The Elephant in the Room: Stair-Step Programs Evaluated

By Mark Scarpelli, April 2017

Mark N. Scarpelli
2017 NADA Chairman
Mark Scarpelli

There is an elephant in the room when it comes to the retail auto industry, and it's named: “stair-step incentive programs,” particularly the unfair and indiscriminate kind. 

We all know how the elephant was born: automakers rolled out dealer incentive programs in the form of escalating bonuses if sales targets were achieved. The OEMs' intention was straight-forward enough-to provide dealers with a carrot to sell harder and push more and, consequently, wrest back market share or boost key models. These programs are inherently tied to the modern dealership business. The programs were all a novel incentive…or so we thought. When these programs are implemented, they often negatively affect our businesses, the value of our brands, and our collective integrity. Moreover, these programs that lead to multi-tier pricing have a tendency to be more disruptive to the marketplace than beneficial. Most important, we know for a fact that they're incredibly detrimental to the customer experience and customers' trust in the brand. 

NADA is confronting this long-held issue head-on. The ongoing proliferation of market strategies-like indiscriminate price tag coupons and others-are extremely complicated and not consumer friendly. And as many dealers have expressed, some programs are not available to everyone; so dealerships of a different size or those in a different location can be at an extreme disadvantage compared to the dealerships that utilize these programs. There is no doubt that auto retailers all want a healthy outcome-dealerships brimming with sales and happy customers and moving inventory.

But at what cost? 

I am asking our OEMs: how many of the gains are you really willing to offset through counterproductive methods that move us back to where we started? If these programs run afoul of everything our customers care about-trust, fairness, and transparency-then it's not really worth it anymore. 

America's dealers and manufacturers should have the same goal, and 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.

Throughout the year, our two camps meet to discuss our challenges, successes and goals. Addressing these issues requires a deep, insightful dive in how we market and sell. NADA is ready and willing to navigate these choppy waters. We will continue to have important discussions with manufacturers to express our concerns and find ways to produce an outcome that truly benefits us all-including our partners, investors, our shareholders and - above all else - our customers. 

This year, America's franchised new-car dealers are poised to sell 17.1 million vehicles. That's a lot of moving inventory. Let's make sure it's moving off our lots in the best way possible. Let's move this elephant out of our room. 

Scarpelli is 2017 NADA chairman and president of Raymond Chevrolet and Raymond Kia in Antioch, Ill., and co-owner of Ray Chevrolet and Ray Chrysler-Jeep-Dodge-Ram in Fox Lake, Ill.