Chairman Sykora Commentary Published in 'Automotive News'

Give Every Dealer the Same Chance; Factory Incentives That Aren't Equal Hurt More Than Help

Editor's note: This commentary appears in the Jan. 28, 2008, issue of Automotive News.

Many dealers believe that some factory incentive programs do more harm than good, especially programs that place one group of a factory's dealers at a competitive disadvantage.

Those unfair programs can favor urban dealers over rural dealers, new showrooms over not-so-new showrooms or large dealers over small dealers.

The unfairness occurs when performance standards, such as sales goals or customer satisfaction scores, are arbitrary targets that cannot be met by all interested dealers even with superhuman effort.

You can mix and match the ingredients - there always seems to be a new flavor coming out - but the result is the same: One group of dealers suffers.

Why are such programs wrong?

Eroding the brand

Unfair factory incentives are shortsighted. In addition to selling cars, dealers provide what economists call "essential nonprice promotional activities." Dealers provide local advertising, knowledgeable salespeople, warranty service, product and parts inventory, extended hours of operation, skilled technicians and many other ways in which they offer value to customers.

But when a factory incentive program gives one dealer an unfair advantage over another, it's practically impossible for the disadvantaged dealer to offer the same level of customer service.

Over time, a factory-created disparity in the ability of dealers to compete can confuse car shoppers, who may believe that some dealers are misleading them about what they should expect.

The result? Brand capital - the value of the brand in the consumer's mind - is eroded. Unfair incentives alter the marketplace to the detriment of the brands they were designed to bolster.

The National Automobile Dealers Association has a long-standing position in support of a level playing field - equal and fair treatment by a factory for all of its dealers.

The NADA Industry Relations factory teams discuss dealers' concerns with the factories. And some manufacturers have been responsive to their dealers' concerns about unfair programs.

Maintaining a level playing field should apply to all factory actions, including incentive programs. If an incentive program makes some dealers less able to compete, who benefits? Not the factories. Not the dealers. And, most important, not the customers, who are best served by vigorous competition among all dealers.

Dealers have had some success in challenging unfair programs. In fact, many state laws forbid factory programs that unfairly penalize some dealers.

Keep it out of court

In my home state of Texas, for example, two statutes prevent unreasonable discrimination among new-car franchisees.

That is defined in the statutes as unreasonable sales or service standards, discriminatory performance evaluations or discrimination in allocation of new vehicles.

But legislation and litigation are expensive and time-consuming and should be a last resort. They divert dealers from their first priority: selling cars and serving customers.

In the best of all possible worlds, lawsuits between dealers and factories would be unnecessary in an industry in which healthy automakers need healthy dealers. After all, competition can thrive only when a factory treats all dealers the same and supplies its dealers with vehicles that meet customers' needs.

Even well-intentioned programs may mess up the playing field and penalize one group of dealers. That's why we ask that all dealer incentive programs be fair and equitable.

The best way to maintain a level playing field is for factories to focus on what they do best: build quality cars and trucks. Let dealers do what they do best: compete for the business of customers. And let all dealers be part of the competition.