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Car Dealers Fear Losing Control through Burgeoning Factory Incentives

Car dealers have seen some significant changes taking place in the car business in recent years. Many feel that the changes have been eating away at their control:

Over the past five years, incentive programs have proliferated while new-car gross profit margins have dwindled. About 40 percent of car dealers are not profitable in their new-car departments until they get factory spiffs, according to dealership consultancy NCM Associates. — Jamie LaReau, Automotive News

Steve Kalafer, chairman of Flemington Car & Truck Country Family of Dealerships in Flemington, NJ, feels forced to participate in the incentive programs sponsored by some of the 16 brands his group sells:

"You are assuming these programs are voluntary. And the manufacturer will say it is, but it's not. When your sole source of supply -- the manufacturer -- sets the programs unilaterally, the alternative is to not be a car dealer." — LaReau, Automotive News

The growing number of incentives and their complexities are moving control over to the car manufacturers and away from dealers, many complain:

"It's death by a thousand cuts," said Jim Appleton, president of the New Jersey Coalition of Automotive Retailers. "You've had a slow-moving but very clear transition from a business in which the dealer was a retailer to an agency arrangement where a dealer is essentially an agent of the manufacturer and is paid in a pay plan that is completely in the manufacturer's control and changes on a whim." — LaReau, Automotive News

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