Salespeople feel this is a good source of leads to buy new cars. Say a customer has just gotten nailed with a $2,000 quote for a transmission. Now's the time to move in and pitch the virtues of a new car.
There were typically a dozen or more people waiting for their cars to be serviced. They would either watch TV or read while they drank coffee and Cokes from the vending machines. I handed out my business card and chatted with a few people. One young guy was killing time by goofing around with his Palm Top computer. He was outfitted in designer jeans and a T-shirt, so I wasn't surprised to hear that he had just bought the radical new SUV our dealership sold. Michael had told me these vehicles were selling for over sticker prices, so I asked Mr. Palm Top how he made out.
"I got an awesome deal," he said.
"How awesome?"
"Three hundred below invoice," he smugly answered.
I asked how he did it. He said he checked prices on the Internet. He then called the fleet manager and made the deal over the phone.
I had a schizophrenic reaction to this. Part of me admired the fact that he had outfoxed the dealer. But the car salesman side of me was angry that I never "got a shot at him." It seemed like just a matter of time before people who, in the past, walked onto our car lot, would be on the Internet making deals.
The salesmen are only vaguely aware of this developing trend. I was standing on the curb next to George and we saw one of these high-demand SUVs ready for delivery.
"Another damn Internet sale," George said. "Why don't they turn that car over to us? We'd get a grand over sticker. Instead they're selling it at invoice. Does that make sense?" As the days passed I noticed more and more cars marked "carsdirect.com." And as I approached people on the car lot they often informed me that they were here to see the fleet manager. More Internet customers.
...
From my commission check it was clear that the minivan couple could have made a better deal and saved several thousand dollars. So where did they go wrong? Well, first of all, they negotiated as monthly payment buyers, rather than bargaining on the purchase price of the vehicle. When you agree to be a "monthly payment buyer" several variables are introduced that are harder to keep track of: the term of the loan can be extended up to 72 months (six years!) without your awareness and the interest rate can be raised. When you bargain on purchase price, it is a cleaner, simpler way of negotiating."
(Edmunds.com - Confessions of a Car Salesman)
