Dealers In California May Be Forced To Change The Way Salespeople Are Paid

In a class action lawsuit filed on June 21, 2011 against AutoNation (Santa Clara Superior Court, entitled Lilly v. AutoNation, Case No. 1-11-CV-203569), attorneys are claiming that AutoNation is in violation of the California Labor Code by misclassifying commissioned sales reps as exempt from overtime and, in addition, issuing deduct vouchers post-sale for losses in commissionable gross due to repair or service costs incurred.

It’s standard practice in California to consider minimum wage as a “draw” against commissions. This hourly wage is only paid if the salesperson’s commissions for any pay period are less than commissions earned (ie. they would get the higher of the two amounts – commissions or hourly wages). Many dealers “settle up” at month end with the salespeople meaning the view the commissions/hourly wages on a monthly basis (versus a pay period). California labor law mandates that overtime be paid for any hours over 8 in a DAY, not by 40 hours in a week. (ie. If I worked 12 hours the whole week but all in one day, I would be due 4 hours overtime even though I only worked one day that week.)

We all know that salespeople work A LOT especially hungry ones. Many salespeople who aren’t making a ton of commissions will make sure they work a lot of hours to insure that they get a decent check in the first place. Of course a salesperson that is getting paid hourly too many times has a short lifespan within a dealership.

Now onto the deduct vouchers. Dealers in California pay commissions in one of two ways: upon approval, or upon funding. Most dealers pay upon approval. This is designed so that salespeople don’t have to wait forever to earn their paychecks and dealers don’t have to cough up minimum wage while the salesperson has unpaid commission vouchers pending funding. It’s also pretty common that grosses decrease post-sale for many reasons: a dealer has trouble with funding and/or has multiple approvals, spot-deliveries based solely upon credit, repairs and due bills completed post-sale, unforeseen bank fees, option contracts cashed in, back-end product cancellations, etc.

Typically, since vouchers are issued upon approval, those vouchers are issued based upon the gross at the time of delivery and/or approval and included in the salesperson’s check for the next pay period. If dealers cannot issue deduct vouchers for loss in gross, this will force dealers to restructure pay plans as something that was spot-delivered with a high front-end gross that gets cut back due to financing issues or any of the other reasons mentioned above, could go from a nice voucher for the salesperson to a mini. If the dealer continued to pay in the way that they are now, and could not issue deduct vouchers, they would risk losing money by issuing commission vouchers prematurely.

Then you have to consider that a sales manager would be forced to structure the deal differently taking into consideration potential cut-backs to take into account the future inability to issue a voucher. The only way to structure a new pay plan without risk to the dealer would be to issue the voucher upon funding which would open the dealer up to the possibility of having to pay the salesperson hourly wages (including overtime), while the salesperson had unissued commission vouchers pending funding. A salesperson who knew how to game the system and/or a passive F&I manager could further complicate things while awaiting stipulations from the customer.

In any case, dealers in California need to watch this pending litigation carefully as it could have a great impact on how they compensate their sales staff and, if the lawsuit is successful, would open up ALL dealers in California to future lawsuits for the same reason.

Right now, AutoNation is the only target, but your dealership could be next.

(Originally published on Dealer magazine, July 22, 2011)

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Comment by PAUL MARR on July 29, 2014 at 11:35am: I have been a commissioned sales professional for 30 years. If I had to say one thing about how we are compensated it would be that draw verses commission sucks. It effects you commissions and is a hindrance rather than a benefit. I have never gotten up and went to work with the desire to make minimum wage. I am motivated by no income ceiling the desire to succeed and driven to generate the income I deserve. Draws are like unplanned expenses or loans that we don't want nor need. As sales people all we can control is our destiny and the reward of our efforts. We have no control over bank funding and dealers inventories, accountables, or how dealer operate their inventories processes.

Personally I prefer a small salary with a little less commissions with targets and
incentives to earn more by producing more. I have worked with pay plans such as this and it works well has there is no payback over draws and the consultant getting what they earned. Today’s times dealers are always adjusting the cost of operations and the packs are excessive by most new car dealers. Then there
The hours salespeople put in to succeed is a factor in their own work ethic’s . I personally do not know any high achievers that does it by working a 40 hr work week in any business. We do get what we put into it!!
Laws and insurance require we be clocked in and a way to offset some of this is a salary that covers the states min . wage requirements and avoid overtime compensations.

I also believe that manufactures should compensate sales people on every vehicle they sale.

Comment by Leonard Buchholz on July 25, 2011 at 10:59pm: How do you find the "Best?" Or would you say the "Best" find themselves?

I'll take two examples. Look at Joe Girard...no where in his story will you find him saying that he was paid a salary...he earned every penny. He did not follow the rules in regards to how others thought he should run his sales business...but he did make a few new rules and "found himself."

The second example comes from the sports world. This man currently is not the same man he was 10 years ago...Tiger...but if you asked anyone what his routine was like 10-15 years ago...it was legendary. 4 hours a day hitting balls, break, 2 hours putting different distances and then he worked on his short game.

Now some here may say "Hey...he's Tiger Woods, and of course he makes a lot of money." He didn't always.

Joe Girard did not become the greatest Car Salesman in one day...he went out there and put himself in front of people without a salary...without anything more than his willingness to do what it took to become the best.

