Some retailers bought cars to hit their stair-step targets
Fiat Chrysler has ended an aggressive stair-step incentive on the Chrysler 200 that boosted sales in a segment in which the brand has long been a laggard.
The incentive, discontinued last month after running more than a year, pushed some dealers to buy 200s themselves to hit their monthly sales goals and reap a big reward.
Through November this year, U.S. sales of the midsized sedan that was redesigned for the 2015 model year were up 67 percent to 169,310 vehicles. Chrysler’s share of the segment climbed to 7.6 percent for the first 11 months from 4.5 percent in the same period last year.
In a presentation to investors this month, FCA touted the success of the 200 but said it was “re-evaluating” Chrysler’s product portfolio “given reduction of volumes in sedan segments.”
Dealers say that the stair-step incentive on the Chrysler 200 has been shifted to the Jeep Cherokee, which is already Jeep’s top-selling model in the U.S.
One dealer who asked not to be named said moving the spiff to the Cherokee “is very good news” given the relative ease of selling the Jeep compared with the 200.
The end of the dealer incentive on the 200 — the car will still have consumer cash attached — comes at a time when dealer stocks of the car are high and the segment is slowing down. Sales of the 200 fell 28 percent in November to 10,332 vehicles.
FCA began December with a stock of 44,179 unsold 200s, a 98-day supply. Meanwhile, dealers are advertising hundreds of used 200s online — some with only a few dozen miles on the odometer. The cars were bought months ago by dealers to take advantage of the factory cash.
The company’s Sterling Heights, Mich., assembly plant, the only factory where the 200 is built, has had occasional layoffs in recent months, including last week. In addition, plant workers say they are scheduled for an extended holiday break, from Dec. 23 until Jan. 17, during which there will be no 200 production.
“The Chrysler 200 has always been kind of a fleet car or a high-incentive car,” said Danny Battaglia, TrueCar senior manager for industry insights and managing editor for ALG’s Residual Guidebook. “It’s a nice car, but the perception of the brand is that it’s never come out of its rut, in terms of residual.”
The spiff on the Chrysler 200 has been a key part of FCA’s Volume Growth Program, or VGP, for more than a year. Under the program, dealers who reach a monthly volume target receive a payment on each new-vehicle sold that month. Dealers failing to reach the goal get nothing.
The payments vary in size, but it’s not unusual for a large dealer to have $100,000 riding each month on making the goal. And the incentive has given dealers extra motivation to sell 200s.
In a typical example, a dealer with a monthly sales goal of 100 vehicles might receive $600 per vehicle for reaching the target. But the dealer had to sell a minimum number of Chrysler 200s to receive any VGP payment for the month.
Once that threshold was crossed, per-vehicle payments rose with the percentage of 200 sales — a powerful motivation to concentrate on selling the sedan.
“If I am three short on my [VGP] number, and I know that I am going to get $100,000 [in VGP incentives] or zero that month, I’ll take the cars,” explained one FCA dealer.
A dealership that buys its own new car must eventually take it to auction or sell it — without the benefit of rebates and with the warranty clock ticking.
On sites such as autotrader.com and cars.com, nearly new 2015 Chrysler 200s are being sold as used cars, often at a significant discount. In late November, Automotive News found more than 200 dealer listings combined on both sites for 2015 Chrysler 200s with fewer than 1,000 miles on their odometers. That same day, there were fewer than 50 such 2015 Chevrolet Malibus listed and fewer than 25 similarly situated Ford Fusion sedans.
Last month in the small town of Mendon, Mass., southwest of Boston, Imperial Chrysler-Jeep-Dodge-Ram had 28 brand-new 2015 Chrysler 200 sedans for sale. Nearby, 10 more 2015 Chrysler 200 sedans awaited buyers in Imperial’s used-car inventory, some with just a few dozen miles on the odometer or less despite having been sold as long as 10 months ago, according to their CarFax records.
All 10 of the used 2015 Chrysler 200s had been bought new by Imperial itself — each one on the last selling day of a given month, complete with their rebates and with the clock started on their warranties — and converted a few months later into used cars.
Up from nothing
J.P. Carlo, the new-car sales manager at Imperial, said the 200 has been “one of our top-selling cars,” though it started from almost nothing.
“We didn’t have a volume car in that segment, and in order to grow that market, you need some repeat business on it,” Carlo said. He said the 200 stacks up well against the Malibu and Fusion, which Imperial sells at adjacent dealerships. The used 200s, he explained, “come at a price differential, which saves the customer a little bit of money.”
Karl Brauer, a senior analyst with Kelley Blue Book, said the number of used, near-zero-mile Chrysler 200s being advertised online hasn’t been large enough to impact the sedan’s residual value.
“Fleet sales and nationwide incentives are what are going to decide a car’s residual value,” Brauer said. “Even if there were 10,000 of these being processed in a calendar year, that’s still only a small percentage of the Chrysler 200s that are being sold.”
The factory supported some dealer buys of the 200 and other FCA vehicles.
In July, FCA launched what it called a customer transportation program that encouraged dealers to build and maintain a fleet of FCA loaner vehicles “so customers will no longer have to wait for off-site rentals,” an FCA spokesman said. The program incentivizes dealers to buy FCA vehicles from their own lots, use them as loaners and then rotate them out as used vehicles.
The spokesman said the loaner program was a “customer-satisfaction initiative” that had good dealer participation and is expected to grow. But in practice, one dealer said, the program had become a way to boost monthly sales totals.
He said: “The whole program is to have dealers stuff cars into it to try and get us to hit the objective programs they have.”
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