OEMs’ Rebate Spend During a Time of Reduced Inventories
Just because you’ve lowered rebates doesn’t mean you’ve solved the problem
For everyone involved in the automotive industry, 2021 continues to be a very interesting year where the only constant is change. We all know the story by now; consumer demand is high, inventory is low.
But there are other stories happening in the background, such as the rising level of average prices on vehicles, the decreasing level of rebates, and the consumer’s growing frustration over being quoted one price online and a different price at the store.
To be certain, average prices are going up. According to Kelley Blue Book, the average transaction price through July 2021 reached a never-before-seen high of $42,736, marking an 8.2% increase over July 20201.
Manufacturers have pulled back rebates
Because of reduced inventories, manufacturers have pulled back on rebates and incentives. In fact, rebate offers for most segments have continually declined over the last several months. What’s more, actual program offerings or sub-vented lease programs have remained completely flat across all segments. We’re witnessing the dynamics of supply and demand amplified by American consumers’ savings and inability to splurge on vacations and other discretionary spending opportunities since the start of the pandemic.
Consumer savings in the United States exceeded a staggering 2.4 trillion U.S. dollars at the end of 2020. Even though the personal savings rate has since dropped and amounted to 8.9 percent at the end of September, 2021, it still means that Americans households have stockpiled excess savings, setting the stage for a surge in consumer spending.
New market dynamics – outdated business practices
What’s worth calling out – besides from manufacturers having pulled back on rebates – is the fact that the process they apply to determine their rebates and incentives remains largely manual. Additionally, the reduction of rebates doesn’t solve the problem manufacturers, lenders and dealers have: In order to create an improved modern retailing environment and consumer experience, they must eliminate the disconnect that persists between what consumers are being quoted online compared to what they are presented with at the store.
Outdated business practices don’t have to prevail and the consumer should not have to endure a disconnected shopping experience. Simply put, they no longer have to. Solutions have been conceived, and are currently available, which are the result of combining science, technology, and data. Manufacturers can determine with precision, what incentives and rebates are needed to achieve the most competitive position based on live competitor and market data. And retailers can take advantage of the modern retailing solutions available, which provide consumers consistent and all-inclusive payment quotes – irrespective of where the consumer shops – seamlessly connecting the consumer experience online with the showroom experience.
Injecting science into more accurate rebates
Manufacturers spend 40+ billion dollars each year on incentives to influence consumer buying behavior to achieve a desired market penetration. Traditionally, the car makers go through a labor-intensive process to analyze the data related to the effectiveness and impact of the incentive and rebate programs they are offering. This is done to determine how best to position themselves competitively – and to determine how much they must spend to earn their desired market share.
The process is time consuming, mechanical and unsophisticated. Decisions are often made on gut instinct – without having all the facts. Not only is this very expensive (and seldom accurate), it is also not timely and provides openings for competitors to step in and win market share.
Almost every dealer in the country has experienced an inability to collect rebate and/or incentive monies from their manufacturer because of misapplication or improper combination of rebates. When this happens there are two options: Rewrite the contract, which always upsets the customer, or take the difference out of the gross.
The data and technology platforms needed to overcome this are available, all of which will greatly enhance the consumer experience. Manufacturers, lenders and dealers can now be seamlessly tied together in a complete system that offers a portal and a dashboard containing all pertinent data necessary to build, offer and transact. This technology includes a solution that mines, analyzes and manages the billions of combinations and iterations of all lender and manufacturer programs available in the marketplace.
Helping dealers remain profitable
This process also helps dealers remain and improve profitability, since it takes into account each dealer’s specific terms and conditions under which the dealership is willing to transact. The process also includes every parameter, policy, factor and rule that influences an automotive transaction – and all terms and conditions that are uniquely set by the dealer, including quoting rules for each specific vehicle in the dealer’s inventory. By leveraging all uniquely identifiable terms, conditions and all pertinent data, dealers are empowered to provide consumers with all-inclusive, fundable, transactable and defendable payments for every vehicle and every consumer scenario online and subsequently in the showroom.
We all know the story in automotive today – healthy consumer demand, low inventory and higher prices. With the right data, technology and transactable payment offers, everyone in automotive wins by truly leveraging the right modern retailing process, where the consumer enjoys a frictionless and much improved, consistent experience online and in the showroom.
About The Author: Rusty West is President & CEO of Market Scan Information Systems and has more than three decades worth of experience developing leading data and technology-based solutions for the automotive industry. For more information, please visit www.marketscan.com.
2: Bureau of Economic Analysis, https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&1921=survey&1903=76#reqid=19&step=3&isuri=1&1921=survey&1903=76
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