2018 Volkswagen Parts & Accessories Incentive Programs. Parts Performance Bonus (PPB) and the Dealership Personnel Bonus (DPB)

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1 2018 Volkswagen Parts & Accessories Incentive Programs Parts Performance Bonus (PPB) and the Dealership Personnel Bonus (DPB) Accessory Performance Bonus (APB) Effective Date: January 1,

2 2018 Volkswagen Parts & Accessories Incentive Programs Volkswagen of America, Inc., an operating unit of Volkswagen Group of America, Inc. ( VWoA ) is pleased to continue offering our Parts Performance Bonus (PPB), our Dealer Personnel Bonus (DPB) as well as our Accessory Performance Bonus (APB) for These programs are designed to make the parts and accessories business more profitable for you, our dealer partners. Parts Performance Bonus & Dealer Personnel Bonus What is the PPB Program? The PPB Program is a program that provides dealers with quarterly bonuses for achieving parts purchase and parts inventory objectives. The PPB Program also provides the Parts Manager with the opportunity to earn quarterly bonuses (DPB) of up to 10% of his or her dealers earnings. The DPB is based on Parts sales out and purchase loyalty objectives. The goal of the PPB Program is to provide dealers with an opportunity to earn additional profit on Volkswagen parts purchases and to promote best in class inventory practices that will lead to improved parts sales, off the shelf fill rates and customer satisfaction. The DPB is focused on the dealerships sales out and can only be earned if the parts manager has achieved sales out and purchase loyalty objectives. PPB Calculation: The dealer s PPB is calculated by multiplying its PPB achievement percentage by its Adjusted Retail Parts Purchase amount. Purchases must be shipped and billed by the last business day of each quarter to count for that quarter s PPB earnings. PPB Achievement Percentage. The PPB Percentage is based on the dealer s Retail Parts Objective achievement and Parts Breadth achievement. Dealers must achieve a minimum of 80% Retail Parts Objective and 70% Parts Breadth to be eligible for a PPB. The PPB Percentage for dealers who receive parts by next day delivery is determined pursuant to the chart below and set forth in the green highlighted portion thereof: Adjusted Retail Parts Purchases. The Adjusted Retail Parts Purchase amount is the Total Retail Parts Purchase Amount excluding warranty parts purchases, drop ship items as identified below and dealer installed accessories. 2

3 Retail Parts Objective* Parts Performance Bonus Percentage Parts Breadth** 80% 75.0%-79.9% 70.0%-74.9% 110.0% 5.00% 3.75% 3.25% 105%-109.9% 3.50% 3.00% 1.50% 100%-104.9% 2.75% 1.50% 1.00% 90.0%-99.9% 1.25% 1.00% 0.50% 80.0%-89.9% 0.75% 0.50% 0.00% * The Retail Parts Objective percentage is the total amount of retail parts purchases by the dealer through VWoA, including remanufactured parts ( Total Retail Parts Purchases Amount ) but excluding warranty parts purchases, core charges and dealer installed accessories, divided by the Retail Parts Objective amount published by VWoA. The Retail Parts Objective amount is based on the dealer s market opportunity as calculated by sales per VIO in each dealers respective Primary Area Influence (PAI). Each dealers parts objectives for 2018 have been set and are available in the PPB Program portal as well as in Parts on Command (POC). ** The Parts Breadth percentage is the total number of part numbers in the dealer s stock that have quantity on hand greater than 0 and are contained in the dealers Suggested Stock Assortment (SSA) list (which is also available in the PPB Program portal) excluding the parts listed below, divided by the total number of part numbers in the SSA list. Parts with 0 pieces sold in last 9 months (if you haven t sold it, we won t ask you to stock it) VIP Parts Part numbers requiring the vehicle identification number of the vehicle requiring the part First 5 inventory feeds of the quarter do not count towards the quarter average PB% All vendor drop ship items including, but not limited to Engine Oil, Tires, Driver Gear, Chamberlin Marketing items, Interstate batteries, all Kem Krest and Sherwin Williams products Superseded Parts (excluding manual POC supersessions - not reflected in the price tape) Parts with Part Delete Status of X Exchange Core Parts: Part number starting with U Any generic / miscellaneous part numbers assigned by dealer: 'BATTERY', 'BATTERY CREDIT', 'FREIGHT', 'HANDLING', 'MISC VWoA will monitor and provide both the SSA list and the Parts Breadth percentage to dealers through the PPB portal. The SSA list will not contain DIA. Non-returnable parts are included in SSA. 3

