Arthur has worked for 16 years in the new and used automobile industry. He's a sales force trainer, sales manager, and closer.
4 Square Car Sales
The infamous "four square" system is a psychological tool that helps salespeople get into a customer's head and change his or her perception of the deal on the table. A four square worksheet breaks down a deal—not the deal they get, but a deal that they think they will receive. A four square worksheet is one of the most functional tools in the car sales process and one of the most important documents used later in car dealer paperwork.
As a salesman, it's important to know that customers will not feel satisfied with the sales process unless they believe that they worked the salesman over well. The four square system allows a salesman to make it appear as if the customer wins all the while. The hardest part for a beginner is presenting the numbers in a coherent manner.
Before we delve into the mechanics of four square, let's discuss the system itself.
Sample Four Square Worksheet
The Four Square System
As you can see in the picture above, the bottom of a four square worksheet is divided into four squares. The top of the document is for the customer's personal information. Although the four square process can be used for cash customers, its effectiveness is derived from the financing side of the business.
The first thing to figure out is whether or not the customer has a vehicle to trade. A common ploy that customers will use to try to get a lower price is to present a trade after the price has already been lowered. A good salesman will not fall for these tactics. Before negotiating, ask which car they are currently driving, and what they are planning on doing with their current vehicle. If you are wary of the customer back-dooring the trade, then you need to make sure there is enough gross in the discounted price to show them some money for their trade.
Once the trade has been determined, take a walk around the vehicle with the customer, and point to flaws without saying a word. Just the action of touching a dent lets the customer know that their trade is far from perfect. The next step would be to fill out an appraisal slip for someone from the dealership to appraise the trade. Ask the customer what options their vehicle has installed. The best way to do this is to ask if the vehicle has options that you know their vehicle does not contain, such as a sunroof. This will lower the value of the trade in the customer's eyes.
Place the year, make, mileage, and model, into the trade box.
Sales Price Box
This field on the sheet is where the retail price of the vehicle should be entered. If you up-sell alarms, extended warranties, insurances, etc., then add these costs to the sales price. The retail price is the amount you would like to receive for the vehicle. Any dropping off of this price will lower your gross. Gross is the profit that you will hold on the vehicle. Since most sales-personal work on a commission basis, this is usually 20% to 30% of the gross. So as a salesman the higher the gross the better the commission.
Do not discount the retail price unless the customer has identified a particular vehicle with a lower price in an advertisement. Ask the customer what brought them to the dealership. If an ad is not the source of their motivation, then do not give the sales price. You can always lower it later if the customer is aware of a sales price, but if the customer has not seen the ad then ask retail for the vehicle.
Cash Down/Down Payment
This is one of the best boxes for the salesman to concentrate on as it is usually true that the more cash the customer puts down the higher the gross will be.
Why is that?
A bank will only allow a certain amount of money to be financed on any particular vehicle. If you sell the vehicle for $10,000 dollars but the bank will only lend $8,000 dollars on the vehicle, the only way to maintain gross is to get $2,000 dollars from the customer, plus any tax and registration fees.
It will also help the customers with less-than-perfect credit a chance to get financed. Banks like to see a monetary investment from the customer. The trade is the same as cash down when it comes to the bottom line, but to the analyst at the bank, a cash investment will definitely help solidify the deal.
This is the box! This is where the real gross is held. It is easier to manipulate the monthly payment without dropping gross than any of the other boxes. It is sometimes presented in weekly payments which is easier for the customer to understand and accept.
You can come back with a payment of $459 a month based on a 24-month term. When the customer sees the payment, they will almost literally jump out of their seats. This is OK and exactly what you want. When the customer states they would like a lower payment, immediately ask for more cash down. Cash down lowers the monthly payment. If the customer does not come up with more money, no problem. If all the other boxes are agreeable to the customer but the payment is too high, find out what they can manage for a monthly payment.
- The question to ask before going back to management for a second pencil is, "If I could sell you the vehicle for (x) amount while giving you (y) for you trade, with only (z) amount of down payment, and I can get your payment where you want it to be will we have a deal today?" If they say yes, ask them to sign at the bottom and tell them that this will be a "signature of intent" (silly maybe, but it works). Once they sign it is time to get some of that down payment and head back to the sales desk.
It could be as easy as stretching the term of the loan out to five or six years to get to the customer's payment. All this is done without giving up a dime in gross.
How to Work the Four Square System
If used properly, this worksheet will result in many sales. You need to have placed the customer in the right vehicle, but that is another subject. The first thing to do is to get everyone involved in the decision to sit down at a desk. Control is key to working the system. You cannot have your customers wandering around the showroom or the lot.
- After everyone is seated, find out all you can about the trade. Find out what the customer thinks the value of their trade should be and write that down. When you are done gathering information on the trade, give the appraisal slip and the keys to the car to someone from the dealership that is qualified to put a value on the trade.
- Next, find out how much cash the customer is going to come up with for a down payment. Do not include sales tax and registration fees in the cash-down yet. If, for example, the customer has $1000 to put down, write in the cash-down box "$1000.00 plus Tax and Reg."
- Then ask what they expect for a monthly payment. Let us, for example, say the customer responds with $250 a month (this is, by the way, the number one answer to this question).
- Write in the retail price. This requires no input from the customer unless you are adding products to the already existing retail price.
You can see that all the boxes have been filled out. Now it is time for you to go up to the desk and get some numbers from management. Now is not the time to ask for a deposit, but before you get up from the desk ask, "If I can put this all together, are you ready to take the vehicle home today?"
Anything but a positive response means you will have some work ahead of you.
