Disruptive trends raise questions for new car margin and bonus schemes

Ben Waller

Publication Number: Executive Briefing 07/17

Author: Ben Waller

Date: August 09, 2017

Tags: New vehicles, Used vehicles, Dealers

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Senior management at both manufacturers and dealer groups alike expect the future role of the dealers to be markedly different to that of today, as a result of increased use of online channels, personal leasing and new forms of shared vehicle use. However, the reality today is that stock push, campaign payments and volume incentives remain at the centre of dealership activity. How might sales channel incentives and revenues change as a result of disruptive trends?

At present the dealer remains the prime and to a large extent exclusive sales channel for retail and smaller business customers. Dealer payment for new car sales tend to be built around a mix of base margin (sometimes called chassis or trading margin), and additional performance related bonuses that are determined by attainment of specific volume and qualitative targets. Many of the qualitative targets are intended to support enhancement to brand status and customer satisfaction, via specific operational or investment objectives. On top of these payments are payments to support customer promotions, help shift overage or excess stock, or meet end of period targets. Much of the strategic intent of many margin and bonus schemes are lost in the push to clear inventory and reach sales targets. Furthermore, margin and bonus schemes are often a legacy of past decisions, many of which are long forgotten.

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