Used Car Salesmen Earnings: Financing vs Cash Transactions
In the UK, the used car market experiences a healthy level of activity, with buyers opting for both cash and financing options to secure their desired vehicles. In this article, we explore how used car salesmen earn their profits from these transactions and identify any differences in earnings between selling cars through financing versus cash transactions.
The Business Model of Used Car Sales
Used car salesmen typically earn money through a combination of basic salary, commissions, and bonuses. Their primary source of variable income comes from commissions, which are calculated as a percentage of the vehicle's selling price. Additional targets set by dealerships can influence bonuses, further motivating salesmen to maximize their sales revenue.
Financing Transactions
When a customer chooses to buy a car using financing, the dealership usually partners with financial institutions to facilitate the loan process. Salesmen benefit from such transactions in several ways:
- Higher Commissions: Dealerships often offer higher commissions for financed deals compared to cash transactions. The reasons include the potential for more negotiating room on the sale price and the possibility of including add-ons, such as insurance or extended warranties, which further boost the total cost.
- Finance Bonuses: Some dealerships offer specific bonuses or a higher commission rate for successfully arranging financing for a customer. This incentivises salesmen to encourage financing options.
Cash Transactions
Though less complex, cash transactions also contribute to a salesman’s earnings:
- Simplicity and Speed: Cash transactions are straightforward, with less paperwork and immediate payment, allowing salesmen to close deals quickly and move on to the next sale.
- Lower Commissions: Typically, the commission from cash deals is lower than that from financed sales because there’s less opportunity to add value through financial products.
Market Trends and Their Influence
The tendency for higher commissions in financed deals can be attributed to broader market trends. With rising vehicle prices, obtaining financing becomes a more attractive and sometimes necessary option for buyers. Consequently, dealerships emphasise these arrangements, offering incentives to salesmen for pushing such options.
Additionally, the introduction of diverse financing plans, like Personal Contract Purchase (PCP) and hire purchase, has made financed deals more appealing and accessible to a wider audience, thereby potentially increasing the number of transactions completed via this route.
Conclusion
Ultimately, used car salesmen in the UK stand to make more money through financing deals compared to cash transactions. This stems from the higher commissions and bonuses awarded for facilitating financial agreements, as well as strategic market incentives that encourage pushing financing options to consumers. While cash deals remain an integral part of the used car sales ecosystem, the nuanced benefits of financing explain why salesmen might favor such transactions financially.
