Managing Factory Incentives

In order to better understand these incentive audits and what dealers can do to prevent or mitigate the negative impacts of an audit, we spoke with Sherralyn Peterson, an Automotive Incentive Specialist who helps dealers improve their incentive management processes, train their staff, and prepare for incentive audits. Her input helped us to address some of the following questions about incentives.

What are manufacturers focused on?

Every OEM has incentive programs - none of them are the same and all of them are complex, and OEMs have a lot of tools that enable them to quickly validate a claim. One of the changes resulting from the chip crisis is that OEMs now watch everything and every vehicle very closely, and they know exactly where vehicles are at all times, from shipment to final delivery to the customer. It’s important to make sure you know the rules and requirements for delivery reporting and that you’re doing so accurately. For example, can you sell a vehicle before it hits your lot? Is it a retail sale or fleet or commercial sale? It’s also very easy for OEMs to use VIN look-ups to determine what incentives are available or if a customer was the original purchaser of a vehicle being used toward loyalty or similar programs.

What are some best practices for incentives compliance?

Incentive programs are complex and ever-changing. With seemingly minor infractions enough to disallow a claimed incentive, sales managers need to know their programs inside and out. There needs to be an understanding that you can’t just plug someone into a role where they’re responsible for managing and reviewing incentives. They need experience and/or training. Even switching between OEMs can be difficult, and having someone master a particular program doesn’t mean they will be able to perform at the same level for another franchise. Specific and intentional training is imperative; prevention is a lot more effective than trying to resolve issues during an audit.

Dealers and their managers should also take compliance seriously and make their sales staff know that errors or incomplete information won’t be overlooked. Do what you can to get all of the necessary signatures and information before the customer leaves. It’s inefficient, ineffective, and poor customer service following up with customers looking for additional information after they’ve driven off the lot, especially if it’s days, weeks, or months later. Linking accountability to compensation is a great way to get results.

How do you get off/stay off the radar?

OEMs are more targeted in their approach to incentive audits. Dealers shouldn’t really be surprised if they end up selected for an audit as it’s most likely something they’ve done. Audits generally aren’t random, OEMs are obtaining information from various internal and external sources – DMV registrations, exporters, banks, etc. – and they are using this information to analyze and compare what you’re doing with other dealers and can quickly target anomalies. It’s important to make sure your team is well-versed in program requirements and follows through with proper documentation.

What do you do if you’re selected for audit?

In the event of an audit, you want to make sure you’re not surprised by what is in your deal jackets. Review any high-risk deals and get your paperwork in order, follow up on missing information, etc. Be aware of what not to show the auditors – you should only provide the minimum required information; unnecessary or irrelevant information should not be handed over. Along these same lines, control and be intentional about who is in contact with the auditor and how they are communicating.

For more information on your rights when you're selected for audit check out this blog post.

Despite the complexity of incentive programs, they’re an important part of a dealer’s business and bottom line, especially as interest rates reach 20-year highs and new vehicle prices continue to climb. Properly managing your incentive programs can help to make sure these are a tool available to your dealership rather than a compliance nightmare. Training, execution, and oversight are all important to any process, and that’s no different for incentives. Being proactive can help keep you out of OEM crosshairs and, in the event you are selected for audit, help to ensure you are prepared.

For more information, consult your CPA for assistance in navigating the complexities of incentives.