Just Cuz I Sell Cars For a Living Doesn't Make Me an Asshole

Well, I’ve been toiling away now for 10 months now. I’ve had a few good months and I’ve had a few crappy months. I’ve met some real nice folks and I’ve met some jerks.

The dealership where I work is in an upscale community in San Diego County. Good credit and good income is the norm. We also get a number of Marines from nearby Camp Pendleton, usually with pretty good credit too. And all that helps. What doesn’t help though is the cynicism, smugness and sense of entitlement that all too many customers bring with them usually because they’ve managed to look something up on the internet.


The internet actually does a lot of disservice in many areas not the least of which is in car sales. Just because it’s on the internet doesn’t make it the gospel. Just because it’s on the internet doesn’t eliminate the need to read all the fine print.

Anyway, this hopefully isn’t going to degenerate into a rant. But let’s see what flows from my brain to my fingertips.

There’s a lot of down time at a dealership. And there’s times when you’re desperate for something to keep you busy. And, it doesn’t help when the dealer filters all but the most basic of websites from its computers. Forget search engines or news sources.

So here’s a couple of things from a car sales guy that might help you a bit the next time you think you want to take the plunge and go shopping for a car:

Narrow your choices of a new car down before venturing out. Have a pretty good idea whether you want a cross-over utility vehicle, sedan or mini-van before venturing out. All major manufacturers have websites where you can screen various models and trim levels and do your basic comparison shopping before leaving home. Remember, if I don’t sell anything, I don’t make anything. I’m patient but not to the point where I’m happy to spend 2 hours with you doing nothing but “kicking tires” on your first foray to a car dealership in 10 years.


Are you thinking of trading your car? That’s fantastic. And if you want to withhold it until the end, that’s fine too. But bear in mind that now isn’t the time to get impatient over time because it’s now going to take 30 or more minutes longer when we have to appraise your vehicle and if a balance is owed we have to contact the lender to secure an accurate 10 day pay-off. (The sum of your remaining payments is not your payoff unless you have a 0% loan).

And, the amount you owe on your trade has absolutely nothing to do with how much it’s worth. A customer a couple of weeks ago was incensed that we couldn’t provide her with a trade value that would pay off her vehicle. She owed $8500 on an 8 year old vehicle that was worth $5000 at wholesale. I finally asked her a direct question: “Miss, if you only owed $1000 on your car would that mean that it’s only worth $1000?” Of course, she answered “No”. To which I responded, “Well, wouldn’t you agree then that the amount you owe on your vehicle has nothing to do with how much it’s worth?” Of course it doesn’t.

If you’ve already ground us down to a below invoice price on your vehicle, you have no expectation of a “retail” value on your trade. We’ll go wholesale to wholesale or retail to retail. The dealer where I work rarely tries to go retail for our car and wholesale for a trade (but we will). It’s lousy business for us to go wholesale on the vehicle we’re selling and retail on the vehicle the customer is trading. We won’t do it and will tell a customer right up front that we can’t and don’t.
Here’s a hint. The sources of trade information online are generally woefully inaccurate. The closest we’ve found is Edmunds.com. The source we try to use most is a source that only dealers have access to. It’s known as Manheim Market Reports and is the commodity based pricing from Manheim Auctions, the largest used vehicle auction company in the nation. The prices we get from there are the amounts that used car managers from dealerships have actually paid for specific vehicles. That’s a commodity price and represents real money paid for a car as close to “just like yours” as we can get.

You know, I’m an old fashioned customer service kind of guy. I’ve never held with the notion that selling cars needs to be a confrontational exercise where it’s all about putting another number up on the board for unit count and maximizing my commission on each sale. And the dealership where I work reflects that approach as well.

But if I don’t sell, I don’t earn. We earn a percentage of the gross profit on each vehicle sold. On new cars the minimum is $200. But there’s less profit than that on most new vehicles. Many have no profit or even a loss. It’s a simple matter of trying to put units over the curb and on the road. The profit center of a car dealership is in its “fixed operations” department (a fancy term for parts and service). And the only way that department gets customers is for us to actually sell a car.
Forget stuff about “holdback”, etc. That is indeed money that the manufacturer provides back to the dealer to help offset expenses—like the light bill or the property taxes or fixed salary expenses or even the interest on the loan the dealer takes to finance the inventory.

Sometimes we will dip into it to close a sale. That’s because increasingly customers demand that we compete against the other dealerships which sell the same brand as we do when it comes to price. We are required by customers to shave prices incrementally with the one most willing to whittle down the price winning. Imagine selling a $30,000 vehicle because you beat the guy selling the identical vehicle 20 miles down the road by $50. It happens all the time and it’s absolutely exasperating.



