The Value of Diminishing Value
I’ll never forget the look on my wife’s face – pure horror.
It was an early fall morning in the Midwest in 2016. I grabbed my routine cup of black coffee, slung my briefcase over my shoulder and kissed my wife goodbye.
I was headed to the dealership. Like every other morning, I walked into the garage and got in my car, thinking about my list of to-dos at the lot.
I put my car in reverse and backed out of the garage, quickly checking my smartphone, taking a sip of coffee and turning on my podcast.
As I slowly backed out of the garage, my wife opened the door and caught my eye. I focused on her as I continued to back up and watched as her face began to look more and more terrified.
She began to frantically wave her hand in the air. Just as I was about to stop and see what she was trying to tell me, I felt a sudden jerk and my car stopped – but my foot had not touched the brake.
I sat in my now-immobilized car and watched as my wife lifted her hands to cover her open mouth.
It took only a few seconds to realize I had just backed my car into her brand new Tahoe, bought just two weeks before. And, of course, realized why she was making those awkward faces and hand gestures.
A sick knot gripped my stomach. A cool, pleasant morning, fully equipped with coffee and great plans at the lot, had quickly turned into a really bad day.
At impact, I was moving in reverse at 3 or 4 miles per hour. But it still caused $4,000 worth of damage to my car and $5,000 to hers.
I felt pretty humbled calling our insurance company to tell them I was in a two-vehicle accident at 3 miles an hour – and both vehicles were mine.
It was hilarious when the insurance agent asked, “So you were at fault in one vehicle and not at fault in the other?”
OK, so maybe it wasn’t so funny then. Nothing was actually funny in those moments.
Maybe you’ve had a similar experience: hitting a deer, hitting an ice patch and sliding off the road or backing into a light pole. Actually, I’ve done all of those – and more.
During the past year I have dedicated a lot of time to assisting dealers in the business office and improving their F&I numbers. In fact, we’re launching a Retail F&I 20 Group this year.
My retail group members have worked hard to move the needle in F&I. We’re constantly scouting for new opportunities to generate gross profit.
GAP has been a longtime faithful. But what about a diminishing value product?
What is diminishing value?
As illustrated by my story, accidents happen. They are part of life.
Once damaged, even a properly repaired vehicle can lose up to 30 percent of its value. That loss is called “diminished value.”
Because I reported my wife’s Tahoe to the insurance company, when I sold it two years later the Carfax report included the accident. That made it worth less to the buying dealer.
Diminished value occurs whether an accident is your customer’s fault or not. Insurance will pay to repair the customer’s vehicle, but it will not protect its value.
There are generally fewer buyers willing to purchase vehicles that were in accidents. But customers are more motivated to trade in their vehicle after it’s been in an accident.
A diminishing value product is a simple and inexpensive way for customers toprotect the value of their vehicle. The cost, profit and selling points from the F&I office are comparable to GAP.
Pop quiz: Out of every 100 accidents, how many would you guess are a total loss?
The answer is four.
So what about the other 96 accidents? Diminishing value products can help protect your customers when they’re in an accident and do not total their car.
The product offers a “cash down” equivalent to protected customers that in many cases can only be exercised by the selling dealership. That results in your customer returning to you to trade out of the vehicle and receive the product benefit.
Here is an illustration how a diminishing value product works.
Let’s assume your customer has a vehicle with a trade value of $18,000. He has an accident that reduces the trade value to $16,000.
If he has the diminishing value product, he can come back to your dealership and receive $2,000 in cash down payment benefit from the product to bring the vehicle’s value back up to $18,000.
This is a product all retail dealers should be familiar with. It’s worth investigating whether it should be part of your F&I ancillary product arsenal.
Feel free to email me with any questions you might have about this F&I product – or others – at Justin@ARCDealers.com