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There was a time in the automotive business where cash was “king”, but that kingdom has long been overthrown. Back in the late 1970s and most of the 1980s, interest rates were at an all-time high and lenders were staggeringly more stringent on approving loans. What that meant for the automobile industry was, if you walked into the showroom looking for a monthly payment there was a legitimate chance you were not going to get approved. If, however, you came in with cash, the only roadblock was… well, in that time there were no roadblocks. You were going home with a car whether you wanted to or not! :P
Today, the scenario is quite the opposite: 0% financing is commonly stretched to 96 months and beyond, and if you can fog a mirror, chances are someone will finance you. More importantly, this means paying cash is no longer desirable to a dealership. Unfortunately, someone forgot to explain this to the general population, causing a major disconnect during the negotiation process.
Many customers still believe paying cash is the best way to negotiate to the lowest price. At least once a day I will see a lead saying something to the tune of, “Give me your best offer and I will pay cash!” The customer assumes I’m running to drop my pants, when in fact I’m pouring another strong shot of whiskey lamenting in frustration. I kid – actually, if I have the opportunity to speak with a “cash only” customer one-on-one, it is one of the easiest closes in the book, and here is why/how.
In addition to the customer believing offering cash will get them the biggest discount, they also believe that monthly payments are inherently evil. That we, as dealers, play the numbers like a game of three-card shuffle and steal their wallets from their pockets. Searching for “How to Negotiate a Car Payment” will bring up countless examples of how the customer should ONLY negotiate with cash:
Dealer Trick #1: Negotiating on Monthly Payments
When the salesperson starts talking about monthly payments, watch out.
Clever salespeople want you to focus only on low monthly payments because it gives them room to inflate other variables, such as the loan interest and length. This increases the dealer’s profit — while you spend thousands more on the car overall.
If it’s online, then it must be true, right?
It is no secret that negotiating via monthly payments can make for a smoother process and allows for more flexibility on offering back-end products. However, it also has benefits for the consumer that are often forgotten.
For example, ask a cash-only customer where they are actually getting the cash from. Unless they have a vault full of gold coins like Scrooge McDuck, likely they are borrowing the money from the bank. As of today, Bank of America is offering auto loans as low as 2.34 percent.
“And why would you want to pay 2.34 percent when we are offering zero percent financing, Mr./Mrs. Customer?”
This isn't a surprise to us in the auto industry; we handle cash customers all the time. We are well versed in the benefits of leasing, GAP insurance, only paying for what you use, etc., etc. Yet these are not the best tactics when dealing with a cash-only customer. The close I use is right under your nose, and it may surprise you.
I didn’t notice it at first either. It wasn’t until I needed an upgraded version of the Adobe Creative Suite when it hit me. If you are not familiar with it, Adobe makes a line of design software that is used in advertising, web development, etc. It’s not cheap, either: just ordering Photoshop alone used to set you back upwards of $1,000. When I went to order the latest version, there was no option to “buy” the software, you can now only rent it with a monthly plan. What was normally a one-time fixed expense is now a monthly payment of $29/month.
It’s not just Adobe that has switched to the software plan platform. I also pay Microsoft $9.99/month for Microsoft Office, $5/month for Evernote, $9.99/month for Dropbox Pro and $5/Month for my SurfEasy VPN.
Under the cover of darkness the software industry has switched platforms from one-time expenses to a monthly payment system. In a way, it makes sense: buying a subscription allows you to always have the latest upgrades and content. Additionally, it’s a lot easier to swallow a monthly payment than a gigantic lump sum, increasing the conversion ratio for large programs. However, it’s not just the software industry that has gone this route; media has as well.
Remember when you bought movies? Unless you are hitting the DVD discount bin at your local Walmart, it’s actually quite difficult to purchase a movie these days. Instead, the most common platform is a subscription service like Netflix. Instead of paying $25 for a single movie, you can get access to thousands of movies and television shows for $7.95/month. Or, if you want something seemingly more tangible, you can buy permanent access to media through iTunes or the Google Play store. However, in none of these scenarios are you actually purchasing a product – you are only paying for the access to the product. At any time, the media you purchased access to could disappear.
