When a dealership lot has two identical vehicles — down to the trim level, color and even sticker price — they can still end up with a significant price difference that leaves customers perplexed.
Why is one vehicle $1,000 less than the one next to it? It may have been on the lot 100 days longer, for example, but such details aren't apparent to customers, said Brad Korner, general manager of Cox Automotive Rates & Incentives.
Some dealers and automakers are on a mission to eliminate this situation.
Automaker incentives can create a wall between the customer and the dealership. Incentives going directly to consumers can create confusion and mistrust, dealers say, and need to be dramatically simplified.
"Overly complex incentives, incentives that aren't available to every customer, every dealer or even every vehicle in the vehicle line — they destroy customer confidence in dealers and destroy our profitability," said Charlie Gilchrist, president of Gilchrist Automotive, a nine-store dealership group in the Dallas-Fort Worth area.
Over the past few months, some automakers have taken note. General Motors, for example, recently took steps to streamline customer incentives.
"The dealers are right. It's a tough business, and it's a very competitive business," Duncan Aldred, vice president of global Buick-GMC, told Automotive News last month. "Every manufacturer is searching for an angle. Sometimes those angles do bring complexity with it. That said, we're listening loud and clear to that feedback and to our dealers."
In 2019, incentive spending reached 11.1 percent of the average transaction price, up 22 percent from 2015, according to Cox Automotive. And many discounts are conditional cash offers for conquests or loyalty, for example, rather than model-specific deals.
"It used to be that they would be able to apply the right incentives to the right vehicle and be able to give a fairly straightforward price," Korner said.
Now dealers "almost have to manipulate that deal scenario in order to make sure that they get everything that the consumer is eligible for as part of the deal."
GM rolled out a new incentive platform for dealers in January, Aldred said.
"It's something we take very seriously," he said. "I think we've made some good progress recently, and we will make a lot more going forward. We're committed to do so."
One change in the program: GM rolled several different cash offers into one so "dealers didn't have to think, 'Which ones are applicable to this particular customer?' It's applicable to all customers," Aldred said.
GM's incentives already were much simpler last month than in the fourth quarter, Cox said. GM offered VIN-specific deals through the end of 2019, according to Cox, but in January, no GM incentives were tied to the VIN.
Dealers having the ability to choose the incentives they want to apply sounds beneficial in theory, but when dealers are in the middle of closing a deal, "it's hard," Aldred said. "We managed to find a win-win solution which simplified it. And we believe it's more effective as well."
Fiat Chrysler Automobiles and GM also simplified incentives in November and December with their employee pricing offers. On average, consumers didn't necessarily get a better deal, but they got a more straightforward offer, Korner said.
For all automakers, untangling the mix of incentives is key to building trust, said Gilchrist, the outgoing NADA chairman.
"If this is an F-150, you get $3,000, not $3,000 plus $500 for this or $2,500, plus $600 for this. If you don't have a transparent incentive that a customer can see, you create a lot of distrust with that customer," Gilchrist said.
Some automakers "are taking a hard look at that and trying to simplify it."
Melissa Burden contributed to this report.