Guest commentary: Dealers, prep for straight talk on rates, value

Since 2020 we have dealt with a pandemic followed by a supply chain issue that still isn't resolved, although it has improved.

The side effect of this double black swan has been historically high profits in sales and finance. While supply and demand created the current market, the pendulum is swinging the other way.

We are now facing two major issues. One that is here and one that, depending on whom you ask, is almost upon us: and a recession.

Interest rate hikes have already begun to make purchasing a vehicle more expensive at the cost of gross revenue across the board.

A recession will further impact pent-up demand for vehicles as consumers batten down the hatches.

As inventories are replenished, dealers will find themselves in a situation that feels a lot like 2009. The important question to ask is: What can you do about it?

For the first time in a long time, sales and finance-and-insurance staff are being challenged to answer questions about interest rates. Salespeople must be trained to answer these questions appropriately for customers who have contacted banks pre-sale and discussed rates with them.

The desk will need to update their "desk rate" more frequently when penciling deals to make sure they are safe on payment quotes. Finance must be prepared to handle cash, bank and credit union conversions, and to justify interest rates.

F&I also will have to know how to sell multiple products and understand that holding even 1 percent may be very different than it was just last year. Products per delivery will have to be at two-plus to maintain pace with what used to be common profits per vehicle sold.

While F&I training is critical to accomplishing this task, don't settle for traditional training philosophies. A robust, downstream package/menu sale steeped in protecting consumer budgets and the long-term financial effects of vehicle ownership will be the best F&I presentation philosophy in the near future.

Sales managers also will need a foolproof way to discuss rates without spooking the customer. It's funny how everything old becomes new again. When is the last time you held a "cash is king" meeting? Do your salespeople even ask for cash down? How about the F&I department? It may seem simple, but if your folks aren't trained to do so assume they will not be asking for cash down.

With customers looking for the biggest bang for their buck, it might be time to consider "value selling." In simple terms, every dealer must decide whether they are going to compete on price or value. In a recessionary market, value is going to win even though customers are looking for the cheapest deal. It sounds counterintuitive until you consider that "value" includes prepaid maintenance, cosmetic coverage and warranty terms.

The average customer is more concerned with the monthly expense of the vehicle versus the actual selling price. If the customer believes a two-year maintenance program or lifetime powertrain coverage is a good hedge against future costs of ownership, odds are they will assign a value to those types of coverage and purchase accordingly. The concept of value selling has long been embraced by dealers, but in the past two years many have done away with their value proposition since the vehicle itself became the value in a commodity supply market.

You might want to consider value selling if you haven't. If you have invested in value selling and paused for the pandemic, it might be time to dust off your brochures. Remember that any value product that can be given away, upsold or extended in F&I will help sell more cars, hold more gross and allow a simpler sale.

There are other things you should look at in addition to readying your team to handle rate objections and to consider value selling. Here is a list:

• Sales compensation today versus tomorrow.
• F&I compensation today versus tomorrow.
• Front-end gross falling fast and deep.
• Inflated profit per vehicle dropping fast.
• Customers watching every penny they spend.
• Used-car prices swinging erratically.
• A value proposition and sales process to attract cautious customers.
• Downstream effects of fewer vehicles sold in 2020 and 2021, specific to fixed ops (e.g., less warranty work).

You may already be on the path to addressing these items. If not, don't wait any longer to start making changes. When the light at the end of the tunnel turns out to be a train, it's best to be prepared. It will take time and energy, but you will be happy you did it.