PALM SPRINGS, CA — Auto makers began rewarding dealers with financial incentives long before dealership customers started getting them, too.

But dealership incentive programs can prompt problems and gripes, especially if some dealers feel shortchanged.

Auto makers, dealers and others discussed the issue at the California New Motor Vehicle Board's fourth annual roundtable here.

Auto makers provide dealers incentives for various reasons: to spur sales, defray costs of building new facilities, subsidize vehicle floor plans and reward high customer satisfaction scores.

“We try to be fair across the dealer body…but there is never 100% consensus,” says Joe Chrzanowski, General Motors Corp.'s executive director-dealer network planning and investment. “You will always find dealers somewhere who don't like a particular program.”

For instance, some dealers beef about certain auto makers offering vehicle sales “spiffs” directly to dealership sales managers and showroom personnel.

Such incentives should instead go to the dealer, says Alan Skobin, a vice president at Galpin Automotive Group in North Hills, CA, and a dealer member of the California vehicle board.

“It should be used to motivate dealers to motivate employees, rather than motivate employees directly,” he says.

Recipients usually are employees of multi-franchise dealerships. Auto makers that spiff them are trying to get the sales people to pitch their brand of vehicles over a competitor's product sold at the same store.

“Manufacturers have (franchise) agreements with dealers, not the dealers' employees,” says Skobin. “Is it correct to say, ‘We'll give employees $150 for each car they sell,’ rather than give that money to the dealer?”

Addressing auto makers at the roundtable, Skobin adds: “We don't ‘incentivize’ your employees. It basically circumvents the dealers and goes directly to the employees. It changes the dynamics.”

GM's Chrzanowski says that “unless there is overwhelming consideration from dealers,” GM generally doesn't deal directly with employees on any incentive plan.

“When and if dealership employees are involved in a program, it's usually at the recommendation of dealers,” he says. “I'm talking conceptually about programs, from career building to incentives.”

Auto makers customarily consult dealers on how to implement such programs, says Kevin Rustad, BMW of North America LCC's network and facilities development manager.

“Frequently we've heard from dealers where they almost want us to pay sales people,” he says. “Dealers are mixed. We do take dealer input. If we get a ton of backlash, we back away from something.”

Dealers in smaller markets sometimes feel they are not getting their fair share of incentives from auto makers.

Volvo offers incentives on a per-vehicle-sold basis, “so the bigger dealers get the most,” says Steve Atkins, market representation manager for Volvo Cars of North America LCC. “But we've tiered it so that if a dealer gets higher customer satisfaction scores he or she will get more money.”

There is a domino effect to giving smaller vehicle allocations to non-metro dealers, says Peter Welch, president of the California Motor Car Dealers Assn.

By getting fewer vehicles to sell, smaller-market dealers get fewer financial incentives, which, in turn, hampers their ability to price vehicles attractively.

“It's difficult in some markets because people are price sensitive,” says Welch. “It affects a dealer's ability to compete.”

That is especially a concern in outlying areas that are on the edges of metro areas such as Sacremento, CA, says Tom Novi, executive director of the state's vehicle board.

“Sacramento has high-volume dealers, but if you go just 20 miles outside of the city you will find small rural dealers,” says Novi.

The rural dealers are treated as small players — receiving fewer allocations and smaller incentives — even though they effectively are competing with the metro retailers.

“We hear that those smaller dealers are disadvantaged,” Novi says.

It's not just about incentives, says Bob Dutton, dealer facility planning manager for Toyota Motor Sales USA.

“We find that even when incentives are not involved, there are going to be issues between big and small dealers,” he says.

Welch cites another dealership incentive program that rankled some dealers:

“One auto company offered a $500-per-vehicle incentive to dealers who floor planned with its captive finance firm.

“Some dealers were saying, ‘I have a $500-per-vehicle disadvantage against same-brand dealers in the same market because I didn't go with that manufacturer's floor-plan financing.”

Auto makers often hear from individual dealers unhappy with the workings of a particular incentive program, says Charlie Polce, senior manager-dealer network development for DaimlerChrysler AG.

But when it comes to objective-based incentives, he says, “everybody bitches.”

‘Take Your Bad Parts, Please!’

LIVONIA, MI — Auto suppliers say they quickly want back defective parts replaced under warranty at dealerships. Dealers say, “Take them, please!”

What is needed to satisfy both sides is an efficient process in which parts makers and auto makers can quickly retrieve such faulty castaways, and dealers can get rid of them. That is especially the case if parts are piling up at dealerships because of widespread warranty claims involving high-volume vehicles.

That was among issues discussed at a first-ever Automotive Industry Action Group conference on the importance of supply-chain collaboration and communication to reduce warranty expenses that total about $12 billion a year in North America.

Reducing product defects' detection-to-correction lag time would cut costs. Currently, a typical auto maker needs 220 days to detect and fix a problem. By then, tens of thousands of vehicles could be on the road. A 10% decrease in detection time could save that auto maker $24 million.

“The industry should work together in embracing early warning concepts and communizing tools to eradicate the problems,” says Kevin Mixer, research director at AMR Research.

He emphasizes the need for “visibility and validation in the exchange of better data.”

Auto suppliers say it would help to get replaced defective parts back forthwith from dealerships, so the culprit components can be analyzed to see what went wrong.

“Dealers say, ‘You are more than welcome to them, so pick them up, please, on a regular basis,’” says Richard Malaise, the National Automobile Dealers Assn.'s chief information officer. “Dealerships do not want to be broken-parts depots.”

Malaise adds: “What's the benefit of maintaining an inventory of replaced parts at dealerships? It benefits no one. It adds to clutter and inventory-control costs.”
Steve Finlay