It’s that time of year again − new-car incentives! That’s when the automakers shake that carrot in front of you with promises of cash back for the purchase of a new automobile. However, while it may sound attractive to consumers, dealers are not as happy.
“It cheapens the product and it’s just a doggone shame,” said Kentucky Ford dealer Jack Kain. “If you look at our numbers in October, they weren’t competitive. So they feel like they’ve got to do something this drastic to change the picture.” Ford’s U.S. car and truck sales fell 1.8 percent in October, compared to an industry rise of 6.1 percent; Ford’s market share has declined to 15.1 percent so far this year, compared to 16 percent for 2013, according to Automotive News.
The Volume Growth Bonus Program is what is often referred to as “stair-step incentives” and offers dealers more cash per model as they cross certain sales thresholds. Dealers receive payments from $100 to $600 per C-Max, Fiesta, Focus, Fusion, or Escape models sold. The program started in the beginning of November and should last through January 2, 2015.
The bonus payments encourage dealers to sell vehicles at low prices and offer liberal trade-in values because they know any money lost on the deal will be made up by Ford. The program may reduce market-share losses but is a costly way of getting there, especially as it can depress profits and lower resale values on discounted models.
However, Ford sales analyst Erich Merkle claims the program is not a stair-step incentive, saying “We call it a volume-based growth program. We went to great lengths to address many of the concerns and we modified the program.” He added, ““We worked with our dealers, including our national dealer council, to make sure the program was structured appropriately so that it would be mutually beneficial for us, our dealers and our customers. The intent was to produce a beneficial outcome from a sales perspective.”
Large dealers with large inventories seem to be the ones that can most benefit from the program by quickly working up to the $600 per-car bonus through selling a plenty of models at deep discounts that small dealers can’t match, according to Kain.
“Big dealers can sell those cars at a very low price − a price that I can’t afford − to get to the point where they get to make the big bonus bucks. That confuses my customer, who is troubled that I cannot meet prices that are $1,000 cheaper 10 miles down the road.”