Low dealership inventory could mean the end of stair-steps, NADA chairman says

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DETROIT — As the auto industry continues to grapple with supply chain disruptions and the resulting shortage of new vehicles, National Automobile Dealers Association Chairman Paul Walser foresees a silver lining for dealerships: the end of the much-hated stair-step incentive.

Stair-step programs, which promise cash bonuses to incentivize dealerships to hit aggressive monthly, quarterly or annual sales targets, have been labeled as brand destroyers by critics and have been problematic for dealers to manage. Once used extensively by certain automakers, they’ve practically disappeared as vehicle supplies on the lots have dwindled.

And they could be gone for good, Walser said.

“Here’s a wonderful benefit that I’m thinking has a reasonable chance of staying,” Walser, a partner in Walser Automotive Group in Edina, Minn., told Automotive News in an interview this week. “NADA and dealers across this country have been barking about the challenges of stair-step incentives for years.”

The worst consequence of the bonus scheme, he said, is the loss of credibility with customers. With stair-steps, two customers buying the same model two weeks apart can pay vastly different prices when a dealership drastically discounts one of the vehicles to hit a stair-step volume target at month end.

Walser credited dealer Mark Scarpelli, NADA chairman in 2017, for taking active steps to convince automakers to rethink stair-steps.

“It’s kinda like once you’re on a drug — it’s hard to get off of it,” Walser said. “But what the pandemic has done is eliminate stair-steps because there’s no need for much incentives at all right now. There’s not enough inventory.”

Dealerships are routinely collecting sticker price — or higher — on new vehicles, and some customers are ordering vehicles in the production pipeline.

But Walser is more skeptical about that dynamic continuing long term. He voiced doubts about whether automakers will refrain from overproducing vehicles and chasing market share once supply constraints evaporate.

“When this opens up again and the production capacity is there, are manufacturers going to stop trying to gobble up additional market share? That’s hard for me to believe,” Walser said. “I’d like to think that we’re all learning from this. I’m just not 100 percent confident.”

He’s more optimistic about the death of stair-steps because automakers are seeing striking benefits in their relationships with dealers since ending the programs.

Walser pointed to NADA’s latest Dealer Attitude Survey and noted that brands reliant on stair-steps in the past are suddenly scoring much better on the closely watched report card, specifically calling out Nissan.

Nissan abandoned its stair-step program this year. And while the Japanese brand did not crack the top 10 on the summer 2021 Dealer Attitude Survey, Automotive News reported in September that Nissan moved up 10 places to rank No. 15 out of 32 brands.

“I do think it’s fair to say that there’s strong evidence on that survey that the absence of stair-steps improves manufacturer-dealer relations in a material way,” he said. “I’m proud of Nissan for their movement. They did go up a long way. We have four Nissan stores in the Walser family, so I care about what Nissan says and does.”

Nissan’s improvement was far beyond any other gain he’s seen for a brand in the seven years he’s been closely involved with the survey program, Walser said. That turnaround shows that ending stair-steps can pay off, he said.

“Now it’s just more about product and every day doing business than it is about these complex and oftentimes kind of kinky programs that drive behaviors that are not conducive to a good customer experience or any … ability to really understand, even for a dealer, what his costs on a vehicle are,” Walser said. “I think we may have seen, hopefully, the end of those programs. Because everybody is now realizing that life is better without them.”

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