A reader tells me he once worked for a dealer with a nightmarish number of aged units on his used-car lot. More than 75 percent of his inventory was 120 days old, and if he took the vehicles to auction he'd probably have lost an average $2,000 per unit, the reader says.
But the dealer did two things right: He hired a shrewd used-car manager who suggested doubling the sales commission to 50 percent on all 120-day-plus units. Then he took that manager's advice.
Before figuring the commission, the dealer deducted a $500 pack to help him with carrying costs.
The result? Those aged units were flying off the lot. Instead of losing money wholesaling the vehicles the dealer was actually averaging a $2,000 gross profit per car, which he split with the salespeople.
Now I wish I could say this story had a happy ending, but it didn't. The dealer, who was collecting roughly $1,000 per unit, got nervous after two weeks of double commissions. He wholesaled the remaining aged units.
This dealer likely has more problems than most. But if dealers keep changing their pay plans around simply because they think the sales force is making too much money, who's winning?