The Inside Scoop of the Business Office in a Car Dealer

Discussion in 'Off Topic' started by larryh1108, Jun 12, 2019.

  1. noway2

    noway2 Senior Member Charter Life Member

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    Having been reading through these highly informative posts, I suspect you are correct. I don't recall all of the details, and I am curious to discuss this with him again. I don't think they had gotten to the written contract yet. I know he had a firm quote for financing from SECU (State Employees Credit Union). I believe he had negotiated the out the door / drive away price, in other words the amount that he could go to SECU with. As you've been pointing out, there are numerous injection points where they will try to sweeten their profit with various add on options. I think he asked them about beating the SECU terms and they quoted him an interest rate, that was lower, and then said it would be $x per month for y months. He pulled out his HP finance calculator (he does land appraisals for a bank and the DOT) and ran the calculations and it came back as something like an 8% interest rate. He said, 'aw come on, you're trying to charge me 8%' and they disagreed. At this point he ran the amortization in front of the guy, showing him the calculations and said: "see that works out to an 8% interest".

    Now it is entirely feasible that they were trying to play the monthly payment buyer game. They may have assumed all the add on items that they would like to add to the purchase price, they could still say that the car was at the agreed upon price, especially if these weren't discussed but that would be them talking apples and water-heaters. In his mind, the price, and amount to be financed, had already been set and they took this as an opportunity to add in the extras hoping he would focus on the payment.

    The key being that he's thinking one thing and that the terms have been settled and they're still playing the game.

    I don't recall what happened at that point, but I think they ended up financing the agreed to price at the quoted interest rate.
     
  2. larryh1108

    larryh1108 Active Member Supporting Member

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    Ok, this was a very real scenario for a typical finance deal on a typical busy evening or during a big sale.
    If you notice, everything was explained (or rather, rationalized) and the Finance guy was patient, informative, friendly and helpful. If no one guessed, this was me in the box. I fully admit that I had bills to pay. I fully admit that i said half-truths to justify where I was making profit. I fully admit I never forced anything on anybody without mentioning it, even if it was in passing or buried in other information. This is how the Finance Office went. No confrontations. If someone was buying a new car and did not wish to buy the extended extended warranty wrap, I let it drop after confirming that they do not wish to extend coverage of the factory to 7 years or 75,000 miles even if they had a 72 month term. I did a soft sell and made them realize what they were passing up. There was nothing worse than a used car buyer coming back and saying they wanted an extended warranty and I didn't sell them one. I told them that they didn't want the higher payment and I asked if they were sure. I also mentioned that they can still buy one on a separate contract where they pay the warranty company directly but the payments aren't for 6 years but for $100 per month for 24 months. I reminded them that they didn't want to pay the extra $30 a month, again.

    That being said, a common way to pick up a warranty that was waived was when a buyer was settled on a payment for a set term (e.g. $400 a month for 66 months) and you can tell they are wavering, you can offer the warranty that they said they didn't want for almost the same payment. How, you ask? Well, you tell them that the lender likes when a buyer buys a warranty on a used car (because it secures payment a bit better in case of a major breakdown). they won't charge the extra interest rate for adding the 6 months to the term. So, they get the warranty for 6 extra months at $10 per month more over the loan term.
    ($10 extra a month x 66 months is $660. 6 extra months at $410 is 2460. Total extra payments is $3120 including interest.
    Back this out and the warranty selling price was $2495.
     
    Last edited: Jun 13, 2019
  3. larryh1108

    larryh1108 Active Member Supporting Member

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    I am a firm believer in a buyer picking up an extended warranty when buying a used car. A warranty covering it up to 100,000 makes sense if you can afford it. I don't mean paying $2500 or $3000 for it (unless you are buying a Mercedes, BMW or a diesel or turbo charged (or both) unit that has a 4x4. Some of these warranties can COST the dealer $3500 if it has a turbo diesel and is a 4x4. Those trucks are expensive to fix!

    However, $1295 for a 36/36,000 car or $1995 for the above mentioned 4x4 is a decent price. The new car warranties mentioned previously cost less then the used warranties. The cost rises with each year passing but the mileage milestones affect it a lot more. If you buy a used car and plan to drive it to 100,000 miles, plus, and it is financed, the $30 a month is worth it, IMO, to prevent you from getting nailed with a $2500 repair bill while still paying a $400 note. It's like life insurance, health insurance and auto insurance. You don't want to die, get sick or have an accident and these insurance policies cover those times when you need help.
    However, unlike the above mentioned insurance policies, many people can and do work on their cars. Nobody I ever knew performed surgery on themselves.
     
  4. larryh1108

    larryh1108 Active Member Supporting Member

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    So, back to the scenario with the buyer and the options presented, let's assume you left happy, with a payment you chose that came in under your max, with a 3 year ESC and GAP coverage on a car you purchased "on sale" with no sliminess, high pressure or games played that you always hear about. You never gave your target payment and kept your interest rate expectations to yourself. All in all, you had a great experience!

    True, very true. Everyone was happy. The buyer got what they wanted at a payment they wanted, without hassle, and the Finance guy earned a nice commission on his deal. A typical Finance Manager gets a weekly salary of between $500 a week and $1000 a week, depending on length of being a Finance Manager, his reputation and if he came from within or was lured from another store. Let's say a good Finance Manager makes $800 a week in salary. He then earns an 8% commission on anything he gets in the finance office (back end profit). He gets nothing from the front profit. These numbers are irrelevant to him. They could be losing $5000 on the front end but as long as a manager has signed off on the numbers, he does not care. However, if a buyer pays cash and does not want an extended warranty or service contract, he gets $0 commission. He does the paperwork for free (well, it's considered in his salary). So, if I am working in the Finance Department, I have to create my own income and the only way to do that is to get it from you.

    In the example we just had, the Finance Guy picked up 2 points in reserve (It was $500 per point in the example). The amount of reserve earned for 1 point is tied to the amount financed. The example placed the amount financed at about $18,000 ($14,995 price, $595 DOC, $1995 ESC and $595 GAP. The $500 down covered the taxes and registration fees (rounding for ease of figures).
    So, if the unpaid of $18,000 for 60 months paid $500 per point, then a $36,000 loan at 60 months would (nearly) pay $1000 per point.
    Also, since the Predator Lending exposure a few years back, most lenders maxxed out the rate markup to 2 points. Previously, it was usually a 3 point max markup and some went 4 or 5 points allowed.
    Ok, 2 points for $1000 in reserve
    ESC profit of $1200 ($1995 less $800 cost)
    GAP profit of $470 ($595 less $125 cost).
    Total back end profit: $2670
    Finance Guy commission: $213

    Not too shabby if you consider a typical Used Car salesman sells 15 cars a month and a typical Finance guy processes about 60 deals a month.
    A typical goal for a Finance guy is to average $1000 per deal in a month, counting the cash deals.
    A typical Finance guy goal of selling extra policies (GAP, ESC and Service contracts) is 33%, of total deals, including cash deals.
    So, if a Finance guy does not average $1000 a deal and a 33% up sell rate (called penetration) he won't be a finance guy there very long. If he does 60 deals a month, averaging $1000 per deal, that means he's averaging $80 commission per deal (8% commission) x 60 deals. His bonus earned is $4800. If his salary is ($800 x 4) $3200 a month then for an average month, if he hits his goals ($1000 average & 33% penetration), he'll earn $8000 that month. Come in under the $1000 average and lose 2%. Come in under 33% penetration, lose another 2%. Missing goals costs a lot of money and will cost you your job if you miss them 3 months in a row!

    So, you see, he HAS to sell you something to make his goals and to make up for the cash deals.
    As you can assume, they hate cash deals and buyers. Picking up a point or point and a half in reserve is the best and easiest way to make his goals. (average $1000 per financed deal). Cash deals pay nothing if no ESC is bought.
    Simple. Want a Finance guy to hate you?
    Pay cash!

    So, in the example above, a fairly easy transaction resulted in a pack deal on the front end, $2670 on the back end and the DOC fee of $595. About $4500 in profit on an easy deal?
    And you asked how a dealer makes money when that new car gives him a $300 deal?
    Well, simple. Sell lots of used cars and have them visit the finance guy.
     
    Last edited: Jun 13, 2019
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  5. larryh1108

    larryh1108 Active Member Supporting Member

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    "Ok, I see that the true evil in the dealership is in the Finance Office.
    How can I avoid dealing with that"?

    Well, the truth is, the "Business Office" is where you take care of business.
    Among other things, the Finance guy makes sure everything is legally signed and binding.
    You cannot really buy your car until you sign the legal documents that transfers ownership to you.
    In smaller lots, you do that at the salesman's desk. He does the paperwork. Another reason to go to the smaller lots.

    Otherwise, you have to see the guy in the box.
    So, to prevent him from picking up a thousand or two from your pocket, be prepared.
    #1 (and the most important thing to do) is to ask for a copy of the Buyer's Order that is signed by you and the manager when you agree on price. It is also called the Bill of Sale (BOS). This should show the selling price you agreed to plus the Sales Tax, DOC Fee and title and tag fee.
    If you signed a Buyer's Order with $14,999+++ (meaning plus the adds just referenced) then you do not have a total amount due. You want that figure. Period. If you were to write a check, how much would you make it out for? $14,999+++? No. It would be a specific price, "Out-the-Door".
    Do not leave your seat without this number. The total Out-the-Door price.
    Get that from the salesman (it should be a normal part of the process ) but it may also have all the numbers listed but no total, just left blank. When you ask why he'll tell you the Finance guy will give you the total. "Ummmmm, no, use that calculator and add it up and write it down on the BOS or I won't sign it." Well, the salesman did his job in selling the car. Adding it up doesn't affect him or his pay or his job. Leaving it un-totaled just leaves the door open for the Finance guy and you want it closed.
    If he wants the deal he just made, he will add it up or have the manager add it up.

