No need to sugarcoat it: Stair-step factory sales incentive programs are this industry's heroin, and the longest sales run in industry history has left vast numbers of auto dealers strung out.
After four 17 million-plus-vehicle years, industry fortunes appear to be turning, albeit gently. That means it's time for dealers to break their addictions before it's too late and for this industry to find a less-corrosive means to reward successful dealers while encouraging others to improve.
Stair-steps, which can take many forms, generally offer dealers cash payments from the factory if the dealership hits a preset monthly sales goal. Each program runs differently, but in the worst cases, the incentives are all-or-nothing: Hit your number, get a big check. Miss your number — even by one — and get nothing.
Some automakers preach that stair-steps align dealers' goals with their own, but at the retail level, stair-steps almost always result in unequal pricing and unsustainable business practices as dealers chase their next fix.
Each month, more franchised dealers are getting clean. It requires discipline and determination as well as a focus on areas of the dealership beyond the new-car showroom to provide a path to profitability. But it can be done.
Expect some pushback from the factory: sudden letters about not achieving minimum sales responsibility and even threats of franchise termination. Which is where the National Automobile Dealers Association comes in — or should.
For decades, NADA has rightly opposed stair-steps — including in a full-page ad late last year in Automotive News. Its fight has been limited by the cost and effectiveness of litigating what are ever-changing factory programs, as well as a concern over violating antitrust statutes should NADA advocate for collective actions. Fair enough.
But pushing back on seemingly arbitrary "sales effectiveness" targets is the kind of case that NADA can support — and does with some success. While the association can't advocate group action, these individual cases benefit from NADA's data collection and legal team assistance.
No dealer wants to fight the factory, and few can afford to. But the best way to walk into any such conflict is to be armed to the teeth with information. That seems like a need that NADA should fill.