Alchemist

Secrets from a Supercar Salesman

Client persuasion experts, salespeople, consultants, executives, charlatans, swindlers?

There’s a ton of fancy titles associated with people who sell, not to mention countless books and guides on “how to close a sale”. Most involve heavy, monotonous chapters on confidence, persuasion and negotiation tactics… but ultimately the art of the sale distills down into trust & relationships.

We’re all in sales. Whether it’s interviewing for a job, crafting an online dating profile or pitching for a new client. How do we want people to perceive us and how does this align to what we truly represent?

Authenticity is the main difference between the forex trader in your DMs and a trusted adviser.

In the motor industry, you’re not selling a hunk of aluminum but opening the door to an experience. A significant percentage of Ferrari sales are owing to repeat clients. It’s the perfect combination of an elite product, superior ongoing after-sales service and providing excellent experiences.

Consumers spend roughly 15 hours buying a car and as much as 50 hours servicing it during the time of ownership. Emphasis is always on making the sale and racking up targets… except the more important driver of overall experience is the service experience.

The single biggest mistake consumers make when purchasing a vehicle is paying for the “wrong” experience.

‘Til debt do us part?

Walking into a dealership seeing your name on a board, cutting a ribbon and snapping pics for social media pretty resembles a wedding where you’re signifying a commitment with the hope of a great future.

Just how long do people in South Africa plan on holding their cars? Here’s a snapshot from the Automobile Association (AA) in South Africa.

Source: AA Insights

35% of respondents plan on holding their cars for more than 10 years – that’s a long, long time in car years. Looking at TransUnion data, people are also taking longer to pay off vehicles – the average term of financed deals is around 70 months, with options as long as 84 months.

People often think about houses as long term commitments and cars as being very short term – cars are a considerably longer term commitment than most people envisage them to be. Then again, most people feel marriage is a long term commitment yet 4 out of 10 marriages in South Africa end in divorce before their 10th anniversary.

The demand for used cars is evident by the used to new vehicle ratio. For every new vehicle, finance houses are financing 2.31 used vehicles (the highest since Q3 2017).

TransUnion data indicates that approximately 40% of used cars financed are under 2 years old.

Source: TransUnion Vehicle Pricing Index Q2 2020

The value lies in the journey, not the destination

Salespeople, manufacturers, dealers and private sales agents will come at you from every direction, selling you the story, the dream and the wrong experience. Before you know it you’re hustled into a poorly structured finance deal for 5 years with this guillotine of a massive balloon payment hanging over your head and fixed interest at eye watering rates. If reading this makes you claustrophobic and suffocated – it should. Despite what a salesperson tells you, you ALWAYS have time. Use it. 

That New Car Scent

Let’s start with new cars, these are generally out the box, what you will be sold are the FAB factors, those are the Features, Advantages, and Benefits of the cars.

Be careful, when they tell you it is “fully loaded with extras”, it generally means you are paying way over the base price for some things you may never need or use. Take into account the items you need and dispose of that which you don’t. Sure you can find a fully loaded gem that has been on the showroom floor heavily discounted but this is the exception rather than the norm. Why think twice about the extras? One word – depreciation (shout-out Rich Dad, Poor Dad*).

*A car is an asset according to IFRS & common sense

Take this BMW X3M Competition. It’s painfully beautiful – it painfully costs roughly R1.8m. The dealer I met gushed over the “features” and “extras”. What he didn’t mention is after a year this car is R200k cheaper. By the time its 5-year motor plan ends it will be worth roughly R1m less.
Certain brands and models are magnets for heavy depreciation, they just seem to attract the same way Instagram models attract questionable slimming green tea promos.

How can you avoid this? The best way is to trawl vehicle listings and map the mileage and year against the vehicle value.

