Making dollars and sense to cash buyers

Some finance managers wince inwardly when buyers of a new or late-model used vehicle say they'll be writing a check for their purchase. It's generally tougher to sell finance and insurance products to cash buyers, dealership personnel say.

But despite the challenge, finance managers still can make the F&I sale by consistently presenting products and emphasizing their value to the cash customer, veteran finance managers and trainers say.

For a service contract, those managers and trainers suggest, stress the time the customer will save handling a big repair. For appearance products, say that vehicles with the protection are worth more at trade-in. For prepaid maintenance, pitch the convenience of arranging oil changes ahead of time.

"Show them what's available and let them decide," said Chris Cochran, F&I director at Haddad Motor Group of Pittsfield, Mass. "Sell the convenience more than anything you've got to offer because otherwise you'll never know."

Of the 158 dealers and F&I managers who responded to a recent Automotive News survey, 80 percent said it's more difficult to sell F&I products to cash buyers.

Cash customers tend to have their minds made up about whether to buy extra products. And service contracts can be a tough sell, respondents said, because a buyer who can afford to write a $30,000 check probably can afford a $2,000 repair.

"They'll say, 'I'll let that $2,400 [for the service contract] sit in my bank account and collect interest,'" said George Angus of Team One Research and Training in Phoenix. "And you really can't fault that thinking."

What Angus does fault is the notion that the customer who walks in intending to pay cash will always walk out having written that check. In other words: Don't give up on the idea of converting those customers from cash buyers to finance customers.

Today's super-low interest rates provide a great opportunity to convert cash buyers, Angus said. If you can offer a 1.9 or 2.9 percent interest rate to a cash buyer, he may decide to invest his money elsewhere and take out a loan for the vehicle purchase.

Angus trains finance managers to always offer finance options to the cash customer. Emphasize that it is your job to present finance options to everyone.

"One of four or five will convert," Angus said. "You never know which ones. Putting it in front of every customer is the key."

Angus recounted a recent deal in which an Arizona rancher buying a truck stopped the presentation and asked whether there's a penalty for paying off the loan early. Once he heard there wasn't, the rancher said, "OK, let's do that."

Another approach to conversion favored by finance directors is called the GAP method. They say it can work well with someone buying a new car, which depreciates drastically just being put into service. The approach combines a finance option with guaranteed asset protection, which pays the difference between the current value and the loan repayment amount.

The pitch: If you buy the car outright and it's wrecked, you'll lose thousands because the insurance company won't reimburse you for that initial depreciation. Instead, finance it at a low interest rate and buy GAP to cover that risk.

That said, many finance managers don't put a lot of effort into conversion.

Marv Eleazer, finance director at Langdale Ford in Valdosta, Ga., says he presents the options, but he doesn't make a really strong effort to convert cash buyers.

"You convert almost none of them," Eleazer said, "because most people who have the cash have worked their butts off."

Even if customers convert, many have second thoughts and pay off the loans almost immediately, Eleazer said.

Finance managers report varied experiences pitching products to cash buyers. Some find service contracts the easier sell, particularly if a buyer is sending a child off to college in the car. Others say products such as wheel and tire insurance, paint and fabric protection, or maintenance are more appealing.

At Acura of Tempe near Phoenix, General Manager Richard Cvijanovich says cash buyers are most likely to buy service contracts. They are likely to keep the car for a long time. In the heat of southern Arizona, that means an air conditioning failure is likely, and Cvijanovich's staffers use that in their pitch.

"Why write a check for $2,000 for air conditioning [repairs] when you can have coverage for the entire vehicle from tip to tail for $2,000," he said.

The Acura store has a penetration rate of 40 to 45 percent on service contracts with both finance and cash customers, Cvijanovich said. "You're selling them peace of mind," he said. "You're selling them time. Typically, the more expensive vehicle buyers wish they had more time."

Slightly more than half of respondents to the Automotive News survey said they use a special menu for cash customers.

Some finance managers say it helps to include a range of options on that menu. For instance, provide three service contract choices at different mileage and length terms.

Angus said it also can be helpful to discount the products and tell the customers they'll get a special price for paying cash.

Others promote simple flattery as a tactic. Congratulate the customers for their hard work and ability to save. Then present the products as a way to protect the value of their new car.

Make sure to offer the products to everyone, many said. Even if it only works a quarter of the time, those are still sales that wouldn't have happened otherwise.

And no matter what, don't presume to offer financial advice, some warned. Cash buyers are financially savvy and aren't going to take such advice from someone selling them a car.

Said Eleazer: "When you start coming off like a financial adviser, your credibility is shot."