Nightly Affair with Trumpy Bear: Why Are Car Salespeople Straight Commission?

[A Former User]

Welcome to Nightly Affair with Trumpy Bear, a series in which Trumpy Bear, America’s most fearless plush bear with blonde hair and a red tie, ponders automotive topics, usually very late at night.

An issue I’ve noticed across the automotive industry is dealerships paying their employees on commission alone. Though there is a “draw” ($1,500 or so per month) if that amount isn’t met with commissions, it still seems problematic.

I understand the idea of working hard to sell, but a commission plan seems to cause more issues than help. First of all, salespeople will seem more desperate to sell than if they had a base pay or a salary. Salespeople will be more inclined to offer services that may be a waste to customers in order to make extra money. This also creates salespeople that are agitated because a customer is “wasting their time.” The dealership is the best place to go to see new inventory; if a customer wants to spend four hours checking out the cars updated for 2021, a salesperson should be glad to help instead of thinking of the customer as a waste. If there was a pay already attached, this time spent with the customer would be far from a waste. Rapport could be built, and if that customer wanted to buy in the future, they’d be more likely to come back to the guy who spent four hours showing them the cars.

A big factor, too, is the inability to close and customers who can’t buy. Especially in low credit areas, it’s hard to get an approval. Following the selling process, staying in touch, and building potential rapport with these low-credit customers may seem ridiculous if you’re straight commission, but it’d be valuable if you’re already paid. They may have a 400 now and $0 down, but six months away, they may have a 500 and $5,000 down. They could also be connected to a customer with a 700. If a low-credit customer is treated poorly and complains to their high-credit friends, these well-qualified customers may not buy from you.

Finally, the job market is tight. Getting a job is great, and it’s better to know that it’s financially secure. Even something small like $10/hour says “I came in, I called some people, I followed up with customers, and I followed the process with some showroom ups who couldn’t buy. No sales, unfortunately, but I’m walking out today with $80 instead of $0.” Though the commission creates an incentive to work harder, it also creates a problematic mindset. If dealerships have money to pay $500 commissions for sales, why can’t they just pay $300 for the commission and convert that $200 to a base pay? It may sound socialist to some, but even the easiest people take some time to close.

Back in my job search again, I’m glad that most of the inside sales jobs I’m finding have a base pay with commission. This is how car sales should be, and I believe the experience as a seller and a customer would be better without straight commission.

What are your thoughts?

[jminer]

@trumpybear While I’ve never worked in cars I have worked in an industry that is also bad for the same commission-based pay, furniture sales.

The chain I worked for had a small base pay you’d make if you didn’t cover minimum wage (like tip jobs have) and it led to very aggressive salesman. If you’d ever been into a furniture store and wondered why 6 people asked you if you needed help, wouldn’t leave you alone and then followed you around the store to keep asking if you needed help it’s because they’re commission paid.

We transitioned to an hourly rate for everyone with monthly bonuses based on sales amount. Also we transitioned people to pay rates based off of how long they’d been there and performance.

A fair amount of sales people quit the company to go work somewhere else or if it was a second job just quit altogether.

What changed though was that new employees weren’t stressed the fuck out so they stayed longer which saved the company money and the bothered customers less which also helped.

All in all it was a huge win for the company shifted to hourly from commission.

[Chariotoflove]

@trumpybear my Mazda dealer had a no pressure atmosphere that came from salaried sales folks. Everyone was helpful but not pushy. It was just the kind of shopping environment I like. I even spent some time chatting with the owner and his son one day about the new engines for the 6 and so forth. The son raced rotaries, so we had stuff to chat about.

[rctothefuture]

The answer to your question lies within your analysis.

Commission means higher profits for the dealer and a potential for the sales person to "earn more" based on their skills. I'll give you an example of my time working commission and non-commission sales.

When I worked for Toyota, selling new cars, you earned a certain dollar amount depending on the vehicle you sold and what trim you sold (i.e. a Camry XSE sale might garner $200, while an SE may only be $125). This was based on inventory, incentives, sales volume and manufacturer pay. See, when you sold a low selling model (Prius C was the big one), Toyota would throw you an extra check ($50-200) on top of your commission sale for that model. The idea is that you are given sales goals without actually being given sales goals.