Depreciation is also though what makes a used car more attractive and a better value proposition. The original owner takes the depreciation cost, as well as the addition of extras. The 2nd owner ends up getting a far better deal

Also use online tools to actually check the book values of the vehicle in relation to what the dealers advertised price is e.g. FirstCheck

A Maserati Quattroporte (which makes you feel like you have links to the mafia) is estimated to lose over 70% of its value over 5 years

Thoroughly analyze Guaranteed Future Value (GFV) options – some brands call it Agility Finance or Select plans. Think of it as a long term rental. One on hand your car is under warranty with a maintenance plan which is great. It also gives you the flexibility to drive a new car every couple of years. On the other hand the car needs to be kept in meticulous condition (you can’t give the car back with any damage).

Then there’s mileage limits. If you go over the limits you can end up spending a fortune. R4/ km for 5,000km is R20k. This can come as a nasty surprise if you weren’t aware of the fine print. Bottom line – read everything!

You will come across a number of analytical tools which look at the re-sale value from auctions as a proxy for value – avoid placing full reliance on these. Vehicles sold under duress are far less accurate than private listings given the relative volumes and varying demand for these vehicles.

We generally use the TransUnion dealer books in the car business to determine vehicle values when trading in. If it’s a great car, loved by many, the value will generally hold. If it is plagued by high insurance premiums or mechanical gremlins it ends up becoming a rock of depreciation.

Pre-loved cars

Again the consumer app that’s available to check vehicle values as well the history of a vehicle is FirstCheck

Next, pre-owned cars – our dearest friends at the pre-owned dealers are going to come at you convincing you on every point the car was driven by Mrs. Green once a week, all its life…. except, Matthew and Divesh used it to transport their supplements and gym babes to festivals and doing late night drag racing. It’s also a massive misconception that elderly women don’t drag race (don’t ask me how I know…)

While depreciation is a villain to new vehicle owners, it can be a savior to used vehicle owners. The first owner takes the heaviest depreciation hit and cost of extras. The second owner often ends up getting a much better deal. Depreciation increases at a decreasing rate so the heaviest hit happens in the first two years. TransUnion data indicates roughly 40% of used cars financed are under 2 years old.

Many cars are built well these days, but how they are maintained is even more important. A few tips for your pre-owned purchase to help you negotiate from a position of strength:

“FSH” – full-service history, make sure this is in place, routinely maintained vehicles will have fewer possible issues later down the line. You could even ask for a detailed breakdown of a car based on its Vehicle Identification Number (VIN), available at dealers.


Accident-free – speaking of VINs, it is possible to run an accident check for a particular VIN, as accidents are reported and recorded at panel shops and manufacturers to the VIN. If it has been in a bumper bash or sorts, ensure it was repaired at the manufacturer-approved panel shop or repairs, for your peace of mind.

Nip and Tuck – the edges of the wheel rims, the amount of pad or disc left on the brakes, thread on the tyres – also, check the windscreen for chips, these may crack you up later on (Sorry!) Also check for chips of paint on the front bumper and dents on the doors.

Silently make notes of all of these items, so when you get into deal-making you can score back by knocking off the price for these to be repaired, or agree with the dealer that either the manufacturer or private dealer repair these items before delivery.

Color influences value Ferrari’s are famously known to wear “resale red” – it’s the traditional color that most buyers are attracted to, especially in South Africa, since we are quite conservative and protective of our approach to buying to retain value.

Here’s the most purchased colors in South Africa (and globally) that can assist you in your new purchase as a hedge to retain value.

Pro-tip: buy a Ferrari, red, a Toyota, white and a Mercedes-Benz in silver.

Sometimes it pays to follow the crowd

While it’s tempting to go for a car nobody has to really stand-out in the mall parking lot, if you’re in the affordable vehicle market it pays to look at brands where you can cheaply source parts and ongoing maintenance. Owning a car involves a host of running costs – tires, fuel, oil, brakes, filters, etc. These can rack up pretty quickly if you purchase a car without a maintenance plan (or your maintenance plan expires). Ideally you want to be in a position where you can comfortably cover these expenses.

The most popular vehicle brands in South Africa are Toyota and VW across both new and used vehicles.

