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Why can't finance managers sell vehicle service contract to cash customers?

Updated: Feb 11, 2021


Recently during one of our training sessions, Jon and I went back and forth regarding why there was such a big disparity on VSC penetration on cash and finance customers. Good F&I managers often sell VSCs to finance customers at a 70% penetration. However, that same F&I manager will sell cash customers at a 10% penetration!


Why the big difference?


Cash customers tend to keep their cars as long if not longer than finance customers. In other words, it isn’t a short trade cycle that is blowing the deal up. They are keeping their cars in the mileage ranges where repairs happen.


The difference is the psychological effect of paying for a VSC over time versus paying for it all at once. Since most financing is for 60 or 72 months, and interest rates are low, a $3000 VSC will raise a payment less than $50 a month.


A finance buyer is looking for a budget area that they are comfortable with. If the desk works the deal properly, the buyer isn’t locked on an exact monthly budget, they are focused on being in a budget range.


The cash customer has a much more exact price. By the time he closes the deal, he isn’t interested in a monthly payment. He is focused on what he is about to write a check for. It is a very exact process. It isn’t a range.


Plus, when we look at cognitive biases, we start to understand how emotion is playing a role. People always believe that the decision they are making is the correct one. They are optimistic in that this “relationship” with this new car, that is so beautiful and exciting and alluring, will never fail. Regardless of their previous experiences, there is this hope that springs eternal that this car can’t fail. At least now. Or at least not until it gets a bunch of miles on it. And of course, they have years before they have to worry about repairs.


Faced with this bias of perfection and faced with the exact pricing of a cash transaction, finance managers find their most powerful tool, the menu is not very useful. Some trainers suggest showing a payment in the hopes that the cash customer will magically switch to a finance transaction, but I have never met an F&I manager who has pulled off that switch.


So how should an F&I manager approach cash customers to get to a 40% penetration? That’s the question we think we can help you answer. Part of our process is to solicit from you, what has worked best. But in addition, we have a novel selling process that we think will cause you to relish taking that cash delivery. Stay tuned.

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