Motorcycle and Powersports News

Solution Man!


June 12, 2007

Last week I was in a client's store where after quite a bit of negotiation, an agreement had finally been reached with a customer. The deal hinged on the customer using the dealership's financing since they needed the finance participation revenue to make up for a less than perfect margin on the unit. As the customer was heading to the delivery office, his credit union called him on his cell phone with a rate that was about a point and a quarter lower than what we quoted him. Uh oh, now the deal doesn't work, right?

We couldn't match the rate since we were only holding half a point knowing we had to compete with the evil credit union. Solution Man (that's me ... I always wanted a super hero name) donned his red cape and blurted out, "Hey, what's the difference in payments over the length of the loan?" The entire sales team sort of blank-stared me for about 10 seconds. To bring them back from the magic spell I call "Solution-osis" I asked, "Does anyone have a calculator ... please?" Another long pause ...

Long story short, the difference in payment turned out to be about $5 per month, or $300 when stretched out over a 60 month term.

So armed with that little factoid, I asked the big "what-if" — What if we gave him a $300 store credit? Would the customer then allow us to arrange his financing? We asked him and he liked it. He liked it for a bunch of reasons, but in his eyes, the most crucial reason was that he could ride today. (And the virtues of getting our customers on their dream bikes today are vast and various. But that's a topic another column if you'd like, let me know.)

That was an absolute win for the customer! Other benefits included the fact that he now had $300 to use toward a jacket and helmet that he assumed he'd have to purchase with cash. So then, and sort of to our surprise, the cash that he was holding back to use for some riding gear he suddenly wanted to use as additional down payment, which lowered his monthly payment a little bit. That, he realized, would allow him to buy even more accessories and have them added to the financing all for about the same payment ... an option his credit union would never have given him. Wow ... my little "what-if" turned out to create a real win for this customer, right?

Yes, but did it benefit the dealership at all? I can hear that $300 giveaway rattling around in your heads from here. Okay, let's do the math:

Hard Money

   (-$300)    Store credit
   $700    GAP coverage/ extended service profit
   $275    Finance reserve
   $675    Total

Fuzzy Money

   $105    35% gross margin gain on $300 store credit
   $350    35% margin on additional accessories purchased
   $25    Additional finance reserve on $1,000 accessories
   $480    Total

Potential Money

   $675    Hard Money Profit
   $480    Fuzzy Money Profit
   $1,250    Potential Gross Profit on Future Units Financed
   $2,405    Total
  • So we're $300 in the hole right off the top. Let's not even count the fact that you've got a margin on those accessories he'll use the store credit for, which lowers your hard cost. Let's not count the margin on the extra accessories he added into his financing. Let's just call it a $300 hit.
  • Now add a positive $275 in finance reserve plus the incremental increase in reserve with the addition of what turned out to be around $1,000 he spent on the additional accessories and added into his financing. This said increase only needs to be $25 for this deal to break even, right?
  • Oh yeah, the customer bought GAP coverage and an extended service contract, so now we've got about $700 gross profit there as well.
  • This particular dealership averages about $250 more on each unit financed than they do on every unit sold. So even if this deal didn't produce any extra, the law of averages tells me that if I send five of those deals to F&I per month, F&I will deliver at least $1,250 more in gross profit merely on the difference between their per unit financed and their per unit sold numbers.
  • How's our equation coming? Let's not try to count the long-term revenue from warranty work potentially done under the extended service contract or the silent but certain revenue of goodwill. Let's just count the hard profit increase on that deal: $675!

So was it worth doing? You tell me. Is it worth trying every time? Maybe, maybe not, but the whole point of this month's rant is to just learn how to ask: "What if?"

So by now, the guys on the sales team there were really thinking I was some sort of super hero, but all I really did was ask a simple what-if question. "What if we can deliver equal or more value by making a few adjustments?"

You've heard of thinking outside the box, right? Well here at OHG, we say something like, "There ain't no @#$& box!" Box thinking basically looks at things from a perspective of what can't be done, and that brand of stinkin' thinkin' would've never gotten this deal done. "No box thinking" (pronounced "what if?") can only create possibilities. It's still up to you to turn those possibilities into solutions, but you can't solve what you can't see. "What if" questions bring those things out in the open.

A few Do not's: Do not worry about the millions of ways that you can't put a deal together. Most people have those rules mastered. Instead focus on figuring out what would make the deal, by using a "what if" — and then try to make that happen. And whatever you do, do not try and picture me as solution man wearing tights and a cape!

What if you did a "what if" with every deal? What if it works once in a while? Well, I dare you.

 




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