More especially that consumers are keeping their vehicles much longer than ever before. The average term of financed deals is around 70 months, with options as long as 84 months


Source: TransUnion Vehicle Pricing Index Q2 2020

Probably the single most important factor of vehicle ownership is how much you end up paying. Pay forensic detail to the interest rate quoted and the financing structure. You really want to make sure the quoted rates reflect your credit score and you aren’t being ripped off. There’s a detailed BankerX article on credit scores here: Credit Scores Let’s take a quick look at how much people spend on cars in South Africa.

Source: TransUnion Vehicle Pricing Index Q2 2020

Close to 2/3rds of all vehicles financed in SA are less than R300k. This might come as a surprise since we’re faced with an avalanche of expensive cars being advertised almost daily. Truth is – this reflects the strained consumer environment and is consistent with the thesis of consumers being more conservative with their purchases. Social media has certainly skewed our perceptions of wealth and accessibility.

You just secured your first job and see an amazing car for R300k. Let’s run some numbers.

Option 1:

  • No deposit
  • Take out financing for 5 years
  • Interest secured at 9%
  • No balloon payment

Wait, that’s R6,300 each month?! That’s before any other costs (insurance, maintenance, running costs). You quickly realize you might need to live under a bridge. I mean, you could get used to cold showers right? It’s just rain water after all.

Option 2:

  • No deposit
  • Take out financing for 5 years
  • Interest secured at 9%
  • 30% balloon payment

The 30% balloon payment is the only difference in this situation. A balloon payment (also known as a residual payment) is the amount you pay at the end of your loan. So we’re paying 30% in a lump sum at the end. In Option 1 we took out a loan for the full R300k. Now we take out a loan for R210k and pay R90k at the end.

30% of R300k = R90k Let’s see how this works out…

Wow. This is magic. We went from paying R6.3k a month to roughly R5.1k. That’s nearly 20% lower.

Hold on… we need to magically have R90k somewhere at the end of 5 years.

Option 1: R6.3k x 60 months = Roughly 379k

Option 2: R5.1k x 60 months = Roughly 308k oh and ++ that R90k takes us to R398k

Did we just end up paying close to R20k more for taking the balloon option? Sadly, yes.

Wait, what if I can’t afford the balloon and don’t have R90k lying around in 5 years? Oh, that’s easy you just re-finance it at a higher rate with a trade-in to another vehicle and keep rolling over your debt. If you feel suffocated reading this, it is suffocating – you’re signing up to potentially having this noose of debt around your neck for a long time.

Let’s run one more scenario with how you can pay off R300k the cheapest:

Option 3 (BankerX suggested option):

  • 10% deposit (R30k)
  • Keep financing for 5 years
  • Interest secured at 8% (negotiate hard for attractive financing)
  • No balloon payment

With these seemingly small but massively critical tweaks you shave off a considerable amount of interest.

Total payment under each option

Option 1: R380k

Option 2: R398k

Option 3: R364k (R334k + R30k deposit)

All for the same vehicle….

Pro-tip: Pay a deposit, push hard for cheaper financing, pay down the financing quicker (if possible) & resist the urge for accepting the balloon.

Common tricks vehicle salespeople use:

Leveraging uncertainty – many clients walk into a dealership or onto the showroom floor without not knowing exactly what they want, just money to spend, they are target number one for the sales pitch.

Never start a conversation with “I have XX to spend” – rather start with “I have multiple options I’m currently reviewing, I want to see how you compare against them”. The moment you introduce a budget or number you end up setting a price anchor and more often than not you will be upsold rather than saved cash. You don’t want to be taken for a… ride.

The trade-in – if you’re trading your car in, best to get it valued independently before valued by the dealer you’ll be looking to buy from, they can sometimes lowball your value and boost their profits because you have no point of reference.
Too good to be true – “no paying for 3 months” – well, that is fantastic and true in many offerings, but expect to be in for even more interest or a higher balloon payment at end of the term. There is no free lunch.