I earn about 1/3 of what I earned a couple of years ago as an automotive industry consultant. The benefit is that I have reduced my business travel from 150 nights a year in a hotel to 0. That’s worth it.

I love the customers I work with, by and large but the bottom line is that I’m a professional and just because I sell cars for a living doesn’t make me an asshole.

Cash for Clunkers--A Penny Well Spent

Late last week, the Cash for Clunkers (Car Allowance Rebate System) was at risk of running out of money. So many people had used it, there were so many “pending deals”, and the website dealers use to request reimbursement is so cumbersome that there was a great concern that there would be more buyers wanting to take advantage of the program than there were funds available.

So, on Friday the House of Representatives quickly passed and sent on to the Senate a bill which would triple the Cash for Clunkers program from $1 to $3 billion (or from 250,000 vehicles to 750,000).

Some have questioned the program as throwing good money after bad and being another government bail-out boondoggle. I happen to think that it’s a pretty good thing.

Let’s try to put Cash for Clunkers in context: Take 3, $100 bills and put them on a table. Put a penny next to them.

The $300 represents the amount of money allocated by the government for the Troubled Asset Relief Program (if memory serves it was somewhere around $900 billion). The penny represents the $3 billion proposed for the Car Allowance Rebate System (Cash for Clunkers).

Over most of the last year we have had a succession of bad economic news. Trillions have been spent on bail-outs. All of this is money that Americans perceive as coming out of their pockets with little, if any, benefit.

Most people are like me. They see banks and other mega-financial firms being bailed-out to the tune of billions if not trillions of dollars with absolutely no benefit to individuals other than the fat-cat bankers who continue to get their million dollar bonuses. We see banks being rewarded for participating in the fraud that convinced many to take out mortgages that they shouldn’t have resulting in the “meltdown” which has had disastrous consequences.

And many see the bailouts of GM and Chrysler and think that they we get to pay for companies who through their own bad management went down the tubes and let the government bail them out.

So what are we getting for our “penny”? Trade in a gas guzzler and get up to $4500. Pretty simple. The dealer and the government will take care of the paperwork. Just as long as the vehicle being traded gets an EPA computed 18 miles per gallon or less in combined city/highway mileage and the new vehicle being purchased gets at least 4 mpg better than that. It’s a bit more complicated but that’s the gist of the program.

So, what are the benefits? Quite a few, actually.

A benefit for the “average” person. The person driving an older vehicle can get a government rebate which can be 2 or 3 or 4 times the trade value. It’s not a million dollar bonus like if you’re a fund manager at Bear Stearns but it’s not bad.

It gets less fuel efficient vehicles off the road. This is ostensibly what Pres. Obama proposed to do in the first place. Even the “minimum” fuel economy improvement (from 18 to 22 mpg) represents a bit over 20% improvement in fuel economy. So let’s assume you’re currently driving 300 miles per week (about average for most people), and you pay $2.70 per gallon. At 18 mpg, you’re spending nearly $45 and at 22 mpg you’re spending almost $37. The savings come out to $468 per year in fuel costs. And that’s just for a 4 mpg savings.

$4500 is a bunch of money! If your “clunker” is paid off, the $4500 you save can amount to nearly $100 per month in lower car payments depending on your credit (it might be less and it could even be more). But, let’s use $100—that would be someone with B- to C+ credit. Over the course of a 60 month loan, that’s $6000. That’s real money that hasn’t come out of the buyer’s pocket. That’s the insurance premium for many people. Or, for others, it’s a couple of week’s groceries per month. And it can get even better if the leverage from the $4500 makes the debt to equity equation more favorable to a buyer and results in a lower interest rate.

Dealers are benefiting! Reports coming out last week said that new car dealers were seeing the best traffic that they’ve experienced all year. That’s good news when industry estimates have been showing the projected volume of new cars to be about 10 million this year—down from about 14 million 2 or 3 years ago. Dealers are selling more of their new car inventory. That means that they’ll get out from under some of the interest payments they’ve been making on aged inventory (“floor-plan”—the cost of maintaining inventory). That means that sales people will be earning a bit more—and auto salespeople don’t make a whole lot of money to begin with. That means more potential business in the parts and service department. That means more people keep their jobs at auto dealerships.

Lenders are benefiting! Auto finance companies like Ford Motor Credit and GMAC will be doing more business. Credit Unions will be writing more loans.

