Pub. 15 2016-2017 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 7 new jersey auto retailer W W W . N J C A R . O R G Manufacturer two-tier pricing and stair-step programs are always controversial. They are also often unfair and make your business unmanageable. Think about it…. How can you manage your business if you don’t know your cost of goods sold until after you’ve made the sale? Stair-step programs, which pay dealers bonuses as they hit sales targets but pay nothing if sales fall short of the target, have a dramatic impact on every dealer’s monthly bottom line. A recent NADA survey found that 64 percent of deal- ers dislike stair-step incentives and feel they disrupt the market. Whether a dealer embraces stair-step programs or views them as evil incarnate, all dealers can agree that it is time to rethink these polarizing programs. The NADA survey found that dealers want manufacturers to: • Make stair-step programs fair and reasonable. • Make them achievable for dealerships of all sizes. • Carefully consider which vehicles are included in the pro- grams. • Be sure those vehicles are actually available in dealership inventory. • Simplify the programs. Some dealers are selective about which stair-step incentives to pur- sue and which to ignore. If a manufacturer is setting sales targets that the dealer feels are unrealistic, they are prone to focus on the targets they feel are more attainable. Dealers didn’t need a survey to tell them how potentially damaging two-tier pricing can be to the dealer’s bottom line. While many manufacturers have two-tier pricing programs, Cadillac took the practice to a whole different level with its recently unveiled Pin- nacle Program. NJ CAR has spoken with Cadillac dealers around the State and engaged with the company to discuss the program. The Coali- tion’s concern is that the program, as introduced, would violate several provisions of the New Jersey Motor Vehicle Franchise Practices Act, as well as the General Motors Dealer Sales and Service Agreement (DSSA). For example, the Pinnacle Program creates a two-tier (actually, five-tier) pricing environment. N.J.S.A. 56:10-7.4(h) prohibits all price, discount and bonus differentials between dealers. The multi-tier pricing program, which results in a vehicle cost difference among dealers of as much as eight percent of MSRP, makes many Cadillac dealers (particularly lower volume dealers) uncompetitive with other dealers. The Pinnacle Program imposes unreasonable financial or oper- ating requirements on New Jersey dealers. N.J.S.A. 56:10-7.4(a) prohibits these requirements. An “unreasonable financial require- ment” could be any factory-imposed operating cost or any financial losses due to lost competitiveness resulting from reduced or lost bonuses or lost incentives derived from new vehicle sales. An “unreasonable operating requirement” could be any of the many specific operating mandates imposed by Cadillac, which apply to all dealers across the board and which may not be reasonable in all circumstances. The Pinnacle Program appears to use unreasonable formulas and methodologies to assess compliance, which is prohibited under New Jersey law (N.J.S.A. 56:10-7.4(d)). It appears that compli- ance with some of the Program criteria will be judged by use of calculations or formulas that do not fairly and reasonably assess dealer performance. The Pinnacle Program also seems to impose unreasonable financial, personnel, training, facilities, equipment and operating requirements, which is a violation of the N.J.S.A. 56:10-7.4(o), which prohibits amendments or modifications to any agreement unless it is in good faith, for good cause and does not substantially alter the rights, obligations, investment or return on President’s MESSAGE | BY JAMES B. APPLETON PRESIDENT’S MESSAGE  continued on page 29 Stair-Step and Two-Tier Pricing is Unfair and Unmanageable