    Before you sign it, read every line with a charge on it.
    Buyers Name, check
    Address: check
    Phone: check
    email: check
    Unit Purchased:
    YR MAKE MODEL STYLE DOORS MILEAGE: check

    Sale Price, $14,995, check
    Trade In, none
    Sub total, $14,995, check
    DOC FEE, 595, check
    Total, $15,590, check
    DEDUCTIONS:
    Cash Down Payment: Undetermined, check
    Rebate: N/A, check

    Fees: Sales tax @ 6%, $959, check
    Title Fee: $20, check
    Tag Fee: $100, check
    Total Fees: $1079, check
    Other adds: NONE, check

    Total Due: $17,069, check
    (This is the Out-the-Door price.)

    Ok, get a copy. Pretend (up to now) that you will be bringing a check from your Credit Union.
    Maybe you will!

    While working the entire deal, let them assume you are bringing a check from your Credit Union, however you tell them.
    This removes the payment questions, interest rates, etc. Work the deal as a cash deal and ask for the Out-the-Door price.
    (I said it again) O-T-D Price.

    So, you still have to see the "Business Manager".
    While waiting to see him, you pull out your phone and open an APR app.
    You type in $17,069 at 5.9% (or whatever the rate your local bank quoted you) and then you deduct how much you want to put down. You then put in the months you are considering. 48, 60, maybe 72. Who cares, you are just looking right now.
    You can write these down. 48 x$350, 60 x $280, 72 x $245 (numbers totally made up).
    Time to see the man.
    He'll ask you about your rate and will tell you he can probably beat it (He probably can)
    He'll ask about Extended Warranties and the other packages he offers.
    You tell him you are not interested. He pushes a bit. You tell him is he asks again, you'll walk.
    He wants to make some money from you since this is a cash deal.
    So, if you're curious and want to play the game, play along.
    When he hits you with the first payment, it will have stuff in it. The Amount Financed will not be $17,069.
    He says it's 48 x $375 at 5.9% (Your figures show $350).
    Ok, game playing.
    You ask him what the amount financed is.
    He looks flustered but says, $17,869.
    You say that it's $17,069 and the games are done.
    You know it should be $17,069 and BETTER BE $17,069.
    Knowing the out the door price before you go in saves a lot of brain damage for you, wondering where he hid the "other stuff".
    He grumbles and prints all the forms.
    Total Due, $17,069.
    Sign here.
     
    Last edited: Jun 13, 2019
  6. larryh1108

    larryh1108 Active Member Supporting Member

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    So, just like when you are prepared to buy a car, do your research up front.
    When you walk in, know the going rate for the year and miles of car you are looking at.
    Tell them up front it will be a credit union check. You can always change your mind, you know.
    Ask for the total, O-T-D price before you sign the deal at the salesman's desk.
    No O-T-D price, no signature. Pretty easy.
    If you are considering their finance, have your APR calculator app open and preloaded with the O-T-D price.
    Do not sign any contract until you see the Amount Financed number in the Truth in Lending box. It is on the top of the contract, spelled out in bold. It has to be there; Federal Law.
    If you want to buy anything in the box, that's your call. Make sure you add sale price to the current O-T-D price for an accurate total. "How much is that ESC? $1895? No thanks. $995 is my max or I'll get it online.
    Oh, $995 will work? Ok, add $995 to the current Amount Financed. That is the number to look for.

    Bottom line, know how much is due before the Finance guy knows. He can't hide money when the Truth in Lending box is front and center. Most people focus on the payment number, not the Amount Financed.
    However, you are looking just above the payment, at the Amount Financed number. That is what counts.
    If the interest rate is right (check, of course) and the number of payments is right and the Amount Financed is right (all easy to check) then the payment is right, however it shakes out.
     
  7. fishgutzy

    fishgutzy Senior Member

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    Never let then sell you on the payment amount. They will try to hide the APR if they can.
    An educated customer is their enemy.


    Sent from my SM-G970U using Tapatalk
     
  8. Alfred

    Alfred E. Deplorabus Unum Supporting Member

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    I remind people that for most of us,buying a car is maybe the second largest purchase they'll ever make, and the worst investment they'll ever make from a depreciation and interest paid standpoint.

    An interesting counterpart to @larryh1108 world is the automobile advertising world that cast you headlong into the marketplace thinking all the wrong things about buying a car.
     
  9. larryh1108

    larryh1108 Active Member Supporting Member

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    You are so right, Alfred. Next to a mortgage, it, more than likely, is the 2nd largest purchase we make, and we do it several times in our lifetime. Some do it every 3 year years.
    Some do it every 5 years or so. Some never set foot in a dealer because of the BS they continually hear about. That works for them.
     
  10. notso556

    notso556 Member

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    Hey Mods - is there any way @larryh1108 can be given an "Off Topic Contribution of the Year" award? Maybe a free lifetime forum membership or free oil changes for a month?

    Anyone that has been reading along in these threads and hasn't been thinking about how to apply his insight and save money on their next car purchase hasn't been paying attention.
     
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  11. larryh1108

    larryh1108 Active Member Supporting Member

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    Thanks notso! I'd be honored if this became a sticky so new members can read this at their leisure.
    The topic may not be valuable in 20 years from now but it's been this way since the 60's, I'd bet.
    It still applies today and will into the near future. Cars and buying cars is not going away any time soon.
     
  12. larryh1108

    larryh1108 Active Member Supporting Member

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    P.S. I doubt the mods have time to follow this thread.
    Nothing controversial and no need to hit the report button.
    They are busy patrolling the more dangerous neighborhoods.
     
  13. larryh1108

    larryh1108 Active Member Supporting Member

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    Let's continue to discuss the area of Automobile Financing.

    We touched on the BHPH Dealers (Buy Here, Pay Here).

    I ran a BHPH operation for 3 years. I know the operation of this type of dealer inside and out. I will expound on how they work and what makes them different than all the other dealers.

    Like all aspects of the selling differences of dealers and the financing aspects of the different dealers, the BHPH dealers have different types and levels. I will attempt to explain the differences. Not all BHPH dealers are the same. They also differ by the policies of the owners.

    First thing to mention is the type of location of a typical BHPH dealer. Most of these operations rent out an old gas station that has repair stalls, usually 1 or 2 stalls. A lot of these dealers employ a cheap, shade tree type of mechanic, to recondition the cars they buy. These mechanics can't/won't work for dealers or shops that pay the better wages, for many reasons. They usually can perform the more basic repairs that are most prevalent. Some are even good enough to swap engines (purchased at the local junk yard). They are a valuable asset at a true BHPH dealer.

    There are a ton of old, abandoned service stations that were prevalent in America in the 50s, 60s and 70s. If you are old enough, you remember them. 2 pumps, 1 Regular, 1 Ethyl. Maybe 22 islands. A service attendant who filled your tank, cleaned your windows, and checked your oil and tire pressure.
    There was the old Anco brand wiper refill display next to the service doors. There was usually a car in each service bay getting some work done. They had a had written sign stating "Oil Changes Today Only $5.95 incl new filter".
    You filled up the tank for $5 with gas costing $0.29 a gallon. You remember. It had a small office where the cash register was and where they wrote up the service orders. They had 2 chairs with a small table with Popular Mechanic magazines that were 3 years old on the table; a little waiting room. They had 5 or 6 cars in various stages of repair out back. I'm sure you remember!

    Well, the EPA passed a law back in the day that the storage tanks leaked gas into the ground they were stored in. The tanks had to be replaced with all the surrounding soil removed and treated as hazardous waste for disposal (read: very expensive). There was a grand father clause that as long as the ownership did not change, they didn't have to dig up the tanks and soil if soil samples showed no excess contamination but they could not be used for gas storage any more. So, these corner gas stations were eventually closed down and mechanic rented them for their small repair shops.
    A lot of these lots (still sitting today) are rented by the BHPH dealers because the rent is cheap (the lot was paid for a long time ago but annual taxes must still be paid) so the owner could either just abandon these lots or rent them out (they could not sell them without the renovation which costs tens, if not hundreds, of thousands. If the corner was in a lucrative location, the new owner complied with the proper renovation and put up whatever but if it was in a declining neighborhood with not a lot going on around it, these lots just became small, cash car dealers and BHPH lots. They have the 2 bays for repairs and detailing and not much more. The back storage is littered with cars in all stages of needed repair and/or repos from the non-payers (usually when the car stopped working).
     
    Last edited: Jun 14, 2019
  14. larryh1108

    larryh1108 Active Member Supporting Member

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    So, in my mind, a true BHPH dealer has one of these old gas stations on the edge of town in a declining neighborhood (aged with businesses closing or closed).
    The islands are gone as is the indoor desk where the cash register stood. A couple of desks and a few chairs are there instead. An owner, his helper (usually family) and a full time mechanic work there. Sometimes a local kid comes by to wash the cars for cash. A Small time operation.

    The lot can hold 20 to 25 cars and behind the building sits another 10 waiting for parts or for it's time with the mechanic. Most of these car were purchased from a New Car Dealer that the owner used to work at or knows the Used Car Manager (UCM). They have an agreement that this owner gets first crack at any car taken in from $2000 or less. The $100-$150 a car cash spiff is paid for this honor. They've known each other for years. They are buddies.

    So, the BHPH owner checks out the trades and finds the one he wants to look deeper. He goes once every other week, usually on a Tuesday since Monday is spent
    finalizing deals, delivering deals from Saturday's spillover and management meetings. Tuesdays are usually slow and/or auction days. So, the BHPH owner
    gets the keys from the UCM and gives each car a good inspection. Test drives them, looks under the hood and the car. These owners know cars inside and out and they realize that a bad buy could cost them $1500 or more, if they miss something.

    Ok, the BHPH dealer decides he wants 6 of the 10 cars he looked at. He has a total price of $4800. He also knows that he pays a spiff of $100 on any car under $1000 ACV and $150 for $1000+ ACV. So, he owes $650 on top of that. $5450 total for 6 cars. The UCM has his numbers and really dislikes playing the back and forth game of prices. He wants his $200 profit for each car under $1000 and $300 for the +$1000 cars. He know the buyer like his own brother and knows he has 1 low ball offer in him so the UCM adds $1200 to his total ($200 per car). They get together and each offers their inflated and deflated prices, they cuss each other out and the BHPH manages states that for that price he can only spiff $500 instead of $650. The UCM agrees and their deal is made. Average is around $1000 per car, which is the perfect range for the BHPH dealer.
     