Take any professional athlete, male or female...ask them do you have a "pay me for my time" mentality...it doesn't exist.

Any professional Salesperson does not have that mentality either.

Now I'm not saying that reform is not needed in our industry...it is.

But the Salesperson who decides to become a Professional...study their craft...read...practice...try....try again...and again...until they get it right...they don't want a Salary...and they will give a better experience to the Customer, and keep doing it over and over because that is the only way they know how.

Professional Sales people take the time to learn their business.

Fran says "Sales people want to sell and get paid for it."

No truer statement than that.

Comment by Fran Taylor on July 25, 2011 at 8:01pm: A lot of good info here. The dealers will have a good bonus program if the law changes. This will keep the good sales reps. I think just paying a sales rep a salary is like Saturn with there one price selling. It doesn't work. Sales people want to sell and get paid for it. There is no incentive to hold gross , do mailers ,demo , service walk , follow up , and so on if you pay an hourly wage. Good sales reps can get a job any where and will go where the money is. It all starts and ends with sales so lets make sure we take care of them.

Comment by Arnold Tijerina on July 25, 2011 at 3:50pm: I agree that salespeople are minimalized when considering the success of the dealership as a whole, the focus is on a "warm body" and paying the least amount possible with the most net. I even see sales managers cannabalize front-end grosses to reduce vouchers since they get paid on all deal gross (net sales dept profit). Ive seen them structure deals heavy in the front and shift the gross to the back.. etc. I see dealers slap a $20k dealer markup on a hot expensive car then make the commission a flat since they dont want to share any of that held markup with the salesperson.. it's crazy out here

Comment by Jim Kristoff on July 25, 2011 at 3:47pm: Arnold.....this statement that you made here..."This can't be isolated to just California, however. Dealers seem to see salespeople as an easily replaceable commodity which is why, in California at least, the newspaper is filled with employment ads for salespeople "NO EXPERIENCE REQUIRED".......is EXACTLY why the model needs to change!

How can Dealers grow their business and their reputation by hiring the inept?? These "greenpea" salespeople help build the Dealers business....or do they tear it down??

The time has come for the model to change!

Train and pay people for professionalism!

Comment by Craig Darling on July 25, 2011 at 3:41pm: No Charge backs to the sales people, unless they promised something not set up. A sales manager has the information to close the deals so this does not happen on the front end. Stips and bank fees should come from the back end gross. I sometimes can not believe the short sightedness of some in the business.... Good Salespeople are to hard to come by to screw with their family budget. I was part of the Autonation team when they first started out.... those meetings were hell. All of it about figuring out how to pay the least amount to managers and sales people. It was horrible.... me sitting there, proud of my team members making 10 - 15 K monthly because they worked hard, and corporate types telling me they were only worth 3 K monthly with managers being worth 5K.... If Autonation is a loser here, it won't hurt my feelings at all.

Comment by Arnold Tijerina on July 25, 2011 at 3:38pm: Sue, I agree with you in that salespeople should be compensated appropriately. That being said, California dealers have a very high turnover in sales staff for lots of reasons. This can't be isolated to just California, however. Dealers seem to see salespeople as an easily replaceable commodity which is why, in California at least, the newspaper is filled with employment ads for salespeople "NO EXPERIENCE REQUIRED".

Mike, I don't know if that claim is based upon the lawyer's clients or in general. I know that in my personal case that wasn't true. Far be it from that. I can't remember ever getting an hourly check although I knew plenty of salespeople that did and these were mostly the ones that made sure they worked a ton of hours in a pay period to insure a decent check. I doubt it's true but the attorney must have some data to back that claim although we know that any data can be skewed. If you take into consideration every car salesperson ever and include the ones that worked at dealerships briefly (one or two months) that never sold cars before, tried it and were not successful for whatever reason, i could see the data possibly supporting that claim.

Comment by Levi I. Arevalo on July 25, 2011 at 3:30pm: Commissions are an archaic form of compensation that need to be eliminated. Salaried workers with reasonable quotas would be more adequate. The difference between Circuit City and Best Buy was just that. Best Buy employees were given an hourly wage and Circuit City were commissioned, people always had a better shopping experience at Best Buy than they did at Circuit City. The dealership I work at is doing the salary route and when customers find out they become more pleased because they feel there is less pressure on them to buy, and can consult the salesman on any of the questions they may have. Overall, the shopping experience is better and we get more referrals because of this.

Comment by Mike Bowers on July 25, 2011 at 3:28pm: Thanks, Arnold.

It looks like the available information about the case comes directly from the law firm representing the sales reps.

Buried in there is the claim that the sales people earn less than half their income from sales commissions on a weekly basis. Can that be right?

Comment by Jim Kristoff on July 25, 2011 at 3:28pm: I believe the "NEW" model of automotive sales professionals need to be compensated in this way.

1. Salary - (majority of their pay)

2. Small volume bonuses - (both individual and team)

3. CSI Bonuses - (both individual and team)

The "NEW" model emphasizes a professional person. One that works 45 hours per week. Is extremely proficient in their job and is hold highly accountable for building a strong relationship with the customer so that the Dealer can then retain this customer for life.

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