If you are wondering why the prices of similar cars at different dealerships are sometimes so far apart, the head of a national trade group for auto dealers can offer an explanation.
And he says the practice is a bad idea.
At a conference in Detroit today, Mark Scarpelli, president of the National Automobile Dealers Association, lambasted so-called escalator incentive programs, where dealers receive money from automakers to achieve their goals sales, like programs that end up hurting brand loyalty.
Scarpelli told a group gathered for an Automotive Press Association luncheon at the Detroit Athletic Club that staircase incentives can lead to “wild price gaps” between dealerships, which can destroy customer confidence in the dealership. selling process.
âAny marketer who has had to deal with these programs can tell you that they are not only trusted killers, but branded killers as well. Not being able to offer two customers the same price on the exact same equipped vehicle just because they walked into the dealership on different days of the month destroys consumer confidence, âsaid Scarpelli.
The criticism of staircase incentives is not new. The programs, which are used by many automakers, can be difficult for smaller dealerships who are struggling to meet their sales targets.
But Scarpelli, who has read prepared remarks, said the issue is critical as the industry, despite a solid sales month in September, is in the midst of a long sales plateau. He said car dealers and manufacturers need to work cooperatively to help consumers buy the vehicles they want in a way that inspires confidence in the sales process.
The programs are designed to increase sales, but they actually do something else, he said.
âFor starters, you have a program designed to increase sales volume. But you only achieve higher volume by lowering the prices. So you don’t create a new demand, you just go down to a lower point on the demand curve. But because you’ve done it in a way that erodes the desire for your brand, you’ve actually created less demand – you’ve created a new, weaker demand curve, âScarpelli said. “And on a new, weaker demand curve, you only have two choices: you can sell fewer vehicles, or you can lower the prices further just so you can sell the same amount you would originally have.”
Scarpelli cited research showing that dealerships score higher when vehicle prices are viewed as transparent by the customer.
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âToday’s customer just wants to be treated fairly. They overcame the mental hurdle of the cost of vehicles by the time they got to the dealership, âhe said.
Scarpelli said his group conducted a study this summer illustrating those concerns. He did not disclose the details, saying the information would be shared with the automakers first.
A trade group representing automakers, however, disagreed with the dealers’ assessment of the stairway incentives.
âConsumers benefit from competition in the market. Staircase incentives are voluntary programs that reward dealers for good sales performance. The Alliance is not aware of any data showing that lower selling prices have a negative effect on brand loyalty with consumers, âaccording to a statement from Scott Hall, spokesperson for the Alliance of Car manufacturers.
Contact Eric D. Lawrence: [email protected] Follow him on Twitter @_ericdlawrence.