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

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Comment by Marsh Buice on May 7, 2012 at 8:06pm: Chris, thanks for reading and your support brother. :)

Comment by Chris Fritcher on May 7, 2012 at 3:52pm: Great stuff Marsh. Keep them coming.

Comment by Marsh Buice on May 4, 2012 at 5:51pm: Scott, you make a great point! The acquisition of a vehicle is the cost, your commission earned is based on their experience. Make em say wow! And they'll pay for the performance. Thanks for your insight!

Comment by Marsh Buice on May 4, 2012 at 5:44pm: Daryl sorry I put Kevin's name when I meant yours, sorry bro!

Comment by Scott Hengtgen on May 4, 2012 at 5:37pm: I find it funny that sales people still complain that customers still think our industry makes to much money. One reason customers think that is our industry, for most does not know how to sell value. The last time I ckecked price still does not sell vehicles...people do. When one learns to sell value and back it up with superior service and wow the customer price will not matter. Learn to honestly exceed the customers expectations.and deliver more then they bargined for and stay in touch with them. Remember, customers will pay extra for an exceptional experience, just tyy it.

Comment by Marsh Buice on May 4, 2012 at 5:33pm: Daryl OUTSTANDING comments brother. I'm drinking your Kool-aide-I LOVE this business and the people in it. I love that I can help people, service them for years to come, and "take advantage" of them time and time again. People are so fearful of our industry, but thanks to good people like you, Kevin-we are making a dent in the negative perception. Thanks for your comment, but most of all, thanks for staying in the car business. we need more people committed to excellence like you. :)

Comment by Marsh Buice on May 4, 2012 at 5:27pm: @ Brother Joe, WOW!! is all I can say. Your stats are mind blowing! It takes a pinch of manure to mess up the entire batch of brownies; our industry is infested with bud light stories (sitting around drinking a beer and talking about car salesman), not to mention smear media campaigns and investigative reporting. There are good dealers and dealerships, like you that are making a difference. We do so much for the community and will continue to do so. As I told Kevin, in my opinion, we can change things for the better if we as leader first adhere to higher standards. When we do-our team will as well. thanks brother as always for your support.

Comment by Marsh Buice on May 4, 2012 at 5:18pm: @ Kevin, I love your spirit Kevin and thank you for your comments. You are right-we are pounding great potential into submission-to the point where their lack of discretion is sometimes out of desparation. It starts from the head down and we as leaders must adhere to that. things are faster-lightening fast these days and that can be good, yet challenging. we must shake the "ole school" mentality and merge with technology. Because things are happening faster, we have a chance to gain monumental ground-ground that would have otherwise taken years, thanks to social media as well as other sources. I agree with you, IF WE DO IT RIGHT we, collectively can right the wrong.

Comment by Daryl Fawler on May 4, 2012 at 1:34pm: Good job Marsh. I chose this industry because I love cars. My father told me that if I did something that I love to do, success will follow. I know lots of people just like me in the car business. Unfortunately there are lots of them doing this for all the wrong reasons. Years ago I was told by a clever old guy that "car sales is the hardest easy job in the world and the easiest had job in the world". So many people seem to think that is a very easy thing to do to stand around in a nice showroom, talk to customers and sell them cars. We even get to drive anything we want for free. Those people need to do our job for a month and see what it's like. There's a lot of jobs out there that pay much better than car sales, but I wouldn't want to do them for all the money in the world. I sometimes deal with people that really think car dealers have huge margins. This industry is one of the few that have so many outside people that are experts. If the immediate customer is not an expert, their brother-in-law, next door neighbour or daughter's boyfriend is. All I do is show up every day with a positive attitude and try to help however I can. I can sleep well and never have to hide in public if I see any customer I've dealt with. It's funny how we get a lot more referrals if we treat people fairly and honestly. I hope someday our industry gets a much better grade than the U.S. Congress.

Comment by Joe Clementi on May 3, 2012 at 11:32am: Nicely done Marsh! Here are some staggering facts regarding the actual Return on Sales. Consider that the average dealership sales are just a little over 5 million per month and the actual ROS for 2011 CYT is just under 2%. Like most small businesses, dealerships face rising fuel costs, rising insurance expenses, unemployment and other ancillary expense that rarely provide a strong ROS.

I could bore you with another page of useless facts however; the most important statistic of all is the number of negative attacks on our industry. Third-party parasites that prey on our own customer data base only add to the negative impressions. Our industry has a major image concern! As an industry, we do little to disarm these claims and in some cases... they are reinforced. Did you know that on average CarMax makes more per used vehicle sold than your local dealership? They sell an image! The ease of car buying…right?

NADA and the local Dealers Associations have to do more telling the story of how much tax revenue we create locally and the economical impact we have. One last statistical fact, Dealers in CA only – paid out 32 MILLION to charitable organizations in 2011! If we consider the marginal increase in CA sales last year alone, the contributions grew by a larger margin that did profitability!