A friend of mine spent several years working for a prominent local car dealership in the area, and though I’m not a “car guy”, I got a chance to learn about some of the inner workings of the business from a guy who was living it. And that’s what they do in the car business, by the way—they live it.
If they’re in sales or financing, they’re on the job from the moment the store opens until past closing (there’s always a lagging customer or paper work that needs to be cleaned up). If they’re serious about the business, they work at least six days a week, and rarely take vacations.
Looking at the schedule this guy kept, the first thing I learned about the business was that I didn’t want to work in it. I had a life, and I wanted to keep it.
But the second thing I learned was a curious phrase he often referred to: upside down. If you’re not familiar with the term, it refers to a customer who owes more on his or her car than the vehicle is worth.
Now in my simple mind, this customer looks to be the worst type of prospect a salesman or finance manager can run into. It looks like a clear case of customer-dead-on-arrival, right?
Hardly. The car dealerships LOVE these people!
Why the upside down customer is the BEST customer
If you’re over the age of 18 you probably already know that things aren’t always what they seem, and such is the case with the car buying prospect who’s underwater on his car.
Now I’d look at such a person and say “negative equity—pass—next victim, er, customer”, but that’s yet another reason why I’m not in the car selling business, and would have no hope of surviving if I ever decided to take a shot at it.
In the car selling universe, this kind of prospect is one of the ones they like best and for the simple reason that this customer doesn’t know what he’s getting into. After all, if he did, he’d have no interest in buying another new car until he’s right side up on the one he has. But that takes patience, which is another key quality the upside down buyer lacks, making him still more desirable as a customer.
The car buyer who’s upside down on his car is an uninformed buyer; he’s making his buying decision based purely on emotion. A new car. The new car smell. “Wait until my friends see my new wheels”. Dollars and cents be damned, I’m getting a new car!
Have you ever known someone like this? Have you ever been someone like this?
Part of what get’s this buyer into trouble in the first place is the singular obsession with the monthly payment. This is another tidbit I learned from my new car dealer friend. The customer doesn’t care what the car costs in total, isn’t terribly concerned with the interest rate he’s paying or the value of his trade in, all he wants to know is “what’s my payment?” He figures that if he can manage that, the other details will take care of themselves.
In a way, he’s right—the other details do take care of themselves, only not in the way the buyer thinks.
All the salesman and finance manager need to do with this customer is get the monthly payment right, and they have another sale. What’s not to love about this guy?
Double jeopardy: upside down Part II
But the worst of all for this buyer is what happens next: he buys another new car and the hole gets even deeper.
Being a non-car guy, I never imagined that there’s a place for an upside down customer in a dealership but there is. The dealer is able to take the deficiency the buyer has on his current vehicle and “roll it over” onto the loan on the new car. In short, the dealer will accept the buyers’ current vehicle as a trade in for the new car, negative equity and all, and the buyer will drive out of the showroom with a new car—one he’s already upside down on!
It’s easy to see why upside down buyers are such great customers, they come back again and again for the same deal.
How do you know if you’re upside down? Compare the loan balance on your car with the value of the car, which you can get from Kelly Blue Book; if the loan is higher than the car is worth, you’re upside down.
What should you do if you are?
- Don’t even think about buying a new car!
- If you have the cash available, pay the loan balance down to an amount equal to the car value
- Make and/or accelerate the loan payments on your car until it’s fully paid
#3 is especially important; by paying the car off completely, you break the cycle of being upside down once and for all, and restore yourself to a position of bargaining power on your next purchase.
If you’re the type who gets bit by the new car bug more often than most others, think of this as a valuable time-out period when you get the opportunity to wipe the slate clean and restore sanity to your finances—at least the part that involves your car.
Do you know if you’re upside down on your car right now? Would you consider buying a new car, if the dealer could work something out for you?