Dealerships have long relied on manufacturer incentives to help boost the dealership’s bottom line. Of course, these “incentives” often have somewhat onerous strings attached. Now that tariffs are expected to boost prices and thus dent demand for new vehicles, incentive initiatives are likely on the horizon.

The evolution of such manufacturer incentive programs provides some hint of what kind of assistance manufacturers may provide to help dealerships cope with the impact of tariffs, and what the price of those incentives will be.

“The real purpose of the incentive programs from the manufacturer’s point of view is they want to have a device that allows them to control dealer behavior, notwithstanding franchised laws and dealer agreements,” Halbert Rasmussen, founding shareholder at Scali Rasmussen, tells Getting to Go!

Stair steps redux

Stair step incentives give dealers cash or other bonuses for meeting sales targets for specific vehicles. They were widely used in the 2010’s, including by Ford, Nissan, Infiniti, General Motors and Fiat Chrysler.

While they helped manufacturers move models that weren’t selling well, they were a race to the bottom where some dealerships’ profitability was concerned, and were widely decried.

Stair steps have waned in use, but they haven’t vanished. Ford introduced a stair-step program in 2024 to move MY2023 F-150s. And Nissan in February began offering dealers up to $1,000 on some models if they hit monthly sales targets.

Some manufacturer incentive programs have few such strings attached, however. The Hyundai Assurance Program launched in 2009 is a good example. Under that program, a customer could return a vehicle if they lost their job within the first year of purchase.

In response to the tariffs, Hyundai announced another version of the Assurance program – the manufacturer pledged not to raise a vehicle’s MSRP for two months starting June 2.

Ford is offering employee pricing on most Ford and Lincoln models to all customers through July 6.

Rasmussen also believes that some manufacturers will adjust incentive programs to reduce dealer margins as a way to avoid or reduce raising the MSRP in response to tariffs.

It's all about inventory management

To understand what a manufacturer’s incentives hope to achieve, it’s instructive to look at a brand’s days’ supply of new vehicles. In April, according to Cox Automotive, Hyundai had 96 days’ supply. Nissan had 88. Ford had 85. The industry average was 66 days. At the low end, Lexus dealers had an average of 25 units on their lots, Toyota had 26 and Honda had 45.

Don’t expect the Japanese manufacturers to be incentivizing much because regardless of the form they take incentives are “100 percent inventory management,” Kevin Tynan, director of research as investment bank The Presidio Group tells Getting to Go! “(Manufacturers) are clearing the retail channel so they can maintain production,” he says. “Because incentives are expensive but not as expensive as cutting production.”

Expect to see a rising number of incentives because -- if tariffs significantly boost the cost to produce a vehicle -- manufacturers must either pass the cost on to the consumer or absorb the cost themselves, which cuts into the manufacturer’s profitability. And while some manufacturers have said they will absorb the cost, that isn’t sustainable over the long term, Tynan says.

Incentives are most likely at those brands with high days’ supply. “Because at the end of the day, OEMs partnering, if you want to call it that, with their dealers is about inventory management,” he says. “Every incentive, stair step, lease program, is all inventory management.”

Tariffs have added a new wrinkle to the retail auto environment, however, and thus to the incentive landscape, Tynan says. Vehicle prices are higher, but automakers won’t benefit from those higher prices because their production costs are also higher. And with the average transaction price at a record high, dealers can’t charge more but the sales volume is lower. “So, the revenue pool actually shrinks,” Tynan says.

The industry has moved to a “higher priced/lower volume model, so profitability isn’t always driven by volume,” he says. Nonetheless, brands that have too much inventory will likely turn to traditional incentives, Tynan says, with the exception of interest rate-based incentives, which are unlikely because interest rates are high, unlike 2021, when zero-percent financing on some models emerged.

The hated image program

A nice-looking facility sells more cars, right? Not always. But having am “image compliant” facility might get a dealership more cars to sell, or incentive dollars to sell them. Facilities requirements are a type of negative incentive program, and not always a fair one, Rasmussen says. They have been “the number one cause of concern and litigation” of dealers against their manufacturer, he says.

Manufacturers can’t terminate a dealer for not being image compliant because of franchise laws, he says, but they can tie incentive money into building an image compliant building, even if the dealer can’t afford it.

Jaguar Land Rover was well-known “in the heyday of their desire to have new facilities that met the corporate image” for using compliance with its Arch program, introduced in 2016, as the price for receiving generous additional margins, Rasmussen says.

It was “very intrusive,” he says.

The manufacturer would pay the incentive only to dealers who had the proper facility and make those that didn’t sign an agreement to be image compliant within a specific number of years or risk termination, Rasmussen says. Or in other cases, the agreement would require refunding incentive money for failure to be image compliant in time.

Scali Rasmussen provided legal representation to some JLR dealers who felt the agreement terms were unfair, Rasmussen says. For those cases, and those of other brands’ clients, “the next most common (complaint) is the dealer says it is fiscally impossible for me to do what they are asking to, it will put me at an incredible disadvantage. I will be competing with one hand tied behind my back. They are threatening me if I don’t sell higher volume,” Rasmussen says.

When representing dealers in similar cases, Scali Rasmussen tries first to reason with the manufacturer, he says, and modify the terms. The exact approach is bespoke depending on the agreement.

Scali Rasmussen may argue that the manufacturer “needs to make their incentive program functionally available to every reseller.” Of course, functionally available is defined differently for every dealer.

The manufacturers want uniformity, but “they try a little bit too hard to maintain that at the expense of customizing it to meet situations that are valid and necessary to make the agreement functionally available,” Rasmussen says.

If a change in language can’t be negotiated, the case has to “get into the weeds” of dealer protection laws,” Rasmussen says. That usually doesn’t happen, though. Generally, complaints against image compliance programs end in what amounts to a “draw,” he says. “Most of the ‘wins’ we have achieved have to do with avoiding some overly harsh language that the manufacturer wants to put in the agreement.”

If a dealer wants to totally avoid a factory demand, a “win” is generally more of a stalemate, Rasmussen says, “where the manufacturer doesn’t press as hard as it would otherwise, because it knows it will have to face our legal challenges.”

This article was written for Getting to Go, a buy/sell newsletter from Scali Rasmussen.