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If you’ve wondered why the prices for similar cars at different dealerships are sometimes far apart, the head of a national trade group for auto dealers can offer one explanation.
And he says the practice is a bad idea.
During a talk in Detroit this week, Mark Scarpelli, chairman of the National Automobile Dealers Association, blasted so-called stair-step incentive programs (where dealers get cash from automakers for meeting sales goals) as programs that ultimately hurt brand loyalty.
Scarpelli told a group gathered for an Automotive Press Association luncheon at the Detroit Athletic Club that stair-step incentives can lead to “wild discrepancies” in prices between dealerships, which can destroy customer confidence in the sales process.
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“Any dealer who’s had to deal with these programs can tell you that they are not only trust killers, but they’re brand killers, too. Not being able to offer two customers the same price on the exact same equipped vehicle, just because they came into the dealership on different days of the month, destroys consumer confidence,” Scarpelli said.
Criticism of stair-step incentives is not new. The programs, which are employed by numerous automakers, can be hard on smaller dealers who struggle to meet sales targets.
Mark Scarpelli, chairman of the National Automobile Dealers Association, at the Detroit Athletic Club on Oct. 10, 2017. (Photo: NADA)
But Scarpelli, who read from prepared remarks, indicated the issue is critical because the industry, despite a solid sales month in September, is in the midst of a lengthy sales plateau. He said dealers and automakers must work cooperatively to help consumers buy the vehicles they want in a way that instills confidence in the sales process.
The programs are designed to increase sales, but they actually do something else, he said.
To start, you have a program designed to increase sales volume. But you achieve higher volume only by lowering prices. So you aren’t creating new demand, you’re just dropping to a lower point on the demand curve. But because you’ve done so in a way that erodes desire for your brand, you’ve actually created less demand — you’ve created a new, lower demand curve, Scarpelli said.
“And on a new, lower-demand curve, you only have two choices: You can sell fewer vehicles, or you can further lower prices just to be able to sell the same amount you would have originally,” he said.
Scarpelli cited research showing that dealers are rated higher when pricing for vehicles is considered transparent by the customer.
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“Today’s customer just wants to be treated fairly. They’ve gotten over the mental (hurdle) of what vehicles cost by the time they’ve gotten to the dealership,” he said.
Scarpelli said his group had a study done this summer illustrating these concerns. He did not release the details, saying the information would be shared with automakers first.
A trade group representing automakers, however, disagreed with the dealers’ assessment of stair-step incentives.
“Consumers benefit when there is competition in the marketplace. Stair-step incentives are voluntary programs that reward dealers for good sales performance. The Alliance is not aware of any data showing lower sales prices have a negative effect on brand loyalty with consumers,” according to a statement from Scott Hall, spokesman for the Alliance of Automobile Manufacturers.
Contact Eric D. Lawrence: firstname.lastname@example.org. Follow him on Twitter @_ericdlawrence.
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