QuestionHi Clark,
My husband just started in the business. He is working for a Jeep dealership in Maryland. This is his first week and he has sold 2 vehicles. Both for $11,995. (used). He had no prior experience in automotive sales. One vehicle he made $200 and the other $400. He was told that commission is 25% of profits after admin fees are taken out.
Another guy started the same day with a little bit of knowledge in the field (he was in the financing end of things for years.) He sold a vehicle his first day also. The guy had a trade in that he still owed a lot of money on. The salesman made very little commission on his sale because the manager told him "they had to work the numbers around" to make the deal go through but if he sold the guys trade in he would make about $1300. This does not seem fair and it also seems because of them not having experience they are being ripped off. I told my husband to stay for awhile for the experience and move on to another dealership.
It does seem quite obvious that these two newbies are being taken advantage of. No one talks about numbers....no one tells how much money is made off a certain vehicle. WHy so secretive and is it like this at all dealerships?
My husband is enjoying the job and feels he can do it. Do you suggest staying and sticking it out, going to another dealership or confront the sales manager? I would think that the salesmen should know what the profit is on these cars so they can go into the deal with information.
Thanks for your help and if you don't want to post the answers to my questions publically, please feel free to email me directly.
Sincerely,
Angie
karaokehstess33@aol.com
AnswerThe way most dealerships calculate commissions based on the gross profit that particular car deal makes. Sounds simple enough right… Gross profit is calculated as follows:
(The selling price of the vehicle) – (The invoice price, or in the case of a pre-owned vehicle, the cost of vehicle) – (Any dealer packs) – (Any Bank Fees)
I will break it down in real numbers: Let’s say your husband sold the used car for $20,000. The dealership took that car in as a trade in, and paid $16,000. Simple math would tell you the gross profit on that deal is $4,000, and if your husband is on 25% commission he should make $1,000.
What we are not taking in to account is the cost the dealership may incur with that used car. For example, almost any major dealership I have ever heard of will, at a minimum, perform a safety inspection in their shop prior to allowing a used car be sold. That safety inspection will probably cost around $300 - $500 depending on what that dealerships guidelines are for a safety inspect. Let us also assume that that particular car needed a few repairs, i.e. new brakes, an oil change, new belts, a front end alignment, a new tire, and a paint touch-up job on the bumper, (By the way those are very common repairs done to used cars before they are sold on a pre-owned car lot) the total of those repairs comes to $800.
Now that car that the dealership paid $16,000 for on a trade-in has a cost to the dealership of $17,100 ($16,000 originally paid for the car + $300 safety inspection + $800 in repairs). But wait there’s more! Most dealers have what is called a “pack” on all cars sold at that dealership. A pack is nothing more than money that goes directly into the DEALERS pocket. This dollar amount ranges from a few hundred dollars to as much as a couple of thousand, it just depends on what that dealerships pack is. Also, a pack usually varies depending on if the vehicle is new or pre-owned (it is usually higher on pre-owned).
We are almost done. Bank fees are normally the last barriers in finding out the gross profit. Some lenders/banks charge a fee to finance a particular car. There are a million different reasons a bank would charge a fee (i.e. the customer the car was sold to might have sub-par credit, the car has too many miles to fall under normal lending guidelines, ect…). So, for the sake of argument the bank fee on this car deal is $250.
Now let’s recalculate the gross profit on the deal…
Sale price of the car…$20,000
Minus
Cost of the car………$17,100
Minus
Dealer’s pack……….$500
Minus
Bank’s Fee………….$250
Equals
Gross Profit…..$2,150
And at 25% commission your husband makes $537.50.
These are very basic things that go into how a salesman is paid on a car deal. My best advice is, ANYTIME there is a question on a commission voucher talk to the sales manager. Ask to see the shop tickets on a car to verify cost of repairs. Make sure he knows anything that is taken out of those commissions. And above all else NEVER be afraid to ask questions until you understand. Do not let anyone push your question to the side.
