A hotly contested practice in the retail automotive industry is stair step programs. Often called something more glamorous or cerebral such as Ford’s “Volume Growth Bonus Program”, it is essentially a way to incentivize higher new vehicle sales by paying out kickbacks per unit sold. For the manufacturer, it typically has positive results. But for the dealer – especially small dealers – stair step programs can seal their fate.
Small Dealers Face Hurdles with Stair Step Programs
The crux of stair step programs is to move more units, paying the dealer month-end bonuses for higher volumes. That seems like a benefit for the dealership, but when there’s disparity in dealership sizes and demographic differences, it can hurt more than help.
Discounts Aren’t As Deep As the Competition
It seems obvious, but the largest impact on a dealership is on each individual sale. Small dealerships can’t count on achieving the highest levels in stair step programs because they naturally sell lower volume. It’s true for rural dealers and many family-owned dealerships.
Lower Sales Totals
The progression carries into sales figures when small dealers can’t offer discounts on par with larger, higher volume stores. Some customers may opt to defect – even previously loyal customers – when they simply can’t get the same pricing on a new car.
Inability to discount the same has a two-pronged affect: the customer often chooses to buy at the cheaper store, which loses the sale at the small dealership. But the disparity increases because a larger store gets additional sales, boosting their stair step level, and getting even more kickbacks from the OEM.
Migrating Sales Personnel
Like nomads, salespeople tend to go where the money is. Loyal staff will only stay loyal so long when they see higher earning potential elsewhere. While it’s not an immediate result, the likelihood that the most productive sales staff will move to a high-volume store is significant.
It’s damaging not just to the store but to the individual salespeople also. Stair step programs can encourage sales volume, neglecting that salespeople earn more income on higher gross profit. ‘Giving away the farm’ on every sale when trying to compete with larger dealers leaves sales staff frustrated with their commission check.
Contradicting Sales Techniques
Today’s retail automotive sector encourages transparency and a customer-centric experience. However, stair step programs easily negate those values by the practices they encourage.
In stair-step programs, a month-end push is often used to solidify deals. That can involve pressure tactics, rushed sales processes, and a number-centered deal instead of ensuring the vehicle and deal is right for the car buyer.
As well, transparency is certainly not a priority. It’s about making the sale, not doing right by the customer. The push to make the deal happen can lead to undisclosed dealer fees and less-than-clear financing terms. Also, with incentives coming from the manufacturer, there’s a very secret aspect to every deal that gets padded.
Many small or rural dealers can identify with these issues. Perhaps there’s a place for stair step programs in retail automotive sales, but it must carefully consider the health of all stores, not just the high-volume dealerships.
For more about Stair Stepping click here to read part 2 of a 3 part series.