A Dance Between Dealer and Carmaker on Lifting Sales

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Auto sales have been incredibly high in recent years, and because of this auto makers have been facing a lot of pressure to continue to grow their sales. Because of this pressure, some companies are artificially raising sales by counting new cars bought by their dealers as sold. This raises the question: is the auto industry as healthy as it seems?

Kia, BMW, and Nissan have all encouraged their dealers to buy new models and offer them as used models even when they have very minimal milage on them. These companies claim to do this for the sake of the consumer. One automaker claims that by doing this they are able to offer more cars for loan while a consumer’s car is being serviced. Some companies offer subsidies to dealerships that can offer these loaner fleets.

Kia has instructed dealerships to record a small number of unsold cars as sold and to use these as test drive cars for up to 15 days. After that point they will be given discounts up to $6,000. These cars can also be sold as used cars after their test drive period even if they only have a few miles on them.

Nissan encourages dealers to stock rental fleets which are supposed to stay on the lot for 90 days, but this period is often waved by Nissan, so their dealers can sell these cars as used even if they have no miles driven on them and have never been titled to an owner.

These questionable sales tactics are concerning for people around the auto industry.

6 comments to A Dance Between Dealer and Carmaker on Lifting Sales

  • frankn18

    This report coincides directly with the discussion in class regarding managers compensation and sales. It’s known that compensation that follows an incentive structure can lead to the bending of laws and falsification of reporting. If the managers of car companies receive higher bonuses from more sales, which I expect they do, it makes sense that they consider cars going to dealers as sold. While the reports may come back to bite companies back in the future, the present reward outweighs the present consequences.

  • manleya18

    I thought this article was particularly interesting. I understand why test vehicles are sometimes sold as used, but it does seem like misrepresentation of the product to the customer if you’re selling entirely new vehicles as used. Although car manufacturer execs usually receive pay based on how many vehicles are sold, does the same apply to dealer owners? What is the benefit for dealers to sell cars as used? What are the future implications for doing so?

  • barnettt18

    I find the practice by automakers to loan used cars out even though they’re new cars to be interesting because it shows the flexibility of firms’ decisions within what most people would think to be an inflexible industry. If firms can make money by framing their cars in different ways, why shouldn’t they? I am glad that you posted this article because it’s relevant to the cost analysis of Volkswagon that we did today in class. If firms can counteract costs by pricing new cars as used, it makes sense for them to perform such actions.

  • adamsm19

    It seems to me that automakers would not encourage dealers to offer practically new cars as used if they didn’t absolutely have to. Incentives of up to $6,000 could foretell declining sales in the years to come, especially as new car sales compete with used cars. It is true that dealerships should like to have a small fleet of loaner cars available for customers but wouldn’t the number of units required to meet this need be immaterial compared to total sales?

  • platte16

    I would be interested to know why they chose $6,000 rather than a percent of the cost. For example, $6,000 of a more expensive car is a smaller discount than a less expensive car. A set discount does not allow the dealer to account for the original price of the car and would increase the number of less expensive or smaller cars sold in this scheme.

  • When is it sensible for a company to discount cars rather than reduce production? We’ve looked at the challenge that used cars impose on holding up new car prices. Now yesterday we heard about the ability of firms to used subventions for car loans and leases to disguise discounts, and to keep dealers happy. What are the marketing benefits of doing that rather than offering open rebates? of creating / selling near-zero-mileage used cars? Do consumers perceive these as identical? Do they negotiate differently? And on and on!

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