December 24, 2007 - 12:01 am ET
DETROIT — In January, Chrysler LLC and its dealers will bid farewell to the wicked witch.
The witch, in this case, is a controversial monthly sales incentive known as the volume performance allowance.
In 2008, Chrysler will usher in a new incentive regime to help dealers move the metal. The company will give dealers $200 for each car they buy from the factory and an additional $200 when they sell it to a customer.
The old program paid dealers a bonus based on volume. The new program pays dealers per vehicle sold, regardless of volume.
"The intent is to put the money in the hands of the dealership so they can do some planning," said Freda Bane, Chrysler dealer relations manager. "They can use it for advertising, for floorplanning or whatever."
Bane credited Chrysler's dealer council with persuading the company to come up with an acceptable alternative to the old program. When Chrysler announced the change at a dealer meeting in Las Vegas in October, dealers delivered a standing ovation.
Hayden Elder, chairman of the Dodge National Dealer Council, said eliminating the volume performance allowance and finding an acceptable replacement most dealers could be happy with were among the biggest achievements of the year in improving factory-dealer relations.
Under the outgoing program, Chrysler paid a per-car bonus of as much as $700 to dealers for reaching a sales target set by the factory. Most of the dealers who liked the program were those hitting the number.
Opponents, who included some prominent dealers, didn't like the old program because they felt it pitted Chrysler dealers against one another and set up a de facto two-tier price system. Some of those foes were hitting their targets but just felt the system was wrong.
Prominent dealers, including Mike Jackson, CEO of AutoNation, the nation's largest dealership group, spoke passionately against the incentive. "The day VPA was announced, I was against it," Jackson told Automotive News in August. "I think it's a corrosive program — the longer it's in place, the more cancerous the effect it has on a retail program. The sooner it ends, the better."
Chrysler sales executives and dealer council representatives have said that working to make all dealers profitable is their top priority in 2008.