4 Note: the PPB Percentage for the very few dealers that do not receive parts by next day delivery is determined pursuant to the chart above but with adjusted Parts Breadth percentages as set forth in the PPB Program portal. Please see the PPB Program portal for details. Those dealers transitioning from non-ndso to NDSO will have their bonus calculated based using the non-ndso matrix for the remainder of the current quarter plus one additional quarter. Remanufactured Parts: Remanufactured parts ordering and stocking will be based on individual dealerships business demand. Remanufactured parts returns should only be done to align the dealer s inventory with market demand. Any abnormal or unusual behaviors as related to remanufactured parts ordering and returns may affect a dealers actual bonus amount or cause a dealership to become ineligible for a PPB bonus for the quarter that this behavior occurred in. New Open Point and Buy/Sell Dealerships: Buy/sell dealerships and new points that open are eligible for the Parts Performance Bonus, Dealer Personnel Bonus and Accessories Performance Bonus programs. Buy/sells and new dealerships do not have historical parts purchase information to create an SSA, so the previous year s national average PB% will be used to calculate their quarterly bonus during the first two (2) quarters that the dealer is in operation. (If a buy sell or new point commences operations in the first half of a quarter, only the remainder of the first quarter and the full second quarter of operations will be calculated this way. If a dealer commences operations in the second half of a quarter, that dealer will receive the balance of that quarter, plus two full quarters using this methodology). The parts purchase objective and parts sales out objective will be assigned to these dealers based on expected sales per VIO in both workshop and wholesale using the same methodology as existing dealers. For loyalty, the previous year s national average will be used (as described above) after which the dealers actual loyalty and SSA will be used. For catch back calculations only the dealer s actual performance will be used, unless the dealer has become operational in the second half of the year and does not have actual PB% and loyalty %, in which case the default national averages will be used. 4

5 Dealer Personnel Bonus - What is the DPB? The DPB is a bonus that pays your Parts Manager up to 10% of the dealers PPB earnings. The DPB is NOT based on purchases and is based on Parts Sales out and purchase loyalty objectives. Bonus Calculations: The Parts Manager s DPB is calculated by multiplying its DPB percentage by the dealer s PPB amount. The Parts Manager must achieve a minimum of the National Average for the Parts Loyalty Percentage and a minimum of 100% of the Parts Sales Out Percentage to be eligible for the DPB. The DPB percentage is determined pursuant to the following chart and set forth in the green highlighted portion thereof. Parts Loyalty Percentage* National Average Dealer Personnel Bonus Parts Sales Out % of PPB Percentage* Payout 110% 10.00% 100% 5.00% Parts Loyalty Percentage. If the total amount of all retail parts sold by the dealer, ( Total Retail Parts Sales Amount ), minus the sum of the Total Retail Parts Purchases Amount and the change in the value of the dealer s parts inventory over the applicable quarter (i.e., the value of the dealer s parts inventory at the beginning of the applicable quarter minus the value of the dealer s parts inventory at the end of the applicable quarter) (the Parts Loyalty Amount ) is: (a) greater than 0, the Parts Loyalty Percentage is 100, minus the Parts Loyalty Amount, divided by 100 or (b) less than 0, the Parts Loyalty Percentage is 100 percent. The National Average for the Parts Loyalty Percentage is reported in the Parts & Accessories Bonus portal. o Dual Dealer Loyalty. Starting April 2016 dual dealers will have common parts from both franchises counted in their loyalty scores. Dealers not listed as dual on the dealer network dealer master yet using a shared DMS will have common parts excluded from their loyalty score. Parts Sales Out Percentage. The Parts Sales Out Percentage is the Total Retail Parts Sales Amount (excluding warranty parts and dealer installed accessories), divided by the Parts Sales Out Objective. The Parts Sales Out Objective is based on the dealer s sales performance in the prior year. The objectives have been established for 2018 and will be available in the PPB Program portal. DPB payments will be loaded onto the Parts Manager s official Volkswagen Incentives debit card. Only one person at each dealership will be eligible to receive the DPB, and this person shall be selected by the dealer principal. If no selection has been made by the dealer, the parts manager of record in the VWoA Learning Management System will be paid. Please contact your FOM if you would like to change the payee prior to the end of the applicable quarter. Parts Managers without an existing card will have a new card shipped to them. If a card has been misplaced please contact Citibank at for a replacement card. For lost/stolen cards, please call