Auto Salvage Companies will benefit. All those clunkers have to be destroyed (even vehicles that are in good enough shape to be resold). Their drive trains cannot be salvaged and must be rendered inoperable by the dealer. But salvage companies will generate income from the program.
A lot of those SUVs sold in the 90’s and the first 4 or 5 years of this decade will be coming off the road. Some to be replaced by “cross-overs”. Others by hybrids. Still others by sedans. That’s a good thing too. Hopefully people are getting it figured out that vehicles are not lifestyle or status statements. They’re a means of transportation.

Many of these vehicles will be paid for. Others won’t (such as those purchased used in the last 4 or 5 years). But the amount of the CARS rebate will mean that many of those owners of financed clunkers will be able to pay of the amount that they’re “upside down” (to use an industry term—another term for it is “buried”) and be able to successfully finance a new car.

Cash for Clunkers is just for new cars. There has been some speculation that it may also be extended to used vehicles but there has been no change on the website. There is a crucial difficulty with extending a program like this to used vehicles. That difficulty is the condition of the vehicle.

The condition of a new vehicle is known. It’s new. The condition (and the reconditioning) of a used vehicle is an unknown with one exception and that is manufacturer’s Certified Pre-Owned vehicles. Manufacturer’s programs only deal with their own brands and have rigorous standards which the vehicle must meet and which must be disclosed to the buyer—typically along with an enhanced warranty from the manufacturer. Perhaps this may happen in the future with the CPOV.

So, again as far as I’m concerned, this is a good program. It’s about time that with all the bail-outs that the average person has something which can directly benefit him or her. This program does that. Out of all the hundreds of billions that have been spent on toxic assets, etc. this “penny” is one which has the potential to generate a return and is a “penny” which is being well-spent. To the U.S. Senate: Approve the additional $2 billion!

Car Buying 101: What to do with a Trade-In

Note: See my post from April 20 "Is Now a Good Time to Buy a Car" for the 1st 2 Rules of car buying. http://just-walt.blogspot.com/2009/04/is-now-good-time-to-buy-car.html Rule #1 Start your shopping at home and Rule #2 Shop for your money before you go to a dealership. This post starts with Rule #3.

In car sales, over 80% of transactions involve a trade. Chances are that you’re already driving a car when you want to buy a different one and you’re thinking of “trading it in”.

As a profitability and sales training consultant in the auto industry I have encountered various ways this is handled at hundreds of dealerships. And, in a lot of them it’s not handled very well. The vast majority of customers don’t know how to handle it either.

Rule Number 3: Be realistic about your trade
A few simple steps will help you as you’re getting ready to buy a new vehicle and trade your old vehicle.

Step 1— know the pay-off amount if you still owe a loan balance on your trade-in. This is easy to do either online or by phone. Most loans now have a website where you can access the pay-off amount. You can usually find it by looking at your loan documents. And most lenders have a phone number where you can find out the pay-off. It’s usually automated and all you typically need is either your loan number or your social security number or both.

Know the pay-off amount! It will be critical in finding out whether or not you owe more than the vehicle is worth. And the pay-off is NOT the same as the sum of the remaining payments.

Step 2—get an idea of how much your trade is worth. This is easy enough to do as well and you need to go back to Rule #3—be realistic about your trade. The simplest way is to go online to KBB.com (that’s Kelly Blue Book). This site will open and 2 boxes will be on you screen, one for new cars and one for used cars. Click “go” in the used car box and it will walk you through the process. You’re going to ask for Trade value not for “sell it yourself” or “retail”.

You want to get an idea of what you might expect a dealer to offer you for the vehicle and this will get you reasonably close. If you look up “sell it yourself” or “retail” the difference between the results you get and what a dealer tells you will send you through the roof. Now, whatever the trade-value shows on KBB.com, subtract about $1000 from that amount. This should get you reasonably close to what a dealer will offer you. Why the discrepancy? Here’s why:

“Trade-in Value is what consumers can expect to receive from a dealer for a trade-in vehicle assuming an accurate appraisal of condition. This value will likely be less than the Private Party Value because the reselling dealer incurs the cost of safety inspections, reconditioning and other costs of doing business.”

That’s right off the KBB.com website. Look at the bold phrase. That’s why you will be offered less than what the KBB amount shows. I can’t think of anyone who has ever had their vehicle inspected and reconditioned prior to taking it to a dealer for trade-in. It’s things like 4 matching tires each with a minimum of 40% of their tread or 50% of brake pad remaining. That’s just for starters.

