Dealer Gifting From Manufacturer -NADA Wants Equality Without Small Print
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By Martha Hindes and Steve Purdy
The Auto Channel
Michigan Bureau
Being an automobile dealer is tough work – but someone has to do it. The risks are great and rewards can be huge . . . or not. And, to complicate their lives, as a franchisee they have an often-troubled relationship with their franchisors.
The National Automobile Dealers Association traditionally comes before the assembled media at the Detroit Automotive Press Association each fall to talk about the important relationships of their 16,500 dealer/members around the country with both government and their main partners - the auto manufacturers. These relations have been divisive over the years and some issues seem perennial, particularly those around manufacturer control over the dealers’business decisions.
One of the biggest NADA complaints on Tuesday was aired before some 100 mostly auto writers by 2017 chairman and longtime Chicago area dealer Mark Scarpelli but aimed directly at auto makers themselves. It was: what can happen to both dealerships and OEMs when dealers get convoluted incentive programs. They are often not shared equally with different dealer bases and subsequently not shared equally with potential buyers. That’s a complicated, many-faceted program commonly referred to simply as “stair steps.”
If high-volume Dealer A gets the maximum incentive package based on previously higher sales numbers and expected incentive-boosted quotas rather than a less generous portion for Dealer B, with a more mom-and-pop clientele and a previously lower sales volume for example, there can be some unexpected fallout.
More favorable treatment for Dealer A means potentially more cash and the ability of that dealer to put deeper discounts on products. Besides jacking up short term sales for Dealer A and being a bit gnarly for Dealer B, it also can make potential customers who have done their homework do a double take, Scarpelli warned.
And most potential vehicle buyers now have thoroughly researched their planned purchase before setting foot in a showroom. If those incentive-based prices vary at different dealerships or on different days or aren’t offered on the chosen vehicle because of program restrictions, it can turn away customers.
Besides seeming unfair to some dealers who are the ones to work directly with consumers, it also is unfair to the customer in the market for new wheels, according to NADA. Their dealer members are the people who have worked at the grass roots level to build up a trust with consumers. And if customers lose that trust it also can diminish their perception of the brand itself and put the model and vehicle brand itself on a downward spiral.
At the same time, someone wanting a Tesla can simply go to the Tesla website with prices posted and order from there. That “what you see is what you get” simplicity and exclusivity hasn’t seemed to harm Tesla one bit with a consumer base that almost reveres the vehicle.
While NADA has been unsuccessful in wooing Tesla into its membership and forcing it to set up dealerships the way the rest of the North American auto market operates, perhaps that Tesla comment by an unnamed NADA executive tells more than just humor. Could it be wishful thinking and perhaps some reluctant admiration for a maverick that continues to brush off a century of selling success without the complications. We wonder about that too.
Perhaps the most noteworthy comment that came out of the NADA luncheon was meant in jest. Something about what will happen with Tesla when it runs out of billionaires to buy its cars.
Of course, buying a Tesla, the automotive brainchild and experiential baby of multi-billionaire Elon Musk between Trip-to-Mars developmental sessions, isn’t for the faint of heart. One simply doesn’t drive down to the corner dealership and plop down a hefty deposit to get in line for one of the perhaps 40,000 built each year, referring, of course, to the newest Model 3 electric sedan.
But that’s how the entrepreneurial spirit works in the realm of all-electric, eclectic, trend-blasting vehicles that for half a decade have denied its buyers the basic consumer experience of going into a dealership and, armed with a dozen hours of internet research, negotiating the right price for exactly the chosen car or truck.
We have often seen experimental attempts by automakers to institute a no-haggle pricing policy but they mostly go by the wayside. And, we often see hand-wringing and exasperation at profit-killing upfront incentives to move languishing models. But with these backroom deals, it gets even more complex.
Mr. Scarpelli spent much less time calling attention to political issues like the NHTSA rules that have required no-sale orders on car that have recalls that have not been addressed. It seems they cannot sell a car even if the recall is so minor as to compromise safety or drivability not at all.
© Martha Hindes and Steve Purdy