In harmony pay plans, the profitability of all departments is pooled and accordingly paid to managers of all departments. This has benefits. One of the most obvious is best explained with an example.
Joe, the used-car manager in order to retain gross profit for a particular truck has made a deal with a customer to purchase the vehicle with running boards. Joe knows how much they are through the parts and service department. He also know how much he can get them down the street at “Lo-Cost Truck Auto Parts.”
He opts for “saving” a few hundred dollars and gets them done down the street.
Why does Joe do this? In order to retain gross profit for “the deal” and his department, he sublets the business and keeps another $300 gross. He is, after all only paid on profitability of his department, not on the profits of other departments — such as parts/service.
Can you blame him? Most managers have a severe case of what's-in-it-for-me-itis. If he can keep another $300 gross profit in the deal, he will. With a harmony pay plan, whereby Joe is paid on overall profitability of all departments, he may be more willing to do business with his dealership's parts department.
Another pay system is like a “modified harmony pay plan.” It's where the new-and used-car department revenues are pooled and the respective managers are paid on the profitability of both departments.
Handling certain scenarios depends on smart thinking. How many times have deals been lost when there is not enough money put in a particular trade? Or how many deals have been lost when the new-car manager wants to keep all the money for that new vehicle because supply is low and demand is high? But of course in doing so they lose out on a cherry of a used-car trade-in.
This type of modified harmony pay plan may keep everyone working together more closely and make the store stronger overall.
Why else implement a harmony plan?
Another common concern with a great many dealerships is management attrition. Used-car, new-car and general managers tend to play musical chairs with dealerships.
It's rare to see these people stay with one dealership throughout their career. But at least one dealership has no problem with employee turnover.
There, the dealer principal invests his management team's bonus in real estate through a 401K tax shelter. These real estate investments have done so well that it would be pointless for any of the management to leave for fear of losing out on the retirement nest egg that has accumulated for them.
Poor parts manager
How about the poor parts manager who, without fail, every month has to do a “sell job” on the new-car manager to install accessories on vehicles to “dress them up.”
If that new-car manager was tied in with the parts manager's profitability, it may just be more of a two-way street for accessorizing and customizing vehicles to enhance uniqueness and move inventory.
Working towards a common goal is something Bert Cleary with Performance Incorporated in Chantilly, VA, feels strongly about.
“This is one of the hidden benefits of this type of pay plan,” he says. “In too many dealerships nowadays there's a wall between the back-end and the front-end.”
Being paid on “group profitability,” may just improve morale and break down the wall between parts/service and sales.
How would a store set up a “harmony pay plan”?
Cleary feels that it is not a be-all and end-all for every dealership. One reason is the egos that stand in the way of this type of pay plan.
The second reason is change. No one likes change especially if it means that management thinks that other people won't be pulling their own weight.
Cleary feels that, to implement a harmony pay plan successfully, it should be first approached with a bench mark number. This number could be a gross profit or net profit of the whole dealership.
Let's use a round figure of $100,000. If the profitability passes $100,000 to say $110,000, then a percentage (50%-75%) of that $10,000 would be split accordingly on a pro-rata basis to the different managers of the departments. This way the parts, service, used-car, new-car and body shop managers reap the benefits on a monthly or quarterly basis.
One thing is for sure, in a high stress environment like the car business, anything that can improve morale and team work is worth considering. Harmony pay plans may be one way to move in that direction.
Dave Skrobot is president of Dealer Strategies specializing in fixed operation training, based in Calgary, Alberta. He can be reached at 403-660-2760.