I think egregious is a strong word to use when talking about such a general subject. Albeit the dealer you are talking about may be egregious, I do not think the percent or amount of the pack itself makes the dealer egregious. Many dealers use packs for different reasons and we have every right to. We are the ones paying all the overhead and taking al of the risk.
As long as we are up front with our staff on how we pay them and we adhere to that, it is nobody's business how much or why we pack our inventory. If a dealer were to arbitrarily start adjusting packs, because they feel their sales department made too much money on a deal, that is wrong. My point is I pay my people very well (we only sell used) and they always know how much their commission check will be and when they will get it, based on their pay plan. As long as I am consistently doing that, my employees have absolutely no right to ever question my pack. I do have no problem sharing it because I have nothing to hide. I do have certian items, such as buyers fee, clean up, warranty, transportation, etc. included in my pack and I have an additional $300 in true pack. My point is, if I wanted to have a $2,000 pack that is my business and as long as I do a good job of buying, I sell a good product for a fair price, and I pay my people the way I say I am going to pay them, no one has the right to question my pack.
If anyone would like to pay some of my interest or insurance expense, or take on some of the liability I have because some idiot thinks they have won the lottery and is suing me because one of my managers checked the wrong box on an odometer statement, then they can offer some input on how much I should pack my cars.
Don't mean to rant, but when someone calls a dealer egregious based on the percent that they packs their cars, it rubs me the wrong way.
I agree. You as a dealer have every right to determine what your compensation to salespeople and managers will be. I also realize that you cannot pay twenty-five to thirty-five percent net to the statement and stay in business.
I do think though that packs and unreal percentages just complicate things and give some people something to complain and kibbitz about. There is really no right or wrong involved just personal preference.
First let me give you my opinion then I will give you the state law in most states in the U.S. My personal opinion is that there are two kinds of packs ...cost packs that reflect real identifiable legitimate expenses that can be traced back to each specific car and are technically not really a pack, and what I call "jack packs". If you can track an expense to a specific car (buy fees, transportation, detail, recon, ro's from service etc.) then those aren't really packs...those are part of the calculation that makes up the cost of the vehicle when the deal gets capped out. Any thing that is assessed to a car deal that cannot be tied back to a specific car and/or invoice and reduces commissionable gross is a jack pack a.k.a. theft! (Not my words …the court’s words). Theft is simply defined as “knowingly taking the property of another with the intent to deprive them of it’s value”
It is totally defensible to pay yourself a buy fee for buying your own cars. It is not okay to rip a car at the auction and add an extra grand to the cost because why should you have to share your good fortune with the sales people.. It's totally legit to take some of the money from the ripped car and use it to 'fix' a few other cars in your inventory causing your cost on the ripped car to increase to a more market appropriate amount.
Asbury Automotive (at least in their west coast platform when they had one) was the worst offender. If we took in a trade w/ acv of 10k one day then the next day it would be in my computer for with a cost of $11,650.00 B4 the service department opened the hood and it went through the shop! After that there was a 600.00 sales pack on used cars before there was one dollar available as commissionable gross. The new car sales pack was zero on cars and 200 on trucks and SUV's (Ford store). Dan is right, when we bought our Chevrolet store I asked my sales people which they would rather have 35% commission and a $1,500.00 sales pack or 20% with a $500.00 pack or 15% with no packs and they get paid on everything (something like that) just for fun what do you think they voted to do?*** There should never be a reason to "pack" anything on the sales end...sure I know we pack everything in the store that stands still long enough to let us, from the warranties to pop and snacks in the vending machines and everything else in site. The point I am trying to make does not apply to those "fees" (environ. fee, shop supplies fee, management fee, owner fee, fee fee etc) With Asbury every single used car had those fees added no matter what, period! The rule was that the fees came along with an Asbury stock number! (Dent zone - $400.00, etch $250.00, appraisal fee $250.00 …you get the point)
Here is the fine line we as dealers walk. It's the line between a uniform, no exceptions management fee, and a 600.00 “sales pack”. Here is the distinction. The management fee is a legitimate expense. The sales pack is assessed to reduce the commissionable gross with no real unique cost to tie it too. Oh sure we say "it's what keeps the lights on" "it pays for all of this great advertising we do for you" etc. in the eyes of the wage and hour laws it is also referred too as an “unauthorized deduction” from someone's pay (no shit). "But what about the pay plan we have everyone sign telling them how we pay where they agree to the sales pack…. surely that protects us?”... No it doesn't… here is why. Most states (I don't know of any that don't) have a statute that says that an employee cannot sign away the right to not have deductions he hasn't authorized subtracted from his check, in Oregon it’s ORS 652.310 which is the wage and hour section of the law.
