Why Does Co-op Work the Way It Does?

Why Does Co-op Work the Way It Does?

How did automotive co-op become the process we know today, and where is it headed next?

It’s important to get over the idea that co-op reps are just denying pre-approvals and cackling at your dismay. They have a real function and importance to auto manufacturers, and understanding why co-op works the way it does provides valuable insight on how to work with the will of your OEMs.

The Dawn of CO-OP

Scott Roberts, account supervisor at Sterling eMarketing, has been working within the auto industry’s advertising rules since 1985. He says that the co-op process really started in the 1990s.

Before that, dealers were paid by how many vehicles they sold.

But Roberts says that changed in the 90s “with the manufacturers seeing how much dealers were spending on marketing used vehicles.” He says the goal was to give dealerships an incentive to advertise new over used inventory.

No Pre-Approvals

“For the longest time, there weren’t pre-approvals,” Roberts says. Instead, stores would submit all their co-op material to the manufacturer’s district manager at the month’s end and hope it qualified.

Roberts says abuses in that process motivated manufacturers to manage co-op dollars more closely.

The approach to co-op has steadily evolved, and continues to change to this day.

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CO-OP Today

In the current process, most manufacturers use a third party agency to pre-approve content and ensure that the OEM’s investment is worthwhile. Remember, if your store isn’t moving cars, trucks, and SUVs, the manufacturer isn’t making money.

“I think of co-op as a manufacturer’s investment in its stores,” 9 Clouds Creative Director John Nelson says. “All manufacturers want to empower their dealerships to market new inventory to remain competitive. If manufacturers didn’t offer co-op funding for new vehicle marketing, many new dealerships would opt to market used vehicles, which have a higher per-sale profit. The manufacturer wouldn’t see as much in return for giving the dealership a franchise.”

Dealerships are responsible for connecting the brand to their market, in the last leg of the marketing journey. The three tiers of marketing in the auto industry have different priorities:

  • Tier 1: Why you should buy X vehicle
  • Tier 2: Why you should buy X vehicle now
  • Tier 3: Why you should buy X vehicle here

Risks of the Current Setup

Dealerships are responsible for tier 3, but Roberts points out that increased control from the manufacturers suggests the stores will be responsible for more and more marketing.

“The manufacturers are basically trying to get the dealers to advertise for them,” Roberts says.

The focus on a manufacturer’s current incentives can distract dealers from articulating the answer to that third question, why you should buy here.

Combining that with increased regulation on what does and doesn’t qualify for co-op, dealerships need more and more creative messages to cut through the noise.

“Take Minneapolis, Minn. for example, with 15 Ford dealerships,” Roberts says. “You have to give a distinctive reason why someone should buy from you, and still stay inside the co-op rules.”

And, as many of us know, there’s language in manufacturer requirements prohibiting you from saying you’re better than the next dealership over.

“You have to take the positives and just present those,” Roberts says.

Nelson also mentioned that, as with any sort of national program, there’s a lot of checks and balances. That creates another problem.

“It’s the timeliness of it,” he says. “We’re sometimes waiting up until the tenth of the month to get the incentives, and then we lose hours and days to market them.”

Nelson would love to see more time for dealerships and marketers to formulate strategies, but understands there could be issues if dealerships knew better deals were just a month away.

What’s Next for CO-OP

Based on their combined experience, Roberts and Nelson aren’t holding their breath for those changes.

“It’s getting trickier all the time,” Roberts says, noting that more manufacturers seem interested in finding approved agencies who understand co-op and pushing dealers there.

“You’re going to see the manufacturers get more and more tough on what passes co-op and what doesn’t,” he says. “We, as marketing experts, have to find more ways to differentiate stores in their region.”

Nelson agrees.

“Dealers need to be getting the right advice on what the best methods are to market themselves, both inside and outside what co-op lays out,” he says.

As we continue to see marketing tools and tactics change, Nelson says it is vital dealerships and their marketing teams figure out where and how they can best accommodate the goals of the manufacturer while not sacrificing that last segment of the sales funnel.

Get Your Co-op Senses Tingling

Co-op can get confusing, and there’s a lot about the process that we may wish we could change. But scoring those extra advertising dollars is huge for your store, so it’s time you learn to make the most of it!

Craft a co-op strategy that synthesizes your goals with the goals of your manufacturer. Need a hand? We’ll help you brush up on the wild world of co-op.