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Investigation: Has coronavirus killed off commission? Dealers begin to wonder if sales executive pay needs a rethink

Time 11 months ago

Few would argue that the coronavirus pandemic has supercharged change throughout the motor industry, but could it also be about to kill off sales commission too?

Bonuses for selling is one of the oldest of motor trade traditions, but during the crisis many sales staff were furloughed and the problems of low basic pay and high commissions caused an unexpected problem.

With the government’s advice on what sale commission should and shouldn’t be included in staff pay packets under the support scheme, many of these hard working bedrocks of car dealerships were left facing basic pay only.

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Now, in the first month back, sales staff working twice as hard to get their bosses’ businesses back up to speed and cope with the influx of pent-up demand are facing a double whammy – basic pay only in June.

One exasperated salesman, who works for a BMW main dealer, told Car Dealer: ‘It was hard enough the battle we had to get commission included with our furlough pay calculations – now we’ve come back to work and are facing no commission in June because obviously we didn’t sell anything last month and we get paid it in arrears. It’s one thing after another.’

His thoughts are likely to be echoed by a battalion of car salespeople. 

But could this tradition be about to come to an end? In an age of sales moving quickly towards more online business and fewer walk-in customers to ‘sell to’, should dealers be moving away from commission structures and increasing basic pay instead?

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Some of the biggest dealer groups have told Car Dealer they’re already thinking about it. 

The £1bn turnover Hendy Group has been around long enough to know the ins and outs of commission better than most. It opened the very first Ford dealership in the UK back in 1910 and has ballooned in size in recent years.

So does boss Paul Hendy think there’s a place for commission in an online sales biased future?

‘This is the big question and needs careful thought about how we go forward – with the physical showrooms now open it will be interesting how much online activity takes place,’ he told Car Dealer.

‘I don’t think it will kill off commission in the short term, but it has made us start to take a long hard look at it. 

‘We need to ensure we get the right balance going forward.’

Chris Wiseman, managing director of Wessex Garages, certainly believes the sales landscape will change with customers more informed than ever before.

Wiseman said: ‘I suspect most dealerships will have less in the showroom, but customers will be more qualified with a higher conversion rate.

‘Most quality sales execs will earn either on low or higher basics, the biggest effect will be on average sales execs with inconsistent sales rates.

‘While we may alter the pay plan slightly I do not believe there is an overriding rationale to offer higher basics and reduce commissions unless you are adopting a more online end-to-end strategy.’

Dealer bosses like commission models because they keep overheads low if sales drop – and during a time of uncertainty – now more so than ever – that flexibility in the pay roll is welcomed.

However, do you need to reward a staff member for simply filling in an order form? If a customer can complete all of the sales process on your website, do you even need a salesperson to help with the process at all? 

Most dealer group bosses have admitted to Car Dealer that they think job losses of around 20 per cent will be needed off the back of the pandemic as they look to reshape their businesses for the future. 

Many dealers are carefully weighing up what staff they need, with what staff numbers they can physically get in their businesses with social distancing rules in place. While others have simply come to realise that online sales mean they need fewer sales staff. 

‘I’ve sold a healthy number of cars online during the lockdown with little to no staff interaction at all,’ said one dealer group boss. 

‘It’s certainly made me think about what sales staff will do in a future moving more towards online sales.’

It’s a hot topic in the independent dealer world as well. 

Umesh Samani, a used car dealer and chairman of the Independent Motor Dealer Association (IMDA), said he thinks with more customers buying online the era of the ‘sales legend’ could be over.

He said: ‘Customers have always done most of the research online anyway, it’s controversial but the true sales professionals in the industry are getting rare as many are now just order takers as the customer has already built the car online and knows exactly what they want – it’s just down to price in a lot of cases.’

However, Samani thinks the economic situation will mean most car dealers won’t be looking to make changes any time soon.

He said: ‘This is a heavily debated subject in the industry as far as I can remember. The furlough scheme has highlighted the problems, but I’m not sure if this will change the payment structure in the industry overnight.

‘Many dealers are simply unable to pay a high basic wage when you look at the number of sales staff, most probably earn around £15,000 basic to then pay them around £30,000/£35,000 is a massive burden on any business especially when we’re looking at how challenging business is going to be going forward.

‘With more job losses predicted in the industry and many dealers cutting back I believe the commission model will continue and sales staff will stay as they won’t be able to simply hop jobs due to lack of jobs generally.’

The issue with commission and how sales staff are paid was brought into sharp focus by the government’s furlough scheme when the government stated discretionary bonuses should be excluded. 

While the regular bonuses that car sales staff are paid can’t be described as discretionary, they were in a number of contracts, which led to some dealer groups refusing to include commission in their calculations.

The fall out from those not paid properly – despite being advised to include it by experts – will last far longer than the lockdown.

Kiril Moskovchuk, employment law specialist at Lawgistics, said: ‘Where incentive and reward for performance matter, businesses will be looking hard to find a suitable alternative to commission pay.’

Many car dealer bosses will want to stick with a traditional pay schemes that reward salespeople for making sales, but as the way consumers buy cars changes, many think so too should the way dealers reward their staff.

Sales teams will probably still need a reward mechanism in future, but one that focuses as much on longer-term, more sustainable metrics of customer satisfaction and profitability across the whole team, rather than on sales volumes by each individual,’ believes Ian Plummer, commercial director at Auto Trader.  

‘Consumers will need to be able to engage with a retailer at different times of the day, on different platforms and in different ways. There’s much less likelihood of an individual consumer being fully “managed” by one sales executive throughout that cycle. 

‘A team ethos to helping consumers and a move to an agency sales model at some point by certain manufacturers would only accelerate this likely direction of travel.’

Stuart Foulds, who has been in the car industry for more than 40 years, is chairman and CEO of Ford Retail and Trust Ford. 

He thinks the sales executive position is more likely to change than the commission structure.

He told Car Dealer: ‘I think in the near term commission will remain in place albeit there is a shift to paying much higher basic salary and smaller commission levels. 

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‘In terms of online sales I think these will ultimately be sold by a different breed of sales executives possibly done from a central point, maybe even working from home, away from the frontline dealership and paid on conversion rates with a small level of bonus for selling various add on products. 

‘These salespeople will have a lower OTE than conventional sales executives.’

Whatever happens to commission, it’s clear that change is coming. With the boom in online sales very likely to continue, coupled with dealerships looking to cut costs, commission could very well be in line for a radical shake up.

James Baggott

James is the founder and editor-in-chief of Car Dealer Magazine, and CEO of parent company Baize Group. James has been a motoring journalist for more than 20 years writing about cars and the car industry.

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