  15. RFMan

    RFMan Member Benefactor Life Member

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    I have really enjoyed these threads. Things are really hectic for me right now, so I'm just skimming through rather than digesting deeply. Very helpful details.
     
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  16. larryh1108

    larryh1108 Active Member Supporting Member

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    The BHPH dealer goes back to his shop and rounds up 6 people to hike the cars from the dealership. He leaves his guy behind to watch the store and he grabs the mechanic, the lot kid and the lot kid knows some buddies who will help to $10 each for the hour+ work. They pick up the cars and bring them back and park them in back, waiting to get processed. The owner really likes 2 cars and thinks they just need a quick wash and vacuum and are ready to sell right away. He has the mechanic do a quick test drive to confirm and he agrees.
    Ready for sale after a vacuum and a bath for both.

    He paid about $1000 per car but his own breakdown went more like $1500 each for the 2 cars needing no work and $750 each for the other 4, each. It does not matter how the dealer wrote it up, it's how he stocks it in his books.

    4 more cars to sort thru. 1 needs a new front fender. Nothing major but pushed in enough to have to fix it. He orders one of the aftermarket fenders for about $75 and knows a paint guy who will paint it for $75. $150 for the body work which had a $500 deduct for the damage from the dealer. Good deal.
    It also needs an oil change and front brake pads. Total to get ready, about $225. Good. $975 in this car once it's ready.

    The last 3 need various misc work done. 1 had 2 bad tires and the other 2 were ok. The pads needed to be changed. The paint was faded from the sun. Driver's rear power window did not work. Ok, 2 used tires, new pads, paint is paint so it stays like that and the broken power window is the rear drivers side. No one uses that window if the air works (it did). Cost to fix, $125. $875 in the car now but the faded paint will hurt the ability to sell for top dollar.

    The last 3 need more work. Broken drivers mirror, Drivers power window does not work. Slight exhaust noise. Squeaky belt. Battery dead (needed a jump to get here), Cars really filthy inside, need a good interior cleaning. Cracked tail light, etc. Usual stuff. Each one needs about $500 each to get ready for sale. $750 in it plus $500 puts the cost at $1250. each.

    Ok, a week later and all 6 cars are ready for sale. His mechanic is really good at fixing the least possible while making sure it passes inspection.
    Remember, when these cars break down, the owner usually stops paying for it until it's fixed because they have only so much money to spend.

    So, to make it easy and to think like the owner, 2 cars have about $1500 in them 3 have about $1250 in them and 1 has about $1000 in it.
    This is a typical lineup for a typical, genuine BHPH lot. Most cars have $1000 to $1500 in them when ready for sale. Most have less than perfect reconditioning but the buyers are cheap and can't afford much. They do get what they pay for.
     
    Last edited: Jun 14, 2019
  17. larryh1108

    larryh1108 Active Member Supporting Member

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    Thank you!
    It's good to know people are learning from these threads.
    That's the reason I wrote them!
     
  18. larryh1108

    larryh1108 Active Member Supporting Member

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    Ok, this BHPH dealer has 20 cars on his lot, all similar to the 6 we talked about. Time to sell a car.
    The real BHPH buyer cannot purchase a car anywhere else. They have the worst credit possible or they have no real job or both. I've seen credit scores of 450 and less. They get Public Aid or get paid cash or work part time at McDonalds, etc.
    They are low level pimps, lower level prostitutes and local dime bag peddlers. They can come up wit a down payment but are not otherwise financible. They collect SSI disability or straight up Social Security for $800/month plus food stamps. They are the poorest of the waking world. Who would lend them money to buy a car?

    Well, that local BHPH guy is the guy to see. If he's been there for a while, the community knows that if you need a car, go see Joe.
    Joe will get you driving with $1000 down and your signature. They watch out for Joe because he is an asset to the community. They don't steal his wheels (they are plain, steel wheels anyways). They don't steal his catalytic converters (a very real problem for used car lots) and they don't mess with the business. They need Joe because he takes car of them.

    A very real scenario with actual buyers.

    The Art of the BHPH Deal.

    So, a BHPH deal is very different than a regular deal. The buyer has limited choices based on his or her cash down payment and 10 verifiable phone numbers of friends and family. They need to have a valid State drivers License and some way to prove their address. A cell phone bill or a bank statement with the address printed where the govt checks are deposited. A light bill, a cable bill, the more the better. They must live local. They need to be able to get the minimum liability insurance required by law. The General is their friend. They must have the $50 down payment to have the insurance when they drive off.
    What happens after that with the insurance is of no concern. We've bailed many cars out of the pound from when the driver was arrested for outstanding warrants, driving without insurance (after it lapsed), possession of a controlled substance, etc. If we find out it was towed fast enough, it's worth the $300 to get the car back and if the buyer wants it back from us, it's the $300 pound fee plus the $150 recovery fee plus his next payment.
    If he's sent away for a while, the car is listed as a repo and recovered, cleaned up and put back out for sale after the required 21 days the buyer has to redeem it and pay all the fees and back payments to get it current.

    Joe has a sound philosophy that's worked for 15 years now. If he follows it, he will be ok. If he deviates from it, he could lose big time. It is a sound philosophy that works at most BHPH dealers that work this system. The secret to staying solvent is simple; the down payment covers the true cost (ACV) of the car they are buying. A simple concept that is harder to implement than you think. Every buyer wants the car that is $500 away from what they have. They have $1000 down (the usual minimum) but they want the $1500 down or $2000 down cars. Always. They want what they can't have; simple human instinct, you want what you can't have.

    Joe tries to get the ACV covered and, if possible, the taxes, title and tags too. However, if the ACV is covered, he'll risk the taxes due as his part of the gamble.
    The buyer has a temp tag until Joe registers the car (and puts his lien on it) and gets his permanent plates. Joe has 30 days to do this and he uses every day to make sure he collects every penny promised to make the deal. If the buyer disappears (and it happens) then his tag expires and he drives around on an expired tag or he puts a mismatched plate on the car to pass the eye test but is very stupid with the plate reading software used today. Once the buyer has his permanent plates, he can, theoretically, disappear forever and Joe would be out the tax money he paid. That's the risk he's aware of right off the bat. Joe gambles very little of his money, if he can help it. When they get their plates 30 days later, 2 payments should have been paid which should cover the taxes and plates. No payee Joe? No plates (technically illegal but these buyers usually don't want the cops called for various other reasons.
    During tax refund season, Joe asks for (and gets) $500 over the ACV and taxes due because the buyers have $2500 or $3000 cash from their refunds (I never understood how people get larger refunds than taxes they paid in. I never understood how the EIC or Earned Income Credit worked). When tax season comes, Joe knows that if he has 50 cars to sell, he'll sell 50 cars. If a buyer won't step up, he doesn't get the car he wants. He gets the car Joe tells him he wants. That's how it works. Joe will sell every car he has during tax season so he doesn't care if an uncooperative buyer leaves. You can buy what your cash down dictated, not what you want.

    So, customer Vito comes in with $1250 cash down to buy a car. He is local and works full time but has only been there for 1 month and makes $9.50 an hour.
    Previously he worked for cash at a local restaurant for a year. Joe does not waste money on running a credit report. They cost more than $4 each to run.
    Run 50 a month and that's over $200 thrown away because they are at Joe's lot because their credit sucks. Why waste money?

    So, Joe shows him all the cars he can buy with $1250 starting at the bottom (worst) and working up to the 3 he just got in that have $1250 in them.
    Since he just got them in, he wants $1500 down for them and tells Vito that. Of course, Vito doesn't want any of the other cars. He sees one of the (now) $1500 down cars ($1250 ACV) and decides that one looks like the best choice but he only has $1250 down right now. Joe holds firm and tells him he just got them in and $1500 is the number or just take one of the other cars he showed them. This guy wants the $1500 down car and swears that if Joe gives him a week he can come up with another $250 when he gets paid. Joe has heard that before, too many times.
    The guy can leave the $1250 and do all the paperwork and pick it up when he comes back with the $250. Vito needs a car today or he'll lose his new job. Joe doesn't know Vito and ,honestly, he doesn't care. He just got this car and he'll get the $1500 down from somebody and told Vito just that. Leave the $1250 and sign for it today or someone will surely buy it tomorrow or he can buy one of the cheaper cars he was shown. There were probably 10 cars that $1250 qualifies for. No, Vito wants the car he can't have and tells Joe he'll be back in an hour. Joe doesn't hold his breath and, honestly, he doesn't care. "Buyers are Liars", he quotes the old car dealer saying. It's been true for decades. So, the guy leaves and Joe re-parks the car in the front row. He's learned that the cash is what keeps him in business and when he first started he had almost $10,000 on his books of unpaid "promises to have it next week" people with good intentions and bad follow thru.
    All the money before you drive. A simple policy. The only way he allows it is if the buyer is a repeat customer who always paid her note on time or someone she brings in and vouches for their character and Joe will ask them that if your friend won't pay this, will you ? They always say yes and they keep after their friend because Joe never forgets and they need Joe for their next car.
     
    Last edited: Jun 15, 2019
  19. larryh1108

    larryh1108 Active Member Supporting Member

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    So, 2 hours later Vito returns will all the cash; $1500. He also has the $50 needed to get his insurance thru The General (required by Joe on every purchase to cover his own butt, legally). So, Joe fills in the Bill of Sale (BOS) to complete the process.
    Joe has a payment plan that has worked for 15 years. $125 payments 2x a month. ($250/month). Why set payments that they can't pay? Joe always collects the pay stubs (if they get one) and ties the payments to their pay dates. If it's a weekly check, they can choose to pay $65 a week.