The biggest one, emotions – you’re about to buy your next car, you’re filled with excitement, they will play on your emotions, manipulate them, tell you how good you look in the car, let you test drive it, hear that roaring engine and BOOM you’re sold. It’s a well known sales technique that once a person tries on an item of clothing or physically sits in a vehicle they’re more inclined to purchase it. A large part of a sale hinges on a person’s ability to perceive themselves engaging with the product – once they experience it, it removes that uncertainty. Uncertainty is the gap between contemplating a sale and parting with cash.   

Think carefully and don’t make a decision on the spot, make the choice when you are home sitting and listening to classical music (or Taylor Swift).

Never sell yourself short. You are always in control of the deal. If you aren’t happy with the offering, shop elsewhere, if you find anything suspicious about your dealer, do some research – reading up about dealers who have the stock you are interested in are available on Google Reviews, HelloPeter, check their social media pages and websites too.

Additionally, check whether they have won any awards via financial institutions, through their Original Equipment Manufacturers (OEMs), or the certain bodies that award businesses in the industry.

Control the situation. Pay attention to their body language, tone of voice, and most importantly your gut. Carefully consider what’s being said and even more carefully to what isn’t being said.

Your ultimate vehicle purchase tool-kit

Here’s a list of essential tools which can save you thousands on your purchase.

  1. Car valuation report. FirstCheck offers a report for R19 and provides the trade and retail values of the exact car you’re looking at buying through the VIN number. It also really helps make sure you’re not overpaying on insurance. There’s predictive models which show what your vehicle will be worth in 3 months. Here’s the link: FirstCheck

    They also offer reports which can tell if the car still has any debt outstanding, happens to be marked as stolen and give you a list of the last 3 registration numbers on the vehicle.

  2. A vehicle depreciation estimate calculator: Here’s a great one: Depreciation Calculator. Useful for figuring out how much your dream car will be worth a year from now.

  3. A vehicle finance calculator. Here’s the Wesbank calculator we used in the examples above: Vehicle Finance Calculator

  4. Child car seat safety rating matrix. It takes 5 minutes to check and is absolutely critical. Benchmarks car seats according to overall safety and ease of use. Link here: Car Seat Ratings

  5. The National Association of Automobile Manufacturers in South Africa (NAAMSA). Has a wealth of readily available info on vehicle stats in SA: Check it out here: NAAMSA link

Across your lifetime you will own multiple cars, drive thousands of kilometers and be faced with many new purchase decisions. Here’s to making sure every experience is unforgettable.

Latest posts by C J. Schroëter (see all)
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Tlhokomelo Mohale
Tlhokomelo Mohale
1 month ago

What a read, I sure made a couple of mistakes when I was buying but I got value for my money.

Anonymous
Anonymous
1 month ago

What mistakes did you make?
I am in a process of buying my first car.

Asi
Asi
1 month ago

This was so helpful. Thanks for the heads up.

Nwabisa
Nwabisa
1 month ago

For someone who is planning to buy a car this information has been very helpful.

obo
1 month ago

Great Article to read, will keep this in mind on my next purchase.

Tshegofatso
1 month ago

Just like in politics, there really is no free lunch. Enjoyed how explicit the balloon payments calcs were. Most people really fail to understand the impact this has on their finances and overall ownership.

Max
Max
1 month ago

This is very informative and i wish i came across it 2years back. Definitely i presented myself to be taken for a ride. Next buy, they’ll know me well😅

Relebohile Sibeko
Relebohile Sibeko
1 month ago

Thank you for this detailed information. It will definitely come in handy going forward.

Sifiso
Sifiso
1 month ago

This was so helpful. I will be bookmarking this article for future references.

Samu
Samu
1 month ago

What a coincidence, I’m actually looking to buy. This was really helpful, thank you

Morgan Tlou
Morgan Tlou
1 month ago

Well written thanks for the insights.

Bethuel Mangwale
Bethuel Mangwale
1 month ago

A friend of mine said i love negotiating & he must tag me along when going to buy a car..Lol its cause everthing in this article i understood well and have been applying it for a while. My wish is for us to be smart in our car purchases & i am glad you guys are putting it all out there.

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