UK (PRWEB UK) 12 September 2012
A spokesman for leading Gap Insurance specialists car2cover.co.uk said “Franchised dealer new car sales income is made up of five separate sources of profit and it is possible to use an understanding of these to your advantage to drive an exceptionally good deal - and it's really all about timing your purchase and knowing in what areas of the deal you can make savings”.
Franchise Dealers new car profits include;
1. Vehicle manufacturers or importers give their dealers a wholesale discount off the new vehicle price plus all the factory fitted options such as metallic paint, leather upholstery etc. This is generally known in the industry as the ‘trading margin’ or ‘front end margin’. The level of discount varies between manufacturers but is the same for all dealers of the same brand.
2. The manufacturer or importer also pays an additional discount to the dealer - by way of a bonus, which is based on one or a number of criteria being met including; customer satisfaction, dealer standards and achievement of quarterly new car sales target. This is often referred to in the industry as ‘back end margin’. The level of bonus varies between manufacturers and also varies between dealers of the same brand dependent upon their individual achievement.
3. From time to time (and nearly always in the current climate) manufacturers or importers will offer ‘tactical ’ sales enticement schemes. These are most often created to stimulate the sale of models that are either not selling well, are overstocked or are shortly to be superseded. These can include minimum part exchange offers, low rate finance, free insurance or a lump sum bonus payment per new car registered to help create an attractive low price offer. The latter is often responsible for what is known as “pre-registered” new car stock.
4. Dealers offer a range of finance plans and when a customer accepts the offer of finance, the dealer will potentially receive two incomes from the sale of finance. The first is a commission, which is a share of the profit made by uplifting the interest rate required by the lender. So, if a lender requires 3.5% per annum and the dealer sells it at 6.5% per annum, the dealer will receive between 70 – 80% of that interest difference as a commission. In the industry this is usually referred to as ‘front end’ commission. In many cases the dealer may have to repay part or all of the commission to the lender if the customer settles the agreement early or defaults. Most lenders also offer dealers a finance volume target which when achieved will pay the dealer a lump sum bonus, which can be quite considerable. This is sometimes paid quarterly as a strategic means of motivating dealers to meet targets to ensure they retain what they have already been paid. This is referred to as ‘volume bonus’.
5. Franchised dealers also enthusiastically sell what they refer to as ‘add on’, products such as paint and upholstery treatments, extended warranties and Tyre and Gap Insurance. Some dealers create ‘protection packs’ which include paint and upholstery treatment, gap and tyre insurance - and this is a clever way to package a number of profit margins in one sale.
“Finance and insurance sales offer dealers extremely high profits and in many cases dealers will employ a separate salesperson sometimes referred to as a ‘Business Manager’ to help sell them,” say car2cover.
How can you make this knowledge work for you?
1. If you are considering buying a new car, talk to your dealer in the last month of the quarter, ie March, June, September and December. Manufacturers set very high targets for dealers and due to the potential lump sum bonuses available to them if they achieve target, they will more readily agree to exceptional deals in the last month of their quarter in view of the potential for high financial rewards.
2. Always shop around for your finance and compare and consider APR and Flat Rate percentage and the dealers lender arrangement fees, which are often payable in two parts. The first part is usually paid together with your first monthly finance installment by direct debit and the second part at the end of the agreement. Always obtain a printed quotation and insist it displays the APR and lenders fees before you consider your options. There can be some attractive alternatives to dealer financing in the form of professional finance brokers. Some major national brokers have access to a wider range of lenders and are able to compare the market and provide a great deal and efficient service too.
3. If you wish to protect your investment with Gap Insurance or Tyre Insurance, think twice about what the dealer is offering. Usually dealer policies are not as good as you might expect and better policies can be found on-line at a fraction of the dealer price.
4. Don’t be shy when negotiating. Be clear that you know how the quarterly sales targets and financial rewards work and reassure your dealer you want to buy from them - if the deal is as good as is it would be if you shopped around.
Car2cover.co.uk’s spokesman confirms “It’s a fact, that at the end of each quarter a dealer may be paid hundreds of thousands of pounds bonus if it hits the quarterly sales target. For that reason some dealers are known to offer the entire ‘front end margin’ and most of their ‘back end margin’ as a discount just to do a deal that will help them achieve their target and bonus. Doing a deal for at a very small or no profit could win the dealer many thousands of pounds in bonuses.”
“Vehicle ownership can be costly and it makes good economic sense to do everything you can to reduce your costs. On the other hand, dealers must make a profit to survive and provide the infrastructure to deliver the service and after sales care motorist’s need. The buyer and the seller have opposing financial interests, one wants to make savings and the other needs to make a profit. A satisfactory compromise is more easily achieved when there are greater sums of money available to the dealer - and in the case of new cars, that will always be toward the end of the dealer’s sales quarter. If you are thinking about buying a new car – make this information work for you, and don’t worry – it will help your dealer too” say the team at car2cover.co.uk.
car2cover.co.uk will provide further information on Gap Insurance, Tyre Insurance and which finance brokers to consider upon request. car2cover.co.uk was founded in 2007 to offer private and business motorists with a range of supplementary motor insurance products such as Gap Insurance and Tyre Insurance. The web site offers a wealth of helpful and useful information on the ‘not so obvious’ risks associated with motoring.