Sales force turnover has long been a stickler for dealerships, and it continues to be so in our post-recession environment. Survey results recently released by NADA University, the education and training arm of the National Automobile Dealers Association (NADA), reveal that about four out of every 10 dealer- ship salespeople leave their jobs each year.
What’s more, the annualized average national turnover rate for sales consultants in 2011 was 39.6%, per results of the 2012 Dealership Workforce Study. The study was based on 350,000 payroll records submitted by nearly 2,400 dealerships nationwide.
Here are seven ways to boost the retention rate of your sales staff:
1. Check references carefully. Past behavior is the single most effective predictor of future actions. So make sure that you know how past supervisors view your candidate’s performance. Even if your applicant is coming from a field other than sales, get a grip on whether the person has those transferable qualities of intelligence, problem-solving, resiliency, reliability and persuasiveness. And don’t be afraid to ask about counterproductive work habits.
2. Consider aptitude testing. Auto industry publications often carry ads for companies offering sales aptitude tests, and you also can find providers of this service online. Aptitude tests aren’t the end-all to finding the right employees for your showroom floor. However, they are a tool that you can use along with references and background checks to find out whether the candidate is suited to the job. While it won’t reduce your turnover to zero, prehire testing can help slow the revolving door.
3. Compensate competitively and fairly. Consider the whole package — base pay and commissions, health insurance, retirement plans, vacation time and other benefits — and how it stacks up against your competitors. You can often find industry compensation study data, as well as 20 Group information, through your local dealership association — or your business advisor can help you track it down.
Find a commission structure that works for your dealership, making sure that the monthly goals and related bonuses are attainable. And keep the “carrots” in line with selling a high-end product. Also, if your salespeople miss the minimum one month, don’t charge them back on next month’s paycheck. Set a positive tone at the beginning of each month.
4. Give them time and support. “Born sales- men” are few and far between. So you’ll need to show patience as new salespeople get up to speed. Monitor your rookies carefully and make sure they get all of the tools they need to succeed. Remember, no one likes a bucket full of criticism without at least a spoonful of praise — encourage each sales staffer’s strengths as you develop them.
5. Don’t overwork them. Give your sales staff a reasonable schedule with adequate time off. If your dealership is open every evening as well as Saturdays and Sundays, make sure that you rotate hours to give everyone a schedule they can live with over the long haul.
Don’t make eight-hour days the exception, and don’t call in staff for sales meetings on their days off. This may be a challenge for dealers because, according to the NADA study, “There appears to be a strong correlation between dealership sales hours and new-unit sales.”
6. Insist on equitable treatment. Do your managers give each salesperson a “fair shake” and the chance to succeed? Do they justly hand out perks and privileges, such as customer leads, weekend days off and pay raises? Does each member of the sales team feel appreciated for what he or she accomplishes? Hold your sales managers accountable for the attrition rate in their department.
7. Analyze attrition. Every time a salesperson leaves, you gain the opportunity to find out why. Exit interviews can be invaluable information providers. Or, for a less confrontational method, ask departing sales workers to fill out a written survey.
In addition, keep a scorecard to measure your attrition rate. As you review the scorecard along with data gathered from exit interviews or surveys, ask yourself what part of attrition is controllable and what part isn’t.
Turnover is the name of the game
Among the stickiest wickets facing any dealership is proper inventory management. Supply and demand trends yo-yo as the economy fluctuates, consumer buying power ebbs and flows, and factory gluts and shortages strike. Let’s look at a few common inventory challenges — and some ways to overcome them.
Risk and challenges abound
Turning over your new-vehicle inventory eight times a year (sometimes considered
the optimum rate) means keeping a 60-days’ supply of new vehicles at your dealership and a 15-30 days’ supply on order. But sluggish sales, being unable to select the vehicles you want, and changing market preferences can impede that goal.
Nonetheless you must diligently pursue your turnover objectives, because the risks of excess inventory are great and include:
- Floor plan interest and over- head costs (car washes, storage and so on)
- Lower margins (because of discounting prices to move units)
- The cost of lost opportunities — what your working capital could have accomplished if it weren’t tied up.
