RVBusiness March/April 2025
Some positive news to report!
There has been significant movement in the amount of distressed inventory on dealers’ lots over the past several months. The amount of inventory over 360 days old has decreased from 19.4% of the average dealer’s inventory in December of 2023 to 15.0 % as of the end of 2024. Over the same time period, the average dealer’s new unit turn has increased from a sluggish 2.1 to a more respectable 2.5, and the top 20% dealers are running at an impressive 2.9 annual turn. These numbers signal strength in the industry, a return to normal stocking levels and, for many dealers, the end of crisis selling as a way of doing business.
Yet I still see many sales departments routinely posting low margins across the board. When I question why, there really are only a handful of common reasons, once you boil them down: “They had a price from the internet.” Or, “We needed to dump that piece.” Or, “We thought we’d take the deal and have a run at the back.”
I am not going to discount the validity of these excuses – they probably did have a price from the internet, you may well have needed to lower inventory, and the allure of F&I profitability can often change the perception of a deal. But does any of that mean that we need to immediately drop all the value-building sales practices and processes that we know work and drop our pricing to the bare minimum margin instantaneously? I’ll be the first to agree that the aggressive price marketers out there tend to lower the pricing bar for all dealers, but none of that stops us from being great at building margin in our company, our people, and the menu of products we sell.
This is starting to look like an accelerating market – maybe not a speedily-accelerating one, but an improving market nonetheless. There may be some difficult times yet for some dealers, but many have turned the corner to better inventory positions and have earned the right to increase margins after a couple of very difficult years. It’s time to start weaning salespeople off of the margin crushing sales programs of minis, flats, and spiffs and get back to the virtuous cycle of building value and holding gross with variable pay systems.
When understood and implemented properly, commission sales pay plans incentivize salespeople to build value in themselves, in your dealership as a service provider, and in the products you sell. Customers catch the enthusiasm, see extra value – even if they have (of course) been shopping prices – and they pay more. They are happy because they perceived more value and bought it, the salesperson is gratified because they are compensated for that extra value creation, and the dealer is surely happier with the additional gross. It’s a win-win-win situation, with the dealership and the salesperson working together to optimize the value for the customer. Think about it … who are your happiest customers? I can bet it’s not those who paid the lowest price.
Flats and minis, however, disrupt this virtuous cycle. Rather than rewarding salespeople for building value, they reward selling a price. So, the minute the customer raises the flag that they have seen pricing on the internet the salesperson immediately focuses on that. And why wouldn’t they? If there is a special program or an excessive mini on the unit in question, it might just be easier to get in league with the customer and get that price – whatever it is – approved at the sales desk than it would be to slow down and build the value it takes to get to a decent margin. Weak sales managers, lured by the possibility of F&I profit, often take the bait and voila … another low-gross deal is born.
I am not suggesting that there isn’t a place for special incentive programs for old-age inventory. Indeed, there often is. My suggestion, however, is to consider variable plans for even distressed inventory and – in an improving market – to slow down the impulse to create flats and minis on regular merchandise. It’s time to sell the old-fashioned way, by building value and creating excitement in our products and services. Let’s reward value creation, not price-matching.