As reported by AutomotiveNews, AutoNation, the largest new vehicle retailer in the U.S., rolled out a new pay plan offering salespeople a base salary plus bonus, rather than the traditional commission-driven plan. Since the rollout across all AutoNation dealerships, 70% of sales staff have already opted for the new plan.
The reason AutoNation wanted to rethink dealership pay plans was to prioritize an effort to retain sales staff: a top concern for all auto dealerships. While AutoNation’s turnover is lower than the industry average, the NADA 2016 Dealership Workforce Study found that turnover for automotive sales roles is 67 percent, the highest turnover rate of all dealership positions. According to AutoNation’s chief marketing officer, Marc Cannon, the new pay plan will entice employees to see automotive sales as a career choice, rather than simply a job.
AutoNation’s base salary plus bonus plan aligns directly with today’s job seekers’ expectations for more consistent pay, which we’ve addressed on our blog in the past. While heavily commissioned pay plans have worked for Baby Boomers and Gen Xers, such plans no longer work for millennials – who now make up the majority of the workforce.
How can you rework your current pay structure to attract and retain today’s job seekers? Consider the following benefits of adopting a similar pay plan to AutoNation.
Attract and Retain Empowered Employees
The base salary plus bonus plan enables AutoNation to attract more quality candidates. With traditional plans, career paths are undefined and high-commission sales roles tend to be too risky financially for younger candidates coming into the workforce with ballooning student loan debt and other fiscal obligations that may steer them away from automotive sales. But with the base salary plus bonus plan, dealerships are more inclined to invest in employees to set them up for success, and hold sales staff accountable for a 10 to 12 car-a-month minimum.
Redesigning the role of salespeople and investing in consistent pay takes a total store commitment to employees – through training, accountability, and a balanced reward structure – as you don’t want employees to stand around and wait for business. Such a structure is more appealing to today’s millennial employees, who tend to be resourceful, collaborative and goal-oriented. If dealerships are transparent about training and goals, and all sales staff are on a level playing field with a base salary, employees will work together to meet their goals, resulting in increased productivity and profitability. And this structure will also motivate employees to stay with the same dealership, and continue working toward their goals for the long haul.
Pull Talent from Outside the Retail Automotive Market
By providing the onboarding and training needed to set employees up for success – and making it come across in your job descriptions and on your career site – you can more easily attract candidates from outside the retail automotive industry. While some entry-level candidates might apply to your dealership because they come from a long line of family members in the automotive industry, or they’ve long been interested in a retail automotive career, you can find even more quality candidates by looking outside the retail automotive industry.
Companies across industries are competing for entry-level sales roles, and many of these companies have long had the base salary plus bonus pay structure in place. But dealerships still have an opportunity to attract candidates who would have otherwise looked into other industries, by offering a comprehensive compensation and benefits package.
For example, a recent business graduate might be looking into entry level sales roles at a local retailer or startup, but by highlighting the benefits of working for your dealership, you might change his or her mind about career prospects. It might turn out that your next top employee didn’t have an initial interest in retail automotive in the first place, but is motivated, competitive and driven to succeed.
Address Evolving Negotiation Opportunities
As dealers know too well, the more manufacturers influence pricing, the less opportunity your staff has to negotiate. For both new and used cars, the market is setting the pricing today more so than ever before.
Pricing alone isn’t enough to differentiate your dealership. If one dealer advertises a car 105% price to market and another comes in at 98%, traffic will naturally flow to the cheaper listing. This could lead to decreased margins as local dealerships race to the bottom – a lose/lose for the long-term viability of the dealership model.
With eroding margins on new vehicles, and decreased opportunity to negotiate on used cars, auto sales teams may begin to feel trapped. Under high-commission based plans, salespeople may move fewer vehicles, for less money, feeling the impact in smaller commissions and loss of earnings potential. This loss of income control may turn even the best salespeople away if new and used vehicle sales continue their current trends of strict market pricing and aggressive OEM incentives.
Improve the Customer Experience
With less room for negotiation, customer service is key to each sales rep’s success. The overall experience can make or break a customer’s final decision to buy from your dealership – or take his or her business elsewhere. Dealership sales staff need to build relationships with customers, create a more efficient process, and personalize the customer experience by following the path each customer wants to take. For example, while some customers might want five test drives, others come in with all the information they need and just want to buy the car and get out.
Just as millennials are making up a significant percentage of dealership hires, millennials are also one of your biggest customer bases. Similar to your job candidates, millennial automotive customers are passionate and resourceful. They often walk into your dealership after completing extensive online research, know exactly which car they want to buy and are just at your dealership for fulfillment. Each of your customers wants a unique experience catered to their needs – and your millennial employees can provide just that, especially in an environment when the customer experience is more important than negotiations and commission.
Control and Project Monthly Costs
The base salary plus bonus plan is beneficial to sales staff, but also helps dealerships better control and project monthly costs. For most traditional, high-commission plans, there’s an correlation between volume and expense: the more vehicles a top seller moves, the higher the dealers expenses grow on variable commission plans.
While you want all of your sales staff to reach and exceed their goals, 30-plus car-a-month employees on high commission plans are both hard to find and also very costly to your dealership. On the other hand, four sales employees who sell 15 cars on a base plus bonus plan is more affordable than two high commission sales employees selling 30 cars a month.
By eliminating or reducing commissions, you can also project monthly costs more effectively. Dealers that have implemented this plan saw a decrease in compensation as a percent of gross due to the break-even being fixed. The key to maximizing this plan is to set goals and hold reps accountable for reaching their goals each month. With a base salary plus bonus plan in place, the four car rep will cost you money, the eight car rep will be about cost neutral and anything over 10 is pure profit to your bottom line. The higher you can push the average units up per person per month, the more money you make.
In offering a base salary plus bonus plan, AutoNation – and other dealerships with similar structures in place – can build the best team while improving the customer experience and having better control of overall business costs.
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