Several automakers have rolled out incentive programs that pay dealers escalating bonuses as sales targets are hit in a bid to wrest back market share or boost key models.
So-called stair-step programs are returning after being scaled way back over the past year, dealers say. Instead of dumping cash on the hood in the form of customer incentives, which are up just slightly from last year, automakers --- especially Honda and General Motors --- are dangling carrots in front of dealers in hopes of lifting sales by getting them to chase tiered sales targets.
But many dealers say stair-step programs wreak havoc on local retail markets. Dealers gunning for their sales bogeys in the final days of a program often slash prices well below cost -- willing to sustain, say, $30,000 in losses in hopes of a $100,000 volume-based bonus at the end -- and drag down other dealers' prices in the process.
"It's just a cancer in the industry that isn't good for dealers or customers," Earl Hesterberg, CEO of megadealer Group 1 Automotive Inc., told analysts during a conference call last month. "There are too many stair-step programs out there. We didn't need any more."
General Motors and American Honda Motor Co. -- both stung by recent market share losses -- have new stair-step programs.
GM's program, its first major stair-step initiative since its 2009 bankruptcy, started April 25 and ends July 2. A close look at the program shows the hefty payouts as well as the program's complexity, another source of frustration to many dealers.
Chevy's program includes the high-volume Cruze and Malibu sedans, Equinox and Traverse crossovers and most Silverado pickups. Buick's program covers all models.
In broad strokes, Chevrolet and Buick-GMC dealers will get $100 per vehicle for every sale from 100 to 109.9 percent of their sales objective for the period. Sales of 110 to 119.9 percent of the bogey fetch $500 per unit. Sales from 120 to 150 percent net $750 per vehicle.
But it's not that simple. Payments are made only on unit sales exceeding 75 percent of the target. To kick-start the program, each sale made during the program's April 25-30 launch counted as 1.5 units. And the program isn't open-ended. If a dealer sells 152 units against a target of 100, the last two sales bring no bonus.
A four-page GM document outlining the program offers the example of a dealer whose target is 100 vehicles and sells, adjusted for April sales, 146 units. So the dealer qualifies for the $750 bonus level, paid on the 71 vehicles above the 75-unit minimum. The payout: $53,250.
Honda is running a stair-step program from March 1 through August in an effort to clear 2012 stocks of its top-selling Accord sedan ahead of a redesigned 2013 model. Each month, dealers who hit 80 percent or more of their sales objective can earn $100 to $500 for each Accord sale. This follows a similar program in January and February for both the Accord and the redesigned 2012 Civic, which was panned by some reviewers.
Chrysler has had stair-step programs with its dealers since early 2011, a dealer said. With the exception of a program designed to clear out the canceled Dodge Caliber, the programs have covered all models and changed monthly.
This month Chrysler is running two concurrent stair-step programs. The first offers $200 per vehicle for each vehicle sold in May if the dealer sells at least as many new vehicles this month as in March 2012. If the dealer falls short of March sales, the program doesn't pay.
The second measures May sales against a dealership's sales in May 2011 and sets different goals depending on the dealership's local market penetration. For one dealer, for example, sales 20 percent over year-earlier levels bring an additional $250 per vehicle. If sales are 40 percent higher, the bonus rises to $600 per vehicle.