The furniture and carpet retail industry’s pay commission only, BUT their salespeople get a percentage of the GROSS SALES REVENUE, in many cases 6% to 8% with an average being about 7%. The key there is that the salesperson’s percentage is based on transaction amount and NOT on gross profit. When there is a slow moving line of furniture or carpeting, it is not uncommon to see a retailer put a 10% commission on that product line to get the salespeople fired up.
There is nothing FUNDAMENTALLY wrong with automotive sales professionals being paid on a commission based system, but when the pay structure was established in 1972 and based on a gross profit margin that was, as a percent of the transaction price, 2 to 3 times what it is today, then there must be adjustments made in order to ensure that a sales professional position in the car business is still a high paid job.
When I started selling cars on Friday, February 13, 1981 my commission plan paid a similar commission as a percent of gross profit margin as many dealerships pay today. This is ludicrous and counter intuitive! My first dealership felt compelled to put a CAP on sales commissions because we were selling diesel VW’s for $2,000 to $5,000 over window sticker… My first year of selling cars, a 10 month years in 1981 I made over $84,000 as a car salesman. Let’s put that into perspective in today’s 2012 dollars… Can a first year car salesperson make $175,000 today? And, don’t say I was anything special, because there were at least 4 or 5 people in my dealership that outsold me.
If you give an entire class of professionals a pay cut ever year for over 30 years, what do you suppose happens to the quality of who we have available to hire and the turnover in that professional category? Yes… It is as obvious as it seems and a lot less complicated than people want to admit. Until the entire automotive distribution system in the USA allows for sales professionals to earn a living commensurate with the skills required for them to do a great job, we will be relegated to lousy salesperson performance as an industry average. This is not just a dealer responsibility… Every time an OEM strips gross margin out of the MSRP on the window of a new car, and puts that money into dealer cash that is paid separately, they are in fact reducing every sales professionals income from selling those cars. I personally believe that there needs to be more gross profit margin in the MSRP shown on the window of most new vehicles sold in this country. And based on what most consumers seem to believe we have for profit margins in those Monroney sticker prices, they agree as well!