As weak new-vehicle sales combine with dramatically shrunken dealer profit margins on new cars, many dealers are trying new ways to pay their salespeople.
The traditional straight commission of 20 percent of gross profit has so squeezed salespeople that dealers fear a wave of departures.
A common switch: Pay a base salary plus commission.
An Automotive News informal survey of 235 retailers suggests that about one in three dealers changed his pay plan in the past two years. In a separate response, one in three said he is considering tweaking his pay formula.
"Traditional pay plans are being challenged, tweaked and reinvented to do one important thing: keep the sales position a true profession as opposed to a job and the associated turnover," says Paul Stowe, who has been in the auto industry 40 years and is now director of the consulting firm NCM Associates in Overland Park, Kan.
In the past decade, even as vehicle prices rose, the average gross profit on a new vehicle, including finance and insurance, dropped from about $1,550 to about $1,300, according to the National Automobile Dealers Association.
Auto retailers say they're slowly losing experienced salespeople to other industries. While high unemployment is now causing many salespeople to cling to their jobs, dealers fear a mass exodus of sales talent if the job market improves.
As a result, dealers are sweetening pay plans. Some auto retailers have stopped paying salespeople a percentage of gross profit.
The trick is to ensure that salespeople make a living without giving away vehicles.
"We give them a small salary plus a percentage of the gross profit -- 20 percent on new cars and 25 percent on used cars," says Tim Parker, co-owner of Parker Chevrolet in Champlain, N.Y.
Another recent change to Parker's pay plan occurred after the finance and insurance manager left in November to work for a Toyota store. Parker decided against replacing him. Instead, he has his five-member sales force sell finance and aftermarket insurance products.
Other dealers are also merging the F&I role into the sales position to fatten pay, or at least they're splitting the F&I income between the F&I and sales professionals. Some dealers are increasing the small F&I commission they already pay salespeople.