Addendums, Are They Good or Bad

I was in a meeting with a group of GMs recently and the question, “Should we, or shouldn’t we have an addendum on our vehicles?” came up.

Answer: it depends on a lot of things.

Which of the following items do you agree with regarding addendums...

• Having an addendum can add gross profit to the deal if there are value added features or accessories.
• Having an addendum can help hold the gross profit built into MSRP by giving you a higher overall price to negotiate from.
• Having an addendum can upset customers and cost you sales and gross if it does not have value added features or accessories, and if it is not presented properly.

Sure, all three are correct. That means you can use addendums to help you increase overall gross profit, and to help you hold more of the profit built into MSRP – but of course you don’t want to use them if they upset customers.

Let’s look at each item and see how you can make addendums work for you...

1. Value added features or accessories.

These are either seen as a positive or negative, and that almost always depends on the pricing and presentation.

Features on an addendum are extra cost options, and that means they still have to be sold, just like the features already on the vehicle. Most salespeople just blow off the features with, “Oh, we add things to all of our cars,” instead of selling everything on the addendum.

An alarm system is valuable, but not if the only presentation they get from a salesperson on it is, “It’s $795.” What does it do for the customer, why is that important, and what is the benefit?

And of course, if the customer doesn’t want an item, they’ll still say, “I don’t want those.” But if the price is reasonable, that’s OK to hear because people are used to paying for things they don’t want on cars. They may not want the sound system either, but it’s already on the car and already in the price.

If the added price is unreasonable though, whether they want that feature or not, the dealership and your salesperson will lose their credibility. For instance, pinstripes at $89 versus pinstripes at $789. So rule number one to making addendums a benefit for your dealership; only use reasonable pricing for items.

2. Hold more MSRP gross by having a higher starting price on the vehicle.

Having a higher starting price definitely helps hold more gross, as long as it meets the conditions in #1. Even when people don’t want the feature, a higher pricing gives you some extra cushioning in most negotiations.

As a salesperson I loved having a reasonable addendum, and having one always helped me hold more gross. I did not talk about price, rebates, payments, etc., on the lot. I did what we teach and built value in the key features, and on the added features on the addendum.

When a strong price objection would come up about the addendum, I switched tactics and used that objection to help me hold MSRP.

Example: “I’m not paying the extra $789 for the protection package, and that appearance package – ...”

I let them finish their objection, and in general responded with...

(Defend) Bob, the items on here are our most requested add-ons so we put them on every vehicle to save time.

“I don’t care – I’m not doing it – ... !!!”

(Bypass) Bob, that’s OK and we’re getting way ahead of ourselves. First we need to find the right vehicle for you guys. Betty, you said you’ll be driving part of the time, how will you be using it; for work or just hauling kids and stuff?

After we’ve driven, closed and are sitting in the office to finish the paperwork, Bob will definitely bring up the addendum again.

“Like I said, I’m not paying the extra $789 for all that...”

That’s also OK and to be expected. But there’s a difference now; I did my job, they like me, they like the dealership and I sold the value to them of owning the vehicle. That means more flexibility overall in pricing, and it meant I could usually split the pricing on the addendum and still end up $400 over MSRP. :)

3. No upset customers.

Whether the pricing is reasonable or absurd, the result always comes down to the presentation.

You can have valuable features, priced in line with what they could pay at the parts store down the street (where they buy everything you don’t sell them), but if the salesperson fumbles or just says, “Don’t worry about that. You won’t have to pay it.” you’re dead in the water.

In Summary

• Use addendums correctly and your gross profit will go up, without question.
• Get your managers trained on how to sell to today’s customers.
• Next, add addendums with valuable features and reasonable pricing with a great presentation by a well-trained salesperson.
• Then, get your managers trained on a desking process so they know how to work every deal consistently for more deliveries and maximum gross.