OEM Incentive Programs Return
Adapted from GCADA Newsletter
Well, we guess it was inevitable, and frankly, we didn’t believe them when they said it, but it appears that the OEM’s newfound manufacturing discipline may be showing signs of cracking.
One trickle-down effect of the lapse in resolve is the apparent reintroduction of incentive ghosts from the past.
Recently, Automotive News reported Ford Motor Company has rediscovered stair-step incentives as it looks to move the 2023 F-150 inventory. According to the story, incentives pay $750 per vehicle if a dealership reaches its target and $1,000 per vehicle if it sells 120 percent of its objective.
To be fair, Ford is not the only manufacturer to have ever engaged in the practice and these types of programs have been a thorn in the side of dealers for a long time. Back in September 2012, NADA kicked off a national print ad campaign that detailed many of the negative aspects of these programs. A full-page advertorial titled "Incentive Programs are Bad for the Auto Industry" was in published in Automotive News. As the piece stated, then as now, stair-step programs “harm brand credibility; hurt dealers of all sizes; undermine relationships between dealers and their customers; have an adverse effect on CSI scores; and destroy consumer confidence in dealers – and in manufacturers’ brands.”
Through the ensuing years, stair-step programs remained a continual topic. A major competitive problem, particularly in the age of the internet and, of course, for border state dealers, some states attempted to solve the problem legislatively, which only led manufacturers to do away with sales incentives altogether in those states.
We don’t need to tell you these programs lead to bad practices and inconsistent deals, particularly at the end of the month as a store chases incentive dollars that have already been baked into earlier deals that month.
It’s a slippery slope that results in head-scratching deals to close out the month and brings about questions such as, “What’s the vehicle really worth?” and “Why did my neighbor pay thousands less?” It’s a loser for all concerned.
In an attempt to prove to OEMs the toxicity of these programs to everyone concerned, NADA commissioned the Analysis Group to publish a 2018 study titled, "Auto Manufacturer to Dealer Tiered Incentive Programs – a self-inflicted wound?" NADA’s Industry Relations Committee, supported by the Industry Relations Staff, presented study findings to the OEM's senior management in conjunction with the annual Dealer Attitude Survey meetings. Not long after, supply chain shortages and subsequent manufacturing delays brought on by the pandemic essentially eliminated the need for incentives in general, let alone the stair-step variety.
Market conditions have substantially changed since. As of last month, new-vehicle inventories on the ground and in transit stood at 2.58 million, according to NADA’s Market Beat. The figure represented an increase of more than 40 percent from March 2023. While it is far shy of 3.73 million from March 2019, it is a big jump. Accordingly, average incentive spending is up 66 percent from March 2023. That follows an increase of 45 percent from March 2022 to March 2023. High MSRPs and higher for longer interest rates have had an effect, as average new-vehicle transaction prices for last month are expected to be 3.6 percent lower than in March 2023.
So is the solution to move metal to reinvent stair-step incentive programs?
As 2017 NADA Chairman Mark Scarpelli once stated, “America’s dealers and manufacturers should have the same goal achieved in the right way: to sell our inventory in large volume and at competitive prices while maintaining the integrity of the brand and creating a great customer experience.”
Or, as 2020 NADA Chairman Rhett Ricart told Automotive News, “If you want to sell a vehicle, just put the money on the hood, let the customer know what the money is, and they’ll buy it.”
Sound wisdom.
