Dealer Reserve

Creating Loyalty By Rejecting Dealer Reserve

by · August 19, 2015

Although I have purchased nearly a dozen cars in my day from dealers, I never actually considered how much money they are making from my financing. Looking back, I realize now what a useful bargaining chip this can be for a customer.

Not so with Barry Chrysler Dodge Jeep RAM in Ephrata, Washington.

According to an Automotive News article, Dealer Principal Denver Morford does not charge for arranging his customer’s financing. In fact, Morford doesn’t even have finance managers. Instead, he trains his salesmen on both so that the customer works with the same employee throughout the transaction.

Working with a customer through the transaction helps salesmen build a loyal following, and eliminates the risk that comes with turning the customer over to someone else, he says.

This is truly impressive and it gives Barry a significant competitive edge, not only within transactions but also with customer loyalty. Imagine the referral business the dealer receives by customers telling friends and family about this huge value-add!!

Creating Loyalty through Education and Savings

When Morford’s customers receive loan approval, he gives them the lender’s wholesale rate. Morford shows each customer the buy rate and explains that he has the legal right to mark up the interest rate for compensation, but he chooses not to. He wants his customers to understand and be a part of what happens behind the scenes during financing.

“We take the mystery out of the financing process, “ he says.

Morford believes this transparency has helped build his store’s high level of customer retention. Business from repeat customers offsets any profit he has missed by forgoing dealer reserve, he says.

Reputation has proved to be vital to Morford’s success. In the last 10 years, the advertising budget for his new-vehicle dealership and two used-vehicle stores has been reduced from many thousands of dollars per month to only hundreds of dollars per month, most of which goes toward search engine optimization.

Morford does have a short list of F&I-related product offerings, but he only sells guaranteed asset protection and extended service contracts, on which salesmen make commission. For other F&I-related products, he refers customers to their local insurance agents.

Morford views insurance sales as something separate from the dealership business.

“We don’t sell lumber. We don’t sell insurance. We sell cars. If you want insurance, go to someone who is specialized in that.”

How about your dealership? Is your like most where profit is enhanced through dealer reserve? Has your dealership ever experimented with this approach, or at least considered it? If so what were the results and why was this idea not embraced?

 




Producer and Host of the AutoConverse Future Mobility & Connectivity Podcast, Ryan began working in the automotive industry in 2001, establishing his roots in online vehicle merchandising before expanding into digital marketing and now multi media for Automotive B2B. You can connect with Ryan on LinkedIn.

Comments

comments