Car Salesman Salaries (How Much You Can Really Get?)

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How Do Car Salesmen Make Money?

Car salespeople play a vital role in the automotive industry, but understanding the full scope of their compensation and the legal rights surrounding their pay is essential.

As an employment-focused law firm, we aim to highlight the legal aspects of car salespeople’s compensation, including potential disputes and protections under the law. From commission-based pay to salary disputes, car salespeople often face unique challenges when it comes to their employment rights.

Why This Information Matters for Car Salespeople

Car salespeople operate in a commission-driven environment, which can create complex pay structures and potential legal pitfalls. Understanding compensation rights is crucial to ensure that salespeople are receiving fair pay, proper benefits, and are protected under employment laws.

This article explores how car salespeople can navigate compensation issues, employment contracts, and commission disputes, providing insights into legal protections available to them.

Car salesmen typically earn their income through a combination of base salary, commissions, bonuses, and various incentives. The structure of compensation can vary significantly depending on the dealership and the individual's performance.

Overview of Car Salesman Compensation

Car salespeople typically earn money through a combination of base salary, commissions, and bonuses. Understanding how these components work together is crucial for employees in the industry.

Range: The average base salary for car salesmen in the U.S. is approximately $38,802 to $54,827 per year, with some reports indicating an average around $55,811 annually [1].
Entry-Level Salaries: New salespeople may start with a fixed salary for a few months before transitioning to commission-only pay plans.

Commission Structure

Frontend Commissions: Salesmen typically earn 20% to 40% of the profit made from each car sale. For instance, if a car sells for $25,000 with a gross profit of $1,750 after deducting dealer costs, a salesman might earn around $350 to $700 per sale depending on the commission rate.
Backend Commissions: These are earned from additional products sold (e.g., warranties or accessories), usually at around 5% of the total price.

Bonus Structures

Monthly Bonuses: Many dealerships offer bonuses based on the number of cars sold each month. For example: Selling 10 cars might yield a bonus of $250, while selling 20 cars could result in a bonus of $1,000.
Manufacturer Bonuses: Salespeople may also receive bonuses directly from manufacturers for selling specific models or achieving certain sales milestones.

Additional Compensation Factors

Sliding Scale Commissions: Some dealerships implement tiered commission structures that reward higher sales volumes with increased commission rates. For example: Selling 1-6 cars may earn a 20% commission, while selling over 16 cars could increase the rate to 35% [2].
Minis and Pack Fees: Sales involving vehicles that have been on the lot for an extended period (known as "minis") may result in reduced commissions. Pack fees (maintenance costs) are also deducted from commissions

Legal Considerations for Car Salesman Compensation

Common Legal Issues with Commission-Based Pay

Commission-based pay is often the subject of legal disputes in the automotive industry. Misunderstandings or lack of transparency about commission calculations can lead to conflicts between salespeople and dealerships. Salespeople should have clear, written contracts outlining commission rates, payment schedules, and performance expectations.

Rights During Training Periods

In some cases, dealerships require new hires to undergo unpaid or poorly compensated training periods. It’s important for car salespeople to know that minimum wage laws apply even during training. If a salesperson is required to work without pay, this may constitute a violation of federal and state wage laws.

Legal Protections for Commission-Only Plans

Salespeople who work on commission-only plans are entitled to certain legal protections. Federal and state employment laws require that minimum wage and overtime pay be guaranteed, even for those on commission-only structures. Salespeople who aren’t receiving these protections may be entitled to compensation through legal action.

What is a Draw Check?

A typical draw check is a minimum wage at a 40-hour workweek, no matter how long the employee worked for the week. To entice a car salesman to apply with a dealership, the company may up the draw to $2,000 or even more. This flat fee acts as an advance against future commissions.

Previous commissions a car salesman earns from the month before are usually paid around the 15th of each month. The dealer will calculate the accumulated total commission, bonuses, and spiff money. The draw amount, taxes, and other deductions will then be subtracted from the balance.

Key Statistics on Car Salesman Compensation Disputes

Class Action Lawsuits:

In early 2018, 33 former salespeople from Rick Hendrick Chevrolet filed a class action lawsuit against the dealership, alleging fraudulent practices that reduced their commissions [3]. They claimed that the dealership misstated vehicle costs and failed to pay commissions on holdbacks and other incentives, resulting in earnings as low as the minimum guarantee of $200 per unit.

Document Fees:

A class-action complaint was filed against Parks-Michael Automotive Group, where plaintiffs alleged that salespersons were not paid commissions on dealer documentary fees (doc fees), which average around $599 in North Carolina [4]. Plaintiffs argued they were entitled to commissions on these fees, as they often had to negotiate prices to make sales.

Overtime Pay Disputes:

A notable case involved Tesla, which settled a federal class action lawsuit where plaintiffs claimed they were not paid minimum wage or overtime [5]. The lawsuit highlighted that Tesla did not qualify for the federal overtime exemption available to traditional automobile dealers, emphasizing the complexities of compensation structures in the automotive sales industry.

Written Compensation Policies:

Legal experts emphasize the necessity for dealerships to have clearly written pay plans. Changes to commission policies must be documented in writing, as ambiguity can lead to disputes over compensation.

Minimum Wage Compliance:

In California, commissioned employees must receive at least 50% of their income from commissions to qualify for certain exemptions from minimum wage laws [6]. Disputes can arise when salespersons claim they do not meet this threshold due to fluctuating commission structures.

FAQs

What should I do if I'm not receiving my promised commissions?

If your employer is withholding or miscalculating your commissions, you should first consult your employment contract to verify the terms. If the terms are not being followed, you may have grounds to file a wage claim or take legal action for breach of contract.

Are there legal protections for car salespeople working on commission-only plans?

Yes, federal and state laws ensure that even commission-only workers must receive minimum wage and overtime pay. If your employer fails to meet these obligations, you may be able to recover unpaid wages through a lawsuit.

How can a lawyer help with disputes over my car salesman salary?

An employment lawyer can review your contract, assess whether your employer is violating any labor laws, and help you file a wage and hour claim if necessary. They can also represent you in negotiations or court to ensure that you receive the compensation you are owed.

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References:

https://corecommissions.com/guide-car-sales-commissions/
https://carsalesprofessional.com/car-sales-commission-explaine-how-it-all-works/
https://www.autonews.com/article/20180212/LEGALFILE/180219956/hendrick-group-sued-over-commissions
https://www.carolinalaw.com/2018/02/failure-pay-commissions-automobile-sales-employees-north-carolina-wage-hour-attorney/
https://www.reuters.com/legal/tesla-accused-lawsuit-cheating-california-workers-out-wages-2024-04-05/
https://www.employers.org/blog/2022/02/17/default/written-commission-agreements-are-required/