Conversely, if you maintain too little stock, you risk losing customers (missing out on sales plus future service revenue and potential loyalty). Frustrating your sales team is another danger.
Management strategies to the rescue
A wide variety of software packages are available that help manage inventory, and some include online marketing functions. Such tools can provide the data your sales managers need to make sound decisions, but they’re no replacement for strong management in the first place.
Your managers must know their markets (what sells well and when) and stock accordingly. Here are some suggestions for helping them meet your dealership’s turnover goals:
- Be mindful of historical trends — successful managers retain an accurate record of which units sell at specific dates throughout the year.
- Create and monitor benchmarks after analyzing your store’s historical trends.
- Establish lead time reports to understand how long it takes to replenish the inventory.
- Develop a give-and-take relationship with factory reps — this will be their best shot at getting the desired inventory.
- Provide sales incentives — it’s easy for salespeople to overlook aging inventory, so managers need to incentivize their sales teams to move older product.
- Rotate what’s being promoted — don’t keep the same vehicles on the roadside or in the showroom.
Managers should adjust orders as necessary. Don’t be afraid to reduce orders and lose an incentive if certain vehicles aren’t selling.
Moving, moving, moving
Inventory is only valuable as long as it’s moving. Stock for profitability and empower your managers to make the right moves at the right time.
2013 might be a good year to gift your dealership
Ah, peace of mind at last. The American Taxpayer Relief Act of 2012 (ATRA), signed into law this past January, finally brought some certainty to estate planning. ATRA makes permanent high exemptions while increasing the top estate tax rate by only a relatively small amount compared to the jump that had been scheduled to take effect this year.
If you have heirs, this newfound assurance — combined with dealership values likely to rise in a healing economy — makes 2013 a logical time to consider gifting ownership interests. But you’ll need to take the following actions before coming to any conclusions.
Size up your tax position
This year, you can gift up to $14,000 (up from $13,000 in 2012) per individual without incurring federal gift taxes. Unused annual gift tax exclusions can’t be carried forward to future years. But you can gift more tax-free if you tap into your $5.25 million lifetime gift tax exemption.
Your dealership’s appraised value determines how many shares of stock (or partnership units) you may gift tax-free. Any transferred value exceeding your available annual exclusion and lifetime exemption is taxed at federal gift tax rates currently at 40%, or, in the case of a gift to a grandchild or someone else two or more generations below you, a much higher effective rate — because of the generation-skipping transfer tax.
Check your dealership’s value
When valuing a dealership, business appraisers consider various factors, including:
- Financial performance
- Market saturation and competition
- Brand strength
- Franchise-imposed transfer restrictions
General market conditions and the industry outlook also factor into the equation. Auto sales reached a postrecession high of about 14.5 million in 2012, according to automotive information providers Edmunds.com. And auto sales are expected to reach 15 million this year, fueled by an increasingly aging fleet, a host of new models in popular segments, more widely available credit and an expected upswing in the leasing market.
But the auto industry isn’t considered out of the woods yet, mainly because of the slowness of the U.S. economic recovery. The recession resulted in decreased cash flow, increased perceived risks and diminished liquidity, and dealership values haven’t fully recovered. But a lower value means you can transfer a greater percentage of your business with the same gift dollars.
For example, say your dealership was valued (on a controlling, marketable basis) at $5 million before the recession but now is worth only $4 million. At the $5 million value, a 10% interest in your dealership would be valued at $500,000. But, at the $4 million value, a 10% interest would be worth $400,000. Ignoring discounts for lack of control and marketability, the $100,000 valuation differential would lower your gift tax bill by roughly $40,000, assuming the entire gift were taxable at the 40% gift tax rate.
Be GRATful for another tax planning vehicle
Do you plan to gift your dealership to your heirs, but see the appeal of receiving income related to that asset during your retirement years? If so, you might want to consider a grantor retained annuity trust (GRAT), which also can help you minimize gift and estate taxes.
