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Ford CEO Jim Farley announced recently that it was his aim to radically change the current automotive dealership experience, at least for Electric Vehicles. It can't happen soon enough.
Farley wants to sell all Ford EVs on line, get rid of dealer inventories and convert dealerships to high quality service facilities. He wants the dealers to specialize, and segment the retail distribution network with 'Ford E' for electric vehicles and 'Ford Blue' for ICE.
Farley was unimpressed that most Ford dealers were placing ADMs (additional dealer markups) on Lightning trucks that customers had ordered on-line. The customer who watched the live stream of the Lightning launch, then placed their order without ever stepping into the dealership, was understandably upset (to put it mildly) by the dealer adding another $10k or more to the purchase price.
“We’ve got to go to non-negotiated price. We’ve got to go to 100% online. There’s no inventory ... 100% remote pickup and delivery.” - Jim Farley
The writing has been on the wall for some time. The reality is that the vast majority of consumers prefer the Tesla model (which is really the Apple model) to the legacy dealership experience. While there are exceptions in the luxury end of the market, where personal relationships still play an important role, the reality for the volume dealerships is that the salesperson/sales manager/finance manager process is cumbersome and frustrating for just about everybody.
An automotive salesperson is not a very good job. They are mostly 100% commission, and fiercely competitive. There is no seniority. You are only as good as your last few months. The conventional dealership model is to hire more sales staff than you need to keep everybody 'hungry', in the belief that this will sell more cars. The person with the most aggressive personality will usually out-muscle their co-workers. They will usually be promoted to Sales Manager. The most common sales strategy is to 'follow up' the customer repeatedly until the customer either buys a car or tells you to, er, 'leave me alone'.
The 'Finance Manager' is usually somebody who doesn't know anything about cars or finance, but is taught to sell whatever extras they can. In the worst instances, they make most of their money by charging you the highest interest rate they can get away with. The 'No credit, Bad credit' used car dealers will advertise the car at a loss, and make all the money on the finance contracts. The first thing they ask you in the showroom is to fill out a credit application. If you want to go in and pay cash, the car will mysteriously sell to somebody else.
Not all dealerships are like this of course - but a lot of them are. Unsurprisingly, the staff turnover is very high. When I went back to the Toyota dealership, two years after buying our Tundra, my salesman wasn't there any more. There wasn't even anybody who was there long enough to remember him. I placed an order for a new truck, and that person left. The person who was assigned my file left. I'll have probably had 5 salespeople before the truck arrives! Of course none of them had anything to do with my purchase decision, and nobody ever tried to contact me with any type of update.
In contrast, I ordered a Hyundai Ioinic 5 on line. They send me monthly updates and tell me what order number my car is, when it is scheduled to be built, etc. Also they send me videos and other bits of information on the car. Despite the delay, the process is completely satisfactory. I am hoping that when it is built and goes to the dealer, who had absolutely nothing to do with the purchase decision, that they don't try to force me to buy a bunch of 'extras'. But this is what is happening to others.
At my last job, I instituted a pooled commission structure where all the staff from sales and finance equally split the commissions. Everybody worked together. They all took days off. They were all well paid and had stable incomes. In 8 years there was virtually no turnover. Our CSI (Customer Satisfaction Index) was tied for the highest in the country.
This wasn't easy to get started or maintain, but not for the reasons that most people would think. The conventional wisdom was that if the sales staff had comfortable incomes then they couldn't possibly be motivated to sell cars and they would be lazy. Yet none of the people from the manufacturer were on commission and they didn't consider themselves lazy!
What happened was the sales staff placed far more pressure on themselves to pull their weight and not disappoint their team members, than any amount of pressure that I could have put on them. It was much more efficient as well. If there were no customers, sales people could shoot a video or do some merchandising without fear that they were losing an opportunity.
My argument was that to get good people you had to offer them a good job. The kind of employee that we wanted was mature, responsible, empathetic, post-secondary educated, etc. This person probably has some stability in their life, and is likely raising a family, or at least planning to do so. They will be looking for a cooperative work environment and a stable income with some work/home balance. I reasoned that this would be somebody who you would be happy to buy a car from.
I argued that the legacy model of 100% commission and sales floor competition virtually eliminated women-who generally want a more cooperative environment. This structure favoured aggressive men with little education and misplaced confidence - pretty much exactly the kind of person that you don't want to buy a car from!
Our pooled structure worked very well and I was quite proud of it - but I needed to defend it constantly. When anything went wrong the suspicion from the manufacturer was always lazy sales staff and the commission pool. Although it wasn't said, I think my position on the pooled structure ended my career in retail automotive.
We all had an excellent run, but I had to tell everybody that their jobs were not going to be around in a few years. They had to take on some management responsibilities because on-line sales will disrupt their jobs. In my last few years I concentrated on preparedness for on-line sales and pioneered video walk-arounds for every new car using a professional quality photo booth. Ironically it was my job that went first, after I declined a 50% cut in salary!
I don't believe that we need commission salespeople anymore. Those jobs can be replaced with in-store and video presenters. I think dealerships would be doing the customer a favour if they paid their showroom staff on a salary as product knowledge specialists or 'geniuses', as Apple calls them. I think customers would be happier to go to the showroom to get information, and then either buy on line, or make a separate appointment to place an order. I also think the dealerships would get more traffic if people didn't feel like they were being judged or targeted, or would be getting 27 phone calls after they gave up their number.
I also think it is quite obvious to those in the industry that we don't need hundreds of new cars piling up on dealer lots that are then sold with expensive advertising and large discounts. If the dealers wipe out the sales commissions, dramatically reduce inventory interest charges and sell off their storage lots, they will be much more profitable. A typical dealer could probably save $100k per year on lot damage, frozen batteries and cold-cracked tires alone.
You just can't argue with the Apple and Tesla retail model: this is what consumers want. What most of them have right now could be right out of Fargo...
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