    They usually pay every other week. If it's every other week pay, they see Joe every other week. If it's twice monthly, on the 7th and 21st, They see Joe on the 7th and 21st. He tells them that when they get paid, they visit Joe and he gets paid. They don't show up and Joe sends out his "boys" to pick up the car. No, they don't have baseball bats but they do have a 2nd set of keys that every car has before it's sold. Joe makes it a point that the buyer watches his 2nd set of keys put in their file. Literally. Joe says " Here's your 2nd set of keys. You get them when you pay your last payment.
    I keep them until I get the last payment. Miss 1 payment and I use these keys to come and get your car." He says it and he means it. His local reputation is he means what he says. If your check is short and you call Joe BEFORE the due day, Joe will work with you. If you usually pay on time with minimum chasing , Joe will allow you to skip this payment. You have to be flexible or you will lose the car one day. If you pull this stunt every other payment? Joe will cut no slack. He tells them to find the money or park the car on his lot until they do pay it. No problem. If they don't want to do that then Joe asks him where the car can be picked up to save the $300 repo fee that will be added to his late payment, to be able to get his car back. Also, if the car is repoed, the past payment and the next payment are due along with the $300 repo fee (Joe does pay local recovery "gentlemen" to get the car). Total due, if the car is repoed, is the $125 missed payment, $125 for the next payment and the $300 repo fee. $550 to get your car back. This is written in bold on the BOS (and initialed by the buyer) when the car is purchased. No surprises. He means what he says and says what he means. Simple.
     
    Last edited: Jun 15, 2019
  20. larryh1108

    larryh1108 Active Member Supporting Member

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    Now, if everything goes as planned, Vito covered the cost of the car and taxes & plates with his $1500 cash down.
    He "understands" the program and what happens if he doesn't follow it.

    The part of why Joe works so hard finding the right cars to sell is hard work. Reconditioning them is hard work.
    Dealing with people on the lowest rung of honesty and reliability is hard work. He does it for 1 reason.
    The payments.
    If his process is executed properly, every payment he gets is now his profit. When they walk out the door with his car, he hasn't made any money. He shuffled it around but his net profit is, basically, $0.

    As mentioned, he gets paid every 2 weeks from his customers (people on fixed income see Joe once a month, on the day they get their money). So, the first of the month is usually heavy on collections due to the fixed income payment (all $250) plus the normal flow of $125 payments. The other 3 weeks have a steady stream of $125 per buyer payments. So, if Joe has 50 people paying $250 a month, his cash flow of profit is (optimally) $12,500. Remember, this is profit since all the car costs were covered in the down payment and 2 payments before the plates were delivered. Of course, all of the business expenses are deducted from this number so it is Gross Profit before expenses. The ideal lot has 60-80 accounts which comes to $15,000 to $20,000 a month in payments. The lot I ran was in the $20,000 a month in payments. Of course, these are the worst of the worst payers but I did get it in the 85% plus payment range.
    I was told that was very good for the industry average. But, to me, it was a 15% delinquency rate. Out of this, some cars were totaled, some were impounded with too much due to retrieve it (found out 2 weeks later, etc), some just died and not worth fixing. Some, as predicted, disappeared, never to be seen again and no claim for the title ever made. This means it was stolen and/or abandoned somewhere.
    Some were repoed and after 21 days (as required by law) of waiting to collect payments, we then "buy" the car back for the "unpaid balance" (the number needed to close the bad account and to establish a cost for the new "purchase". Of course, unless it was an unusually nice repo, it came in for $200 with the remaining balance written off (for tax purposes) Taxes are paid on the entire profit (even though it hasn't been collected yet, the BOS lists it so it counts). These car are minimally reconditioned for resale and since it has ~$500 in it, they are sold to the people who only have $500 down and are previous customers or referrals. These are also cash cars for $1500 for people who do not want or cannot afford a monthly payment. You can sell almost any car for the right price.
     
  21. larryh1108

    larryh1108 Active Member Supporting Member

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    Ok, we've discussed everything except the selling price.
    We know that the payments are the profit.
    We make the payments affordable and tied to payday to make them easy to pay.
    We know these cars aren't the flashy, late model cars we drool over, they are cars that go from A to B and get the job done.
    These cars are the life blood of a needy part of the population that no one else will "help"
    So, what do we charge them?
    Well, they pay market value, not market price.
    Let me explain. Market price is a fair price considering the price of the competition and your price.
    Price it too high, it won't sell. Price it too low and you left profit on the table. Your goal is to find the right medium.
    For these cars, there comes a time when the "book value" is irrelevant. Either the car runs ok or it doesn't. As mentioned, every car can be sold at the right price. The right price for the BHPH buyer is the monthly payment and for how long.
    The profit is figured the same way. The payment is set; $250. But for how long?
    Ideally, you want the car to last thru the last payment without a crippling break down (trans, engine, major components, etc.).
    Cars these days can go 150,000 to 175,000 miles without much worry about a major breakdown. 200,000 miles even happens.
    Let's be honest here, these cars have north of 120,000 miles on them to start with. !20,000, 145,000, 160,000, etc. That is what you get when you buy at a BHPH lot. They run when you buy them and you need to change the oil 2 or 3 times a year.
    That is expected. Regular maintenance is not part of their budget beyond the oil changes. Things like brakes & tires are things that every car owner deals with but with income levels in the $800-$1200 a month range leaves little room for repairs.

    So, Joe wants his cars paid off as fast as possible to avoid not being paid when the car breaks down. So, he looks at is as how much profit is enough?
    His philosophy is 8 months of $250 is $2000 profit. ACV is $1250 with $1500 down. ($2995+++)
    10 months of $250 is $2500 profit ($3495+++)
    12 months of $250 is $3000 profit ($3995+++)
    Cars bought with $1000 down, cars with $750 down, etc, the payments are set.
    The selling price is lowered to reflect the lesser ACV but the profit is the same since the payments are the same.
    e.g. 10 months of $250 is $2500 profit no matter what the price is.
    with $1500 down, the selling price is $3495 to get to the $2500 unpaid balance. (Taxes, title and tags is the difference) with $1000 down, the selling price is $2995 to get to the $2500 unpaid balance. ($500 less down, $500 less selling price) with $750 down, the selling price is $2750 to get to the $2500 unpaid balance. (another $250 less down, $250 less sell.)
    It's a simple process. The specific car determines the profit/selling price. A nicer car gets 12 months. a car that is not so nice gets 8 months of payments (A $500 beater may get 6 months or less @ $250. Still $1500 profit).
    So, if Joe thinks the car will last for 12 payments, it gets 12 months at $250.
    If Joe is selling to a repeat customer or a buddy, 10 months will do just fine.
    If Joe is selling a repo or rough car, 6-8 months is just fine.
    So, all the buyer hears is the car will be paid off in less than a year, not in 2 years or 3 years like other lots have.
    Win/Win!
     
  22. notso556

    notso556 Member

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    Mostly what @larryh1108 is showing us in these threads is all the different areas where the profit lies for the dealers. Sure, he shares some "tricks of the trade" as well but mostly he shares where the money goes. Some of this we already knew or had an idea about. Some of it is eye opening. But he's showing us in what areas of the transaction we can hang onto our money if we work on it.

    I'll share a bit of a story. I bought a new car yesterday. It was time to trade one in and I had been looking at listings on my usual dealer's website for awhile. Last week there appeared a couple of listings for 2019 base models that needed to get out of the way of the 2020's. And there were some nice discounts and special financing shown.

    So I emailed the New Car Sales manager who I have done business with for almost 20 years and told him to have a salesman contact me as, from the staff profiles on the website, it looked like the guy I usually dealt with was no longer with the company. Otherwise I would have asked for him, he did well by us the last time. The manager had a woman contact me and we emailed back and forth talking about which of these discounts I could get. There were 2, she said. A dealer discount plus a manufacturer's discount.

    So I created a spreadsheet applying these 2 discounts to the MSRP. Then added a trailer hitch and an extended warranty (ESC). And came up with a selling price including my add ons. (Mind you, I had not talked selling price with the woman yet, only discounts and financing.)

    Then I turned to the trade in and worked out potential trade in values using KBB & NADA as well as coming up with a number using my "back it down from used car lot retail" method. I took the average asking price shown for my year & model & mileage on Auto Trader then backed down the likely used car dealer "take $750 off" discount and came up with a likely actual selling price on a used car lot (which matched up with KBB & NADA).

    Then, using information shared by Larry here, backed down the used car dealer's preferred profit margin. Then backed down repair and recondition work (again, Larry's info) to come up with what I thought the used car dealer would pay for it wholesale. Then backed down the profit margin Larry told us the new car dealer would want to wholesale it and.............. $XXXX is what I think the new car dealer should give me for it. Plus or minus $500 either way.

    I calculated the sales tax, DOC fee (which I feared had probably risen from the $75 they charged the last time in 2015), and the other little fees and came up with the "trade difference" -- how much I'm going to be financing. And from there, the monthly payment.

    In the meantime I learned that my old salesman is still with the company but at a different store and was willing to meet me at my regular location. So we do.

    And he immediately starts by calculating only 1 discount. Whoa, whoa, whoa. I'm losing $1,500 that I thought they were taking off!!!!!! Oh no, he says, it's an either / or situation on the discounts. Who told you both? I whipped out the printed out email from the woman and he read it and said she got it wrong, she's new. I'm thinking - that's crap, is is a bait & switch.

    Well, now I am looking at $1,500 more than expected and I am leaning towards the door. No big savings on the 2019, might as well wait a few months. He sees this and says, "Let's see what your trade in appraises at." Of course, I am not expecting much help on that front. Keep an eye on the door.

    Next we turn to the extended warranty -- $1,795 for 8 years............ a big jump from the $995 it was in 2015. And I say so. He responds with, "Let me see if we can do anything about that." Again, I expect zilch.

    He came back with $1,300 more for my trade in than I expected and $400 knocked off the ESC. I lost money on the lost discount and the sales tax was a little higher but I gained on the higher trade in and ESC price reduction. And came out almost exactly at the trade difference amount I had planned on going in.

