How Much Does a Car Salesman Make?
Interacting with automotive sales reps is probably the most painful part of the car buying process for just about everyone. But alas, it is this part of the car buying puzzle that is all but inevitable. Spending a few hours, or sometimes a large part of your day, conversing and dealing with a car salesperson can be a daunting task. No one likes to do this. I can assure you , they are not all bad, as you may have experienced.
Cut them some slack when you can. I know the perception is that they make a ton of money off of you, but that is not always the case. The instances where a car salesman makes a great commission are few and far between. For a lot of car salesman they’re struggling to earn a living month in and month out. They normally have to be at it for quite some time before they master the skill of selling cars.
Let’s take a moment and look at where most car salespeople land when it comes to making money selling cars. It honestly lies on an individuals abilities and willingness to deal with customers, co-workers, management, and long hours.
A Brand New Car Salesman
Starting out, most dealerships will pay a guaranteed salary for the first 60-90 days. It’s usually around $2,000 a month. After the 60-90 day period, the guarantee turns into a $200 – $300 draw against their commissions. If the salesman makes more than that, then they typically are allowed to keep the extra money. Although most new car salesman don’t make more than the guaranteed amount. Let me explain why.
When you’re a new car salesman you’re generally paired with a veteran or mentor to help you learn the process. This mentor doesn’t work for free, but they help you make money. If the mentor helps you with a customer, they will get half of the commission. What was that? How much is half? I’m glad you asked.
New Car vs. Used Car
The pay plan for car salespeople will vary slightly between the different dealerships, so this is not set in stone. The average pay plan works on a tiered system like this:
Tier 1 – When you sell 1-7 cars in a month you make 20% of the gross profit of the sale.
Tier 2 – When you sell 8-15 cars in a month you make 25% of the gross profit, plus an additional $500 bonus.
Tier 3 – When you sell 16-25 cars in a month you get 30% of the gross profit, plus an additional $1,000 bonus.
On a new car the profit is counted as anything over the invoice price of the car. These days very few people pay over invoice price on a new car. When this happens, most dealerships pay a flat rate of $100.00 Most new auto sales reps sell 8-10 cars in a month, most of the sales are new cars and some of the commissions are split with the mentor.
Yes, that’s right. A car salesman can spend five hours with you and make $50 – $100 dollars
Now for used cars it gets a little better. Everything is the same, except the salesman has a better chance of making money by holding onto more gross profit. Let’s say that the dealership owns a car for $12,350. That includes all of their costs to get the car certified and ready for the used car lot. They may list the car for $15,999. After negotiations, the car gets sold for $14,350. That leaves a gross profit of $2,000. If you’re in Tier 1, you would make $400 for the sale.
As a car salesperson, you want to have a good mix of new and used car sales each month. Let’s look at an average scenario for 12 cars sold in a month:
8 new cars sold @ $100 each = $800.
4 used cars sold @ $400 each = $1,600
Tier 2 bonus for selling more than 8 cars = $500.
Total for the month = $2,900
Total for the year = $2,900 x 12 = $34,800
There is a flip-side to this coin. Dealerships will also offer spiffs or bonuses throughout the month when you sell certain vehicles that have been on the lot for a while or if you sell three cars in one day. These bonuses can get you up to another $200 – $600 a month. The car salesman can also earn bonuses that are available from the manufacturer for good sales performance. They are normally $50-$100 per car for having a good CSI (Customer Satisfaction Index) score. These CSI bonuses are normally paid quarterly. If that doesn’t seem like a lot of money to you, then it probably isn’t. In most demographics it’s not. This is why so many people get frustrated and leave the car business. They can’t see the forest because of the trees.
The car business is just like anything else. The more you work at it, the better you get. Оnе nееds tо hаvе аn undуіng раssіоn аnd іnсlіnаtіоn tо ехсеl and lеаrn nеw skills. Ѕоmе оf thе оthеr аttrіbutеs оf а good car salesman is the аbіlіtу tо tаkе rејесtіоn аnd ехсеllеnt vеrbаl аnd wrіttеn соmmunісаtіоn skіlls. Once you’re at it for a few years, you’ll find that you’re in Tier 3 every month and the monthly check is a lot better. You’ll also be having a lot of fun and your customers will be sending you referrals. It just takes a certain amount of fortitude to get through that long learning curve.