A reader responded to my recent story about changes in the way car salespeople are paid, saying there must be some problem with the numbers. Mike Smith, the veteran salesman I quoted in my story, made $71,000 last year selling 120 cars at commissions ranging from 15 to 23 percent.
"Something's just not adding up here," the reader said. "The average gross per unit had to be close to $3,000."
By now, you're realizing this guy is definitely not a car dealer. He's intimating that an average $3,000 gross profit is excessive.
I pointed out that the average gross actually could be less than $3,000 because Smith often qualified for the maximum 23 percent commission -- which would bring that average to $2,500. Smith also could have received some bonuses on top of those commissions, as well as part of the back-end gross on finance and insurance.
But even if he did just earn that much in commissions, Smith sells luxury cars. The spread between the invoice price and sticker price typically ranges from 1 to 5 percent, probably more for some high-end vehicles. If the dealer discount off sticker is 5 percent on a $50,000 vehicle, that spread would be $2,500.
So the dealer in this case is probably making more than the invoice price on vehicles sold, and in some cases might be approaching the sticker price.
That said, what's wrong with a dealer making $2,500 to $3,000 on a pricy, high-tech luxury vehicle? He's got to be able to pay for that fancy, multimillion-dollar dealership the factory required him to build. And why shouldn't a veteran salesman, who likely supports a family, make at least $71,000 in annual wages?
No, there's nothing wrong with the numbers. These are just car people trying to earn a living.