Published in Automotive

Carmaker Mega-Bonus Incentive Programs Prompt Dealership Behavioral Changes

There’s a “cultural,” or if you will, “behavioral” change going on at car dealerships being driven by a source that might surprise many.  New, factory bonus incentive programs, such as GM’s EBE, ESE and PASE and Nissan’s Customer Experience Elements, are creating pressure on car dealers to bring “customer experience” to the same level of importance as the “transaction.

Third party consultants and suppliers have tried for decades to motivate dealers to focus more on the “experience.” Those efforts are being dramatically supported by escalating factory bonus programs aimed solely at creating a loyalty loop, where sold customers come back to service their vehicles at the selling store.  It is a proven fact that sold customers who return to that same dealer for service have much higher odds of buying their next vehicle from the dealer who sold them their previous one.

Genesis of Factory Incentives Begin With Dwindling New Car Margins

Car makers have always had incentive programs, but past payouts pale in comparison to today’s mega-programs, first launched 5 years ago.  It started with factory incentive programs dedicated to compensating dealers for dwindling showroom sales margins. Even today , about 40 percent of car dealers are not profitable in their new-car departments until they get factory spiffs, according to dealership consultancy NCM Associates. But the recent OEM incentives, commonly referred to as “stair-step” programs, are still heavily skewed towards solely boosting new car revenue profits, and not necessarily the showroom customer experience.

But as time has passed, and the era of the “connected customer” comes into play, the role of showroom sales is changing as well, with a greater emphasis on setting the stage for retaining customers for life. Sales personnel are now being asked to perform tasks beyond the transaction, such as completing the connected customer set-up (like OnStar), initiating the customer rewards sign-up and spending extra time in the delivery of the vehicle.  And factory incentive programs are even compensating the sales team directly for performing such tasks.

Two of the big three automakers have also introduced dealer wide “rewards programs” with the sole purpose of bringing the customer back again and again to boost service revenue and repeat sales.  The growth in targeted rewards, say dealers and consultants, increases manufacturers’ power to shape dealership operations in general, and staff behavior specifically.  At first, dealers balked at the prospect of corporate interference from incentive benefits, but over time, many have come to accept those bonuses as critical to the profitability of the store.

OEM incentives are changing store culture (behavior) by “fear of loss” rather than “benefit of gain”

For decades, automakers have tried to influence dealers to encourage their front line sales/service personnel to pay as much attention to creating a memorable customer experience, or as it is still referred to, CSI, as they do to the transaction…but to little or no avail.  Auto retailers have gotten more transparent, but mainly because the Internet has empowered customers to force change.  Transactional-ism is so ingrained in store personnel DNA, that training and technology, by itself, hasn’t forced the kind of behavioral changes needed to increase retention.  Dealer staff pay plans have always focused on “the deal” or “service RO”.  Employee pay plans are job descriptions… dictating the behavior of the sales/service personnel.  But OEMs discovered that pocketbook strategies are the only way to expand staff behaviors to focus on touch points that will directly affect customer experience and ongoing relationships…thus boosting “return revenue,” including their next vehicle purchase.  With factory bonus money on the line, those huge sums are beginning to strongly motivate the store leadership to formally implement management efforts focused directly on the tasks required to retain customers.  And OEM incentive payments directly to the staff for non-transactional, “experiential” practices are influencing staff behavior to place retention on the same level as “the deal”.  Another difference today is that, in addition to monetary payments, OEMs have dramatically increased the number of programs that specifically support the new factory standards accompanying the incentive bonuses.  Dealers aren’t left to their own devices to create and manage what the new programs require in the way of behavioral change.

Ground Zero For Retaining New Customers…The Service Experience

Dealer service centers have, not so affectionately, been referred to as “the back end” of the dealershipThe showroom has always been the primary focus of the dealer leadership, which is generally made up of store general managers groomed primarily in sales. While some of service directors saw this lack of attention as permission to “do their own thing”, the discontinuity between sales and service has had a negative impact on customer retention.  But those days are slowly diminishing.  In fact, the ever-increasing reliance on factory incentives is also changing how buyers assess a dealership purchase, buy-sell advisers say.  New-vehicle sales are no longer the predominant gauge of a dealership’s financial health. In fact, about three years ago, buyers started shifting their focus to fixed operations, specifically customer-pay service work, as the barometer for store profit potential, said buy-sell adviser Mark Johnson, president of MD Johnson Inc., near Seattle. The service center has clearly established itself as the primary profit center for the future of retail auto…at least until autonomous vehicles become a reality.  In fact, service has also become the  “second showroom”, as I spoke about in this MaritzCX Café post a year ago.  Vehicle exchange programs, stationed in service departments, have established themselves as a second point-of-sale for service customers who are in the market to move up or trade their old model in for a new one…thus facilitating dealers to turn a service visit into a new sale.

The service level customers experience is slowly becoming the great differentiator in retail auto today. The service department, in essence, provides a “loyalty loop” after the sale, where sold customers get a real taste of a dealership’s “customer care” level.

Bottom Line

Car manufacturers are mandating the right kind of cultural (behavioral) change at the dealership with huge factory incentives aimed primarily at “customer experience” and repeat business.  At first, auto retailers felt threatened by their diminishing entrepreneurial power, but many have come to accept, and more importantly, even depend on the programs as the major way to keep their stores profitable.  For decades OEMs and third-party consulting firms have attempted to expand the “transaction” minded dealership network to deliver a higher level of customer experience.  By incenting, closely monitoring and strongly supporting customer retention programs, OEM’s are forming closer relationships with their dealer partners in order to adapt to a fast-changing auto industry.