And WE Make Too Much Money?
I do not think I can stomach reading another article or blog post of how untrustworthy the automobile business is. Plastered on the internet and “consumer interest” magazines boast information of the “inside secrets” of dealerships or “how to negotiate your best deal.” What consumers do not realize is we read those articles too and I actually get quite a laugh. This is a myth-based business that the public really doesn’t know much about. People think you can walk in with a suitcase full of cash, make a ridiculous offer on a vehicle and the dealer will take it. Contrary to public opinion, the 8- 13% profit margin is very small when compared to other retail businesses.
The true kings of margin are furniture, jewelry, and owning a concession stand. Yes, that snow cone that is quenching your sun drenched thirst only has as much as a 97 % profit margin! Clothing has one of the biggest profit margins in the retail industry. Coach leather goods boast of a 78 % profit margin while Polo, Crocs, and True Religion hang around the 55% margin. That # 6 supersized value meal from McDonalds has a 39% margin! We all go to Wal-Mart to save a buck or two and believe it or not, they too make a profit. The Walton family did not earn Billionaire status by selling goods at a loss- they earned it by expertly creating a perception of being the low-price leader. The truth of the matter is they come in slightly less than the industry average of 24.8% versus 25.3%. By coming in ½ % less than the industry, customers perceive that they are getting the best deal possible. When is the last time you told the cashier to call the store manager and tell him that you would pay cash for the entire cart if they will throw in a box of Peanut Butter Cap’n Crunch? Heck, even the online auction Ebay makes a 32.9% profit margin repping goods for other people. Now that’s the American dream!
Who REALLY is making the money? I have yet to read a smear campaign of how to negotiate your best deal on a Polo shirt, True Religion Jeans, or a pair of lime green Crocs. Customers excuse the profit margin on other products because the perceived loss is less. (i.e. “It was only $9.95!”)
Unfortunately, a few bad dealers have shoved all of us “car salesmen” into the rip-off pool. There are many good dealers out there who really provide a service to their customers. As a matter of fact there are plenty of dealers who take advantage of their customers. You read that right; the dictionary defines advantage one way, “to be of service; benefit; to prove beneficial to.” So yes, great dealerships take advantage of their customers by providing benefits. They take advantage of them so well, that they have made a career on them coming back to become taken advantage of again and again. As a matter of fact, they send their closest friends, family members, and anyone else to get taken advantage of. Good dealers provide customers with dependable transportation and give them superior service after the sale.
Don’t you think it is time we stop defending ourselves for making a profit? As a sales professional, you provide a service and deserve to make a fair profit. Half of your commission is made when you sell the vehicle, the other half is made by providing them superior service for as long as they own your product (a $2000 profit spread over 5 years is only $33 per month-about the same price of a security monitoring service ).
I challenge you to negotiate from a position of strength by demonstrating the level of service you are willing to provide your customers- both today and for the future. Rest easy at night knowing that 1 out of every 10 jobs in America depends on the industry that you proudly represent. I'll see you next time on the blacktop!
*Originally printed in AutoSuccess Magazine
Comment
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Comment by Marsh Buice on May 30, 2012 at 2:21pm
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I'm sure the manufacturer would love to cut out the dealer here, but they havent devised a way how to :)
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Comment by Russell Grosser on May 30, 2012 at 2:02pm -
I completely agree. As an aside, I don't know what the structure is like in the States but up here there is one manufacturer who has kept 80% of the stores corporately owned. They've maintained gross profits, earned a larger balance of the market share (due to consistency between dealerships which leads to consumer confidence/trust I assume), and are the one manufacturer that people in Canada aspire to work with. Mercedes is who I'm speaking of, and if you were to visit one of their stores right before visiting a franchised Audi or BMW store here in British Columbia, you will find a drastic difference in the level of service and care that they put towards the consumer. As of late, you would also notice a large discrepancy between the calibre of salesperson working on the sales floor.
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Russell, I agree with you the system is flawed and needs to be rennovated; we are losing many great salespeople bc the hrs vs the payout cannot be justified. As you say, the dynamics are quite large-it's like trying to hug a mountain. In the meantime, we have to do a better job of arming our teams with relevant material. We cant rant in sales meetings and expect them to be positive. Just like our kids, we have to correct them and in turn build them up. As far as the manufactures, they've got to listen to us in the trenches-so simple in thought yet no long term committment to the execution. Often, "they" listen only in dire circumstances...as the biz improves they return to their glass towers. On both sides, we need to be able to effectively communicate then come up with a resolution. Too many fingers pointed...Thanks for your insightful thoughts.
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Comment by Russell Grosser on May 30, 2012 at 1:06pm
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One other area that wasn't discussed was the perpetuation of the myth by the factory. It's hard for people in our industry to demonstrate their integrity when the environmental conditions of the market are so dynamic.
As a very short and direct example: Let's say in December that the factory decides to offer a $5000 delivery credit on a vehicle with a normal front-end profit margin of $3800. In January that offer expires. You almost can't blame a customer for their confusion when they have a co-worker or neighbour who paid $5000 less than the best deal they've been able to negotiate in January. Now the dealer is forced to make a decision as to whether they want to earn that customer for the back end of the store, or if they let the customer leave believing that they tried to rip him off.
It's an industry like no other. It's a very unique situation where on occassion the corporate offices actually impede their franchise network from overall success.
Now let's look at the dealers again. How many times have dealers within an area agreed to limit their discount levels so that each store can service their own demographic.... And how long does that usually last? It doesn't! Everyone wants to be the best, the mom-n-pop stores are being replaced by large groups that can absorb losses, and further down the spiral we go.
To continue this horrible cycle; now that gross profits are in the toilet and customers don't know who to trust or when to buy, what is happening to the professionals in our industry who operate with integrity and ethics? Well, there is only so long a person can take a $40,000 - $60,000 reduction in income before they look to other industries and/or opportunities. Great salespeople don't want to be salespeople anymore! They want to be managers where they have some guaranteed income. So at that point, dealers just need warm bodies on the floor..... The ones that don't care as much and will do what it takes for their all mighty income.
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Thanks my sister!! Always appreciate your support, Nancy.
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Comment by NANCY SIMMONS on May 29, 2012 at 7:24pm
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I shared this today.....everywhere....Love it!
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You said it all Stan...this is definitely the School of Hard Knocks! Thanks Stan for your support and input brother.
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Comment by Stan Sher on May 29, 2012 at 5:10pm
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I know I love this business. This business creates a certain mindset. This business transforms people and makes them better. You learn skills that no education can ever teach you and you understand how the real world operates. Besides it pays well and you can be a success.
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Ed, those of us still standing are the ones who LOVE this business. I truly love the biz and the people I work for and with. I'm on your train brother. Thanks for you inspirational comments. I feel the passion brother.
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Comment by Edward Harting on May 29, 2012 at 9:20am
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And all this time I thought I loved the car business because I had gas in my bloodstream and that the sounds and smells of F1 race day got me intoxicated. Providing a much needed service where the after sale relationship was unlike any other business was at the core of my inspiration and satisfaction. Our industry is in the midst of rapid change, but you can rest assured that making a profit or commission was never my primary goal. The success of the automotive dealer, salesperson or service technician is grounded in the desire to help someone fulfill their needs, goal and dreams. Sure the customer may not need a Ferrari, a 1950's Convertible or a lifted 4X4, but I'll certainly do my best to find them the one they want... I am passionate about cars and I believe that my customers are too.
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