6 NOTE: In order to be eligible for the DPB, the designated employee to be paid must be registered in the Volkswagen Learning Management System (LMS). If you are not registered with the Volkswagen LMS, please contact PPB and DPB Payment Dates: PPB and DPB payments will be paid on a quarterly basis (PPB is paid to the parts statement), with a semi-annual catch back provision (January - June and July - December). Catch back Provision: The catch back provision provides that VWoA will assess the dealer s PPB and Parts Manager s DPB performance for the 6 month objective period and will compare it to the sum of the periods 2 quarters. If the 6 month period performance yields a PPB or DPB that is greater than the sum of the quarters, the dealer (in the case of a PPB) and Parts Manager (in the case of a DPB) will receive a catch back payment based on the 6 month periods performance. PPB and DPB Eligibility and Opt-Out Provisions: To be eligible for the PPB and DPB the dealer must maintain a data sharing agreement with VWoA. Any dealers wishing to opt out of the PPB or DPB must notify their respective Region office and FOM in writing. Audits & Compliance: VWoA has the right: (a) to audit the dealerships records, including but in no means limited to any of the situations described below. (b) if VWoA determines that a dealer or Parts Manager is not complying with, or is otherwise manipulating or abusing the PPB Program, to disqualify the dealer or Parts Manager from the PPB and DPB Program and take any other action deemed necessary. Large value of remanufactured parts ordered and stocked for part numbers outside of the dealer s then current SSA list. Large quantity of remanufactured parts ordered and stocked beyond the dealer s 12 month retail sales history for those part numbers. Remanufactured parts returned that were not in the dealer s SSA list when ordered. Remanufactured parts returned as a percentage of the dealer s parts purchases on a quarterly or annual basis are above the national average. Large quantities or dollar volume items purchased within 30 days prior to a quarters close and then returned within 30 days after the quarters close. VWoA expects integrity from its dealer partners and any PPB and DPB earnings that were paid based on the behaviors outlined above, or for any other manipulation, misrepresentation and/or falsification may be reduced or charged back entirely by VWoA. Notification will be given to the dealer or his or her authorized representative prior to any chargeback. 6

