NADA Chief Warns Makers about Unfair Sales Practices

Scarpelli says consumers will lose trust in brands.

by on Oct.10, 2017

NADA Chairman Mark Scarpelli told the Automotive Press Association in Detroit that makers must eliminate gimmicky incentives or risk losing loyal customers.

The National Automobile Dealers Association defeated regulations proposed by the independent Consumer Financial Protection Bureau that its dealers believe made it more difficult for consumers to obtain credit, NADA Chairman Mark Scarpelli told the Automotive Press Association in Detroit.

The CFPB recently finalized its recommendations that, among other features, requires lenders to make “ability to repay” determinations when extending certain payday, vehicle title and other loans to consumers.

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Although the proposed rule would have covered certain “high cost” vehicle finance contracts, the final rule generally excluded those contracts unless they have a balloon payment feature. A balloon payment is defined as at least one payment that is more than twice as large as any other payment, Scarpelli noted. 

The rule, while well meaning, could have had the unintended consequence of making credit tighter and made it more difficult for consumers to purchase a vehicle, which benefited no one, he noted.

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Scarpelli, however, said NADA was less successful in persuading carmakers to consider the “negative unintended consequences” of certain manufacturer incentive programs particularly “stair-step” programs that are designed to increase rebates or incentives if a specific dealership sells more of a particular model.

Such marketing strategies tend to favor larger, higher-volume dealers, and are less transparent because prices of the same vehicle can vary from store to store and even from customer to customer, according Scarpelli, who operates four dealerships around Chicago.

“Any dealer who’s had to deal with these programs can tell you that they are not only trust killers, but they’re brand killers, too,” Scarpelli said. “Not being able to offer two customers the same price on the exact same equipped vehicle, just because they came into the dealership on different days of the month, destroys consumer confidence.”

The ongoing proliferation of market strategies such as indiscriminate price coupons and unfair stair-step incentive programs are leading to severe, unintended, negative consequences for consumers, dealers and manufacturers alike, he said.

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“In a world where customers rightfully expect fairness and transparency in price, why do so many manufactures still deploy unfair marketing strategies that produce huge discrepancies in price between various customers — discrepancies that aren’t transparent, that can’t be explained rationally, and that run afoul of everything our customers really care about?”

Scarpelli added that NADA, which represents nearly 16,500 new-car and -truck dealerships with both domestic and international franchises, has taken its critique one step further by commissioning a third-party survey of the impact of stair-step programs.

The independent study found that the programs can wind up hurting the value of brands employing such strategies as well as the residual value when vehicles when they are re-sold at auction or as used cars. NADA has not released all the data from its study yet because it prefers to share it with the manufacturers.

Tom McDonald, Midwest Communications director for Mazda, noted that incentives of all kinds help dealers sell vehicles and manufacturers would quickly drop any kind of marketing strategy if it didn’t work or backfired and hurt the brand.

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General Motors spokesman Jim Cain, who listened to Scarpelli’s remarks, also noted that most complaints about stair-step programs have focused on certain, specific manufacturers that, unlike GM, have faced unique challenges, such as a car-heavy model line. Manufacturers with better balance product lines don’t seem to have the same difficulties, he said.

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