Dealership turnover, pay gains won't last, experts say

U.S. dealerships are enjoying drastically lower turnover rates as their employees' pay has soared, but industry experts warn the trend won't stick around when inventory levels normalize enough to make the job of selling vehicles harder and less lucrative.

2021 was a fruitful year for U.S. dealership employees, as their average earnings pushed past the $100,000 mark for the first time. The jump was led by increases for employees involved in vehicle sales, where high demand resulted in pricing power and a seller's market for dealerships. NADA said average weekly earnings at dealerships participating in its annual Dealership Workforce Study increased 27 percent in 2021. With these gains, average dealership turnover fell to 34 percent — the lowest turnover rate ever recorded in the 11 years NADA has conducted the study — from 46 percent in 2020.

But those improvements have been mainly driven by the ease of selling in the low-inventory market of the last two years and thus are closely tied to the high commission checks sales employees are getting as new- vehicle transaction prices routinely align with sticker price or above, dealership employment experts say. And the shift isn't permanent.

"It's the best time ever to be a salesperson on a variable comp plan," said Adam Robinson, CEO of dealership recruitment technology company Hireology. "You've got dealer sales personnel making $200,000, $300,000, $400,000 a year. Of course, the turnover rate is going to be low. You don't have to sell right now."

Robinson predicts turnover will go right back up as inventory shortages ease.

"It's all coming back down to earth," he said. "You're going to see the turnover rate go back up. Because if all we're offering is a lot of money, when that goes away and the job becomes what it's always been, which is a sales professional, there's work involved in that, and you've got to sell. It's hard."

Some retailers acknowledge the inventory shortage's role in their own turnover improvements but also say they are mindful about providing other benefits, training and developmental opportunities to help retention when the market shifts.

Angela Broadway, senior vice president of human resources for Sonic Automotive Inc., said the company's turnover rate is on pace to drop below 25 percent this year.

"Which is awesome," Broadway said. "And, yes, people are excited because they're making more money than they've ever made. There are a lot of things that are helpful to that, so we don't want to be naive."

Lasting retention is going to come from providing employees some of the things they're demanding most — such as career path guidance and leadership development opportunities, she added. And Sonic is offering such programs.

"They want to see, where do I go?" Broadway said. "All of that helps build that long-term retention."

Compensation gains for sales consultants, sales managers and, to some extent, finance and insurance managers primarily drove dealership wage growth into the double digits in 2021, said Ted Kraybill, president of ESi-Q, a research company that conducts the work force study for NADA.

Compensation for several key production positions in dealerships — general manager, sales manager, F&I manager, service manager, parts manager, service adviser, service technician and parts consultant — saw higher-than-normal increases in 2021, Kraybill said.

In part, the gains are connected to coronavirus-related furloughs in 2020 and to some workers choosing not to return to dealership jobs because of pandemic conditions, Kraybill said. That resulted in fewer sales employees remaining at the start of 2021 to chase the same number of deals — transactions that enjoyed higher retail prices and per-vehicle gross profits as inventory waned. All these factors combined to push earnings up, he said.

It's difficult to say how much of the compensation increase was because of markups over new-vehicle sticker prices, Kraybill added.

But such markups were prevalent in 2021 and into 2022, with new vehicles often selling for many thousands of dollars over sticker.

Hireology's Robinson said many dealerships paying on commission haven't changed the commission structure or instituted caps on payouts to preserve more of the profit for the store. The dealer and employee were both making a lot more money, so why mess with that, he said.

Still, Kraybill said some dealerships are moving away from a solely commission-based model in favor of base salary and hourly wage protocols, which are more attractive to younger employees.

Experts generally agree that turnover won't stay as low as the 2021 number forever.

Kraybill said sales consultant turnover will increase again, though it may not return to pre-pandemic levels. NADA publicly reports only a few highlights from its study, so the 2021 turnover rate for sales consultants is unavailable. In previous years, when the figure was reported, it was in the 70 percent range. In 2020, sales consultant turnover was 67 percent, according to last year's study, obtained by Automotive News.

Compensation won't stay at 2021 levels "because it's not sustainable," Kraybill said.

Robinson agrees, calling the 27 percent jump in average weekly earnings "crazy." He pointed out that it's more than four times the national increase in weekly earnings, which was nearly 6 percent in 2021, according to the U.S. Bureau of Labor Statistics.

The gain in earnings for dealership sales consultants is likely much higher than that 27 percent rate, Robinson said.

"Next year, I predict that comes way down" and turnover goes back up as a result, he said.

Training will be key when market dynamics start to normalize, the experts said.

A swath of employees have not yet had to sell in a more difficult market, said Fleming Ford, president and founder of Culture Ignited, a coaching and consulting firm that works with auto retailers.

The resulting skills gap could make future turnover worse, she said.

"It's because [employees] didn't have to deal with difficult customers and putting them in the right car or pressure from the OEM to sell more," Ford said.
Some dealership employees may be in what Ford terms "job jail," sticking around despite grievances and difficult working conditions because they're making so much money. When the pay drops, that could lead to departures, she said.

Del Grande Dealer Group is tracking toward record-low attrition this year, Andrea Schulz, vice president of team and culture at the California dealership group, told Automotive News.

Turnover is at 26 percent for all positions across the group, which historically has had a turnover rate closer to 40 percent, Schulz said.

"Times have been great the last two years. Everyone's made more money the last two years," she said.

But Schulz said she doesn't believe the reduction in turnover is because of increased earnings alone. Del Grande, she said, has worked to create an environment as a top employer that embraces training and technology and promotes from within. She noted the hiring of one employee who rose through sales ranks to become a finance manager in less than 18 months, referring three job candidates along the way who ultimately were hired.

"That's all we can ask for is stories like that," Schulz said. "Those stories and team members that we have that have progressed into these different positions, they're our greatest employment brand. They're part of that story we can tell."

Damian Mills, CEO of Mills Automotive Group, said turnover for all positions across his expanding dealership group has fallen by 30 percent in the last three years.

He declined to share the group's exact turnover rate but said it is below the 34 percent industry average cited in NADA's study covering 2021.

"Some of that probably has to do with the overall climate of the industry because I think people are moving around less," Mills said. But, he added, "I'm not going to discount the importance of our culture."

Mills said he first looks at promoting from within and believes in giving his employees the ability to grow in their careers.

And positive changes around hiring and retention seem to be happening more broadly.

Industry leaders, Mills said, are now recognizing the need to evolve and create a culture "that people not only want to be a part of but find rewarding — both personally and professionally."

Lindsay VanHulle and Amy Wilson contributed to this report.