Automotive OEM's: Dealer Incentives

How do OEM’s typically incentivize dealers?

Just taking a step back there, what will happen is the OEM will develop a plan for a quarter. These plans are developed some quarters in advance. It is a coordinated plan whereby the messaging in the marketplace, the focused products and the launch and sustainability of those products, the social media activity and the incentives will all work in tandem.

When you come down to the incentive part of that, more likely than not, a target will be set by that brand for that retailer for the quarter either on a model perspective or on a group of models perspective. That dealer would be given a target related bonus for achieving the volume of registrations - not always sales actually - for that particular quarter. Therefore, there will be a kickback at the end of the quarter for the registrations that have taken place there. That's a generic scenario. In addition to that, there are a couple of other things that normally come into play.

Firstly, the retailer’s margin is split into different to two elements: a metal margin, which may be around 8%, which is a dealing margin, if you like, for the customer for taking a part-exchange vehicle and so on and so forth; and then there's a holdback margin, which may be up to let’s say 6%, which is the retailer’s qualitative capability of doing things in line with franchise standards.

I’d say 8% metal margin and 6% holdback would probably be a typical example. In addition to that, the OEM will have set up certain consumer offers for the quarter. One classic example would be a financial services offer, because 80% plus of retail customers are buying the vehicles on a type of lease format. PCP (Personal Contract Purchase) in the UK would be a typical example of that, PCH (Personal Contract Hire) would be another one. So there may be a reduced APR figure, there may be a deposit contribution, but there’ll be a general consumer offer there in the marketplace. At times, some of the commodity brands, let's say the less premium brands, have also put other consumer offers in there, like free servicing, insurance offers et cetera. It’s ‘Come and buy now’ type offers. So that would be one other element there.

The last leg on this particular stool will be the fact that the retailers will be incentivised by some personal activity. For example, there will be league table formats against your peers in the retailer groups. If you achieve a better performance versus target than others, there may be an overall prize, that might be a travel prize, or something of that nature really. It would certainly be a part of an award recognition motivation program. That's also quite key for manufacturers.

Do the consumer offer sum to a couple of percent margin?

It could be more. It very much depends. There's no generic. It depends on what you're trying to move. It could be very different by product line. So if you're in a run-out phase of a car and you're desperate to actually get the cars out the door by a certain date to pave the way for a new car, it could be higher. You can't really look at a generic, because it very much depends upon client demand.