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“Switch Them To Used”
Part 5 of Car Dealer Confessions…By Tug Pullman.
I’ve given you an honest look at the inner-workings of a car dealership and may have painted a slanted picture of the people in the industry. Do they deserve a bad rap? Definitely up for debate. So, I thought in this week’s installment I’d (try to) explain the pressure new & used car salespeople are under. This may remove (a bit) of the culpability for some in the automotive retail industry, but I can’t, in good conscience, defend all of them. Some are just plain old crooks who revel in their ability to deceive car shoppers.
The new & used car salesperson’s’ main pressure point: Financial. After one disappointing month (financially speaking) the General Manager wrote on my pay stub “Work your pay plan!” This was my instruction to work towards the sales and bonuses which paid the best. (Everyone in a dealership has a compensation plan based on commission and bonuses.)
As a rule of thumb, a Salesperson receives 25% of the sales profit, with a bonus for the total sales in a month. “Working my pay plan” means selling cars with the highest profit margins. New car profit margins are limited by law and the market, so the highest profit margins are usually found on used cars and truck. This is why you find the rally cry of “switch them to used” in most new car dealerships.
The shrewd salespeople of the bunch know exactly which used vehicles have the highest margins. These used cars suddenly become the vehicles of choice for their customers. Funny how that works.
In addition to the 25% commission, the dealership gives special bonuses on certain vehicles. Bonuses are paid on the oldest vehicles on the lot. (Aged Vehicles) Dealerships have a “floor plan” - a loan for each vehicle on the lot. They pay interest on each vehicle, so the longer is stays, the more it costs. I’ve seen bonuses as high as $1000 on these older used cars.
If you feel the Salesperson is steering you away from a vehicle you like, this is probably why. For new vehicles, this pressure usually comes from the manufacturer. They constantly throw contests and incentives at the dealerships, and individuals, to increase sales.
This takes me to the industry-favorite: the “Spiff”. No, this isn’t the sharp dressed guy on the floor. The spiff is an extra cash payout if the bonus is hit for a specific time period. Just about every car dealership has a daily spiff on Saturdays. They’ll have a morning “rah-rah” pep rally, and entice the Salespeople with a big wad of cash for even more motivation. Spiffs can be volume based (three sales today earn you $250) or activity based ($10 for every customer you introduce to your manager). I’ve even seen people paid to get their customers to climb into the trunk of a car. (I’ve mentioned this before)
If you want to see what I’m talking about, check out the classic car sales movie Suckers. The writers didn’t make this stuff up…
The bottom line for these new & used car salespeople: If they don’t sell enough cars, or even the right cars, they won’t have a job for long. Where I worked, if you didn’t have enough sales at the half-way point of the month, your days off were cancelled. Twelve hour days, seven days a week is a strong motivator to sell cars at any cost! Unfortunately, when Salespeople are under this kind of pressure, the consumer pays the price.
Add all of this up and you’ll have a plenty of reasons not to shop at commission-based car dealerships. The best interest of the customer doesn’t line up with the best interest of the Salesperson; it’s no wonder most people would rather have a root canal than buy a new car.
Do yourself a favor and shop for your next car at a one-price dealer. Do your homework to ensure it’s a good price. (Unless you live in a cave, you’re probably already familiar with the links within our Friendly Resources.) There’s no reason you can’t get a Salesperson who actually cares about your needs.
Going up against highly motivated and trained professional negotiators, intent upon convincing you which vehicle is right and talking you into paying the highest possible price, is probably not at the top of your list of fun things to do on a Saturday with your family.
Good luck out there, buying a used car doesn’t have to be so tough…
