State of the Industry: Use of OEM Incentives to Leverage Dealer Compliance with Digital Sales
By Andrew G. Thomas & W. Kirby Bissell
As digital sales slowly become the norm in the automotive industry, OEMs have attempted to keep pace by creating programs and incentives targeting various aspects of digital sales. In fact, many OEMs today have programs and/or incentives aimed at pushing their dealer bodies towards specific vendors and/or software in the digital sales space. This includes programs which require dealers to utilize “certified” vendors chosen by the OEM for things such as digital retailing tools, dealer website providers, digital advertising providers, CRMs, DMS, and more. Unfortunately, this is another mechanism whereby OEMs are forcing dealers to cede control of their business operations and potentially some of their profits.
By creating programs that tell dealers what vendors and software to use, OEMs are intentionally stepping into the sales process and encroaching on the autonomy of dealers to sell vehicles in the manner, and with the tools, that they believe to be most effective. This often places dealers in a difficult position; do they continue to choose the vendors they believe in and prefer, or do they go with the OEM’s “certified” vendors? This choice is often difficult because OEMs link “certified” vendor programs into other incentive monies and even co-op funds, meaning that incentives monies could be at risk if dealers simply choose the objectively best vendor for the task. This can sometimes result in situations where choosing an objectively worse vendor and/or service is still the correct financial choice for the dealer, due to incentives offered by the OEM, even though the choice could result in less sales or less efficient sales.
Several states have recently enacted franchise provisions specifically addressing OEM’s requiring that dealers use unilaterally chosen vendors, but laws are often slow to catch up and this issue is not an exception. Furthermore, this type of OEM overstep typically involves multiple intertwined programs, which not only makes the programs more difficult to attack legally but also makes the programs more difficult for dealers to comply with. At the same time, dealers obviously retain the ability to ask questions, raise the issue with the OEM or their dealer council and many other informal mechanisms. Such actions may not have the same effect of litigation but can nevertheless be effective in letting OEMs know that their dealers are paying attention and will not accept subpar service from a preferred vendor.
This is an issue that Bass Sox Mercer has been monitoring over the past few years, and we will continue to monitor and provide updates as practical.