The way dealers pay

The number of dealership employees working on straight commission is dwindling. Large dealerships, particularly those in the western United States, are the most generous in compensating their employees. And employee turnover is a bigger problem for larger dealerships than smaller stores.

These are some of the key findings in this year's Ward's Dealer Business auto dealership compensation survey.

About 50% of surveyed dealers pay commission only to new- and used-vehicle sales staff, as well as body shop and service technicians.

Last year, more than 60% of new-car salespeople worked on straight commission. This indicates a trend toward paying people a combination of salary and commission.

"That's a strong way to do it," says Tom Hern, chairman of the automotive marketing department at Northwood University's Cedar Hill, TX, campus. "I was a dealer once and if I did it today, I'd pay a salary with a volume bonus."

Mr. Hern cites a University of Wisconsin study that concluded that commission-only sales forces are the least productive.

"The focus is, 'How much can I make off the customer?' - nothing else," explains Mr. Hern.

"We're testing a lot of different plans," says Joseph Shaker, founder of Hometown Auto Retailers based in Watertown, CT. "And no one has come up with an answer on which method is best."

Mr. Shaker reports that his dealerships currently employ three different compensation methods for salespeople. The first is a $125 bonus for the first 10 sales, $300 for 11-15 and $400 for 15-20. The next is a percentage commission with no base salary. The last is a small salary and a lower percentage commission.

"Hiring is a problem in this economic environment and very few people are willing to work for zero base salary, so we're trying these different pay plans," says Mr. Shaker.

The average commission, according to the survey, for sales people in new- and used-vehicle departments is 25%.

Internet sales people also make 25% commission, but they're more likely (53%) to be paid a combination of sales and commission. Only 28% are on straight commission.

Commission for service and body shop technicians is between 27% and 32%. Slightly more than half (52%) of body shop technicians still work on straight commission, as do 46% of service technicians. About a quarter of both positions are paid a combination.

Apparently it pays to work for larger dealerships.

General managers, new- and used-vehicle managers, and F&I managers in stores with more than $40 million in revenue were most likely to receive a salary increase in 1999.

Nearly half of the dealers in both the over $40 million and the $10 million-$24.9 million segments gave new-car sales people salary increases. More than half of the service managers in these groups received raises. Salary increases for office managers were most prevalent in the two largest revenue segments as well.

On the other hand, almost three-fourths of the smallest dealers did not offer their parts managers salary increases.

Employee turnover continues to trouble automotive retailers. About half of dealers report annual employee turnover rates of 10% or more, about the same as a year ago.

"I had a dealer tell me that 10% turnover is as low as he can get," says Mr. Hern. "I think 10% is outstanding."

Turnover is much more acute in larger dealerships, however, as about three-quarters of the largest stores report turnover of 10% or more.

On the other end of the spectrum, about two-thirds of the under $10 million points indicate turnover of less than 10%.

Turnover appears to be the greatest in the Southeast, where 63% report turnover rates of more than 10%.

"The market here is so competitive," explains Steve Lee, general manager at Ed Voyles Chrysler-Plymouth in Marietta, GA. "People are always jumping around looking for a better deal."

He says in the last two or three years that some dealerships in the region have resorted to offering $2,000 to $3,000 signing bonuses to people to entice them to join their staff. Another GM in the area says that practice is particularly common when trying to lure technicians.

The Planning and Research Department of Intertec Publishing Corp. conducted the compensation survey. Questionnaires went to 2,000 dealerships. The response rate was 17%.

In addition to asking dealers about how they compensate their top managers, the survey asked them about how they pay their sales, service and office staffs.

At the upper end, the average salary for general managers was $100,480 in 1999, up from $100,000 the previous year. The average pay raise was 13% and the average bonus was $50,959.

New car managers, on average, made $83,245, up from $79,211 the previous. Their average raise was 11% and their average bonus was $20,023.

Used car managers averaged $80,023 in 1999, which was an increase from up from $75,714 in 1998. The average raise for this position was 10%. The average bonus was $18,767.

F&I managers averaged $69,824, up from $65,000. The average raise was 10% with an average bonus of $23,497.

The average salary for parts managers was $49,161, up from $47,778. The average increase was 7.1% with a $7,159 bonus.

Service and body shop managers made an average of $58,904 and $52,467, respectively. Both were up over year-ago figures.

The average raise for a service manager was 8.6% with an $8,200 bonus. Body shop managers saw raises in the 7.5% range and bonuses of $3,544.