You stand in line until it is your turn to talk to the desk manager. Hopefully the appraisal is complete. A good manager will try and hold as much gross as possible so they will try and get you to "bump" the customer (get them to pay more monthly or put down more cash).
The Four Square Catch
So you have an idea of how the manager came up with these numbers, and why the payment seems so high:
- The manager discounted the car by $500 in the Retail Sales Box.
- The appraisal of the trade was $500 actual value.
- This brought the price to $12,000, plus their trade and title.
- Then the manager structured the payments with $2000 down, plus the customer pays all taxes and registration fees. This brings the amount of money financed to $10.000.
- The manager then calculated a twenty-four-month (2-year) loan at 21.99%, which brought the monthly payment to 518.73. There is an advantage to short-term loans, as the amount of interest paid on the loan will be much less. This will save the customer money. The rate is calculated by the bank and the manager only deals with worst-case scenarios. When the customer makes the decision to purchase the vehicle (close!), then the bank will decide the actual interest rate.
Navigating Customer Reactions
I know when a rookie salesman walks back to the desk to present the numbers to the customer, they are usually reluctant. They know that is not what the customer wanted, and they know the customer's reaction is not going to be positive.
Mistake! Present the numbers with confidence, do not try and make decisions for the customer. Present the figures and wait for a reaction. Be positive and tell them what a great deal this will be.
The customer is going to either:
- Take the numbers, agree to them, and make a deal. Not probable, but possible.
- They are going to freak out, jump up, and try to run from the dealership. This is the reaction you are looking for. This is what is supposed to happen.
Your job is just starting. Until the customer says no, there is no closing process. The salesman's job is to overcome objections and close the deal. This deal is just waiting for a close.
Calm your customer down and explain the advantages of short-term interest payments. Explain that their car is flawed and will need work and could not be worth as much as they wanted for it.
Try to tell them that the bank likes to see a nice down payment and that is why management is asking for $2000. It will help them get better terms with the bank.
Show them that the manager has made a good-faith move by lowering the price by $500, which is a lot of money.
The customer, having been calmed down by your brilliant explanation, will make counter-offers.
Customer: "I will take no less than $1,000 for my trade. The most I can come up with in cash is a total of $1,500. I think I should be buying the car for $12,000. I told you I wanted my payment to be $250 a month."
This is a close waiting to happen. Repeat everything the customer just said. Ask if this will secure a deal. If you get a positive response, ask how much of that down payment the customer has with him or her right now. Do not go back to that desk without a credit card, cash, or something to make the customer commit to the deal. I repeat: Do not go back to the desk without a down payment.
Once you have a deposit and the terms needed to make a deal, the rookie salesman's job is done. A manager will usually go in to secure the details. Veterans will probably just do it themselves unless the customer is being difficult. This is called a Turnover (TO).
The TO's job is to get more money from the customer. Either in payment, price, trade, or the amount of cash down. It is not necessary, but the dealer figures, "Why not try and make a little more money?"
In this example, the TO could accomplish nothing, and both you and the manager return to the desk.
How the Manager Got These Numbers
- Selling the car for $11,000 plus their trade of $500, bringing the sales price to $11,500, then you must add the warranty of $1,500.
- This makes the total sales price $13,000, plus the tax and reg fees of $800, bringing the total to $13.800.
- You then subtract the cash down of $1,500, bringing the amount financed down to $12,300.
- $12,300, financed for sixty months (5 years), at a rate of 7.9% will give you a payment of $248.81. Bringing everything the customer wanted, and still remaining under the desired payment.
The paper should be folded over, making the original payment visible. This will allow the customer the impression that you have worked really hard to get them the deal they were looking to receive. Even better than that, the payment is even lower than they anticipated. Not only that, but you have also included a three-year warranty in the payment. You should have a happy customer and you should also have just sold a car.
How the Commission Is Calculated
The commission is based on the profit made on the vehicle. For this example, let us say that the salesman receives a 20% commission.
The dealer buys the car for $8,200 but spends $800 dollars to repair the car and get it ready for sale. The cost of the vehicle is now $9,000.
You sold the car for $11,000, plus their trade. The manager determined the trade to actually be worth $500, and only discounted the vehicle being purchased by $500 to show the customer $1000 for their trade on paper.
The warranty cost the dealer $900 and was sold for $1500, making another $600.00 profit on the warranty.
So the total cost to the dealer, adding the cost of the warranty, is $9,900.
You are going to get the customer to pay $13,000 for the vehicle with the warranty. Subtracting the cost of the vehicle and the cost of the warranty leaves you with a $3,100 profit, of which the salesman receives 20% or $620.
Write the Order
Once a deal is done and everyone is in agreement, the next step is to write the order. It is now time to stop discussing anything to do with the deal. Get all the paperwork in order and tell your finance manager that you have a customer waiting.
Collect the cash down and get the customer a receipt. Find out when you will get the title to the trade.
While you are waiting for your finance manager, discuss anything you want with the customer to keep them busy. Just do not mention the vehicle they are purchasing, the vehicle they are trading, or the deal they are getting.
Another thing to remember is that you as a salesperson have nothing to do with financing the vehicle. Do not discuss interest rates, banks, or anything else that is not part of your job description.
Offering the customer a tour of the service and parts department may be a good idea. Do not let the customer sit alone to think about what they are getting into. They just might think themselves out of a deal. Keep them occupied and try to keep them smiling.
Automobile sales can be a frustrating career if the person is not trained properly. When training is done by a competent sales trainer, then car sales will be very rewarding and satisfactory. If you are in the car sales business and do not feel you are being trained properly, take the initiative to train yourself. I hope this explanation was useful, whether you are trying to build a career in sales or just want to know how the dealer manipulates the numbers.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.