The former is more easily understood as bonuses for sales targets – sell X amount of cars, receive X amount of extra gravy from the carmaker. The bonuses also escalate, so that a certain sales target beyond X means a proportionally larger bonus than was had at the previous target. NADA's contention is that practice results in favortism that ignores the size and diversity of dealerships. Larger dealers can offer lower prices and sell more cars than smaller outlets, with the effect of potentially creating different pricing in the same markets, the bulk of the bonus money then going to the larger dealerships and improving their positions.
The second issue is about giving dealers a larger voice in the matter of "facility image programs," such as what dealers had to do to get the Fiat 500 and, more recently, the SRT guidelines about what dealers will be required to do in order to sell the new Viper. Building out a new showroom with mandated facilities can cost millions, and NADA wants earlier and more input into the programs to ensure they work on the local scale and that the changes endure. Said Underriner, "We want to know whether we are investing in the kind of dealership that will be most competitive in 2020 and beyond."
The dealer body has created task forces to investigate both issues. An NADA press release is below, Underriner's full speech can be found here.
DETROIT, Oct. 23, 2012 /PRNewswire-USNewswire/ -- Bill Underriner, chairman of the National Automobile Dealers Association, outlined two contentious factory issues facing new-car dealers and urged automakers to support a level playing field for dealerships of all sizes.
"Two-tier pricing and mandatory facility upgrades are symptoms of a bigger overall problem-manufacturer intrusion into dealers' businesses," Underriner said today in remarks to the Automotive Press Association in Detroit. "NADA wants the automakers to stop unfair practices."
This summer, NADA created a special dealer task force to focus on the fairness of stair-step programs, also referred to as two-tier pricing, which is a manufacturer-to-dealer incentive tied to sales goals.
"The history of our industry is littered with automaker attempts to impose one-size-fits-all programs on dealers. These efforts at top-down control almost always fail," added Underriner, a Buick, Honda, Hyundai and Volvo dealer in Billings, Mont. "We favor lawful, equal and fair treatment by a manufacturer for all its dealers. Unfortunately, history shows that, at times, manufacturers create incentive programs that favor some dealers over others."
Underriner cited the "incredible diversity among dealer businesses" as a reason why these programs are often unsuccessful. Dealerships range from being publicly traded or privately-owned to mass-market or single-point dealers competing in distinct urban and rural regions of the country.
"There is equal diversity in local market conditions and customer preferences across the country," he added as another reason why these automaker programs fail. "Distant corporations simply cannot understand or respond effectively to these differences. We know our customers' preferences and local market conditions better than anyone – certainly far better than a corporation with headquarters thousands of miles away."
NADA has also commissioned its second study on factory-mandated dealership renovation programs to analyze the return on investment. These programs often require a dealer to invest millions of dollars.
"When it comes to facility image programs, the key word is 'flexibility.' Manufacturers that build flexibility into the programs tend to have more success," Underriner said. "When programs are not flexible and don't consider local conditions, there is a much higher likelihood of pushback and controversy."
NADA's first study recommended that automakers get more dealer input into these programs early in the process, before "the cake is already baked."
"This is when dealers can help automakers shape a program that's well received by dealers at large," Underriner added.
Since the first study, NADA has added pertinent questions about facility image mandates to its Dealer Attitude Survey, which is conducted twice a year. The results of the survey are reviewed by high-level executives from the automakers.
The second phase of the project will also focus on what the dealership of the future will look like.
"We want to know whether we are investing in the kind of dealership that will be most competitive in 2020 and beyond," he said.
The NADA Story
The NADA story began in 1917 when 30 auto dealers traveled to the nation's capital to convince Congress not to impose a luxury tax on the automobile. They successfully argued that the automobile is a necessity of American life, not a luxury. From that experience was born the National Automobile Dealers Association. Today, NADA represents nearly 16,000 new-car and -truck dealers, with 32,500 franchises, both domestic and international. For more information, visit www.nada.org. Follow NADA on Facebook and Twitter.