USA TODAY US Edition

Why does one dealership charge more for same car?

Dealers group chair thinks so-called stair-step incentive programs are a bad idea

- Eric D. Lawrence @endangered­law Detroit Free Press

If you’ve wondered why the prices for similar cars at different dealership­s are sometimes far apart, the head of a national trade group for auto dealers can offer one explanatio­n.

And he says the practice is a bad idea.

During a talk in Detroit this week, Mark Scarpelli, chairman of the National Automobile Dealers Associatio­n, blasted so-called stair-step incentive programs (where dealers get cash from automakers for meeting sales goals) as programs that ultimately hurt brand loyalty.

Scarpelli told a group gathered for an Automotive Press Associatio­n luncheon at the Detroit Athletic Club stair-step incentives can lead to “wild discrepanc­ies” in prices between dealership­s, which can destroy customer confidence in the sales process.

“Any dealer who’s had to deal with these programs can tell you that they are not only trust killers, but they’re brand killers, too. Not being able to offer two customers the same price on the exact same equipped vehicle, just because they came into the dealership on different days of the month, destroys consumer confidence,” Scarpelli said.

Criticism of stair-step incentives is not new. The programs, which are employed by numerous automakers, can be hard on smaller dealers who struggle to meet sales targets.

But Scarpelli, who read from prepared remarks, indicated the issue is critical because the industry, despite a solid sales month in September, is in the midst of a lengthy sales plateau. He said dealers and automakers must work cooperativ­ely to help consumers buy the vehicles they want in a way that instills confidence in the sales process.

The programs are designed to increase sales, but they actually do something else, he said.

To start, you have a program designed to increase sales volume. But you achieve higher volume only by lowering prices. So you aren’t creating new demand, you’re just dropping to a lower

point on the demand curve. But because you’ve done so in a way that erodes desire for your brand, you’ve actually created less demand. You’ve created a new, lower demand curve, Scarpelli said.

“And 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,” he said.

Scarpelli cited research showing dealers are rated higher when pricing for vehicles is considered transparen­t by the customer. “Today’s customer just wants to be treated fairly. They’ve gotten over the mental (hurdle) of what vehicles cost by the time they’ve gotten to the dealership,” he said.

A trade group representi­ng automakers disagreed with the dealers’ assessment of stair-step incentives.

“Consumers benefit when there is competitio­n in the marketplac­e. Stair-step incentives are voluntary programs that reward dealers for good sales performanc­e. The Alliance is not aware of any data showing lower sales prices have a negative effect on brand loyalty with consumers,” said a statement from Scott Hall, spokesman for the Alliance of Automobile Manufactur­ers.

 ?? STEVE HELBER, AP ?? Scarpelli blasted stair-step incentive programs (where dealers get cash from automakers for meeting sales goals) as programs that ultimately hurt brand loyalty.
STEVE HELBER, AP Scarpelli blasted stair-step incentive programs (where dealers get cash from automakers for meeting sales goals) as programs that ultimately hurt brand loyalty.
 ?? NADA ?? “Today’s customer just wants to be treated fairly,” says Mark Scarpelli, chairman of the National Automobile Dealers Associatio­n.
NADA “Today’s customer just wants to be treated fairly,” says Mark Scarpelli, chairman of the National Automobile Dealers Associatio­n.

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