Here, you transfer the dealership — or other assets, such as your dealership’s real property — to an irrevocable trust and name your heirs as beneficiaries. In turn, you receive annual payments over the life of the GRAT. At the end of the GRAT’s term, the trust assets pass to the beneficiaries.
The gift’s value equals the assets’ value less the discounted present value of the annuity payments, as calculated when the gift is made. It’s possible to plan the trust term and payouts to minimize — or even avoid — a taxable gift. (If you die before the end of the trust term, however, the GRAT assets will be includable in your estate.) Legislation reducing the benefits of GRATs has been discussed, so you may want to act soon.
Consider an FLP or FLLC
If you’re looking to hand over the reins soon, selling the business outright or directly gifting equity interests may be your best option. But if you want to retain control and gradually bring children into the business, consider a family limited partnership (FLP) or family limited liability company (FLLC).
Under these arrangements, you transfer your dealership to a limited partnership or limited liability company, manage the new entity as general partner or manager-member, and gift limited partner or member units to your heirs. Restrictions on the units limit the recipients’ ability to control the entity’s activities or transfer the units. (If an heir is also employed as a manager of the dealership, he or she may have significant control via the responsibilities of that position — not because of his or her ownership interest.)
Because the FLP or FLLC shares lack control and marketability, they’ll likely be subject to valuation discounts. Although the size of valuation discounts can vary significantly, it’s possible for discounts to reach (or even exceed) 40% of the underlying value of the transferred shares. So, for example, if a 40% combined discount were appropriate, you could transfer a $23,333 FLP or FLLC interest (which would be discounted by $9,333) tax-free to each child under the $14,000 annual exclusion.
Seize the day
Although ATRA stabilizes estate tax law by eliminating expiration dates for exemptions and rates, Congress could still pass changes in the future. In particular, there’s been talk of reducing the benefits of FLPs. Consider meeting with your tax advisor to discuss possible 2013 estate planning moves.
Plan now to take advantage of ATRA on your 2013 return
The American Taxpayer Relief Act of 2012 (ATRA) brings good news for businesses in many areas. Work with your CPA to determine what steps you should take this year to make the most of the act’s tax breaks. Here are a few key questions to consider in your ongoing 2013 tax planning:
Should you purchase property? ATRA restores the Section 179 $500,000 expensing limit and $2 million phaseout threshold through 2013. Sec. 179 allows your dealership to expense (rather than depreciate over a period of years) the cost of qualified new and used property placed in service during the year, up to the limit but phased out dollar- for-dollar above the threshold. The new law also extends the ability to use up to $250,000 of the $500,000 limit to expense the cost of qualified leasehold improvement property and retail improvement property.
Additionally, ATRA extends 50% bonus depreciation through 2013 (2014 for certain property). It can be claimed for qualified new property, such as computers, hoists and other equipment, placed in service this year. For maximum benefit, apply 50% bonus depreciation to assets in excess of what qualifies for the Sec. 179 deduction.
Should you make leasehold improvements? ATRA extends the quicker 15-year (vs. the standard 39-year) cost recovery period for qualified leasehold and retail improvements such as ceilings, nonstructural internal walls or security systems, using the straight-line accounting method, through 2013.
Are you open to new hires? Your dealership can claim the Work Opportunity tax credit if you hire someone from one of several economically disadvantaged groups in 2013. The credit is usually equal to 40% of the first $6,000 in wages paid to a new hire. Enhanced credits are available for hiring certain veterans.
Are you ready for a new market? The New Markets Tax Credit Program promotes private investment in dealerships and other businesses in low-income communities in 2013. A taxpayer may obtain a 39% tax credit, spread out over seven years, under this program. Consult with your tax advisor to see if your area qualifies.
Should you go green — or greener? A number of provisions relating to energy-saving improvements adopted by businesses, including dealerships, are extended for varying time periods under ATRA. The most common credit for dealerships is the production tax credit for facilities that produce energy from wind facilities, which is extended through 2013. This is typically done by installing a windmill.
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This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. ©2013 DLRmj13