Car Dealerships: The Inside Story

Really, there are no great secrets to how the car dealership business works. We covered some of the basics last week. As a new- or used-car shopper, you can find a slew of information on the Web. Here’s a start.

Google “car dealer stories,” for instance, and you’ll get some 19,800,000 results. But you don’t want horror stories, you want hard facts about how to buy and sell. Well, the truth is, you have to learn how and why dealers operate as they do before you can negotiate a successful transaction. Really, before you walk in the door.

It’s a complicated business, but the sales end (for used or new cars) operates on one basic principle—build value in the car. Once you understand how that works, we can review the fine points next week.

Now, in what follows, I’m going to steal from an article I wrote about car-selling some years ago when I worked, briefly, for a large Washington, DC, area dealer. I lasted about a month, and it was truly an education in human behavior.

Four of us got hired just after the New Year and worked with an excellent sales trainer for a week and a half. He told us that “nothing makes sense in the car business,” but much of what he taught did.

It’s all part of a process—from first greeting to the customer’s all-important sign-off on the final Delivery Checklist (your sales effectiveness rating is figured on this)—a process based on your controlling the events and getting the customer to “yes.”

This you do by recognizing certain basic premises of the auto business. “People do not buy because of price. They buy because of you and the product,” said our trainer. Therefore, your job is to get the customer to trust you, since you are the conduit to the car.

You build rapport by finding out what the customer’s financial, emotional and practical needs are vis-à-vis the object of his or her desires. By appealing to the things you learned in this talk-around, you carefully present the vehicle in a walk-around, ending up inside the car. At this dealership, a test drive was considered absolutely essential to create the final nexus between buyer and product.

The salesman’s job, said our trainer, is to “make the buyer want the car more than the money it takes to own the product.” You can do this only if you consistently analyze your buyer and build value in the car. You find out his hot buttons, what turns him on, what his financial limits and practical needs are, and get him emotionally involved.

To demonstrate the connection between value and price, our trainer grabbed a magic marker off the table and asked what we would pay for it. One person offered 40 cents. “Well, what if I told you each time the ink ran out, I’d give you a new one?” Higher bids were offered. “And if I would replace it with any color you wanted?” Still higher bids. “And if you were anywhere in the world, I’d get you your replacement pen?” Some bids went to $40. With persistence and enthusiasm, you can get people to respond to what they perceive as valuable.

Now, none of this is unethical or inconsistent with what we know about human beings and how they behave when money is involved. In the car biz, however, you’re not going to succeed unless you maintain control. That’s pretty hard to do when the system clearly sets salespeople at odds with their customers. Since in most dealerships you get a percentage of the gross profit on each vehicle you sell, how can you have anything but an adversarial relationship with a buyer who wants to minimize or eliminate that profit?

Thus, the usual strategy is to disregard or minimize any controversy, agree with whatever your buyer says, “yes” him to death to remove any clouds that obscure the silver lining, and take his side in the ensuing dance over price that you will conduct with the sales manager.

I think it was the difficulty of maintaining that “caught-in-the-middle” position that finally led me to quit. Some people can do that very well, and there are lots of successful car salespeople out there. And nobody is accusing them of dishonesty.

As a buyer, you really need to detach as best you can from the presentation and concentrate on what you actually need and can afford, then finally on bottom-line price (one of your best resources is right here). Think “price” instead of “value.” And try to make the salesperson your ally in negotiation. He wants to make a deal as much as you do.

Tell us how you have negotiated your way through this process. What were some of the roadblocks (and successes) you encountered?

—jgoods

Find Used Cars in Your Area at CarGurus

2 Comments

  1. @ Chris
    Chris, thanks for this. Maybe one reason people are afraid to share their dealer stories is because they feel they got taken. The point is, as you suggest, do your homework and stick to your guns.

    Interesting that you should want to go through the test drive, which is usually the opening wedge in the sales process. In my experience, a lot of salespeople are lazy and never even offer this—big mistake on their part because it’s the best way to get the prospect talking about the car and about himself.

    If you sidestepped the test drive, you might well save yourself a lot of time haggling and talking. Once a salesperson knows you are a bottom-line buyer, if he’s smart he will cut to the chase and stop the “discussion.” That’s how I made my few sales. People generally appreciate the no-BS approach.

  2. I was looking forward to reading the comments on this article..surprised to not see any. I guess I’ll bite first.
    This is a tactic I’ve used on the last three vehicles I’ve purchased. I do all my research online before shopping. When I show up on the lot, I know which car/truck I want and how much I’m willing to give for it. I walk up to the vehicle, greet the salesman. I always wait for them to start spitting out selling points of the car. It kills me that most salesmen are not even “car” people. Met one salesmen that tried to sell me a Volkswagen Pass at. Didn’t even know how to pronounce Passat. Anyway, once I’m satisfied that this is the vehicle I wanted, I ask for a test drive. If I’m still all in, I let the salemen take me in for the “negotiating.” He tries to ask all kind of questions like “What kind of a payment were you looking?” I tell them to just let me to just give me a fair price. Finally, they come back with a number written on a sheet of paper. I take their number, cross it out, and write my own number that I arrived at after all my research. I then tell them I am leaving, but when they are ready to sell me the vehicle at the price I wrote down, I will come back and sign the papers immediately. For some reason, this causes mass hysteria. Sales Managers have followed me out the door begging me to stay, to which I tell them there is no use in playing this thing out. If they want to sell it to me at that price, I want to buy. If not, it just wasn’t meant to be. Every time, they let me leave. Every time, they call me back. I did have to get upset at one salesmen b/c he called me back over 1,000 times but would not accept my offer. He just wanted me to come back so we could “discuss” some more. I told him there was nothing to discuss and he needed to stop harrasing me immediately. The next call was from the sales manager telling me to come sign the papers.

    Once my offer is accepted, you still have to be weary. I’ve caught dealerships trying to add GAP insurance when it wasn’t needed, doubling doc fees, etc. You have to question everything and read everything. I don’t blame the dealerships. It’s the nature of the business. In fact, I have a lot of fun with the whole process. And when they throw the pitty card and tell me they were losing money, I laugh and say “If you weren’t making money, you wouldn’t sell me the car.”

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