Tuesday, January 1, 2008

Auto Dealership Managerial Incentives

Those interested in economics should go car shopping more often. It's like the Thunderdome of economic combat ("Two men enter; one man leaves"!!).

We ran into an interesting situation when shopping for a car recently. Our preferred color/model combination was not on the lot of our local dealer. But, that combination was on the lot of another dealership location, owned by the same company. The local sales manager, however, was not enthusiastic about making a trade with the other location. Why? I don't really know what the mechanics of a dealership are, but I imagine that making the trade would have somehow cost him. Then it becomes a rational decision to resist the trade given his incentives.

But what about from the perspective of the company as a whole. The trade makes sense for the company because a sale is made. But, the local manager's incentives must not be aligned with the overall goals of the company. The result? We went to another dealer (a different company).

1 comment:

  1. Why did you not visit the other dealer location seeking a color combination only available at the first dealer lot? You would then have backed-off your supposed preference in order to receive the color you originally desired - and bartered down the price for accepting a "sub-optimal" (in the dealer's eyes) product...

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