    Now, how much of this is attributable to Larry's postings here? Some. I certainly was better prepared going in having gained greater knowledge of the business workings behind the curtain. And maybe the half a day I spent making the old girl sparkle helped with the trade in allowance. Maybe not. But knowing the profit margin in extended warranties made it easy to push that button.

    In the end, it all worked out. Wife has a new car and wife is HAPPY. Of course, by the time I take Larry out to dinner as a thank you and he orders the surf & turn and a bottle of Merlot I will probably lose money on the deal. Just kidding, Larry.
     
  23. larryh1108

    larryh1108 Active Member Supporting Member

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    Now, there has been no mention of the finance rate. That is something that is up to the dealer.
    Some charge the full 20% since these are sub-prime buyers (on the good side). On the $2995 retail car for 10 months, the 20% interest rate gives an extra $200 in interest on top of the front end profit.
    A buyer seeing 20% feels like you are taking advantage of them (you are) and resent it but still need the car.

    Other dealers like to look "friendly" and charge 10%. This adds $100 profit to the deal. Big deal, right?
    However, a 10% rate makes the dealer seem legit and they can brag to their friends that they only pay 10% interest.

    I personally don't believe in charging interest. Why? Well, the main reason is that a BHPH dealer, like we discussed, is not licensed to be a lender. Lenders are subject to strict lending laws and are regulated on the federal and state levels.
    These guys are actually breaking some lending laws by charging interest. If a buyer took them to court, the dealer would lose and if pushed, would have to refund every penny of interest they charged for X years (with X being the statute of limitation law).
    When I joined the BHPH operation, he'd been operating for around 20 years. They always charged the typical 10% rate and if someone pissed them off during the buying phase, they would charge that buyer 18%. So, when I got there and started working (he did everything on pencil and paper. Everything. He was computer illiterate and said he's done it that way for 20 years and it works fine). The one computer they had there was messed up from employees searching the web for porno sites and other illicit websites. Basically, it needed to be cleaned up. Literally. Inside and out.

    So, I explained the laws about not being licensed to charge interest. Again, he told me he did it that way for for 20 year without a problem and I explained to him that it only took 1 complaint to have them pull all of his old deals for 7 years (or 5 or whatever).
    He seemed to be listening but didn't care. I then showed him, with an APR calculator, that if he charges 10% interest for the $2500 balance for 10 months that he ears a whopping $100 in interest. He got cranky and said that's not how you do it (even though it is).
    He said he took the $2500 he was owed (unpaid balance) and charged 10% interest and came up with $250. "That's how it's done HERE". I then asked why he didn't just charge 1 more month at $250 and call it even and not to even mention interest or to add the $250 to the price and make it that way? They had no idea what the price was anyway. Stay legal and still get the money. Ok, even if he was always right he agreed to charge $0 in interest to keep the feds out of his books.

    Bottom line is why charge interest? If a true payment calculator is used, it generates an extra $200 down to $100 in extra profit.
    (From 20% down to 10%) Just charge it to the buyer up front and be done with it.
     
    Last edited: Jun 15, 2019
  24. larryh1108

    larryh1108 Active Member Supporting Member

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    What about those repairs and breakdowns??

    As discussed, the buyer won't pay for a car that doesn't work. Why should they? Their past credit history suggests that they won't pay for something if it's broken, if they used it up already, if they already ate it, etc. I mean, come on! Be real!

    Seriously, a car is a huge expense for everybody, especially those who have the least amount of money. The car has to run for them to get to work so they can pay their note to you. If the car doesn't tun, the dealer doesn't get paid.

    Now, there is no way to warranty a $1000 car for all breakdowns for up to a year. Nobody does that. It would be business suicide.
    However, with a mechanic on staff, the blow can be lessened.

    First, my idea of right is if the car totally loses it in the first month, find a substitute car and move on. The dealer can decide if the car is worth dropping a new (used) engine or trans into it or if it's toast. Each car is different. Many times a trip to the junk yard for $250 is the smart way to go. Time to cut your losses. I never believed spending good money to fix bad money was smart. Time to move on.
    It happens in this business whether a BHPH lot or a $5000 - $8000 type dealer. Sometimes a car just dies.

    So, how to make it work for both? Well, a compromise is on order. The buyer can't afford to pay full retail for a brake job or for new tires. A bad alternator, bad fuel pump, a bad strut, wheel bearings, power windows, etc. All things that cost some money but don't kill a deal. If a battery dies in the first 30 days, just give them a new (refurbished) battery. Cost $50. If a tire blows, find them a used tire (cost $20) and charge them $15. Your mechanic (already on payroll) can mount and balance it. Dealer cost? $5 plus 30 minutes of mechanic work.

    Once the 30 days passes (and 2 payments made) the buyer has purchased a very used car and is responsible for the repairs. No dealer has a crystal ball and we have no way of knowing when a car will have issues. SO, the better BHPH dealers work out a fair system to both. Let's say the brakes go after 3 months. Front pads and rotors. Rotors have already been cut so it's new rotors. Buyer talks to a brake place and they tell her $350 and up. She can't afford that so she comes to her dealer to see what he can do for her. Well, as mentioned, if it doesn't work, they won't pay. So, you tell the owner that if they go to the local car parts store and buys pads and rotors, that our mechanic will put them on the car and the labor cost will be "wholesale" AND tacked on at loan's end (meaning 1 or 2 additional payments). Good deal! The parts should come in under $100 and the labor (of about $150) is tacked on the loan. They have to leave the car for 1 day and if they work close we can have the mechanic drive you while he test drives the car before he fixes it.
    The owner also tells them that the next payment due will be deferred to the end as well. So, they are out noting out of pocket and get new brakes. How much better than that can it get? This is a dealer that works with his people and community and realizes that his customers allow him to have a nice income doing what he loves. They need each other.
     
  25. larryh1108

    larryh1108 Active Member Supporting Member

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    Thanks, notso!
    I appreciate the fact that I helped save you money. Perhaps the $1500 in the "lost rebate" and maybe just the $400 in the ESC. Maybe, if you were your old,
    stubborn self you would have gotten it all anyway. However, I believe that you were fully armed when you walked in with a spare mag to boot. Being confident
    and looking at the door as if to leave was enough for the bad guy, eerrrrrrr, salesman, to choose a different mark.

    It is all about confidence, in the real world with the true bad guys, and in negotiating during any transaction. It could be for your new car, for a raise, for something
    at a garage sale, anything! If you did your research and walk in knowing you won't be taken advantage of, you win.
    That's what these threads are all about.
     
    RFMan likes this.
  26. RFMan

    RFMan Member Benefactor Life Member

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    ^ That last paragraph is very true, and my takeaway in all this.
     
  27. larryh1108

    larryh1108 Active Member Supporting Member

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    Next we'll discuss those bad cars. The ones that just stop working 1/2 way thru the payments.
    Every car that gets sold has the buyer sign the Buyer's Guide. A Buyer's Guide must be present in every used car sold, prominently displayed. You can't miss it. It says "AS-IS NO WARRANTY". A box can be checked if an Extended Service Contract is available for this specific car. It's very plain. You can't miss it. Big as day. Further fine print states that any warranty, either expressed or implied, must be in writing to be valid. So, not in writing, no go. If anyone says it has a 3/3 or 12/12 warranty, you don't unless you have it in writing on the Bill of Sale (BOS) or a separate, signed contract.
    Not signed by the dealer, not valid. It's just a piece of paper without a signature.

    So, what happens if a customer's car dies after 5 months?
    Well, any dealer can pull out the AS-IS NO WARRANTY form you signed right below those words and tell you that you are SOL. (Shoot out of Luck). That is legally binding and will hold up in court. However, a long standing dealer in a less than perfect neighborhood has a reputation to uphold and a community who he needs to watch his back. It's a give and take relationship.
    Tell a buyer he is SOL and the next Monday morning may find 4 sets of tires and rims gone or 4 catalytic converters (cats) missing.
    So, who lost out? Yeah, it may sound like extortion on their part but you are on your own if you screw over the neighborhood critters.

    So, a fair compromise needs to be found. First and foremost, if he paid for 5 months, that means you collected $1250 in profit. Not great but not why you are in business. Truth be told, if he offered a full cash deal up front for $1250 profit, you would have taken it. So, it sucks but dealing in these types of cars is what reality is. Some times you just have to bite the bullet.

    So, if the guy wants to work with you, you can offer to meet him half way. assuming he always paid on time, You should point out that you are under no obligation to help him but since he's a good guy and pays on time, you want to help him. He has to chip in too. It is (was) his car and who knows how he maintained it and how hard he drove it or if he ignored any warning signs it was in trouble (like an oil light or temperature light that they ignored)? Bottom line is his car died and he needs another one.

    So, you work out a new deal. He still owes 10 payments (even though the car died) so you will knock off 5 of the 10 as a concession to his car dying. The other 5 will be added on to the new loan. Ok, painless so far. That loan will then be closed and done.
    For the new car, instead of having to put down the same as he did on his last car, he can put down less, depending on the price range.
    So, a $1500 down car is now $1200 down. A $1250 down car in now $1000 down, etc.
     
    Last edited: Jun 15, 2019
  28. larryh1108

    larryh1108 Active Member Supporting Member

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    So, the buyer is not happy but needs a car. He understands that you knocked money off his balance and he understands that you are asking for less money down on a new car. He gets it. However, you can show him cars that his actual down payment covers while he thinks he's getting a down payment deal. No one really knows how much each car needs down except Joe.
    However, the buyer has a problem. He doesn't have $1000 down. It's not tax time and he has other bills. The best he can do is put down $500 on pay day in 2 days. He can't get another $500 until a month but he needs a car ASAP. Now, as we discussed, Joe doesn't allow money due on the come. He tells the customer (let's call him Jack) that he does not do money on the come. If Jack has $500 cash, he can "buy" one of the $500 down cars (bagel) and drive it until he gets the rest of his money.
    He still has to pay the $125 every 2 weeks for this new, cheap car like any other purchase. Jack is not happy because the $500 down cars are pretty, well, kind of rough... faded paint, minor dents, etc. Not an image car for sure. Joe proceeds to tell Jack that this is, basically, a rental until he gets his cash together. Now, there is one catch and Joe explains it to Jack.