Dealership office staffs also were rewarded in 1999. The average controller/bookkeeper made $55,962. They got raises of 7.8% and bonuses of $12,423. Office managers made $44,003, received raises averaging 7.3% and bonuses of $5,174.

The average new-car salesperson made $51,976, up from $45,000 the previous year. The average raise was 9.3%, the average bonus $7,057.

Used-vehicle salespeople made $49,731 on average, up from $45,000. Their average increase was 9.4% with a $7,117 average bonus.

The average salary for a dedicated Internet sales staffer was $44,760, up from $41,667 the previous year.

"What you're seeing is a trend of increasing salaries over the last three to five years," says AutoNation Inc. CEO Mike Jackson of the overall boost in dealership employee pay. "In a tight (employment) market, it's going to magnify the trend."

Northwood's Mr. Hern says he thinks the increasing salaries are the result of dealers insisting that their employees are more productive.

"Productivity is going up," says Mr. Hern. "Years ago, the average sales person sold eight cars a month. In today's market, if the sales person isn't selling between 12 and 15 cars a month, you're in trouble."

He adds, "When you're more productive, you can pay more."

The study shows that the largest dealerships were much more likely to employ dedicated Internet sales people than smaller stores. Nearly two-thirds of the second-highest revenue segment and more than three-fourths of the two smallest categories do not employ a dedicated Internet salesperson.

Forty-seven percent of dealers in the West say a dedicated Internet salesperson is on their staff.

Service technicians made an average of $43,282 while body shop techs took in $41,564. Service tech pay was up about $1,000 and body shop workers made about $2,500 more than in the previous year.

The average service tech raise was 7.1% with a bonus of $1,086. The body shop raise was 6.3%.

Perhaps dealerships could improve their employee turnover problem by improving their fringe benefit packages, some observers suggest.

Although almost all dealers offer paid vacations and holidays (96%) and medical insurance (94%), these are considered givens in an economy with a 4% unemployment.

A total of 61% of all dealers offer deferred compensation plans. Slightly more than half of dealers provide paid sick leave, paid life insurance and dental insurance.

Northeast dealers tend to be more generous with some benefits than dealers in other regions. Specifically, paid sick leave/personal business days, deferred compensation plans and short-term disability were more likely to be offered in the Northeast.

"It's supply and demand," says Mr. Shaker, whose dealerships are in the Northeast. "The un-employment rate in this area is something like 1.7%. It's made it really hard on the dealer.

"Finding really intelligent people who work hard and who you can trust with millions of dollars in inventory in this environment is very difficult."

Mr. Jackson adds, "The Northeast is union-influenced. It creates a culture of expectation. Even if you don't have a union shop, you have to compete with stores that are."

Incentives, or spiffs, still are popular ways to reward dealership troops, especially in larger stores.

In the top three segments, 91% to 97% of dealers awarded spiffs, compared to just 58% in the smallest stores.

Cash, used by 75% of dealers, is by far the most common spiff awarded. Bonuses are second at 55%.

While the new- and used-vehicle sales force is most likely to be awarded spiffs, more than half of dealers also awarded spiffs to new- and used-vehicle department managers, as well as the service manager and technicians.

Dealership employees in the West, across the board, make more money than their counterparts in other areas of the country.

"Part of it is the cost-of-living index," explains Mr. Jackson. "Part of it is unions. Some of the differences between regions has to do with the availability of labor. Where it's higher, you'll have to pay more."

Higher salaries in the West also could be explained by the size of the dealerships in the region. One hundred forty-six of the Ward's Dealer Business 500 are located in the West.

If regional dealership compensation was determined by the number of transactions, however, the Southeast would lead the way.

According to The Polk Co., 13.8 million new and used light vehicles were registered in the Southeast last year. In the Midwest, 12.2 million. In the Northeast, 10 million. In the West, 8 million, and in the Central region, 7.2 million.

Sales seem to have had a positive effect on general manager pay as salary raises for GMs were most prevalent in the Southeast with 57% receiving an increase.

Salary raises for new- and used-vehicle sales managers and F&I managers were most prevalent in the Midwest and Central regions.

Dealers in the Midwest, Central and Northeast were most likely to offer raises to service and parts department managers.

Raises for new-vehicle sales people and office managers were most prevalent in the Northeast and Midwest.

Northeast dealers were significantly more likely (61%) to pay raises to service techs. Over half of the dealers in the Midwest offered increases to mechanics.