Process of Selling a Car
For about a century, automobiles have been offered to the public through showrooms and car lots operated by independent car dealers who obtain their stock of inventory at wholesale rates from manufacturers. Although the business has grown and changed somewhat through the years, the car-selling process has remained pretty much the same, and involves salesmanship, discussion, negotiation and finally a contract.
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Marketing
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The process begins with advertising, which car dealers place in local media and manufacturers create for national outlets including radio, television, print media and the Internet. The manufacturer places national advertising to make consumers aware of the basic features and styles of automobiles that are now on the market. Dealers draw attention to their showrooms with prominent ads in newspapers and on local television stations. They hold sales events, mail out fliers, solicit customers by responding to email or phone inquiries, and network with friends, families, and acquaintances to draw in prospective buyers. Location plays a crucial role in this process, as high-traffic areas will bring in more prospects and make commuters aware of the dealership's size and location.
Demonstration
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The salesperson meets the prospective buyer when he visits the showroom. The salesperson asks questions and determines the buyer's interest, personal transportation needs, and price range. These inquiries allow the salesperson to focus on car models appropriate for the buyer. If the prospect finds a car to his liking on the floor or in the lot, the salesperson will offer a test drive. The buyer can get the feel of the car's interior and the look of its dashboard, as well as how it handles on the road. The salesperson touts the car's features and accessories, including conveniences such as power windows and safety items such as air bags. The salesperson needs to speak knowledgeably about the car market, compare competing models, and discuss performance metrics such as horsepower, engine size, acceleration and gas mileage.
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Pricing
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As independent businesses, dealers are free to set the price they wish on their products. The invoice price is the price they pay to the manufacturer, in effect the wholesale price. The manufacturer's suggested retail price, or MSRP, is the price displayed on the vehicle to prospective buyers. The average margin between invoice and this "sticker price" is about 8 percent, and higher on more expensive vehicles. Manufacturers may offer rebates and other incentives to buyers as well. Profit to the dealers also comes in the form of prep fees for getting the car ready for road use, documentation fees for financing, and bank commissions on loans extended to buyers for purchase of the vehicles.
Negotiation
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When the prospect expresses interest in a particular model, the salesperson begins a process of negotiation. The prospect will either reject the negotiation by declining to discuss price, or agree to the negotiation by stating a price that he can afford, or a monthly payment he can handle if a loan is needed. The salesperson makes adjustments to the retail offering price of the car in order to convince the prospect to close the purchase. As part of this process, the salesperson may have to prequalify the prospect with a credit rating agency and determine the amount of any loan that can be extended.
Financing and Extras
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Once the sale is agreed to, the salesperson hands off the customer to the finance department, which arranges the details of the transaction, including the total cost to the buyer with any trade-in discount, as well as license fees, prep fees and other incidentals. The dealership can offer extended service warranties, undercoating, rustproofing, window tinting, and other optional features and services through the financing office. These extras raise the price of a car and can increase the profit margin considerably for the dealership. Once the parties agree on a final price, the prospect either pays in full or is extended a loan. Most loans require a down payment.
Online Services
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The car business is going through changes brought about by online pricing services, which research average sales prices by make, model, and year. Some of these services handle price negotiation and close the deal as well as the financing, requiring the buyer only to get to the dealership to pick up the car. A participating dealer agrees to offer low-margin prices to the users of the service and pay the service a referral fee. This process bypasses the demonstration and negotiation process on the dealer's lot.
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