    The catch: Joe has 30 days to get the plates for the "new" car. The temp tag expires in 30 days and Joe has to pay the taxes, record the title lien and pay for the plates. Jack has to make a payment in 14 days (like his old, broken car had) and then again at 28 days (every 2 weeks). If Jack brings in the 2nd $500, as promised, Joe will cancel the deal on the bagel and apply the $500 down payment made and the $500 he brought to finalize the new deal. He also applies the paid $125 payment for a total $1125 down, Jack gets the new car on a new contract and the bagel is placed back in stock. Everybody is happy.
    The new contract includes Jack's half of the unpaid loan from the broken car so he has an extra 5 payments on the new car.
    It has the same $125 every 2 weeks. Jack is satisfied.

    BUT! If Jack doesn't come up with the 2nd $500 and only has the usual $125, then Jack becomes the new owner of the bagel.
    He gets his new plates and life goes on. If Jack comes up with the $500 in another month or so, he will lose any payments he made but still gets credit for the original $500 down and the additional $500 when he has it all at once. Many times the buyer comes to like his ugly bagel but it runs like a top and it just works for him. He needs basic transportation and this great little bagel does the trick. Everyone is
    happy.

    Of course, if life was that easy it would be wonderful!
     
  29. turkeydance

    turkeydance Well-Known Member

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    thanks again.
    i am hooked.
    this is much better than
    the True Crime TV shows.
     
  30. larryh1108

    larryh1108 Active Member Supporting Member

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    Thanks TD.
    That is about as good of a compliment as I can get!
     
  31. larryh1108

    larryh1108 Active Member Supporting Member

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    Ok, now what? Joe seems like a stand up guy and helps his customers.
    What could go wrong?

    Well, as you can imagine, not every customer is so understanding, especially if they put $2000 rims and a $1000 upgraded stereo in their car.
    You know, the guy you have to call every 2 weeks to remind him he's a day late but put $3000 in rims & equipment into the car, that's who.
    Well, let's call this customer John. John bought one of the better cars with $2500 down during tax season. He's had the car for about 9 months and other than his late payment calls, he's been there to take care of his business. He has one of the better cars since he put so much down and he is proud of it. It is flashy, like he is.

    So, John is not happy. His car threw a rod out on the interstate and wil be towed in less than 24 hours if we don't do something. So, we send a tow driver, who we have do a lot of tows for us, cheap, and pick up John's car before it is towed to the impound. Costs us $50. John is not late on any payments so we can't "repo" his car for any reason but it is now on our lot. John comes by and is not happy at all. He put $3000 in a car that's now broken down and he wants his $3000 that he paid for his rims and stereo because we sold him a lemon.

    Joe pulls out his file and shows him the AS-IS NO WARRANTY paper he signed. Joe also makes a copy of the BOS showing where he initialed the AS-IS NO WARRANTY box printed in bold type on it. He makes a copy of both papers and gives them to John "in case he lost his copies".
    John will hear none of this. He is out $4000+ for the car and $3000+ for his "accessories" and he wants THAT car sitting on the lot as an even swap. Well, Joe tells him he can have that car for $3000 down (it is the nicest car out there) and that John can have his wheels back if he brings the original wheels and tires on the car. He said our mechanic can swap them out for free. He can also swap out the boom box for the radio that was in it and take the radio with him. He can then leave the car and call it a day. He can also go to the local junk yard and pick up a used engine and have it delivered to our lot. He'd have to pay the $800-$1000 for it himself, though. The $800 it will take for our mechanic to put it in would be added to the end of his payments. It will take about 2 weeks to complete, though, as we have other work lined up first. His choice.
    Well, John will have none of that. He wants THAT car as an even swap or he's leaving and we won't like what will happen if he leaves unhappy.

    Well, Joe has been there, done that too many times before. He knows a threat when he hears one. It was implied but it was a threat.
    He tells John that when he leaves, he will call his detective buddy on the local PD and give him John's name, address and cell phone#. He'll tell his cop buddy that if anything happens to him or his lot then this guy John made verbal threats to him and his business. He tells John that if anything happens to a single car, his detective buddy will be knocking on his door, probably with a search warrant since he has probable cause from the threat just made. He tells John that if he has any outstanding warrants that he should find a place to go because he will be on the radar of the local PD. He tells John he gave him some good options and if none of them work, have his lawyer call Joe's lawyer to work this out in court. Make sure you give your lawyer the copies I just gave you.
    Well, John, being the fine, upstanding citizen he is, sees the logic Joe speaks.
    He tells Joe that he will think about his options and will get back to him.
    He calls Joe the next day and tells him he found an engine for the car and will have it shipped to Joe's place in a few days.

    True stories, all of these.
    It was an interesting 3 years and I learned and saw a lot.
    The boss/owner allowed us to carry since the area was rough, but it had to be concealed. He felt that a visible gun could escalate an otherwise non-dangerous confrontation. There were 2 occasions where I had my hand on the gun but didn't draw.
    It got tense but no life threatening scenarios that required the use of deadly force (thank God). The word in the 'hood was that the owner was crazy (he was) and would not think twice about pulling a gun. There's a .357 hole in the ceiling there from when he fired a round into the ceiling (it was a metal ceiling of some kind) to stop a scuffle (before I got there) and it is very visible. He also has his baseball bat next to his desk, just in case. Also very visible.
     
    JimP42 likes this.
  32. Alfred

    Alfred E. Deplorabus Unum Supporting Member

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    Man, I had faces flashing in front of my eyes from the past. Characters, all part of a grand theatrical production yet none of them knew.

    I'm old enough to remember a used car lot as part of a local scrapyard run by a guy I'll call Hermie since I can't spell his real name. Way before BHPH. Cash cars from $50 on up that ran- really ! $100 bought a solid used car that may have used a lot of oil and was good for a few years before anything more than a battery and tires was needed. Hermie survived until the 70's when EPA stuff started to close in on the junkyard. The dirt in there was bad, you didnt wear even your regular work boots in there as it was a primordial soup of mud, motor oil and grease built up over 70 years, sludge a foot deep. But he had the goods, and regular turnover. The place was an ecological disaster but frankly I miss places that that, where its just a guy, his stuff and his business.
     
  33. larryh1108

    larryh1108 Active Member Supporting Member

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    A TRUE BHPH lot; Summary

    As described, a true BHPH lot is part of a community. These lots are needed to get cars to people who could never buy a car otherwise. The cars are older and have high miles but appear to be good runners. The owner makes a decent living but only answers to himself. He is tough and takes no crap from anybody. He has to be to survive.

    Any used car operation is as successful as the inventory they carry. If a regular, non-car guy decides to take his 401k and open up a small car lot, he will probably not survive. Why? Well, the main reason is that he has no source for decent cars to sell.
    He can go to every dealer and car lot within 60 miles and he will find that no one is willing to sell their old trade ins to him because they have a pecking list of buyers already. Believe it or not, these cheap cars are a sought after commodity.

    This new BHPH dealer can always go to the auction to buy his cars. Why not? Everybody else does, right?
    Well, I guess he could. He will be bidding against guys that have buying these types of car for decades. These guys know what they are doing and you are frsh and green. He will find out that the auction cars are, generally, cars no one else wanted before they went to auction. Think about that; except for paranoid dealers who won't wholesale off his lot, every other car at the auction has been passed up by various pros. Why? What do they know that you don't? How can you feel good about paying the most for a car that you know nothing about? How much more did yo pay because the car owner who is running it thru the auction has a buddy running up the price? (this is called shill bidding and is very common).

    The best place for this new dealer is to buy private party cars. These are usually higher priced than buying wholesale but they generally run better since they are privately owned. A new car dealer offered them $500 for a trade and they know they can get $1200 for it.
    So, you spend your days answering ads in Craig's List, driving all over the countryside and dealing with owners who believe their cars are worth twice what you are offering. If it's been for sale for a week or more, he may be willing to meet you in the middle. $850 for a wholesale $500 car but it doesn't need much work.

    It took you a week and you put 500 miles on your car but you finally found some cars to sell. If you drive 100 miles a day to buy 1 car a day you can't be on the lot to sell them. However, you can't sell what you don't have. How do you find a solution? Do you hire a guy to find these cars and pay him $100 per car he finds? He is spending your money but what do you do? Maybe you decide you are the guy to buy these cars and you have a good eye and instincts. Ok, so you find a guy to sell them and man the lot while you are at auction and out on the streets finding cars to sell? Will this guy sell your cars or give them away and/or pocket some down payment? Can you trust a stranger?
    (No).

    The point is; without good inventory, you won't be successful. You are only as good as your product, in any business.
    Sell crap and you won't be around very long.
     
  34. larryh1108

    larryh1108 Active Member Supporting Member

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    I've used the phrase "Real BHPH Dealer" several times..
    What does that mean?
    How is a BHPH dealer not a "real" one. Either it is or it isn't, right?

    Let's look at that.
    I guess a "real" BHPH dealer sells cars and finances them and you make the payment at the same place.
    In my eyes, a "real" BHP dealer is the guy who actually extends the buyer the credit. It's his money that is on the line.
    The faux BHPH dealers come across as a real BHPH dealer but, in truth, does not lend you the money (extends you credit).
    These dealers use a third party finance company to pay them (the dealer) so he gets his money up front.
    As part of the agreement, the dealer agrees to administer the collecting of the payments. They do this for a "service fee" from the finance company, maybe 10% of each payment collected. The dealer also makes the necessary collection calls for the late payments, payment reminders, etc. This saves the actual finance company money because they don't have to use their own employees to do the work. It's a relationship.

