Tip:
Highlight text to annotate it
X
All right guys today we want to take a question from ask the coach and, I had a salesman selling cars for a few months
and he said something about why are buyers so upside down? Is it because the last dealer really laid them away right?
It's common.
We get so many buyers who come in who owe more on their car than it's worth and sometimes that keeps us
from selling a car, right?
Well I want to just today's explanation is I want to tell you how they got upside down and it really basically boils
down to three things.
The first thing is most customers don't put enough cash down.
Right?
So they financed the whole purchase of the price.
They finance all the extras and they financed the tax.
So guys, they begin way upside down by virtue of not putting enough down. Right? 20, 25 percent is kind of a
smart amount to put down.
Most buyers don't put that.
And that's why they end up upside down.
Right.
There's another reason. Finance term.
Right?
Buyers normally want more car than they can afford.
So what do they do? Instead of paying for the car over three or four years,
they want to pay for the car over five or six years.
So, as they drive in the cars depreciating, they only pay it off at this rate, but it's depreciating at what? This rate.
Now, we know that new car buyers, and even used car buyers at somewhere to 24 30 months position, start
thinking "I'd like something better."
I like something new.
I like something different.
Remember. We don't sell cars, we sell lifestyles. And they want a better lifestyle and they want a better lifestyle
that the other car represents.
They come in the trade and they find out, because they put too little down and they finance for too long and made
too small the payments they haven't paid off this car fast enough. Right? Now, to compound this problem and I
don't mean to be a make a pun here but it's that compound interest plus simple interest compounds the
problem. Why is that? Guys, simple interest...
basically you pay interest based on the amount that you owe.
Now, when do you owe the most money? Right? At the beginning of the loan.
So your interest every year goes down.
You guys know this you see your mortgage payment you buy a house.
You can't believe that first year.
Wow all that went to interest?
Second year less goes interest.
Third less goes to interest you guys know how it works well on a five year loan.
Simple interest.
They claim 64 percent of the interest over the whole five years is paid in the first two years.
Right.
So let's take a look at this.
Somebody finances more than even the purchase price of the car to begin with.
They pay for for too long time meaning the payments are too too small to meet depreciation.
And of course simple interest is charged the more you owe the more you pay. 64 percent is paid in the first two
years. Is it any wonder, after two years when a new new car buyer, a used car buyer, wants to trade the car that
they owe more than it's worth?
No it's not.
And here's the thing.
This is a vicious cycle.
Many buyers when we say they finance it they come in upside down they buy another car and they do the same
thing. No money down, long finance term, simple interest.
And now they're not only financing the new car in a bad position but they're bringing loss from the old car over
which only compounds the upside down position.
Does that make sense you guys? Guys were talking about solutions for that and better ways for buyers to
finance in future segments.
I want to let you know it's not the dealers that have created this problem for the buyer, it's the
buyers choices when it comes to financing.