Each quarter, dealer Steve Kalafer grudgingly participates in factory incentive programs put in place by some of the 16 brands in his group.
If he didn’t, his new-car departments, and in some cases entire dealerships, would be unprofitable, he says.
“We would be as red as the scarlet pimpernel,” said Kalafer, chairman of Flemington Car & Truck Country Family of Dealerships in Flemington, N.J. “You are assuming these programs are voluntary. And the manufacturer will say it is, but it’s not. When your sole source of supply — the manufacturer — sets the programs unilaterally, the alternative is to not be a car dealer.”
Thousands of dealers face a dilemma similar to Kalafer’s, industry consultants and dealers say. Over the past five years, incentive programs have proliferated while new-car gross profit margins have dwindled. About 40% of car dealers are not profitable in their new-car departments until they get factory spiffs, according to dealership consultancy NCM Associates.
The programs now reach beyond new-car sales. In some cases, auto-maker incentives supplement sales staff pay. The growth in targeted rewards, say dealers and consultants, increases manufacturers’ power to shape dealership operations.
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