A Step Forward or Backward with Stair Step Incentive Programs?

incentive programs

They’ve been cursed, blamed for sales blips, and looked down on by many dealers, manufacturers, and even retail customers. Yet, stair-step incentives, whether they are called such or manufacturer-to-dealer incentives or “Volume Growth Bonus Programs”, are a tool that several automakers choose to keep in their toolbox.

The effects emanating from using stair-step programs have been hotly contested. Mark Scarpelli, chairman of the National Automobile Dealers Association, has been a fierce opponent. He believes the programs create an uneven playing field, putting many dealerships at a disadvantage.

“Any dealer who’s had to deal with these programs can tell you that they are not only trust killers, they’re brand killers, too.” On the potential long-term problems stair-step programs can cause, Scarpelli says, “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.”

Incentive Programs Profitable for Carmakers Who Use Them

But there’s no questioning that manufacturer-to-dealer incentives serve their intended purpose for the carmakers who choose to use them – at least, in the short term. Ford, Nissan, Fiat Chrysler, and General Motors brands have all recently seen positive results from stair-step incentives. Nissan, in particular, has bolstered its sales particularly, and that can be attributed in part to their aggressive dealer incentive programs.

When back-end money is expected on the results of highly incentivized sales programs, dealers may opt to slash prices below cost to move more inventory. Sales figures can spike under this structure, obviously, but the effects are debated. Some believe increased sales are falsely positive; that customers are ‘pulled ahead’ and simply buying sooner, and that the demand for product hasn’t truly increased. In that scenario, sales drop off when stair-step incentive programs back off, and a steep decline is experienced. Long-term sustainability is the concern.

How Should Dealers Act?

There’s no rule book for how dealers should or should not treat manufacturer-to-dealer incentive programs. For dealerships whose manufacturers do not offer the month-end ‘bonus money’ for achieving sales targets, there’s nothing that can be done.

For dealers where stair-step programs are in place, there’s a moral dilemma. Do you work the program, doing what’s necessary, by any means necessary, to achieve the highest level possible? Or, do you maintain a less aggressive approach and stay the course?

There can be no fault placed on dealers who choose the aggressive approach to play the program to its fullest. It’s business, and that means generating revenue. With $250,000 in incentives at stake in some cases, there’s little doubt a push for the top target is happening. If that’s the choice, understanding the risks – undervaluing the product and brand and declining customer satisfaction – is incredibly important, and must be kept under close scrutiny.

Dealers may choose to play the long game also, keeping front-end gross while potentially losing some sales to their competitors who may undercut pricing. This chin-up approach may only be a moral victory, though, if stair-step programs continue, favoring the dealers who focus on its benefits.