"(1) An employer may not by special contract or any other means exempt the employer from any provision of or liability or penalty imposed by ORS 652.310 to 652.414 or any statute relating to the payment of wages .... (ORS 652.360)
Here is what the courts say about what you can legally deduct and what you can’t:
"The wording of ORS 652.610(3)(b) is unambiguous. An item must fall within its strictures to be deducted under it -- that is, the employee's written authorization must be given, and the deduction must be recorded in the employer's books and must be for the ultimate benefit of the employee. Taylor v. Werner Industries 151 Or App 200,948 P2d 1260 (}997)"
Read the compensation agreement you have your salespeople sign, if it authorizes you to deduct sales packs as part of the calculation then it’s an unlawful deduction no matter what the pay plan says. In most states the right of an employee to not have any deductions made to his check unless specifically allowed by statute is a protected public policy and those statutes are all written to protect the employee from unscrupulous employers. Controlling case law in every state I looked at has a case where the higher courts have held that:
“The Courts will not enforce a contract that conflicts with a statute where the purpose of the statute is the protect the public
In other words the courts will not rule to enforce the terms of a pay plan that says you can deduct a sales pack or jack pack from the commission component of salespersons compensation.
Pay plans that authorize the employer to deduct things that are not real, or who’s only purpose is to reduce the commissionable gross and therefore the amount the salesperson is paid are an invitation to burn up a lot of time and money in court. This includes spreading finance department chargeback’s (of commissions that were paid to someone who is no longer working for the dealership) among the finance managers who do work there, is a big huge no no. Wholesale losses spread among the managers who are paid off the store gross but who had nothing to do with bringing about that loss also bad.
You are probably saying …”Great Roger we were only trying to compare packs among the people here, not to try and define the origins or efficacy of sales packs, jack packs, or tally whacks,” and to the salespeople here I say great! To the managers and dealers here I only want to reiterate the point I have written several articles on for a few different industry publications which is that packs are evil, they are the source of a lot of salesperson bitching and whining among themselves and can quickly sewer the attitudes of the FNG’s (fricking new guys), it reeks of penciling someone’s pay plan even the 99% of the time when we aren’t, and the sooner your pay plans can be re-written to eliminate that term the better off you will be. Is it possible that you could go 20 years doing things the way you are now with no problems …absolutely. But these ‘deductions’ don’t even usually come into play until someone has to leave the building, either by your choice or their own, and that’s when you open yourself up to more potential litigation over this issue and others than you can shake a stick at. The penalties for underpaying a former employee in his final check even by 1.00 are significant and accrue daily! A $1.00 (or more) underpayment due to the use of a jack pack or an unauthorized deduction of any kind at all will have you paying the underpaid wages plus the huge penalties plus his attorney fees along with your own. Want to see a dispute over $50.00 turn into $50,000.00 real quick ….keep packing those salespeople, and when you do get called on it, dig in and don’t take the cheap and easy way out by simply writing the check then if you feel strongly about it sue them to get it back and make sure your pay plans have a section called “payment of commissions in the event of termination” and “when commissions are considered earned and payable in the event of termination”
I had a front row seat to the landmark class action suit against Asbury et al. and the TAG where Asbury had their head handed to them and after several years of litigation in federal court (inclusive of appeals etc) and what must have been well over a million bucks in attorney fees made sure they settled the case before the 9th circuit created new case law on the paying of overtime to finance managers. Kaching!
