Issue Date: Parts Manager Nov 2008, Posted On: 11/1/2008
Parts department pay plans in a tough market One of the forgotten consequences of commission-based pay plans for parts department employees is "what goes up, sometimes comes down, way down." Fluctuations in weekly paychecks aren't unusual in car dealerships and employees have learned to live with them. In a "normal" business environment, parts revenue runs within a fairly narrow range, fluctuations in pay are not dramatic, and, at the end of the year, parts department employees tend to earn approximately what they expected.
But what happens when business becomes abnormally slow, as it is now for many parts departments? Minimum wage laws set a floor under employee wages, but the fact is, people who are used to earning $40,000 to $50,000 a year or more, will not be able to make ends meet on half that amount. What options do parts managers have to get compensation levels to match business conditions?
The Parts Manager knows a thing or two about dealership pay plans since our parent company, DealersEdge, publishes a very popular two-volume manual on dealership compensation. In addition, we checked with some experienced parts managers to see how they are coping with current market conditions.
Don't cut pay Let's get a couple of things straight: first, cutting peoples' pay is one of the worst mistakes a business owner can make. Nothing good can come of it. People who have had their pay cut will become dissatisfied with their employers. Dissatisfied employees are the ones most likely to steal from the dealership or to vandalize dealership property. And dissatisfied employees create dissatisfied customers. Cutting pay is not a good idea under any circumstances.
Second, any change in pay plans will be perceived by employees as a cut in pay. So pay plan changes have to be approached very carefully.
With those ground rules, let's check in with some of your fellow parts managers.
Cut hours Scot Strong is the parts manager for a group of stores in Medina, Ohio. His dealer has already been through a couple of rounds of layoffs to the point where Scot says, "We are already running with a minimum staff level. It is difficult to cover all the hours we are open as it is, let alone covering for people on vacation or out sick. I think it is time for dealerships to cut back on our hours of operation. The manufacturers pushed us to extend our hours in order to compete with the independents. But we have found that the result was not more revenue, just more expense. Instead of cutting peoples' pay, maybe cutting hours would achieve the same result."
Scot Allen, dealer principal at Crestview Cadillac in West Covina, California, agrees. "Increasing the hours we are open does not necessarily lead to increased sales. I'll probably start by reducing staff hours first and then cutting back our service hours on one or to days. Like most dealerships, we have slow days. We don't need all four of our service advisors and all three countermen on those days. We're not there yet, but that will be our first move before touching pay plans."
Get staffing right So if you can't cut peoples' pay without jeopardizing the business, what are the alternatives? Let's go first to our trusty dealership staffing templates and look at a formula for deciding how many staff members are needed to run a parts department based on gross profits. This isn't as easy as it might seem. Here's the formula:
The guideline is $12,500 in monthly gross-profits-per-employee for a dealership without significant wholesale business or a body shop. So for a parts department with $62,500 in average monthly gross, you could have five total employees.
Who counts as a parts department employee? For purposes of this exercise, we are looking at the personnel count figure on your dealership financial statement. So the total staffing level will include the obvious positions like the parts manager and counter people. But you also need to take into consideration any "allocated" employees like accounting clerks and some fraction of the dealership's senior management. That's where those staffing figures like 6.35 employees come from. The example given envisions a relatively small department with a parts manager, three counter people/stockers, and one allocated person.
Anyway, use the $12,500 in monthly-gross-profits-per-employee as a staffing guide. Remember, it's a guide - not a commandment. So if your own dealership's needs dictate an extra staff member, that's OK. Just don't stray too far from the guides or you will get into trouble.
Once you have "right-sized" your parts staff, then what? Rationalizing your operating hours is a good next step. There is no point in having people standing around when there is no service department activity. You know best what the peak hours in your parts and service operation are. Schedule around those. If certain afternoons, like Saturday and Friday, are dead, schedule around those. Send people home early and save a little money.
Get staff input If top-down pay plan changes aren't a good idea, sometimes getting employees to offer their own solutions to severe business problems can help.
Call a staff meeting and present the reality of the dealership's situation to your staff members. Run the meeting as a brainstorming session and ask the employees what they would do if they were in the dealer/principal's situation. You might be surprised at the results. People are likely to know more about what's going on the business than you think. The company grapevine is a powerful communications tool.
While people are unlikely to suggest cutting their own pay, they may have some excellent ideas for cutting out waste and streamlining operations. Ask them!
Spiffs and spot bonuses can also be a good substitute for commissions after you take extraordinary measures like cutting back work hours. This approach also provides greater control over parts compensation.