To the Editor:
In response to Keith Crain's May 28 column ("Bad habits are surfacing again"): We have concerns about the effects of stair-step incentives offered to dealers by some automakers. Among them:
-- Devaluing the brand: By chasing the big payoff, dealers blow out their vehicles, often thousands of dollars below cost, gambling that they will hit 100, 105, 110 percent of the monthly sales objective given to them by the manufacturer. The dealer is forced to focus on the price and not the value of the vehicles. That is contrary to the aims of the manufacturer and can harm the reputation of the brand.
-- The temptation to cheat by "sandbagging": Dealers will stop submitting retail delivery reports when it becomes apparent that they will not hit the target level and hold off until the next month to report the sales. That cheats the manufacturer because if the sales are reported accurately, there is no stair-step payoff. Effectively, the dealer can hit big payoffs every other month by sandbagging. That is a commonplace practice. Such huge sums also create the temptation for less ethical dealers or managers to phony up retail delivery reports.
-- Two-tiered pricing: Dealers who are pricing based on their assumption that they will hit the big stair-step payouts have an unfair pricing advantage over other retailers in adjacent and nearby primary market areas, particularly if the dealers are sandbagging.
-- Difficulty doing business: The uncertainty the system creates makes it extremely difficult to conduct many functions of business such as establishing compensation plans for managers and salespeople, creating effective marketing in a timely manner and doing business forecasting.
There can also be a negative impact on the car buyer when transaction prices are warped to extreme highs and lows depending on the dealer and time of month that a customer buys a car.