Yes, if the dealership keeps your trade and re-sells it at retail, they will be marking it up several thousand dollars. They may have to spend $1000 or so for it to be ready for retail. But that’s how dealerships make money.

Plus, the dealership has to pay for its facility, advertising, etc. This is part of being realistic about the value of your trade. If the number you come up with is unsatisfactory to you, be prepared to sell your vehicle on your own—and you can put however much or little money into reconditioning and merchandising it as you want. But if you do that, be patient and it’ll be up to you whether you want to wait to buy your new car until after you’ve sold your “trade” or not.

So, if you’re going to proceed with trying to trade your vehicle, have these 2 key pieces of information (pay-off and estimated value) with you. Hold these 2 cards close to your vest because they’ll come in handy later in the process.

We’ll jump ahead just a bit in the process here. Let’s assume that you’ve selected a vehicle to buy and that now you’re going to go inside the dealership with the sales person. You’ve established that you’re interested in trading.

Let me put it slightly differently. In sales training, I would suggest to sales staff that they introduce the “trade” with this “wordtrack”: “Sir/ma’am were you going to continue to drive your current vehicle or were you thinking of selling it to us?” Think about those words. When you’re trading a vehicle you ARE SELLING it to the dealer. They’re not “trading” with you; they’re buying it from you.

One of the things I have trained sales staff to do is to do a silent walkaround of your trade-in, with you present. It’s a technique to “de-value” your vehicle and to get you more realistic about its value. If you’ve done your homework (pay-off and estimated value) you’ll already be realistic. At that point they will need to see your vehicle registration which is also a good time for you to provide your insurance slip as well.

Step 3—Expect disclosure. Once you’re inside with the sales person, at some point he or she will take a bunch of papers to “the desk” or to the manager. Ideally the manager will get up and go outside and “put his hands on” the car, even drive it. Then he will come back in to do some “mumbo jumbo” which will yield a “trade value” or “allowance”. The “mumbo jumbo” involves going to KBB.com or another source to “book” the vehicle. Sometimes if you’re trading another manufacturer’s car it will involve a phone call to a used vehicle manager at a dealership that sells that make to get a value.

Then the manager will come up with a “book” value from which he/she will subtract reconditioning and other costs which should then yield what is known as ACV or “actual cash value”. Quite frankly, this is the true trade value of your vehicle. A scrupulous dealer will show you how they arrived at that figure.

What the dealer of course wants to do is to provide you with one figure (usually a monthly payment amount) for a proposal to buy the car. Often they will also include the “trade allowance”. If that isn’t provided, send the sales person back to the “desk” to get it. If it’s at great variance with what you came up with, ask for the “form” or documentation on HOW they arrived at that figure. You can also request an MMR or Manheim Market Report.

This is a document available to subscribing dealers which shows how much automobile wholesalers have recently actually paid for vehicles similar to yours in your market area. It is arguably the most accurate source for the value of a trade in vehicle because it shows the “real” money that wholesale buyers have paid for vehicles that they intend to recondition and retail.

Quite frankly, if a dealership is unwilling to share with you HOW they arrived at the ACV/trade valuation or to provide an MMR what you might wish to do is leave. There are hundreds of dealerships out there with thousands of vehicles for you to buy. Expect and require disclosure. And, odds are that the dealership will disclose the information once you are insistent that the whole “deal” depends on it.

This doesn’t happen very often anymore, but when the trade appraisal is provided to you, make sure that your keys are returned. Yeah, some dealers still play the game of “hi-jacking” your keys so just make sure that you get them back now. This will also send the message that you are still not committed to “buying and driving today” which is fine. If that question comes up, your answer is simple: “If I buy this car and trade you mine, you’ll get the keys. But let’s concentrate on this other stuff first.” And then just leave your keys sitting conspicuously on the table or desk top.

You want to be satisfied with your trade value, and you also want to be satisfied that if you owe more than what it’s worth that the difference will be accommodated in whatever final deal is negotiated. We’ll talk about that in a future post.

And lastly for today, a little information can be a dangerous thing. It’s as counterproductive for you to take this information to a dealership and act like a know-it-all butthead as it is for dealership personnel to act the part of fast talking, bs’ing, conniving jerks. However, one of my consistent messages to dealer sales personnel has always been that their success depends on the “Golden Rule”: “Them with the gold, make the rules.” The customer has the gold and dealership staff are trying to earn the privilege of getting you—the customer—to part with some of it.