Sunday, December 15, 2013

Car Dealership Quota: 129 Cars

A nice story on "This American Life" was about a car dealership trying to make its monthly quota.
So they have to make October. And when I say "have to make," this is not some sort of abstract, feel good, compete with the dealership down the block just for fun kind of competition. They're part of Chrysler. And if they sell 129 cars and trucks by the end of October, Chrysler will pay them a bonus that's pretty much the difference between the dealership being in the black or being in the red for the month-- somewhere between $65,000 and $85,000, depending on which models they sell. Different cars earn different amounts. If they sell 128 cars-- fall just one car short-- they get nothing.

Lots in the story about high-powered incentives, bargaining, negotiations, and even the Art of War.

9 comments:

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  4. This substantiates why it is likely consumers can get better deals at the end of the month. If salespeople have quotas to fill and they are nearing the end of their term and still haven't made enough in sales, they have more to lose and more of an incentive to bargain. This is great for consumers who have ample time to wait it out because you're likely to get a better bargain from the salesperson. The salesperson is more likely to settle a deal that would provide them with a lower with less margin versus the risk of losing out - with no sale...zero win for salesperson and consumer.

    Jackie Yee #XXXX921

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  5. I am not a person who likes to bargain. I like to visit several different vetted vendors and pick the one person who gives me the best overall price and service. However, when purchasing a car, this is not always the best course of action. Shopping and negotiating for a car is my least favorite form of shopping. While shopping for a car in December of 2014, I went to several dealers for different cars. I was in the market for crossover with all-wheel drive and heated seats. Those are my two requirements. However both those items add a lot of money on to the base price of the car. As I was leasing, I perused the deals in my area; suburbs around New York City. I was going to lease the car for a maximum of 2 years, payment under $400 a month with limited down payment. Knowing exactly what I wanted was to my advantage. Having specific parameters was also to my advantage. I visited a Subaru dealer with a disappointing result. They don’t bargain and charged more for a shorter lease. He looked shocked that he couldn’t move me to go to a 39 month lease and $550 a month. Ford (my first choice) was too much money and I didn’t like the smaller care (Escape); Buick, short lease too expensive. On Christmas Eve (best time to buy a car next to New Year’s Eve), I walked into the Chevy dealer. Laid my cards on the table (they were closing in 2 hours). Fifteen minutes later I had a two year lease, $369 a month with $2,000 down that covered all the other costs (DMV etc…) and I drove my car home that day! The lesson: always know your parameters, do your homework, and buy a car at the end of the month, especially December for the month quota and year end quota and sales incentives!

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  7. Honda is releasing a new Pilot model this summer. It seems that they are trying to sell as many of the new models as possible now to get them on the road so that people see them and want one. We own a 2010 Pilot and just received a flyer from the Honda dealer informing us that they are paying 20% over book value for used Pilots right now. This was the same deal we used when we bought this car. We had a 2003 Pilot and were given an incredible trade-in value for it so that we would buy the new model (the 2010).

    This is similar to the strategy of offering bonuses to the salespeople, but it’s a better strategy for the company because they are, in essence, offering a bonus to the customer. That makes the opportunity cost of not buying a car higher for the customer, so the customer loses bargaining power. When we bought our 2010, I couldn’t sign the papers fast enough. I don’t think I even bargained over the price of the new car because I was so anxious to complete the deal. It was the exact opposite scenario of the typical bargaining power balance during a car sale. The salesman, in contrast, seemed as though he didn’t care whether I bought the car or not. He didn’t call me back when he said he would, I had to call him. He didn’t fawn over me at the dealership or try and win me over. At the time I was totally puzzled by this. I still bought the car because I would have lost the “bonus” if I had not. The concept of nonstrategic bargaining suddenly makes this all clear to me.

    When I received the flyer in the mail today, I was very tempted to find out what I could get for my car and look into a new one even though we had decided to drive this one for a few more years. I guess now that I’m onto their game, that flyer’s going in the trash!

    References:

    Froeb, L.M., McCann, B.T., Shor, M., Ward, M.R. (2014) Managerial Economics: A problem solving approach. Third Edition. South-Western Cengage Learning: Mason.

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  8. I am a horrible bargainer and negotiator. I have always known that a job in sales would not be right for me because I am the type of person who will keep quiet and not pledge forward with my input and thoughts for fear of rejection. I have become much better over the past few years at voicing my opinions, but I do not think that I would be able to be put in the position that car salespeople like this are put in on a regular basis. Imagine being that last person trying to make that sale for the 129th car at the very end of the month. There is a lot of pressure on them to complete the sale so that the dealership gets the bonus. If you do not make the sale then you have let everyone down. However, it is not just about completing the sales, but you also have to make sure that you control the bargaining and that the sale price is something that will allow the dealership to walk away making some sort of profit on the vehicle that is worth it. This just sounds like a bit too much pressure to me. Bring on the board rooms and the various financial analysis responsibilities I carry now because I do not want to be making the deals themselves with the clients/customers.

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  9. Great blog post.Thanks for the suggestions.GB car

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