The number of consumers with negative equity has grown in the post-pandemic era, making trade-ins more difficult for all parties. On this episode of Inside Automotive, CBT News anchor Jim Fitzpatrick sits down with Sean Gardner, trainer and sales consultant at the Joe Verde Group, to discuss how dealers can approach the topic of negative equity and solve customer pain points during the trade-in process.
Although trade-in values remained inflated throughout the pandemic, many customers who purchased their vehicle over MSRP during this period now owe more than the vehicle is worth due to falling car prices. “The brakes are on hard right now,” states Gardner. “The car business is normalizing, so we’re going to start seeing negative equity.” Not only is the situation disadvantageous for consumers, but many new salespeople working in the automotive industry may also feel challenged due to their lack of experience pre-2020. To help their employees and clients through the new trade-in environment, Gardner recommends following these three tips.
Relax and breathe
First, when confronted by a customer with negative equity, relax and breathe. “Don’t panic…” he cautions. “Except [for] that interruption between COVID and the [vehicle] shortages, negative equity has been a part of our industry forever.” Rather than focusing on a customer’s equity throughout the trade-in process, Gardner suggests that dealership employees instead prioritize earning a client’s business. This emphasis also opens the door for managers to help their teams close more sales.
“Sell on your feet. Price in your seat.”
Next, salespeople must avoid getting into a trade-value discussion on the lot. “That right there is going to make it tougher when it comes to negotiations later on,” explains Gardner. Dealership employees should avoid this conversation before sitting down with their clients to avoid making promises they cannot keep. By guessing whether a customer has or does not have negative equity, they risk setting themselves up for failure. Instead, Gardner recommends sales professionals take this principle to heart: “Sell on your feet. Price in your seat.” Doing this will allow trade-in negotiations to start with a mutual understanding of the customer’s position and allow F&I managers or sales managers to be more involved in the process.
Focus on solutions
Finally, when reaching the topic of negative equity, always emphasize the customer’s options for paying the trade-off in full rather than the consequences of their unfavorable value-to-debt ratio. “Look, I was in F&I five years, we have never not paid off a customer’s trade-off in full…” remarks Gardner. By acknowledging and assisting their clients through the process of resolving their equity challenges, sales professionals can keep the conversation positive and close in on the deal.