Many customers who financed their vehicle purchase are invited back to their selling dealership for an upgrade sale three or four years into their ownership experience.
Once their vehicle is appraised, they discover that the payment for a new model in the same trim level is $100 to $150 more per month than what they are paying for their current vehicle. They leave disappointed, without buying.
There are a couple of factors that have caused this to become a reality for many customers who would otherwise consider trading up to a new model.
Vehicle prices have increased across most manufacturers over the past five years, in some cases by as much as 20 per cent or more. Interest rates have also climbed. Many customers who took out vehicle loans at very low rates are now finding that the rate for a similar make, model and trim is four to six percentage points higher.
This reality also applies to many customers who call or email a dealership to inquire about pricing and payments. They are often disappointed by the increase and postpone their purchase.
The situation is made worse by rising mortgage costs, higher credit-line payments and a cost of living that has outpaced many household incomes. Is it any wonder that many sales consultants are being “ghosted” by sales callers or e-lead inquiries?
For the showroom customer, sales call or e-lead inquiry, an upgrade close can help seal a deal or create a showroom appointment. The strategy is to show the customer the cost of keeping their current vehicle if they do not trade it in for a new one.
If they keep their current vehicle, they will still have their current payment. They may also be facing higher maintenance costs as the vehicle ages and warranty coverage expires.
For example:
- Customer’s current payment: $657.89 per month
- Estimated cost of maintaining the vehicle: $100 per month
- Effective payment if they keep the vehicle: $757.89 per month
- New payment for a new vehicle: $789.45 per month
- Difference: $31.56 per month
The close:
“Mr. Jackson, as you can see, if you keep your current vehicle, you’ll be paying for a used vehicle. But for about a dollar a day, you can drive a new vehicle with new safety and convenience features. Would you like to pick up your new vehicle Friday or Saturday?”
For a sales call or e-lead inquiry, the close could be:
“Could we make arrangements to see you tomorrow or Saturday?”
If the new model is more fuel efficient, show those savings as an added benefit of trading up.
Another strategy that may complement an upgrade close is to offer the customer a deferred payment through one of your dealer-plan lenders. A 90-day deferral can often help a customer rationalize a higher payment, even if the interest rate is higher than the subvented rate offered by the manufacturer.
Many customers can use the payment break and direct funds that would have gone to a vehicle payment toward other higher-interest debts.
The furniture industry has built an empire on deferred payments. It also encourages people to spend more when they do not have to pay right away. For example, a couple may walk into a large furniture retailer looking for a new mattress and leave with a complete bedroom set.
Many savvy dealers use deferrals as an effective closing strategy, especially for hesitant buyers or to generate more appointments from sales calls and e-lead inquiries.
Yet another strategy to consider is an equity payout. If a customer has equity in their vehicle, offering cash back can help sweeten the deal.
Using these strategies may help turn hesitant customers into buyers during their visit, or at least create more showroom appointments.
Sources:
1. According to the Canadian Automobile Association (CAA), when a comprehensive vehicle warranty expires, consumers should anticipate an average of at least $100 in monthly maintenance costs (or approximately $1,200 annually)
