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Finance and Insurance

Financing as Part of the Sales Cycle

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Traditional dealership sales process excludes the financing from the sales cycle and treats the financing as a separate process after closing the deal. The sales process steps include understanding the wants and needs of the customer, showing the units that match those needs and wants as closely as possible, identifying the desired vehicle, negotiating on the price and closing the sale. Once the sale is completed, it is time to do the financing application if the customer is not prepared to pay for the full cost up-front.

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Even though the described process works fine for many dealers, there is a better way of revising it that increases the closing ratio, and the profit per unit while lowering the total time it takes to complete the transaction. The earlier you introduce the financing process as part of the sales cycle, the more chance you will have to close the sale with larger margins in less time. Let me try to explain why.

Financing Pre-Qualification Before Choosing a Unit
Most finance companies are able to provide instant pre-approvals based on limited information such as customer name, address, monthly income, SSN and birthday. The pre-approvals typically come with an estimated credit limit so that you can define the budget for your customer. This will allow you to focus on the units within their budget and increase your chance of closing.

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You don’t want to be in a position that you talked about a $15,000 unit for an hour, going over all the specs and pitch what a great vehicle it is just to find out that your customer will only qualify for $8,000. You didn’t only lose all that time but also set the expectation incorrectly for a unit that will make it harder to switch to a less expensive one.

If you can pre-qualify your customer very early in the process after having a quick initial conversation about the vehicle type that they are interested in, you can immediately focus on the units that they can afford, save time and set the expectation right from the beginning, which will increase your chance of closing the sale.

Affordable Monthly Payments Instead of Discounting
It is not uncommon for a customer to ask for a 10- or even 20-percent discount on a unit that your total gross margin is only 15-25 percent (typically around 15-18 percent for a new unit and 20-25 percent on a used unit). They have the misconception that you have huge margins and you can afford to discount deeply. When a majority of the customers are financing customers who will not pay for the total unit cost up-front, the requested discount on the price may represent only a few dollars deduction in the monthly payment.

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If you introduce financing early in the sales cycle, you may move your customer’s focus from the price to monthly payments that they can easily afford. If you provide details on different financing options and the required down payment/monthly payment combinations, the discounting will no longer be part of the conversation. You should try to reach their desired payment level by adjusting the financial attributes such as repayment term, required down payment and/or dealer participation so that discounting is not required to satisfy your customer’s goals.

Customer is Hesitant to Get Into Financing Early in the Cycle
It is all about how you introduce financing to your customers and make it a positive experience as early as possible in the process after the initial conversation to gage their interest level. Instead of saying something like, “Let’s submit a financial application and see if you get approved,” which may scare your customer away, you may want to use an approach such as, “We have some great promotional offers this month and I would love to show you some of the low monthly payment options.”

Working as a Team
Some dealers have dedicated F&I managers when others may have the general manager or the sales manager handling the financing-related functions. In either case, the sales associates should work with the finance managers as a team behind the scenes to determine the best financing options when still working on their sales. Overlapping the sales and finance functions will help you save time, increase profits and close more sales.

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Emre Ucer is the managing partner of MotoLease LLC. He oversees the development of solutions for the motorcycle and powersports industry to fit even the most credit-challenged riders.

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