October 13th, 2024: Car Dealerships Struggle Amid Nissan’s Stairstep Incentive Program

From the Desk of Attorney Omar Zambrano: On Track to Helping 3,000 Families Be Debt-Free in 2024

Car dealerships across the U.S. are facing new challenges due to the reintroduction of Nissan's controversial stairstep incentive program. These programs, once implemented under former Nissan CEO Carlos Ghosn, are designed to motivate dealerships to reach specific sales targets by offering financial rewards. The latest iteration, brought back due to excess inventory of models like the Rogue, Pathfinder, and Frontier, is aimed at stimulating sales and increasing market share. However, the program has been met with frustration by many dealers, raising questions about the long-term impact on dealership profitability and brand perception.

What Is the Stairstep Program?

In simple terms, a stairstep program sets sales goals for dealers on a monthly basis. Dealers are offered incentives based on the number of vehicles sold, with higher rewards for exceeding specific targets. For instance, if a dealership reaches between 90% and 99% of their sales goal, they receive $200 per vehicle sold. If they reach 100% to 119%, the reward increases to $500 per vehicle, and for 120% or more, the incentive jumps to $750 per vehicle sold. These targets, however, are often seen as overly ambitious and unrealistic, especially for struggling dealerships.

This kind of incentive structure encourages dealers to discount heavily, sometimes below cost, to achieve higher sales volumes and hit their goals. While this might temporarily boost sales, it often leads to thinner margins and a devaluation of the brand, as dealers compete to offer the lowest possible price. This approach can hurt both dealerships and the long-term value of the vehicles they are selling.

Why Are Dealers Frustrated?

Many dealers feel that the sales targets set by Nissan are out of touch with the realities of the market. With sales numbers declining in recent years, expecting dealers to grow their numbers by 15-25% or more, especially in a difficult economic climate, seems unreasonable. As one dealer explained, "The manufacturer sets these goals based on what they’d like to see, not based on what’s actually achievable."

The program also creates a predatory sales environment, where dealerships are incentivized to close deals at any cost, often leading to aggressive discounting. This not only hurts the profitability of individual dealerships but can also create negative experiences for consumers, who may feel pressured into deals that don’t reflect the true value of the vehicle. The pressure to hit these goals may also encourage unethical sales tactics, further eroding consumer trust.

Impact on Dealership Margins

The heavy discounting required to meet these sales targets significantly reduces dealership margins. Dealers may find themselves in a situation where, to reach the highest level of incentives, they are forced to sell cars below invoice price. This can be financially devastating if they miss their sales targets, as they lose the incentive money they were counting on to make up for the initial loss.

For example, a dealership might reduce the price of a Nissan Rogue by $750 below invoice in hopes of hitting their sales target, believing that the incentive will allow them to break even. If the dealership fails to reach the goal, they lose that $750 per vehicle, effectively turning what was supposed to be a profitable month into a major financial loss.

The Broader Economic Impact

Nissan’s incentive program isn’t just affecting individual dealerships—it’s also contributing to the broader issues facing the car industry. By encouraging dealers to discount heavily, Nissan is creating downward pressure on the overall value of their vehicles, which could hurt the resale value of Nissans in the future. This also affects the perception of the brand, as consumers become accustomed to expecting deep discounts, which cheapens the brand’s image in the market.

Additionally, the aggressive sales environment fostered by the stairstep program may drive smaller, independent dealerships out of business. These smaller dealerships often lack the financial flexibility to offer deep discounts or absorb the losses that come from failing to meet sales targets, which may force them to close their doors.

Conclusion: A Tough Road Ahead for Dealerships

Nissan’s stairstep incentive program is creating a highly competitive and challenging environment for car dealerships, many of which are already struggling in a difficult economic climate. While the program may help Nissan move excess inventory in the short term, the long-term consequences for dealerships, consumers, and the brand itself are significant.

As dealerships continue to grapple with the pressures of hitting unrealistic sales targets, they must find a balance between maintaining profitability and meeting the demands of the manufacturer. For many, this may mean making tough decisions about how to approach pricing and sales strategies moving forward.

Call to Action: Struggling with Debt Amid Industry Challenges? We’re Here to Help

If you’re a car dealership owner or employee facing financial difficulties due to the pressures of sales targets, mounting debt, or other industry challenges, The Law Offices of Omar Zambrano can assist you.

We offer free consultations to assess your financial situation and explore solutions to protect your assets and navigate these challenging times. Our goal is to help 3,000 families become debt-free by the end of 2024.

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Attorney Omar Zambrano

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