***They chose to be paid 35% with a 1500.00 pack because they were all “so strong” and “gross monsters who didn’t know what the meaning of a mini was!” They voted to switch back to the standard 20-25% and a 600 pack 3 months later
Any conversation about packs should quickly segue into one about salesperson and sales management compensation. The biggest reason for packs is to control compensation percentages on the statement while allowing the dealer to show a higher percentage to the affected employee’s. It is much easier to attract some levels of talent at a stated commission rate of thirty or thirty-five percent as opposed to the actual rate net to the statement of ten to seventeen percent.
Dealer computations are all over the board in terms of how they structure this most prevalent of Jedi mind tricks. Some pack total invoice on new and some pack triple net and you will see everything in between. Most use a fixed dollar amount but some use a percentage of whatever base figure they are computing from. The advantage of a percentage is that it adjust for the gross opportunity and floats with price adjustments.
Some dealers disclose all of their packs and some do not. It is not uncommon to put hidden packs on vehicles purchased off site such as at auction and then add the disclosed packs to the already packed cost. On used vehicles you will find a plethora of very creative ways to pack the vehicles true cost. In addition to a regular pack some dealers will charge various fee’s for vehicle inspection and maintenance operations.
In the end if you are pumping iron and generating gross no one really cares about the packs because they are making money regardless. If you are not selling a sufficient volume at good grosses to keep everybody busy and enthused compensation always becomes problematic for some portion of the staff. It is usually the severely underperforming portion in my experience.
The ideal situation in my opinion is a professional staff that can see through the mind trick that packs and over inflated commission percentages are and then will accept net to the statement percentages based on all gross generated and other compensable criteria. Commission percentages should be both progressive and regressive based on performance over time. In evaluating performance you need to consider average volume, average gross, CSI scores, CRM activity and the percentage of self generated business. For managers there are of course other considerations like expense control and TO effectiveness.
Compensation including any packs should be well thought out and developed through an exhaustive process of what ifs and various scenarios computed to determine suitability and sustainability. Changes to compensation tend to be disruptive and emotionally charged and for that reason should be avoided if possible. I hope this helps and you will forgive me for telling you how to build a watch just because you asked the time.
Total Sales Commission Expense needs to be 18-20% of Total Sales Department Gross. Packs originated to exclude a portion of the gross from commission calculations, allowing dealers to lower and/or control their commission expense. I have seen hundreds of different "packs" based upon numerous different formulas, all designed for the same purpose.
Additionally, regardless of what you call it, a pack is still gross. Most dealers simply leave it in the gross column, pay their expenses and the leftover becomes Departmental Profit.
Thinking about packs made me remember a Nissan store I once worked in back in the early eighties. A Sentra with four holes and a pole, no breeze or tunes had a cost at the sales desk in excess of MSRP. We called the various packs "the McGumbo Package."
With a 2995 ADM you could still write a good commissionable gross but you had to work at it.
Our expenses (cleanup, trans, etc) are added into the unit, and the pack is put on top.
I agree with Marc about it being no one's business as to the amount of the pack.
Been in business almost 4 yrs, and have yet to pull any money out.
But I'm still putting money in - and the staff gets paid on time every week.
(along with the mortgage, utilities, insurance, curtailments, taxes, etc, etc, etc.)
If the salespeople don't like it, they can always work somewhere else.
Seems like the only people that whine about it are the underachievers anyway.
"Yea, screwed me again".
(this coming from a salesperson who just drove a car across the lot on a flat tire and ruined it)
No One!! was more long winded than I was .... and for that I am truly sorry. The attitude that "I can pack and jack however I want and it's no ones business but mine is crap in a commissioned sales environment. They say that the best time to sell a car is right after you just sold one for a reason. Sales people are smoking bundles of emotion and attitude and when they are riding the wave they can be unstoppable and when they are made to feel they are being taken advantage of or screwed by hidden or phantom packs they are as useless as tits on a boar. Deal the cards up (after the customer drives off). Good professional car salespeople are hunters or better yet fishermen... and they need to know there are big ones in the lake as well as 'mini's' once they figure out that for one reason or another every fish they will ever catch fishing in your lake are going to be little ones they will go looking for where the big ones are running. No one plays very long against a stacked deck and with salespeople the deck doesn't even have to be stacked ...they only have to believe it is