    The plus side for the buyer is many of these finance companies do report to the credit bureaus. Most people are not aware but anyone who wishes to report payments to the credit bureaus have to pay between $1 and $3 per account, monthly, to each bureau, to do the reporting (depending on the volume of customers to report). There is also a minimum amount of accounts to sign up to report. I believe it is 100 minimum or maybe 300. It's a good number. So, to report payments to the bureaus, it costs a minimum $300 per month (100 accounts at $3 each). 500 accounts may be $2 each and 1000+ may be $1 each. Ir's not cheap.

    The finance companies are true lenders with all the necessary permits and licenses. It's a good chance it is also owned by the dealer so he get's it from both ends.These finance companies are the ones you see in strip malls across America. You know, Fast Loans Here! Get cash for your title! (There are also Title Loan companies who only do fast title loans and nothing else). These finance companies are usually in the small, local jewelry stores around so you can finance your wedding rings. Local appliance shops (if they still exist) use them to finance your washer and dryer, etc. They are everywhere. These companies also work with these "BHPH" car lots.

    These companies do have stricter lending guidelines. These guys want the good people who had some bumps along the way. The 600 to 650 credit scores. Low enough to keep them out of the "real" dealers (even though the big guys can easily work with them). They stay out for fear of rejection so they go to the local BHPH guys. If they have a repo or a current charge off, forget it. No loan. If you want to buy a $3000 cash car for your kid, the dealers don't offer financing for these cars but they will refer you to these finance companies. These guys charge 20%+ interest, depending on the amount of the loan. They are not shy and they realize they are in a much needed niche.

    These faux BHPH dealers sell much nicer cars; in the $5000 to $8000 range. Usually $1500 down will get you the car if the loan company likes you. The typical payment is $350 for 36 months at 24% interest (or the state usury cap). No where near the $250/month for 10 months like a "real" BHPH let. Apples and oranges, IMO.
    These dealers also have the "Everybody Drives" lenders who have lower standards. The same program discussed in detail previously applies and this dealer also collects the payments (for a commission) to keep their eye on these buyers.

    A plus for these dealers is that they are in constant contact with their customers (thru collecting payments). Since these finance companies do report to the credit bureaus, after a year or so, if they make good payments and have truly re-established their credit, they can get that nicer car with better terms and they hope the customer buys it from them. These type of dealers do help the buyer but, IMO, no way is a true BHPH lot.
     
    Last edited: Jun 16, 2019
  35. larryh1108

    larryh1108 Active Member Supporting Member

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    The Finance Department; The Final Chapter
    aka, Why can't I buy THAT car?


    We've discussed the various finance options available to all levels of buyers, from great credit to absolutely terrible credit.
    There is a common question that comes up when the credit challenged buyers try to buy a specific car and are told "You can't buy that car unless you have $3000 down (and they have $1000 down). The car they want sells for $12,995 and the car you say I CAN buy also costs $12,995. It makes no sense that if I am approved for $12,995 why can't I pick out the car?

    Well, it goes deeper than the price of the car. A $12,995 retail car is not the same as another retail $12,995 car and we'll discuss why.

    We've discussed, at length, how the different levels of credit issues affect what you can buy in terms of price, payment and net advance.
    If you qualify for a finance company that pays 90% of the amount financed, then the dealer does not get the full retail price he charges; he get's 90% of it. So, that specific car that you want, the dealer gets the $12,995 less $1295 (10%) and nets $11,700 for that car.
    Now, if that car was market up to a <30 day full list price, $11,700 may work and you could buy that car. If it is a +70 day old car,, it's probably marked at the pack price meaning they cannot (will not) accept pack less the $1295 discount. They would lose money. That's a no.
    But, not so fast! There is a few other factors to consider:

    1). Because of how your approval is structured, and the mileage on the car, the lender caps your loan term at 42 months. With your $1000 down, the payment will come in at about $425 and they capped you at $350 (and they do not budge on payment budgets). So, $3000 down will lower the amount you borrow and gets you to that $350 payment. The other car had 15,000 less miles allowing a full 60 months to pay which means that the other car (for the same price) has a payment of $350 with the $1000 down. A retail price is only part of the equation.

    2). The year is 2 years older on the car you want and the lender also caps months tied to the car year. So, the 2 years older car has the same scenario as the mileage factor just mentioned. In this case, the extra $2000 down will allow the payment to come in line with the approval.

    3). This is probably the biggest reason they won't sell you that car. They can't make enough money (after the 10% discount) to sell it to you. As just mentioned, the sale price of the car can mean a deal or no deal, depending on how much it was marked up. But let's assume that's not the issue here. Another factor that plays a large part in credit challenged buyers is the loan to value ratio. Let's look at this a little deeper.

    If you have that 700+ score, the loan to value (amount financed versus the book value) plays a very minor part in getting that loan. The 700+ buyer can get 125% of NADA retail, plus, plus, plus. So if the car they are buying has a NADA retail of $20,000, they qualify to finance up to $25,000+++. This is helpful if they are trading in a car and they are $5000 upside down (they owe more than the trade ACV). 700+ score?
    No problem, write it up. If your score is 680-700, they'll advance 115% of NADA retail plus, plus, plus. Not as much but still very workable.
    (These advances also cover that "rare and modified" car that is listed for well over MSRP.)

    However, the credit challenged buyer only qualifies for NADA average trade (wholesale value), plus, plus, plus. So, if you want (any) a specific car, the loan guy has to look up the NADA average trade value and add the $1000 down you have to it and then deduct the 10% (discount from the lender) to come up with a number which is the true selling price. Due to how these sub-prime deals are structured (no regular negotiating since the lender determines the numbers), the finance guy works these deals. Many New Car dealers have a specific department, often called a Secondary Finance Department, that is set up in accounting as a totally separate department (like how a Nee Car Dept has different goals and pay plans and numbers than a Used Car Dept). The numbers of these departments are set up different with different goals, pay plans and they have specific salesmen and finance guys. The goals are less (PPV for front end and back end deals) and packs, etc. because the sales price is not determined by sales ability and talent but is determined by the lenders. However, getting a specific buyer into a specific car (that they don't know that they want) is a very real talent and ability.

    Back to the numbers. So, after the Finance guy does his figuring, booking and research, he comes up with a net number for Car X. If it's above the standard acceptable deal, he just moves forward. This rarely happens because NADA average trade is really close to the actual ACV after the reconditioning. Back out the 10% and factor in the $1000 down and the net sales price is $295 behind NADA average trade.
     
    Last edited: Jun 17, 2019
  36. larryh1108

    larryh1108 Active Member Supporting Member

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    So, once the Finance guy gets a firm number, he calls the UCM and asks if netting $XXXXX for Car XYZ is acceptable, the UCM says
    yes or comes back and says $XXXXX is his bottom line. So, to get that specific car, the buyer needs an additional down payment of $XXX.
    Some times they have it and some times they can't get it (or won't get it). Ok, next car and the next until you can find a car that works with
    only $1000 down and the buyer likes. As each car gets a "no" their sights get lower until a car finally works.

    Now, this isn't the same with every buyer. Some buyers (with better, bad credit) get an advance of 105% of NADA trade. Some get 110% of
    NADA trade and some get 115% of NADA trade. The last 2 buyers (110% and 115%) usually qualify for the lenders that have a better
    approval like a flat fee of $500 instead of a 10% discount and lower rates to get a lower payment for the same money, etc. The point is,
    the better the credit (of the bad credit ranks) the better the advance and the less the discount. A really good finance guy, when he
    looks at the entire credit report (not just the score), knows which lender will approve the buyer. The better the lender, the better the terms
    and advance and the lower the discount. It's a science and a really good sub-prime finance guy is a real asset to any dealer (ask me how I know!)

    To sum it up, a specific buyer cannot get approved on specific cars (even with the same retail) due to many factors. It's all about the credit and
    down payment. The worse the credit, the less choices the buyer has when it comes to which car they can buy.
     
    Last edited: Jun 16, 2019
  37. larryh1108

    larryh1108 Active Member Supporting Member

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    So, as you can see, the Finance Department (Business Office) is a totally separate entity in the dealership.
    It's a separate process. It is not as simple as the buyer believes.
    Year, mileage, credit score, max payments whether by the bank or the buyer, all make a difference.
    There are so many variables and tiers that it is easy for a good finance guy to pick up $1000-$2000 in profit without the buyer being aware.

    The best solution?
    Like when you are looking to buy a car, do your homework.
    Arriving at a good car at a good price is only half of the profit potential.
    If you have a specific car or truck in mind (an ad or by desire) call your local bank or credit union.
    If you ask what the rates are for a used car, they will give you a spread.
    (See Enclosed Picture)
    Used Car Rates.png
    The rates from my local bank go from as low as 3.89% up to 11.9%.
    Why the spread?
    Well, as we discussed, the year and mileage determines a specific rate. If you read the fine print, it has additional qualifiers.
    So, if I called my credit union and asked the rate for a used car, they will tell you that they start at 3,89%. All you hear is 3.89% and the "starts at" glosses right past you. You see the rates change for the 2012-2017 category. They go from 3.89% to 10.4%
    Some have more months but a less top (highest) rate. How is that possible? More months usually mean higher interest rates.
    BUT, the separate tier is there because that rate will be capped at a certain mileage, like 50,000 miles. The 73-84 months tier is probably capped at 29,999 miles, max.

    So, if your own bank confuses you, imagine how the pro in the box can pick up 1 point, 1.5 points, even 2 points by explaining that the car you want is too old for that rate, has too many miles for that rate or you want too many months for that rate. Boom, he made $1500 in reserve and you agreed. You fought for an hour to save $500 and in 10 minutes you gave $1500 back. 1 step forward and 2 steps back is what it is called.

    If you know the car you (ideally) want, tell them. Say that you are looking at a 2016 truck with 65,000 miles on it. They may be able to give you a specific rate and say "with approved credit".

    So, again, be specific. Bring the ad and tell them you want to buy this truck. I advise you to actually get the loan approved on that car and get an exact rate and payment. Do this up front because you will have to do it sooner or later. Trust me, sooner is a lot cheaper than later.

