Dealer vs Sales Manager mindset

Ty Bullard
I am posing a question for feedback. i need some perspective on this question. See example below: Example 1 Jan 3rd - Acquire a 2013 Cadillac SRX - low miles, nice piece of inventory, trade in, clean, service history records, etc. Jan 13th - deal comes across desk that makes a gross profit of 1200. So we have the following results if we take deal: gross profit - $1200 investment - $35000 days in stock - 10 equals: ROI - 125% Turn - 36.5 R of R - 3.42% Jan 24th - deal comes across desk that makes a gross profit of 2500. so we have the following results if we take deal: gross profit - 2500 investment - 35000 days in stock - 21 equals: ROI - 124% Turn - 17.38 R of R - 7.14% My question is what is the better deal for the dealer? What is the better deal for the sales manager? Assumption is that sales manager is paid on a % of total gross profit generated in a calendar month. % increases as the total gross for the month increases. If the answer to both questions are different, why? Is there a fundamental motivation difference in the structure? So here you go ... thanks for taking the time to respond.
Clint Jones
Ty, this is a great question. There is a variable in here that technically is required in order to really give the right answer from the Dealer's perspective. In order to break this down from the dealer's perspective, we need to understand the pay plans that draw money out of the gross profit of this deal as well as semi fixed (floor plan in this case). For example: gross profit - $1200 investment - $35000 days in stock - 10 equals: ROI - 125% Turn - 36.5 R of R - 3.42% Sales gets 25% after $500 pack which is ($175) Sales Manager gets 5% of total gross which is ($60) Interest @ 5.5% which is ($52.74) Effective Gross Profit now equals $912.26 Effective ROI equals 95% gross profit - 2500 investment - 35000 days in stock - 21 equals: ROI - 124% Turn - 17.38 R of R - 7.14% Sales gets 25% after $500 pack which is ($500) Sales Manager gets 5% of total gross which is ($125) Interest @ 5.5% which is ($110.75) Effective Gross Profit now equals $1764.25 Effective ROI equals 88% The Return on Investment for the 2 scenarios starts to spread pretty fast when you look at it from the Dealer's perspective, simply because of the additional expense that has to be applied to the deal. With that all said, which one is the best? For the Sales Manager, it is pretty obvious which one is better. The Sales Manager is paid on Gross! For the dealer (which I am a dealer) scenario 2 is also the best one. Why would I say that? Why would I (also a dealer) take an 88% ROI when I could have gotten a 95% ROI 11 days ago? Simple, because I can't replace this vehicle tomorrow. Sure, it is easy to get caught up in all of the numbers, and buy into the logic that we could have sold two of the "Scenario 1 deals" in the time that it took us to sell the "Scenario 2 deal". Sure you can...if you have another Clean, Nice, Trade In, with all of the service records...that we all know are so easy to find. If I have a really nice, unique, stand up vehicle, I am not going to give it away 10 days after I got it. I am going to make gross in the first 30 days on a vehicle like this. If it is a replaceable unit (off lease) that I can replace tomorrow...whole different deal. Is there a fundamental motivational difference in the pay plan structures? Depending upon the dealer, sure there is! If the dealer wants his crew to flourish and do well, there isn't. When I get a vehicle in that there is some potential gross profit in, I tell all of my guys that. I tell them, there is a $1,000 commission waiting for you guys on this one. We bought it right, it is a rare unit, and we want you to make some money on it. I want my guys to make a lot of money. I will manage the expense side of the operation, and am comfortable with all of the pay plans in the store. If in your store, you are finding a disconnect between the dealer vs. what is good for the Sales Manager......the Dealer needs to rewrite the pay plan so that everyone is on the same page.
Ty Bullard
Clint i really appreciate you taking the time to thoroughly give me your answers to the questions. I appreciate your perspective and i too and a dealer and just want the best for our team and stores. I just thought about this and it made me think some so i figured i would gather some other's perspectives. Two more questions, if it were just a middle of the road car would your answer be different? Also what % of your current inventory do you think is bought right, rare find, unique piece right now or on average? Thanks again Ty
Clint Jones
Middle of the road vehicles (trade in that can't be replaced but is not particularly unusual), i want to make some money on within the first month. I want this vehicle to hold its own in terms of desired average gross. Rare find, 30%-35% based typically on vehicle acquisition price. This is not necessarily because of what the unit is, it it typically because of what we have in it. Fast moving, easily replaceable units, 40%-45%. Typically won't make a whole lot of front end, but these units fit the profile of our payment buyers. There can be some back end in these. Then there always seems to be about 20% that are trade in vehicles that just are what they are, or purchased vehicles that we outlived the demand for. For example, 2 year old Avengers get hot, so we buy a couple, sell them right away, buy 4 or 5 more, and sell all of them...except one that sticks. Good decision to buy all of them, but the model cooled off for whatever reason. The only time that we will price a vehicle at a short gross right out of the shoot is if we got surprised during reconditioning. Sometimes we end up putting more into the reconditioning than we anticipated. We price it for what it is worth and the gross is whatever it is.
Ty Bullard
So in your thoughts does it make sense to at time of acquisition make the decision whether this is a unique car or a common car and create 2 strategies for each type based on specific factors that help determine which one is it (ie. miles, service history, cost in car,etc.) and then apply that strategy to the car immediately? Would you mind telling me how your sales manager pay plan is structured? Thanks so much
Clint Jones
It absolutely makes sense to make a determination at acquisition. We price everything to market, regardless of cost. You have to be on the money or nobody will notice your car. However, when it comes time to take or pass on a deal, everyone knows where we stand on every unit. Everyone knows if we can get another identical vehicle or not.

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