I knew that my colleague had been a boxer, but I never thought I'd see him bobbing and weaving in a business suit, standing on stage and addressing an audience of car salesmen (I say car salesmen because the audience was 99 percent male).
Edmunds.com had been invited to speak at a seminar for car salesmen and when my colleague took the stage and began talking about Edmunds.com True Market Value® (TMV) pricing, the salesmen turned into an angry mob. Three or four guys were shouting at the same time.
"How am I supposed to make a living when you tell people to buy my car for $60 over invoice?" one guy yelled.
"Is it a crime to make $500 selling a car?" another guy shouted. "Is that a crime?"
Another salesman jumped to his feet. "If a customer brings in Edmunds.com prices, and we show them an invoice with something different on it, then we're the liars. You're making us look like liars!"
Watching from the back of the room, I had two thoughts. First, I was glad it wasn't me on stage. Second, I knew I was listening to an old debate. Car salesmen would like customers to be kept in the dark on pricing. That way, when they say, "Trust me, you're getting a great deal," the customer has to believe them. Instead, Edmunds.com has leveled the playing field by revealing the numbers: invoice and most importantly the actual average transaction prices that other consumers are paying for the same vehicle; we call this the True Market Value pricing.
But just when things were starting to get really testy, something unexpected happened. A young salesman stood up and told the crowd, "The perception is that the Internet is the enemy. That's not true. This is a wake-up call. It's actually the dealer that's keeping the money from us." The room, filled with the pent-up frustration of the car salesmen, suddenly erupted into applause.
Later, I asked my colleague, an Edmunds.com executive who had spent years working with dealerships, if he agreed that the dealers exploit the car salesmen. After all, it would help anyone buying a car to understand the power structure of a dealership.
"In some cases, yes," he said. "The system is all about control. The dealers control the salesmen — and the salesmen try to control the customers."
"But most dealers were once car salesmen themselves," I said. "Why would they do this?"
"Many dealers, generally acknowledging that the salesman will take the path of least resistance, keep the salesman in the dark and use them, much like a character in a play, in the role of 'consumer advocate,'" he explained. "Dealers used to comment that if the salesman really knew all the facts, they'd simply give away all the gross profit."
I thought back to my own days selling cars. The "green peas" were put out into the car lot to meet and greet the customers. Once the customers' fears and suspicions were calmed by this non-car salesman-type person, they were lured into a selling room. There, a seasoned "closer" would take over. The closer had to answer to a sales manager sitting in "the tower." This sales manager, in turn, answered to the general manager and the dealership owner.
It was like the old story of how a man comes home in a bad mood. He yells at his wife, who in turn yells at the kids. The kids take it out on the younger kids until the youngest of the bunch has no one to turn on. So he kicks the dog. The car salesman, standing on the curb in front of the dealership, is like the dog that's been kicked by the entire system.
One example of the way salesmen are cut out of their commission is the dealer holdback. This was rolled out by the auto manufacturers about 10 years ago as a way for the dealer to sell a car at "invoice" and still make a profit. Since the dealer knew that, typically, two percent of the car's invoice price would be rebated by the manufacturer to the dealer once the car was sold, the dealer could sell the car at cost and still make money. Unfortunately, the car salesman won't make much of a commission this way. He will get what is called a "mini" — about a $75 commission because the holdback is generally not accounted for as gross profit.
"If I were running a dealership, I would pay my sales guys on the true gross profit," my colleague said. "It's the only way to keep good salespeople, by compensating them fairly. Furthermore, if they are being paid well, they can afford to do some marketing to attract new customers. That benefits them and the dealership."
What does all this mean for the consumer? Well, some dealerships have begun changing and are hiring — and keeping — a better sales staff. And those are the dealerships you should buy from.
"It's coming around now," my colleague continued. "When change first presents itself, people resist it. But then they come to understand it. And finally they embrace and leverage it. Dealers are beginning to see that they can adjust their practices, and it doesn't have to hurt their profit."
Some dealerships attract the top salespeople and are able to keep them while others "churn and burn" their personnel, continually hiring and training new people. If you shop at the former dealerships with the best salespeople, your sales experience will be more pleasant. For example, some new salespeople will balk when a customer asks to see the invoice. As one of the salesmen at the seminar put it, "A customer might ask to see the invoice not knowing that you will have to go and practically beg your sales manager for it."
Good dealerships are similar to any well-run company. It starts at the top and filters down. This means you can usually tell very quickly if you are dealing with a modern dealership where the salespeople will be upfront and honest. Sometimes, my colleague suggested, all that is needed to determine this is a quick phone call. "Are you transferred in midsentence? Do you feel like the salesman is herding cattle or attempting to meet your specific needs?"
My point in all of this is to show you that the guy you are facing in the selling room may not be the real adversary. He's probably a guy working very hard and long, long hours to put bread on the table. And when you make an offer and the salesman says, "I don't know...I'll go ask my boss," he probably is going to talk to a hardened veteran who strikes fear in the hearts of his subordinates. The average salesman isn't empowered to make real decisions and thus is largely controlled by the sales manager behind the big desk (the tower).
As one salesman at the seminar aptly summed it up: "Car salesmen are caught in the crossfire between our dealer and our customer."