Dealers push automakers to simplify incentives

Dealers say automakers' consumer-facing incentive programs are far too complex and confusing. Automakers may be starting to listen.

General Motors, which dealers say offers some of the most bewildering programs, modified its strategy in January by condensing some incentive programs and eliminating others.

"We tried to be as simple as possible," said Steve Hill, vice president of U.S. sales, service and marketing at GM. "Candidly, we probably have a lot more work to do, but I think the dealers gave us a lot of credit for trying to simplify and make it easier to do business."

GM's changes sound like an improvement, said Mike Maroone, CEO of Maroone USA, but it's too early to know whether they go far enough.

"I won't tell you that [any automaker's program] is simple to the point that I would like to see," said Maroone, who has six dealerships in Colorado.

Cox Automotive data shows that GM's incentives were much simpler in January than in the fourth quarter. GM offered VIN-specific deals through the end of 2019 but none tied to the VIN in January.

Industrywide, consumer incentives have long been a double-edged sword. They increase sales volume but lower brand value and cause consumer skepticism when the same vehicle sells at different price points. They can also be challenging for dealers to manage.

Years ago, dealers could get a straightforward price if they applied the right incentives to the vehicle, said Brad Korner, general manager of Cox Automotive Rates & Incentives. Now dealers "almost have to manipulate that deal scenario in order to make sure that they get everything that the consumer is eligible for as part of the deal."

In the first quarter, franchised dealers surveyed by Cox Automotive ranked restrictive incentives as one of the top five factors holding their business back.

In January, there were more than 3,000 incentive programs in the market, nearly twice as many as in January 2016, according to Cox. Many of the programs are limited to select groups of customers, regions, models or trims. So while the number of available incentives is high, many customers don't qualify for the programs offered. In February, total incentive programs fell to about 2,400.

Especially among the Detroit 3, incentives are complex to the point that "some of our stores have gotten into areas where they don't know how to do it" and miss out on offering those discounts, said Oliver Young, chief sales officer at Young Automotive in Utah and Idaho.

Some automakers even send conflicting incentive memos throughout the month, said Eric Flow, president of management services at Flow Automotive Cos., which has dealerships in North Carolina and Virginia.

One memo might say the incentive applies to a certain model but another says it's trim-specific. To complicate the deal even more, sometimes sales representatives will let dealers know about a rebate, but the dealer never receives a memo. So a claim related to the deal the rep spelled out is kicked back to the dealer, Flow said.

"I think many brands are starting to become more aware that it's an issue. I'm not sure they have figured out what they're going to do," he said. "I don't think the reliance on them is going to go away anytime soon because every OEM is looking for a way to drive sales."

There are three parties involved in the incentive play: the dealer, the automaker and the customer. "All have become addicted to them, and each party has its own agenda," said Ed Reinhard, partner at accounting company Crowe.

The automaker wants to move more units off the lot. The dealer wants to generate gross profit. And the customer wants to purchase the vehicle at the lowest price possible.

Overall, incentives "can be tricky for the dealer to properly account for and factory incentive audits can create some unwelcomed manufacturers' audit chargebacks," Reinhard said.

Some dealership groups have created a new position — the automaker revenue manager — to help stores optimize incentive opportunities, said Reinhard.

A few brands' incentive structures tend to be more straightforward — or even nonexistent.

Hyundai said it consistently works toward simplifying its incentive structure and improving communication with dealers. The brand has started announcing incentive programs for two months at a time, rather than one, a spokesman said.

"I think manufacturers intend for them to be simple but then make them more complex in order to try to attract business. You definitely have to be on your game as a general manager and a desk manager to understand how everything works," said Ryan Gremore, president, O'Brien Auto Team of Bloomington-Normal in Illinois. The group sells Hyundai, Kia, Honda, Genesis, Nissan and Mitsubishi.

Still, Gremore added, "I'd rather have more options than less. The more tools we have in our tool belt as a dealer, the better chance we have to succeed."

Subaru hasn't offered rebates since the late 2000s. Starting in 2007, the automaker shifted its focus to attracting consumers to the brand, rather than individual models, a spokesman said. The change came with a new pricing structure that was often lower than some peers' sticker price but better reflected the value of the vehicle without adding hefty discounts.

"Their whole philosophy is they are growing but don't want to grow too fast and have too much product that they can sell," said Al Corazza, general manager of Fairway Chevrolet-Subaru in Hazle Township, Pa.

The two brands' incentive philosophies couldn't be more different, he said. Subarus are simpler to sell.

With Chevy, "you almost have to interrogate the customer" to figure out which incentives apply, Corazza said.

Although incentives per vehicle have been rising, the number of vehicles with the biggest discounts has shrunk. In 2018, a quarter of vehicles had discounts greater than 15 percent of the sticker price. Last year, only 17 percent had such deep discounts, according to J.D. Power.

"The percentage of high incentives fell because manufacturers are beginning to do a better job of matching products to what consumers really want," said Thomas King, president of data and analytics for J.D. Power.

Deep discounts may become even more of an issue this year as automakers try to boost market share amid forecasts that U.S. sales will fall below 17 million for the first time since 2014.

Incentives can also diminish brand value and lead to customer confusion and distrust of the dealership.

"Incentives obfuscate for customers the value of the car and make it difficult for us to convey the value of the brand and the market price of the car," said Flow.

When brands advertise the quality of the car but consistently mark it down, they're conveying a discontinuous message, he said. And when discounts vary depending on the day, customers become even more leery.

A car may be discounted $11,000 one day and only $2,000 the next.

"The customer doesn't understand why and thinks that margin is yours," Flow said. "That's the OEM's margin. And customers don't understand that. They just know that they saw at one point of time this car was this amount off. Now it's not."

Melissa Burden and Lindsay Chappell contributed to this report.