Music is no different; the days of buying the latest album from your favorite artist are gone. If you tasked me with purchasing a CD today from a store, I don’t know where I would even begin to shop. I do know that I can buy access via iTunes, or I can subscribe to an online streaming service like Spotify for $9.99/month. Same goes for books and magazines – you are only buying the access to the content and not the actual content. For only $9.99/month you can access all the magazines you want with your phone or tablet, and books are easily downloaded to your e-reader. It certainly is saving a lot of trees, but isn’t it interesting that entire industries have moved to a leasing-only platform and everyone seems to be cool with it? Yet, when you offer monthly payments to a customer purchasing an automobile, they suddenly reject the idea.
See where I am going with this? Right under our noses, every other industry switched to a monthly payment platform and we all have blindly followed like a horde of zombies. Let’s look at some other examples:
“So Mr./Mrs. Customer, it seems that most of your expenses are in a monthly payment format. It appears this is your preferred method of payment. Therefore it would make the most sense to also pay for your vehicle needs in the same way, correct?”
The media and software industries have done the automotive industry an insurmountable favour. They have succeeded in transforming the North American consumer into a monthly payment junkie. Additionally, seemingly without the consumer’s knowledge, they have also transitioned them from a purchaser to a leaser overnight. All we in the auto industry need to do with a cash-only customer is remind them their entire life is now lived by leasing everything with a monthly payment.
Here is a sample of how the process works:
“But I want to OWN my car, I don’t want to pay to use it,” said Mr./Mrs. Customer.
“Not a problem, but may I ask, you have a Netflix account, correct?” asked the salesperson.
“Yes I do.”
“As do I. May I ask, how much would it cost to buy physical copies of all the movies and televisions shows you watch on Netflix?”
“Why, it would cost an awful lot,” replied the customer.
“So you would agree, paying a monthly fee for the use of these movies and shows is a better option, even though you don’t OWN them, correct?”
“Well, I guess,” replied the customer.
“And, back in the day when you did buy CDs and DVDs, how much did you spend on your collection?”
The customer looks up, and thinks for a few moments.
“And, may I ask, where is that collection now?”
The wheels begin to turn in the customer’s head.
“I gave most to Goodwill, and some are in a box in the basement,” replied the customer. They frown. Look down. Fumble with their hands.
“So that wasn't the best… investment, was it?”
“I guess not.”
“And, back in the 2000s, if Netflix existed, you probably would have used it instead of buying all those movies and shows, right?”
“Leasing a vehicle is no different, Mr./Mrs. Customer, there is just more money involved. Can I ask you another question?”
“Sure,” replied the customer.
“What happened if one of those CDs or DVDs got scratched? Would the value go down?”
“And you would be at a financial loss. Same goes if you purchase a vehicle and, God forbid, it gets into a fender bender. Even if someone dings it in the parking lot while you are shopping, you lose money on the re-sale. With leasing, providing you opt-in for GAP insurance, you wouldn’t find yourself at a financial loss when the vehicle value diminishes after an accident. Providing you have adequate insurance, of course.”
“Yes, really. So Mr./Mrs. Customer, since you already are well invested in monthly payment services like Netflix, let’s look at how a lease can also easily fit into your monthly budget.”
To get technical, why this works so well is that you are using their own lifestyle against them. It is very difficult to discredit something when so much of your life is already involved in it. People are naturally influenced to continue with what they have already committed to. Since they are already committed to so many monthly subscriptions and payments already, the transition from paying cash for a vehicle to paying monthly makes all the sense in the world.
Think about it yourself. How much of your life is paid for in monthly lease agreements? You may surprise yourself.
 United States Average Monthly Prime Lending Rate | 1950-2015 | Data | Chart. (n.d.). Retrieved from http://www.tradingeconomics.com/united-states/bank-lending-rate
 4 Car Dealer Tricks You Need to Know Before You Buy a Car. (2014, November 21). Retrieved from https://smartasset.com/personal-finance/4-car-dealer-tricks-you-need-to-know-before-you-buy-a-car-3
 Scrooge McDuck and Money. (n.d.). Retrieved February 10, 2015, from https://www.youtube.com/watch?v=bEmjiCoZ6e4
 Auto Loan Rates & Current Car Loan Rates at Bank of America. (n.d.). Retrieved February 8, 2015, from https://www.bankofamerica.com/auto-loans/auto-loan-rates.go
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