Tommy Gibbs hits it on the head

April 7, 2011


The following is Tommy Gibbs’ latest Zinger.  All I have to say is, Amen Brother!

A Place I Shouldn’t Go…

Pay Plans. Yikes, I said it. Oh, what the heck. Why not? I’m always being asked about pay plans. It’s one of those subjects like religion and politics.

There are as many different pay plans as there are dealerships. It’s fair to say that how much and how a manager is paid depends totally on the dealer’s philosophy of the business. More often than not the dealer’s philosophy was developed early based on what “worked” when the dealer himself (or herself) was actually manager.

We tend to think that everyone thinks like we do, and thus if the way we were paid when we started made us successful, then it will work for others along the way. Or we think it’s worked so well for the dealership over the years so why change? Nothing could be further from the truth.

First you have to establish if you are a dealer who still wants to play the paying on gross game or are you willing to take a major leap of faith and move into the “CarMax world” of not paying on gross. This will only work if you change your way of doing business and move to one price with pricing of all cars done at the corporate or upper management level.

Going to one price will not work if you still want to leave the job of “pricing” up to the managers in the trenches. Emotional attachment has to be removed from the pricing thought process. Only then can you move away from paying on gross and pay on salary with volume bonus plateaus.

I predict that within the next five years 15 to 20% of the dealers will move to one price and grow at the rate of 5 to 10% annually. It’s not necessarily because dealers want to, but the Internet and the cost of doing business will force them to do so.

The great advantage of one price is that it requires a lot less “desking skills” and management to run a dealership than it does when you allow negotiating. One price allows managers to do a better job of developing people and managing the daily activities of those sales associates rather than “working and chasing deals” all day long. When managers are able to manage processes, productivity goes way up.

Since the odds are pretty good you are not ready to make the leap I’m going to give you the next best concept of paying the members of your management team with gross as a part of the equation.

Let me point out that as a new car dealer for 20 plus years I was always searching for the “right plan.” I was the type of new car dealer that was willing to try just about anything because I’ve always felt there had to be a better way. I fully understood that just because it worked for me, or let me say I made it work for me, that did not in any way mean it was the perfect plan.

I believe that every manager in the front of the dealership should be paid based on the same bottom line. To define that, simply add up the used car gross, the new car gross and the net F&I and you pay them all on the same number. To do anything else is counter productive in producing the maximum gross, teamwork and future growth.

However, the actual percentage they get paid is totally dependent upon them achieving monthly performance levels that are adjusted each month based on a number of factors such as inventory availability, previous performance, forecasts, and staffing levels. If you want to include a small salary, the salary levels for each manager might be different depending on a number of factors, such as responsibility, years on the job, etc.

To keep it simple, assign each manager no more than three or four levels of achievement to shoot for. This concept is designed to put maximum gross on the books and at the same time push each manager to make sure they are achieving maximum performance in their individual department.

It’s simple enough to back into by sitting down and determining how you feel about what levels of performance you find acceptable and backing into some highs and lows. If you feel 60 units a month is acceptable for your new car manager then maybe that job is worth X dollars a year. Maybe 75 units puts your thinking at XYZ dollars per year and so on. You can think about it in terms of gross or units.

It doesn’t matter. What matters is you can back into the numbers to suit your thinking and how you feel about the job you want to get done.  CLICK HERE for sample.

I need to go work on my own pay plan. That’s all I’m gonna say.

Tommy Gibbs