If you want to sell every customer a Camry LE and make $125, you certainly can. But if you can sweet talk them into an XSE, with TruCoat and a maintenance plan, you might walk away with $750 off that sale if the stars aligned. By offering more cash, you're more inclined to sell what the dealer and manufacturer wants over what the customer thinks they want. Contrary to popular belief, the average new car buyer has an idea of what they want but really doesn't have a cemented idea of what they want. Sure. they bring in Consumer Reports and Automobile magazine reviews, but get them in a car and it all changes.

So while it isn't great for the customer, the dealer and the sales person can make a bunch of money. I remember one month I hauled in over $7,000 after taxes thanks to a crazy incentive deal, and all my customers buying same day (very rare). The next month, it was half of that but I was still doing ok as my reviews from the previous month would also get me a payout. Selling new cars with commission is for the hardcore sales person, they can make a ton of money in a short period of time and be very successful, so auto makers don't care because then they make money and the dealers get rich off of financing and service plans.

When it comes to non-commission based car sales, it's more for the enthusiast and less for the sales person. My ex worked at CarMax, where she was paid hourly and then made a bonus off each sale and if that person bought MaxCare or any other add-ons. The issue there was that you have no incentive to "help" yourself. The customer either buys or they don't, your a glorified checkout person with a dealer sales license.

That's not a bad thing if you're a consumer, as it means you aren't being persuaded into a model for monetary gain. However, the person assisting you, sees you the same as any other customer. You're a guaranteed $50-100 and that's about it. For most people, that's totally fine. But it's lackluster to be treated the same if you bought a $14,000 car versus a $70,000 car, in some peoples minds.

A commission based sales person can work in your favor, if you know how to play ball. At most dealers, they are getting paid regardless if you pay full price or get it below dealer invoice. You can work with them to get freebies, work on the price and make em sweat. When you got them on the line, you're in the best position possible. It won't work that way with hourly sales people. Just my 2 cents anyway.

[AestheticsInMotion]

@trumpybear one system rewards the top salespeople, their level of earning is tied directly to their performance. And when an employer can point to a star one-in-a-million sales rep who takes home $300,000/year, that's one hell of a motivational pep talk for new employees. They'll strive to be the best to reach that peak. Depending on industries, you can tie commission percentage to customer reviews which helps reduce situations where a customer walks away unhappy after "being scammed by a scummy salesperson".

The more time I spend across various industries and levels, the more convinced I am that hourly is (base pay) is almost never the best way to approach compensation.

[SilentbutnotreallyDeadly]

@trumpybear down here in Oz it's salary plus 12% super then commissions on top. If you don't sell, you get the axe. If you do sell then your take home can be very nicely boosted from merely amenable to out to doing quite nicely. And that's on cars that the customer might not see for months...

[Smallbear]

@rctothefuture

Coming from a position in a different industry with a base+ pay structure, I can see both sides of this.

On the one hand, I'm not so tired to the bottom line, so I feel able to give the customer an honest opinion of things. For example, some products we carry are strictly because we have to to be a real player in the industry, but are not in fact the best fit for the job. I feel that that ability to be honest has directly helped close some jobs.

On the other hand, if the customer is even slightly unpleasant to deal with, it's very easy to slip into a mindset of "I'm paid anyway, I don't need this $#!+ In my life" and do a half-ass job that both pisses the customer off and bites the company in the butt at the end of the day.

TL;DR no system is perfect, where possible tailor the pay structure to the attitude of the sales rep

[khalbali]

@trumpybear I sold mazdas and I could never really equate sales with money, I was the guy that spent four hours with a customer and let them walk sometimes not even asking for the sale. I'm not a very outgoing person and I hate hate hate pushy salespeople so I could never bring myself to be like that, but I guess if I had been able to think of it purely financially I might have done better. My paycheck was just always completely separate in my mind from customers and sales. Needless to say I wasn't a great salesperson, nice guys finish last etc, although I did ok most months, I was still solidly on the low end of average at our store. Just wasn't the right job for me as much as I love mazdas, and people say they don't want pushy salespeople but it usually works and they end up buying from them, my experience was spending hours on test drives and stuff with somebody "just looking for now" and then they go buy at the next closest mazda dealer for like $50 less.

[A Former User]

@aestheticsinmotion This is great, except when most of your clientele has sub-600 credit and either can’t get approved at all or are picky (ex. They may be approved for a Jeep Renegade with $2,000 down, but all they want is a Dodge Charger with a V8. Nothing else.)

The stronger clientele, let’s not talk about that.

