UCM pay plans for profit
It’s often said, “I hope you make a truck load of bonuses as it means more profit for the dealership.” Truth be told, both dealer and used-car manager have a minimum and maximum expectation. The right pay plan may help you land the right person for more profit.
Managers now have to be hunters of inventory and price to market while still providing CPO programs and advantages. Manufacturer volume incentives for some are imperative, and stretching on trades is necessary.
Perhaps it is time to dust off your pay plan. Let’s look at five common pitfalls and five newer benchmarks that may help you improve you pay plan and profits.
Five pay-plan pitfalls
- Pay plan is to complex
No manager should have to strategize their pay plan. I like a base-salary guideline based on your previous yearly profit loss on front end of 7 to 10 percent. A complicated pay plan makes recruiting new talent difficult. No two stores are the same, but we talk transparency to customers and need to apply it to pay plans, as well.
- Year-end bonus too heavily weighted
This means bonus plans that come at the end of the year and are tied to the dealerships’ net. Your UCM’s have little control over many fixed and variables expenses and no way to truly validate them. This can lead to mistrust. Year-end really means when statements are complete, which can create anxiety. Holiday season can be tough, and weather can wreak havoc. I suggest a quarterly component and paying simple bonus’s more often. That way, managers are never out of the game.
- Base salary is too high
Don’t breed complacency. Anyone worth their weight will work to achieve a reasonable target. If they need the money and the goals are clear, good managers rise to the occasion.
- Too many variables
If a bonus depends on too many variables, it can leave a manager lacking incentive. Limit the variables to the items they have direct control or influence over.
- No clear pack or write-down policy
If you have a pack or write-down charge, you need a clear consistent policy. Don’t bring it in and help their bonus when it suits the dealer, and not when they are a few dollars short on bonus next time. It is departmental and used to make deals, move aged inventory, or apply as a write-down at year end. It’s not for use outside the department or the inventory category, if it is part of a pay plan. Be clear and consistent.
5 benchmarks to consider
- Age of average sale
The average age of your sold units is very important. Your gross is made on fresh stock, and aged inventory is consistently lower in gross and costly. Pay highly on 35 days or less, less on 45 days and a little on 60 or less — nothing payed beyond 60 days in stock. I like to take this from part of the gross component. Gross is important, but volume, F& I and lack of aged units will take care of gross to some degree.
- Wholesale packs
Most dealers do very similar things with wholesale and retail volume. Inventory packs protect payable gross but hurt pricing to market. Many think making money on wholesale is taking away from new-car volume and gross. Yet, wholesalers have been making money off new-car trades forever. They get history, and no auction or transport fees. Consider a smaller policy pack on retail, flat sales commissions and paying a couple points on wholesale profit and use their packs for write-down. U.S. exports are up, and the inventory is tight. Why leave money on the table because of an old pay plan? Event auction sales, online tools and a little post-sale lipstick will surprise you.
- Buy-in bonus
We need our managers to hunt down inventory and/or move aged within our groups. We have to mine our service, scope our lease returns, move aged amongst our groups and find new sources. Let’s pay a small buy-in fee.
- Simple retail volume
Good things happen all over the dealership every time a used car is sold. Keep it simple. Have a strict delivery deadline and pay on volume.
- Volume of appraisals and wins
If you have the ability to track appraisal volume and wins, pay on it. The more proper appraisals completed, the more won trades and more retail sales.
Dwayne Green — lead dealer results manager for Eastern Canada at DealerSocket — is a 35 year veteran of the automotive business. He consults for over 70 successful dealers in Canada. He specializes in inventory control, dealer process and digital marketing. He is a lifetime student of digital technology in one of the most important and evolving national industries: automotive sales! For more information, contact Dwayne at (416)347-3817 or email@example.com
Editor's Note: As with any contributed content, the opinions expressed in this and other editorial columns are solely that of the author's and do not necessarily reflect those of Auto Remarketing Canada or its parent company.