By Maddy Perkins

Mike Spencer owns and operates the Edward H. Spencer lot in the small town of Warren, Massachusetts — one of the last standalone Chrysler dealers in the country.

Given the town’s small population, he’s lucky to sell just a few cars a year.

While his small business was mostly unaffected by the Polar Vortex’s sale stalls (he had an average January and February) he knows that sometimes it hurts to be the little guy when spring brings new incentives to the table.

“It affects my business because when I’m competing with a bigger guy in the city, they’ll sell these cars for absolutely nothing,” Spencer says.

Because the cold weather kept consumers from buying cars in January and February, demand nationwide is expected to increase in the spring.

While this is good news for the industry as a whole, it poses a challenge for dealers to sell as much of their pent up inventories as possible. Incentive spending is a sales tactic that helps dealers lessen the price of each unit. Dealerships buy discounted units from carmakers in the interest of increasing sales. Incentivizing can bring in more consumers as some dealers opt to sell these cars for less to beat out their competitors, allowing consumers to save a few hundred dollars on their car purchases.  In order for manufacturers to approve incentive spending, dealers often need to meet sales quotas by selling a minimum number of cars.

Inventories are currently up 7% from last year – around a 70-day supply. That’s a little higher than the 60-day supply most dealers and analysts are comfortable seeing.

“You need a healthy level of inventory for consumers to have plenty of choices when they arrive at the dealership,” said Jesse Toprak, Chief Analyst at cars.com.  On the other hand, he said, “Too much inventory can be unhealthy.”

By incentivizing, dealers can both trim inventory and meet their sales quotas. This can be a risk – dealers who engage in incentive spending can lose money on each unit. However, meeting quota often has a positive return.

Spencer’s dealership is too small to spend much on incentivizing. Given the small number of cars he sells each year, his business stays afloat by offering maintenance and repair services. Unlike bigger dealers, he is not expected to meet a quota.

“They’re selling 40 or 50 new cars a month at these bigger dealers and hitting the quota number is a lot of money. It retroactively pays out 400-600 dollars a car,” Spencer says. “They’re all chasing that number. They need to push a bunch of cars even if they lose money on those cars, they need to push those cars to hit their big number.”

Manufacturers also reward dealers who meet these numbers more opportunities to offer other incentives if it’s something that’s helping drive sales.

“If they need to sell four or five more cars to hit their number, their return is a lot. So they can incentivize. The factory knows it and they just want more cars out the door,” says Spencer.

While incentives may cause rifts between competing dealers, they provide great opportunities for consumers to save hundreds of dollars on their car purchases. Joe Jenkins was in the market for a car last week and was offered more options than he expected from the dealers he was working with.

However, some dealers are better than others at dealing with customers when they’re trying to sell their inventories.

“At the first dealership I went to the guy was desperate,” said Jenkins. “He tried to bait and switch me and I called him out on it. It wasn’t so much of a good experience. The second dealership I went to was better.”

Kelley Blue Book Senior Analyst Alec Gutierrez predicts dealers will spend more on incentives in the spring months ahead in the interest of moving more vehicles.

“We expect to see incentive spending slightly higher than it was a year ago. Last month average incentive spend per unit was about 2600 dollars per unit. We wouldn’t be surprised to see average incentive spending per unit creep up to 2700 per unit in March,” Gutierrez says.

As dealers offer different incentives, the wealth of options for consumers can make the competition between dealers selling the same models pretty fierce.

 “I’m not competing against Ford or Chevy,” Spencer says. “I’m competing against the other Chrysler guy up the street.”

While some analysts have predicted that larger inventories and weather-delayed demand will lead to “incentive wars,” some don’t think this spring will be very different from past years. Jessica Caldwell, senior analyst at Edmunds.com, says that the slightly higher numbers aren’t going to push dealers to do anything out of the ordinary.

“I think the whole idea of “incentive wars” was just put out there by reporters. Incentives come on because inventories are high or expected to be high, but these numbers aren’t too high,” says Caldwell. “It would be a short term reaction and automakers and dealers are looking at a far more long-term plan.”

Instead, Caldwell believes that both the sales slowdown and increase in inventory isn’t really the fault of the weather, but rather a sign of the auto industry reaching its natural rhythm and pace. Inventories just aren’t high enough to cause dealers to go overboard on incentive spending.

“You definitely see this phenomenon every year,” Caldwell says. “When you hit May, June, July and August, those are strong sales months. If dealers oversell and don’t have inventory, then they’re going to lose out on sales.”