I learn about all kinds of companies and industries as a consultant. Naturally I love seeing people create their unique company, new healthy habits, high-performing teams, and their vision. But I also find it truly fascinating when my learning includes product expertise.
However, this story isn’t about a client. It isn’t how I vicariously learned about selling cars. I spent a day trying to get a job selling cars, and I learned a lot.
- I learned that, unlike in most other types of jobs, sales managers in the car industry love walk-in applications. It’s a sport.
- I learned that you will interview repeatedly with a committee of sales managers. Game initiation…
But most important:
- I learned that there is a reason that car salespeople have the bad reputation they have—it’s not what you may think.
Car salespeople are screwed. The car sales model is designed for failure. The only way a car salesperson can make money is to be a relentless, persistent, unfaltering sales maniac. These are nice people in an extremely unkind job. And the car dealers have designed it that way.
[easy-tweet tweet=”The only way a car salesperson can make money is to be a relentless, sales maniac.” user=”@highperformance” hashtags=”#autosalesfailure”]
So, why did I go? Even though I am not an expert, I love selling. Let’s just put that on the table. So when I needed to raise money RIGHT NOW, I thought, why not go for the “high commission” luxury car market? After all, how hard can that be? Give me a great product with a higher price and commission, and I’ll make some money. Right?
Not so fast. Turns out that most car salespeople are making commission on profits, not sales. When you think about the $30,000 car you are buying, you might assume that the salesperson will take in a respectable 25% of that sticker price. And you might assume, as I always thought, that sales guys made $7500 plus commission on any aftermarket upsells, spiffs and warranty items. NO. Not so.
I discovered that there were two different types of dealers and sales commissions. But the average payout was about $250 to $500 per car, depending on the make and the lot.
Here is how Phillip Reed explained commissions in Edmonds.com’s Confessions of a Car Salesman:
“Commissions were based on the ‘payable gross’ to the dealership and were applied in three tiers. If the payable gross was from $0 to $749, our commission was 20 percent of the profit, from $750 to $1249 the commission was 25 percent of the profit. Above $1250 the commission was 30 percent of the profit.”
P.S. That is not a lot of money.
While I was visiting dealerships, I heard talk about a draw. The highest draw I heard was $1000 per month. Some were less. Additionally, I heard repeatedly that I would be spending 40, 50, or 60 hours per week in the hustle to be successful.
In Confessions of a Car Salesman, Phillip continues:
“Craig asked me questions about myself, but mainly he was there to tell me the realities of the job. He told me that I would be successful selling only 20 percent of the time. So about 80 percent of the time I would be failing.”
I must have talked to three Craigs! This is an amazing similarity. But here is the kicker from Phillip:
“Now I found that I was, in fact, working on straight commission. If I sold cars I made money. If I didn’t sell, I didn’t make a penny. Maybe that’s why there were so many salespeople working here (about 85 in new and used cars). It didn’t cost the dealership extra to have a big staff.”
I had the advantage of sitting with Sales Manager Andrew at the Mercedes Benz dealer closest to my home. In his attempt to talk me out of pursuing my dream, he brought up his sales spreadsheet. What he shared was that there were 10 sales people on two shifts. Two of the guys were making a killing. They were making the highest commissions with the highest sales goal spiffs, and they had the corner on all Internet sales. (Keep in mind that when you spend the day with a guy on the lot driving all the cars and then buy online, the online guy gets the commission, not the one that helped you…)
The two top salespeople had their month’s sales total up around 18-20 units. A quick count, which I confirmed with Andrew, showed that they were close to hitting the $15,000 mark. Not bad…
On the other hand, the next three in line had sold 7-9 vehicles apiece, and unless they crested 10 over the end-of-the-month weekend coming up, they would be lucky to break $5,000 gross (before taxes and benefits). The best commissions and draws didn’t kick in until the 10-unit mark. So those guys were going to live at the lot and sweat bullets until they crested 10. The bottom 5 salespeople were hovering at 2-4 vehicles sold for the month, netting them around $2500 on average.
Dang.
I asked, “ How do you have the conversation with them that they aren’t performing well?”
[easy-tweet tweet=”Who wants to work that hard for $2500? Do you?”” user=”@highperformance” hashtags=”#salesfailure, #autosalesnightmare”]Andrew answered, “I don’t have to. They will quit. Who wants to work that hard for $2500? Do you?”
Double dang.
I don’t want to work that hard for $5000 either.
I did a search on Glassdoor for Auto sales salaries…The national average with commission is $47,000 annual earnings out the door.
This is clearly not a way to get rich. That said, if you are going to be successful at this game, you have to be unflappably good at the game. The game is set up to weed people out, to work them hard, and to spit them out.
I know that the dealers make money, although not as much as they used to. But until they change their model, it will continue to be hell to buy a car.
Here is a study of the industry done in The Economist.
“Since 2013 BMW, taking Apple Stores as its model, has been installing ‘product geniuses’ in some larger showrooms, to talk potential buyers through its cars’ features without pressing them to close a sale.”
But Tesla, who returned to a direct sale model, is now being fought by dealers (RE franchises) in multiple states.
“The legislation, enacted in the 1950s to protect dealers from onerous terms that carmakers were trying to impose on them, is now being used to put the brakes on Tesla.”
I am not expecting that the next time you walk onto a car lot, cringe, and say hello to your salesperson (and goodbye to your day) that you develop a softer spot for him or her. What I learned is that every car salesperson is truly hunting to eat. The game isn’t fair—it’s barely livable, and it is designed for failure. Would you ever think to create that in your organization? It is cruel and unusual punishment.
No wonder car salesmen have a bad reputation. It is built into their job description. Shame on an industry that could do so much better.
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