[BicycleBuck]

@rctothefuture said in Nightly Affair with Trumpy Bear: Why Are Car Salespeople Straight Commission?:

You can work with them to get freebies, work on the price and make em sweat. When you got them on the line, you're in the best position possible.

This attitude is EXACTLY why most people don't like salespeople at dealerships. They don't want to haggle and certainly don't want to sweat over what should be a simple/straightforward transaction.

[BicycleBuck]

@trumpybear said in Nightly Affair with Trumpy Bear: Why Are Car Salespeople Straight Commission?:

Back in my job search again, I’m glad that most of the inside sales jobs I’m finding have a base pay with commission. This is how car sales should be, and I believe the experience as a seller and a customer would be better without straight commission.

Agreed. The best car-buying experience I've had was purchasing my WRX. I initiated contact with an e-mail. We had a brief exchange followed by a phone call where I put down earnest money. They prepped the car and I went over to pick it up a couple of days later. The only thing that pissed me off was their finance department where they wanted an opportunity to quote a better finance rate. I already had financing. Those people wasted an hour of my time....

[Tripper]

@trumpybear It seems like the theory in sales, particularly higher pressure sales is that employees making a base salary won't be as "hungry" to sell. Which I somewhat agree with, but also, don't know what I'm talking about as I would starve in that situation.

In any case I think that the dealership model overall needs a serious overhaul. Transactions take too long, the sales process is also long and uncomfortable. Most dealers are anything but flexible... I used a consultant the last time I shopped a brand new car to avoid all of that. In the 12-13 vehicles I have purchased from dealers, I can remember but ONE positive experience...

Consumers make it difficult as well. If we don't like the deal we can go down the road so the guy down there can take all of your hard work, beat the price by a dollar and make a quick sale.

In any case, if you're one for a quick podcast. I think you'll enjoy "129 Cars" it is also about a Chrysler dealer and it is both funny and eye opening to anyone as ignorant as I am to the biz of car sales.

[Roadkilled]

@trumpybear Commissioned sales people was an early version of the gig economy. It removes a lot of the overhead of managing a salaried workforce. Do you have an underperforming employee? They will leave on their own because they can't live on the meager commissions they are getting. Do you need more salespeople to work at peak times? Commissioned sales people will come in on short notice if there are a lot of potential customers. There is no need to manage scheduling as tightly or deal with potential overtime pay.

As many others have said, it does come down to maximizing profits. Many sales people live off of commissions. It's a quick way of weeding out bad sellers and keeping good sellers. Sure, it leads to a lousy customer experience. However, dealers that are making a profit don't see a need to change.

[A Former User]

Just wanted to let you know i love your name. That skit is hilarious.

[StreetsofPerth]

@silentbutnotreallydeadly And the salespeople are still usually awful to deal with.

[rctothefuture]

@bicyclebuck I can certainly understand that. In my mind, it's a business transaction. It's the last bastion of what I call "ancient capitalism". For centuries, people sold and bought goods by haggling and going back and forth on price. We've become so accustomed to "That's the price, so I'll buy it." in our modern economy that people don't feel comfortable or don't want to deal with haggling and bartering on a deal.

I think it's fantastic, I love the feeling of telling a sales guy to get me a deal or go fuck himself (not in those exact words). It makes them work for me, and I love that in a sale, especially with a big purchase like a car. You do the same for a house, so I don't see why you can't do it for a car? Hell, if I could do it at the grocery store I would. You can't save money if you don't try.

[nermal]

@trumpybear You need to separate sup-prime financing and BHPH from everything else. For those, meh. They generally attract the lowest of the spectrum from employees, customers, and banks, so let them all have at it with each other.

For people that intend to actually pay for their cars, look at Tesla vs every other manufacturer. Look at used car places like Carmax and Carvana. All three of them are growing rapidly, and generally getting good reviews from a customer experience standpoint. Why? Because they avoid all of the traditional dealership BS. The front-line employees aren't commission'd.

Go to a Tesla store just to "kick some tires", and a person will show you everything about the car, send you on a test drive, and direct you to the website to order. It will generally be a pleasant experience. Now try the same thing at a GM / Ford / FCA dealer. You'll either leave in a new car with 5 extended warranties or just mad at the process.

Why are they like this? Because it works. They can afford to lose a few sales from people they irritate with the $$$ they make on a sucker that buys every available extended warranty.