Others in the finance and insurance business agree.
Marv Eleazer, finance director for Langdale Ford Co. in Valdosta, Ga., has developed a streamlined product menu just for the cash buyer. He finds most of them balk at buying extras.
Eleazer’s menu simply promotes three service contracts — for three-, four- and five-year terms at prices ranging from $1,975 to $2,850.
If the customer doesn’t have additional cash available for the service plan, Langdale Ford has an in-house, dealership-funded program allowing customers to repay the vehicle service contract over 12 months, interest-free, Eleazer says.
But often the interest-free, short-term loan isn’t enough to lure a cash buyer to purchase extras. Says Kelso: “They’re not concerned about their budget if they’re paying $30,000 cash for a car.”
The solution, he says, is for finance managers to arm themselves with multiple sales pitches to close these often skeptical buyers.
Kelso and Tom Wilson, finance director for the Riverside Automotive Group in Escanaba, Mich., offer eight closes that have helped win over cash buyers:
1. Taxable income close. Remind customers they will pay for a hefty repair with after-tax dollars. “You might have to earn $2,500 and have the taxes taken out to pay for a $2,000 repair,” Kelso says.
2. What-are-the-odds close. Ask customers whether they would consider their car to be good if it was 99 percent perfect. Most will say yes, Kelso says.
Tell them that car would have a 1 percent parts failure rate. Say that if, for example, there are 4,000 moving parts on a vehicle, 40 parts would fail. Admit that sounds high and continue to reduce the failure rate to 0.5 percent, or 20 parts; 0.25 percent, or 10 parts; and finally 0.125 percent, or five parts.
Assuming the average repair bill is $800, multiply that by five to get $4,000. Let’s say the service contract is $2,495.
“Even with a failure rate of 0.125 percent, you’re still getting a good return on your investment,” Kelso suggests customers be told. “And you told me a 1 percent failure rate was good.”
3. Insurance close. When customers say they’d rather “take their chances” than pay for a service contract, Kelso says to compare the service plan to car insurance.
Most people pay about $1,000 a year for full coverage on their automobile, he says. So they would be spending $5,000 on auto insurance for the next five years. Over the same period of time, a $2,000 service plan is $400 per year.
Ask them which is more likely to happen over the next five years: the customer is at fault in a serious car accident or has one of 4,000 moving parts on their vehicle break. Most customers will say having a part break is more likely, he says.
Kelso points out people buy auto insurance, so why not buy a service plan that costs less and insures against incidents that are more likely to happen?
4. Cash-drain close. People who pay cash for their cars hate paying for it over and over again after taking delivery, Wilson says. He emphasizes they’ll continue to pay for repairs when the car is out of warranty.
He tells them the way to avoid those out-of-pocket expenses is by purchasing a service plan. “The plan will add less than 2 cents per mile to the cost of your driving, but it will pay thousands of dollars on demand when the time comes to use it,” he explains. “The easiest way to preserve whatever cash you have remaining after this purchase is with the inclusion of a cost-effective service plan.”
5. Lump-sum close. “Do you maintain your car?” Wilson asks, and the customer says yes. He goes on to say that the service plan is designed for the parts unaffected by maintenance — such as electronics, window motors, and switches.
“There’s no amount of maintenance you can do that will prevent a breakdown of those parts. The average customer-pay repair order in my store is about $857. When your car comes in for an out-of-warranty repair, there’s a very real possibility you’ll pay that much or more to get it back on the road. Can you afford a lump-sum, out-of-pocket expense of around $1,000?” he asks.
6. Affluent customer close. Wilson tells his well-heeled customers he understands they have the means to pay for any repairs and congratulates them on their financial achievement.
“My products are designed to give you something that’s worth more than any amount of money to you and that thing is time,” he says. “The service contract takes care of your towing, your rental car, your roadside assistance and it takes care of the bulk of the bill for diagnostics, parts and labor. One call takes care of a lot of things, freeing you up to make the most of your valuable time.”
7. Lifestyle close. “Let me ask you something,” Wilson begins. “If you stopped on the way home and picked up a newspaper and a Coke, would that adversely affect your lifestyle? (Customer says no.)”
“And if you stopped on the way to work and picked up a cup of coffee and a doughnut, would that adversely affect your lifestyle? (Customer says no again.)”
“What if you opened your mailbox and saw a bill from the IRS for $2,000? Would that adversely affect your lifestyle? (Customer says yes.)”
“What I’m talking about here is a couple of bucks a day at most — the cost of a coffee and a doughnut, Coke and a newspaper — to prevent the potential of a large bill hitting you when you least expect it that adversely affects your lifestyle.”
8. Resale value close. Wilson asks customers how they eventually intend to dispose of the vehicle they’re buying — trade or sell it outright. He tells them he can show them how to maximize the resale value.
“Which vehicle do you think will sell first, the vehicle without any coverage or the vehicle with existing transferrable coverage?” he asks.
He tells them whether they trade or sell their car, an extended service contract will help increase its value. Private buyers pay more because they know the car is maintained and dealers pay more for it as a trade-in because they won’t have to perform hefty repairs to get it ready for sale.
He also makes a pitch for an appearance package that includes fabric and paint protection, arguing the “extra clean” vehicles fetch top dollar.
“If you were buying a used car today,” he asks, “would a car like that appeal to you over one with added paint, rust and uncertain maintenance?”