Decline of the Dealer

Mary Cerani has been selling Pontiacs and GMCs in Wilmington, Del., for seven years. She is one of Union Park Pontiac's top salespeople. Rather than alienating buyers with the hard sell, she listens and finds what customers want. That approach, not to mention a congenitally upbeat attitude, wins her plenty of referrals.

Her sunny disposition wasn't much help, though, when a customer showed up recently looking for a Pontiac G6. The man proved difficult the moment he called the dealership, Cerani recalls. He didn't believe the sedan got 27 miles per gallon, as advertised. He wanted interior wood trim and special wheels -- a custom order. And after taking delivery of the car, he said he didn't like the ride. Although mechanics could find nothing wrong, Cerani got him a replacement.

When the guy finally drove off the lot, Cerani tallied up the time spent: at least 12 hours, she figured, over many weeks. Then she calculated her commission: $100, or $8 an hour, $1.85 more than the state minimum wage. "Fortunately, my husband works," says Cerani, who is 51 and has two grown children. "If I had no other income, it would be very hard."

So it goes at auto dealerships from Wilmington to Walla Walla. Car sales staff get about as much sympathy as personal injury lawyers, it's true. But these days it's a tough way to make a living. The outsize commissions, small-town clout, and country club lifestyle are as dead as Oldsmobile (unless you're selling Lexuses or BMWs). Brutal competition has driven down dealer profit margins and sales commissions. Meanwhile, customers armed with Web-harvested price information have all but erased the salesman's tactical advantage.

Making matters worse, there are too many dealers out there. If normal economic rules applied, say industry insiders, the nation's dealer population of 21,000 (three-quarters of them Big Three stores) would be cut by at least 3,000. But state franchise laws prohibit manufacturers from winnowing their retail ranks, giving court protection to mom-and-pop businesses that might have vanished years ago. The fastest way to cut franchises is to pay them compensation -- a multimillion-dollar payout that the Not-So-Big Three can ill afford nowadays.

So even as Detroit's shrinking carmakers shutter plants, big dealers like AutoNation Chairman and CEO Mike J. Jackson say the automakers have many metro stores they don't need. And as Ford, General Motors and Chrysler try to reignite passion for their vehicles, they're losing much of their front-line force. Many salespeople are fleeing to more hospitable climes, including import stores. "I'm seeing a migration of capital and talent away from domestic dealerships that I have never seen before," says Jackson. "It has reached a tipping point in the last year."

Not so long ago selling cars was one of the best ways to make a living without a college degree. Talk to a car-lot veteran, and chances are he'll rhapsodize about the go-go 1980s, when earning $100,000 a year wasn't uncommon and tooling around in Cadillacs and Porsches de rigueur. The hours were long, but those willing to work into the evening were richly rewarded. At some dealerships, cash bonuses were handed out every day -- and often spent that night at local hot spots. Bert Sadler was 19 when he began selling Lincolns in the '80s. "I made $7,500 my first month," says Sadler, who until recently ran a Ford store in Wichita. "I had a pretty wild lifestyle. The life of a car salesman was glamorous."

It didn't hurt that the sales force held most of the cards. Since buyers didn't know what cars really cost, dealers could pad them with all kinds of options and keep thousands of dollars in markup. Unscrupulous salesmen did just about anything to close a deal. One trick was to say the dealer had misplaced the keys to the trade-in. While someone "looked" for the keys, the hard sell went on and on.

BUYER'S REVENGE

The car salesman became one of the most derided of American archetypes -- and provided rich fodder for fiction and film. Think Harry Angstrom, the adulterous Toyota-selling protagonist of John Updike's Rabbit books. Or Jerry Lundegaard, the slimy Oldsmobile dealer played by William H. Macy in Fargo, who in one scene sneaks in a weatherproof sealant to jack up the price.

Now consumers are getting their revenge. By spending half an hour on sites like Edmunds.com, buyers can find how much the dealer paid for the car, the cost of options, what consumers are paying in a specific region, and which models are available at various dealerships. Many consumers start negotiations citing the invoice price -- what the dealer paid -- and offer a few hundred bucks over that.

And when dealers are crowded into a three- or four-mile radius, it's only natural for buyers to play one store against another: Customers routinely show up with bid prices from crosstown dealers in hand. When Michael Logue, a 42-year-old software support specialist for IBM, bought a Ford Focus recently, he shopped four dealers in the Denver area before finding the right car at the right price. "There's a generation of people who don't like buying cars," says Logue. "To have all of this information on your desktop is huge."

If assertive customers aren't challenge enough, the automakers have cut sticker prices. That makes sense for manufacturers, which are trying to get sticker prices closer to what people really pay. It gives buyers a better way to compare Ford or GM cars to the competition, whose stickers more closely match transaction prices. But the move has whacked dealer markups by as much as 30 percent, putting more pressure on commissions.

Add it all up, and the arithmetic starts to look pretty dire for a car salesman. Say a vehicle sells for $20,000. Since a typical markup on a lower-priced domestic car is about 8-9 percent, the dealership has $1,800 to negotiate away to the customer, pay for overhead, advertising, maintenance costs, and sales commissions. If the buyer negotiates away half the markup and the dealership keeps $300 for its costs, the salesperson takes 20 percent of the $500 that's left. That's a $100 commission.

Honda, Toyota and Nissan dealerships are getting hit, too, although the damage is often less severe. At Metroplex Toyota, south of Dallas, Wesley Rust has watched his income fall from $140,000 in 1999 to $94,000 this year, despite selling the same number of cars. He says the markup on a Yaris subcompact is $339. He recently spent four hours selling one and made a commission of $84. "I don't care if I sell this car or not," says Rust. "I don't even want to sell it."

The squeeze is hurting Big Three dealers the most. Ford, GM and Chrysler stores sell an average of 500 to 600 cars a year. Compare that with 1,100 per year at Ford stores just five years ago. So even as commissions fall, salespeople are selling fewer cars. It's easy to see why Cerani figures her annual income will be down almost $15,000 this year, to no more than $50,000.

See the Biggest Car Dealerships in the U.S.

Is it any wonder Big Three salesmen are retiring or joining the competition? Paul Runkle sold American cars for 35 years in Greensburg, Pa. His father was a Ford dealer, and until last year he never sold anything but domestics. But when his income fell from $65,000 to less than $40,000, Runkle left the Pontiac-Buick store and joined a Honda dealer. He figures he'll get back above $60,000 in the first year. "If my father saw me," says Runkle, "he'd roll over in his grave."

In recent years thousands of travel agents have gone under in the face of online competition. While the franchise laws preclude such a far-reaching revolution in the car business, industry watchers expect the Web to play a larger role over time. Under one scenario, says Edmunds.com Inc. analyst Jesse Toprak, buyers would work out the numbers online, then visit the dealer, where a salaried customer service agent would arrange financing and close the deal.

That's a long way off. In the near term a wave of consolidation is more likely. Ford and GM are trying to get big, healthy dealers to buy weaker ones. Theoretically, those left would post bigger profits and pay better wages. Mark LaNeve, GM's marketing chief, insists "the good dealers and sales people are making money." In some cases, yes, but until the shakeout comes, Cerani and her kind will continue to struggle -- or get out of the car-selling business for good.