The Internet Drives Car Salesmen Off the Floor and Onto the Computer

Information changes everything. Buying cars used to be like entering the boxing ring. Car dealers controlled the inventory and all the knowledge about what was selling and how much flexibility they had on prices.

Consumers simply hoped they wouldn't get taken too badly after going through a series of predictable dialogues having to do with how much they could spend, what the salesmen claimed he could do for them, checking with his manager to see what could be approved and so forth.

Now, however, it is possible that no sales business has changed more dramatically than auto sales. Customers do all of their homework beforehand. They have up-to-the-minute data on features, prices, comparisons with comparable models, where in the world what they want might be available - and for how much. The dealership is simply the place where they go to pick up what they want. The salesman is no longer the master of the deal, but the clerk doing the paperwork to make it happen.

The result is, as the following article explains, that dealer margins are shrinking. Data has shifted the initiative to the consumer and with that initiative has gone pricing power. The question now is what auto companies will do about it. They could buy up the dealerships and probably be somewhat more competitive on pricing and margins, but the dealers and their employees have provided an important source of financial and political support over the decades that the auto makers would be wise to value beyond their mere place in the sales chain. Like so many other jobs in this economy, however, the nature of that work - and the way people who do it are paid for their efforts - is likely to change. JL


Christina Rodgers reports in the Wall Street Journal:

The Internet has been upending car sales for more than 15 years. That change is now coming down hard on the people on the front lines—converting them more into concierges than hand-shaking sales maestros.
A car salesman used to spend long days on his feet. Now he's becoming like everyone else—stuck most days in a chair in front of a computer screen.Customers are simply different today. They've scoured the Web for up-to-date price information and have probably made a decision even before showing up on a dealer's lot. The salesman doesn't have as much to do.

"The whole process of buying a car has been flipped flop from what it used to be," said Alison Spitzer, vice president of Spitzer Auto Group in Elyria, Ohio. "Today, customers find the car first, then the dealership."

Take Mia Morris, the new face of auto sales. The 30-year-old doesn't work on commission, isn't interested in haggling over price and spends more time online conversing with customers than on the showroom floor.

Her business card identifies her as "product specialist," and the low-key title matches her duties at Nissan of Manhattan. Instead of the hard sell, she says her job is more tutorial. "Everything is visible. It is transparent for the customers," she said. "It is more like trying to help them find the right car and make a smart choice."

Before price-information websites like TrueCar.com and Edmunds.com, dealers typically had the upper hand in negotiating a car's price, and often could score a healthy profit on a sale.

Today, buyers call or walk into a showroom already armed with a car's invoice price, competing dealer bids and discounts from the manufacturers, and can get updates on their cellphones while standing in the store. They can access online reviews of the salesperson and dealership.

That has led many dealers to eliminate commissioned pay, price new vehicles closer to their own costs and station more staff in front of computers, where they are rewarded for generating sales quickly and in higher volumes, rather than trying to talk a customer into buying a more expensive model.

According to AutoTrader Group, a research and marketing firm, the average car shopper spends more than 11 hours online researching cars and only 3½ hours offline, including trips to the dealership. Two years ago, the average time spent offline was more than six hours.

The economics is forcing some of the changes. Average gross profit on a new-car sale dropped to $1,283 last year from $1,531 in 2002, according to the National Automobile Dealers Association.

Average salary of a sales person rose to $63,800 last year from $45,940 in 2002, but that is only slightly ahead of inflation during the same period, said Ted Kraybill, president of DeltaTrends, a firm that studies workforce trends at car dealership.

Responding to such trends, Spitzer Auto in Ohio got rid of sales commissions three years ago, and now pays all its salespeople a flat rate for each car they sell and a twice-monthly bonus for hitting sales targets.

The chain also instituted a no-haggle policy, setting an advertised price and sticking to it. "The customers like it because they don't feel pressured," said Jeff Deisz, a 30-year-old salesman at Al Spitzer Ford in Cuyahoga Falls, Ohio.

"It doesn't make me seem as pushy, and I know what I'm going to make upfront," Mr. Deisz added.

Large dealership chains like AutoNation Inc.  AN in Your Value Your Change Short position are testing new ways of paying sales people because of shrinking per vehicle profit. Mike Maroone, chief operating officer of AutoNation, the largest U.S. auto retailer by number of outlets, said it is looking at a combination of salary and volume-based commissions, but "it is still too early to say where this goes."

At Nissan of Manhattan, where Ms. Morris works, signs facing the entrance tout the dealership's new approach with phrases like "no more commissioned sales people" and "finally, no more back and forth to see the sales manager."

John Iacono, co-president of Bram Auto Group, which owns the store, said: he was inspired by the simplicity of Apple Inc. AAPL in Your Value Your Change Short position 's retail stores."Why do we make it so complicated?" Mr. Iacono said. "In the last 100 years, automobiles have gone from near-horse buggies to almost driving themselves. And yet, the way they are sold hasn't changed."

Since the move, the store has increased sales, doubled its closing rate with customers and cut the time it takes to complete a sale to under an hour, he said. Now, he is working to overhaul the auto retail group's 20 other stores along the same lines.

The transition hasn't been without its challenges.

When Mr. Iacono jettisoned sales commissions, more than three-quarters of his sales staff left, he said. The store had to hire new people, and went outside the car business to find new recruits. Ms. Morris previously sold gourmet foods.

At other stores, dealers are allocating more sales staff online to deal with the growing volume of inquiries that now come in over the Web.

At Toyota  7203.TO in Your Value Your Change Short position Sunnyvale, a dealership located in the heart of Silicon Valley, about half the store's sales staff are parked in front of computers and "do nothing but wait on customers digitally," said Adam Simms, chief operating officer of the store's owner, Price Simms Auto Group.

Among his online staff is Stan Wolowski, 59, an 18-year veteran of the car sales business who spends most days emailing customers and responding to inquiries that arrive through the store's website or via car-shopping sources, such as Cars.com.

Occasionally, he'll converse with customers using online chat—a far cry from his days waiting for a showroom customer. "The guy walking onto the car lot is a dwindling end of the business," Mr. Wolowski said. "The heavy lifting is now done online and if you're not in that flow, you're not going to see the bulk of the business."