The group, located about 40 miles west of Nashville, sells Buick, GMC, Ford, Hyundai, Kia, Mazda, Subaru, Toyota and Volkswagen vehicles. It has an annual volume of about 6,600 vehicles, new and used.
Hyde gives sales staffers $25 if they can secure a down payment of $3,000. The spiff is necessary to enforce the sales process, he said, because nearly 60 percent of customers have negative equity. Five years ago, only a third of the group's customers were in such a predicament, he said. The average negative equity is $7,000 to $8,000.
"Most of our new-car loans, especially at our GM store, [have terms of] 84 months," Hyde said. "Five to seven years ago, you wouldn't have an 84-month loan. We show the customer options, but most will gravitate toward the lowest payment."
While a down payment is key to delivering a low monthly payment, the next step, closing the deal, entails finding "the right banks," Hyde said.
Banks that have good relationships with dealerships are often willing to offer vehicle buyers more favorable interest rates and higher loan amounts, which benefits customers as well as dealers looking to fold F&I product purchases into the vehicle financing.
But in some cases, customers simply can't get the car they want.
"If they're looking at a pre-owned vehicle and have a significant negative-equity situation, you're going to have to move that customer to a new vehicle," Hyde said. "You're going to need the rebates to help absorb some of that negative equity."
Clay Close, managing partner at Bournival Jeep in Portsmouth, N.H., six months ago started requiring salespeople to ask customers for money down, usually 20 percent of the sticker price. He also pushes for shorter-term loans to help break the negative-equity cycle.
"People can get a loan on a 5-year-old car for 72 months. A salesperson can talk them into it. And you'll never earn that customer's business again," Close said. "They'll go to the next dealer, who'll say, 'Wow, those guys really buried you.' Then they will do it again to that customer."
Bournival Jeep sells about 1,200 new and used vehicles a year. It arranges financing for 65 percent of its customers, with a typical loan length of 60 to 66 months. Before changing the sales process, the typical term was 72 to 75 months, Close said. Plus, people are putting more money down now.
"We sold 10 cars one Saturday, and my sales manager said, 'You know, everybody we asked for money down today did it,'" Close said.
When down payments lead to low monthly payments, the prospects for F&I sales increase. For example, if an F&I product financed on the vehicle loan adds only $10, say, to an already low monthly payment, the customer may opt to buy the product. Close said his store's F&I revenue per vehicle is up 20 percent since starting the new sales process of requiring sales staffers to request money down. His front-end gross profit has increased, too.
Still, he said, "If someone says, 'I don't have any money to put down, and I need you to go 72 months,' I'll do it. You can still buy a house with no money down, but it's not a good idea."