    If you get the loan approved and don't get that truck (for whatever reason) you aren't stuck with anything. Unless you really change the numbers (like going from $20,000 to $45,000 on the truck) you can transfer the approval to whatever you end up buying. An approval on a specific car just means you are approved with the rate and payment to be determined by the car you do buy. If you are approved, ask them to print out the approval. Take it with you. If you pay the asking price in the ad, you'll know your rate, payment and amount financed. If the finance guy says he'll match or beat the rate you have, make sure the unpaid balance matches the approval.

    DO YOUR HOMEWORK UP FRONT.
    If you are too busy to do this then expect to hand the finance guy $1000. After all, that is his average. He usually gets it.
     
  38. larryh1108

    larryh1108 Active Member Supporting Member

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    Let's talk about Not Talking About Payments!

    We see it written about all the time.
    We hear it on the news. Our friends tell us too!
    Never, ever, tell a dealer how much you want your car payment to be.
    Never!
    It's the best way to get ripped off, they all say.
    As someone who worked the other side, I can faithfully say.....
    That's not totally true.
    In many cases it's counter-productive to not discuss it.
    I guess there is no hard and fast rule on this topic.
    All I can say is "It depends...."

    So, you ask, how can that be?
    If we tell you a payment, you make sure we pay that amount.

    Well, yes, I guess that is true but think about it a second...
    If your credit is not the best, for example.
    People who never bought a new car before (Used, yes. New, no)
    People who did not do their homework before they walked in the door.
    People who never financed a car before, of any kind.
    Etc.

    There are many instances that telling your max payment is not only the right thing to do but also the smart thing to do.

    All of the previous examples we had included not talking about payments with the buyer.
    They all worked out some how.
    This is not a rare thing. The salesmen are aware of how the media steers the buyers and they've adapted.
    The managers tell them to just sell the car. The Finance guy takes care of the payments.
    Back in the day, this was the only way they sold cars. Don't talk payment, sell the car. That's their job, the car.

    This worked fine until the late 90's. All of a sudden, the prices of cars started to rise at a fast pace. Air bags, ABS, upgraded stereos, alloy wheels, all power options as standard, etc. These added items (now standard) raised the average new car price from $12,000 to almost $20,000. Back when a $350 car payment was considered high, it was not hard to move someone from their desired $200 payment to $250 or even $275 a month. These were small bumps.

    All of a sudden, a decent new car cost $18,000+. Payments approached $400+ a month. People who bought a new car 4 or 5 years ago went into sticker shock. That $200 payment was now $399 and they flipped out. No way could they afford $400 a month!
    So, the move went from how much for the car to how much is my payment? All of a sudden, payment closes were all the rage.
    People only cared about how much a month will my payment be? Previously, management refused to discuss payment at the salesman's desk because that wasn't their job. A salesman got reprimanded by the Finance guy for "boxing him out" if he had a desk APR calculator. His customers wouldn't commit unless they had a payment. This was all totally backward for how it's been for 50 years!

    So, the customer demanded a payment close. They still didn't do the proper research on the car they wanted but, in their head, they wouldn't go a penny over $300 a month. At this time, the 5 year loan (60 months) was the norm. For many years, the norm was 36 months and the jump to 60 months was scary. However, to be fair, the cars were built better, lasted longer and had a ton of safety features as well as they all came standard with the power windows, power locks, cruise, upgraded stereo, power mirrors, etc. Not too long ago, these were all expensive options. So, 5 years became the acceptable term.

    So, when talking payments at the desk was forbidden, a good salesman knew the "magic formula" of a monthly payment of $20 per $1000 borrowed was within a few bucks of the actual payment. So, he had a general idea where his customer's payment would fall and just worked on selling the car. At $20 per thousand, a $10,000 loan was $200 a month, a $12,000 loan was $240 a month and a $15,000 loan was $300 a month. A simple formula that still applied today (for a 60 month term).

    So, the salesman sold the car while knowing his buyer was close to their ideal payment.
     
    Last edited: Jun 17, 2019
  39. larryh1108

    larryh1108 Active Member Supporting Member

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    When is it smart to mention payment?
    Well, as mentioned above, some situations dictate letting the salesman know your intentions.
    Way back in Chapter 1 in the New Car section, I mentioned there was 2 ways (processes) of selling a new car.
    The way I preferred was the Meet-Greet-Qualify method which I went into detail about in Chapter 1.
    The way I don't like is what I call the pushy way to sell. I touched on it in Chapter 1 but the main idea was you can't sell a car if the customer isn't on a car, so meet and greet and get them out on the lot to find a car.
    Once they land on a car and test drive it, then it's time to sit them down to talk about the car they just test drove. You walk them thru the lines of cars with different colors and options (which wears them down as well).
    You have them test drive it, and then you push them along. The salesman controls the deal at this point. He gained control when he dragged you outside to walk the lot. You just followed his lead.

    My way was to sit them down and talk to them to find out what they had in mind. Payment didn't need to be talked about but the salesman asked about options and color. He asked what brought them to the store that day (ad? referral? Driving by?) etc. Talk to them without being pushy. If they want to see a specific vehicle in a specific color the salesman can let them sit inside where it's cool (or warm in the winter) and he can bring up what they asked for. They feel like the salesman is a valet, not a slimy crook.

    So, the (wrong, IMO) other popular way starts to hammer them and wear them down from the get go. A few hours later and they get into finance, already frazzled and worn down, and the Finance guy hits them with a $699 payment.
    The buyers almost fall out of their chair. When the Finance guy asks them what kind of payment they expected on a $28,000 car, they say they thought it would be around $400 a month. So, the finance guy calmly tells them to multiply $400 (their payment) by 60 (term) and asks what they come up with. They do it and tell him $24,000.
    The Finance guy tells them that that payment does not include interest so figure the number to be closer to $20,000.

    So, they discuss it for a few seconds and say that there is no way to make that payment and asked how much to get to $400 a month. Well, needless to say, they were, indeed, $8000 too high on a vehicle to get to their max payment.
    They are tired and disgusted and want to go home The salesman tries to save the deal but admits that in the line of vehicles they wanted, nothing was close to $20,000 since they weren't looking at the top model.
    He tried to switch them to a smaller vehicle of the same type of design or to the Factory Certified Used Vehicle but they were done for the day. They wanted to just go home. They were worn out and frustrated.

    So, if they did the research up front, they would know the approximate price to get to their payment. If the salesman knew their goal up front, he could have steered them to the exact same unit but it was a Factory Certified vehicle that was 2 years old with 35,000 miles on it. They would have come in under that $400 a month but the buyers were coy and smart and didn't want to reveal their payment because they were told not to. They wasted 4 hours of their time only to leave empty handed and discouraged.

    We've discussed, at length, the sub-prime credit people. With their credit situation (scores under 680) dictating higher interest rates and shortened terms, it would be foolish to not tell the salesman that they have credit issues and they cannot pay more than $375 a month.
    Yeah, be smart. Don't give up that information. When you leave in 4 hours without a car because you weren't up front from the beginning, you will blame the salesman when they should look into the mirror.

    If a buyer is buying their first car and only bought used in the past, they are in for a big surprise. The payments will be double, plus. Play the game and not tell him what you expect to pay. Get to finance and get hit with double what you thought it would be because you didn't do your homework up front. Yeah, another lost sale.

    Think about this logically. How many people tell a salesman an expected payment and they are more than reality? 19 times out of 20, the salesman has to work the numbers down, not up. Yeah, if you tell someone that you can pay $600 a month on a $22,000 cars but who does that? They say that $350 is their max, not $600. By being truthful up front, you can be negotiating price while talking payment. They need to reach your number. If you tell them, up front, that $400 is your budget and you go in at $550, you have every right to be pissed and to walk while flipping off the salesman. You told him and he ignored that fact. He blew the deal. If you choose to not tell anyone your budget and you buy the car you pick out, then you are open to what the numbers play out to be. Yeah, the Finance guy has to keep chopping off his stuff before he allows you to walk but chances are that if you go in wanting that $400 payment but play the game, you will leave at $500 a month plus because you thought you were being smart. Go there and be upfront on your budget and you will probably leave at $425. Yeah, if you are totally foolish and really don't care what the payment is and you think you're all that when you tell them $600 a month is ok because you're Joe Stud and you're well hung and you make $40,000 a year. Yeah, he'll be $635 a month or more.

    Again, being prepared is the answer. If you know, walking in, that to be at your payment you need to be looking at a $25,000 car for 72 months, then you can keep your mouth shut. If you have no idea what a payment will be for a specific car then you better tell them what you expect or you will be stunned at what new cars cost today.

    I feel very strong about either being prepared when you walk in or by being honest with the salesman from the start.
    One or the other or you'll walk with no car or be $150+ higher than you wanted.
    Your choice.
     
  40. larryh1108

    larryh1108 Active Member Supporting Member

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    Do you know your FICO credit score?
    Do you know what FICO stands for?

    Let's discuss the thing most lenders rely on more than anything.
    Most people are aware that their credit score (FICO Score) is a number that means a lot in the lending world.
    A low FICO means you pay a lot more interest than someone with a high FICO, if you even get a loan at all.
    FICO stands for Fair Isaac Corporation. 2 guys, one named Fair and the other named Isaac, created an algorithm some years back that has been used to determine credit worthiness for decades now. It is used in all types of lending decisions.

    Almost everybody here knows their FICO score from sites like Credit Karma, etc. Nowadays, most credit card home pages and banks offer your FICO score, if you allow it. It wasn't always that way. Before the information age of free access to your credit scores, you had a hard time finding out your own score unless you wrote to the individual credit bureaus and asked (limited to once a year). Most people found out their score when they tried to buy a car or to get a mortgage. To make it even worse, the agreement that anyone authorized to run a credit check was forbidden to show the buyer his or her own credit report. The credit bureaus had it in writing with anyone authorized to run a credit report. It was hard to enforce because who could monitor it? But, many dealers followed this rule to avoid a lawsuit. I never feared this clause and openly discussed their reports and went over it line-by-line for accuracy. Today, everyone knows their score.