7 Accessory Performance Bonus What is the APB Program? The APB Program is a program that provides dealers with quarterly bonuses for accessory purchase performance relative to the volume of their new vehicle purchases and sales. The goal of the APB Program is to promote dealer engagement with both Market Delivery Options (MDO) and Dealer Installed Accessories (DIA) while making both of these sales channels more profitable for our dealers. There is no catch back provision for APB as there is for PPB. The APB replaces the MDO Bonus, DIA Bonus, and DIA payout previously paid as part of PPB. Bonus Calculation: The dealer s APB is calculated by multiplying its APB Percentage by the sum of its Adjusted MDO Purchases amount and Adjusted DIA Purchases amount. APB Percentage. The APB Percentage is based on the dealer s: (a) total dollar amount MDO purchases, divided by the number of its New Vehicle Wholesale Purchases (MDO PNVW) and (b) total DIA purchases, divided by the number of its New Vehicle Retail Purchases (DIA PNVR). Dealers must achieve a minimum of $216 MDO PNVW and $25 DIA PNVR to qualify for an APB. The APB Percentage is determined pursuant to the chart below and set forth in the green highlighted portion thereof: Accessory Performance Bonus Percentage DIA PNVR MDO PNVW $125 $75-$ $25-$74.99 $ % 12.50% 10.00% $266-$ % 10.00% 7.50% $216-$ % 7.50% 5.00% Adjusted MDO Purchases. The Adjusted MDO Purchases amount is the total amount of the dealer s MDO purchases from VWoA excluding certain exceptions that may be adopted by VWoA. The Jetta Wolfsburg Edition (JWX) option is an example of such an exception. These exceptions will count for purposes of calculating the MDO PNVW, but they will not count for purposes of calculating the Adjusted MDO Purchases amount. Adjusted DIA Purchases. The Adjusted DIA Purchases amount is the total amount of the dealer s DIA purchases from VWoA excluding certain exceptions that will be adopted by VWoA. The accessories set forth below are a few examples of these exceptions. These exceptions will count for purposes of calculating the DIA PNVR, but they will not count for purposes of calculating the Adjusted DIA Purchase amount. o DriverGear, Wrap products, Sunshades, Touch Up Paint, Takeoff Wheel Assemblies, and VW Service Supply Store Products. 7

8 APB Payments: APB payments will be made via EFT to the dealer account and paid on a quarterly basis. Catch Back Provision: Unlike PPB, there is no catch back provision provided as part of the APB program. APB Eligibility and Opt-Out Provisions: To be eligible for the APB, the dealer must maintain a data sharing agreement with VWoA. Any dealers wishing to opt out of the PPB or DPB must notify their respective Region office and FOM in writing. Audits & Compliance: VWoA has the right: (a) to audit dealer records and (b) if VWoA determines that a dealer is not complying with, or otherwise abusing the APB Program, to disqualify the dealer from the APB Program and take other action as necessary. Program Administration: VIN Detail reports will be published in the Vehicle Sales Incentive Reports folder under My Dealership Reports and Publications in VWHUB. Bonus reporting and payments will be managed by the Incentives & Auditing Services Team, which is the same team that manages VWoA s incentive programs. Standard Provisions: See the Standard Incentive Program Provisions published separately for additional eligibility requirements. Data Source Disclaimer: The calculations for the PPB/DPB Program and APB Program discussed above are largely based upon each dealer s own DMS data. Dealer shall ensure that all DMS data transferred to VWoA and its on record program service provider (currently NITS Solutions, Inc.) is accurate, complete and correct. If such data is not accurate, complete and correct, the dealer may be disqualified from the PPB Program and APB Program until VWoA determines otherwise. Data transfer shall occur via VWoA s on record third party data extraction company (the Data Extraction Company ), currently Digital Motor Works Inc. Each dealer is responsible for establishing the data transfer directly with such Data Extraction Company. For any data extraction, data consolidation, system login, data extraction process setup and other data issues that impact the accuracy of dealer s data, Dealer must work directly with the Data Extraction Company to resolve such issues in a timely manner. VWoA is not liable for any data inaccuracies resulting from either dealer s DMS system or from incorrectly setting up data extraction, data consolidation or data transfer between dealer and the Data Extraction Company. 8

9 Final Decision/Amendments: VWoA s decisions are final in all matters relating to incentive and bonus programs and the incentives and bonuses awarded thereunder. VWoA has the right to amend or cancel any incentive or bonus program, and its terms and rules, at any time for any reason. VWoA will notify Dealers in writing of any such amendments or cancellations before they take effect. 9

10 PPB Example Dealer A has the following statistics for a given quarter: A. Retail Parts Objective = $250,000 B. Retail Parts Purchases = $300,000 C. Oil Purchases = $30,000 D. Tire Purchases = $20,000 E. SSA list = 3,500 part numbers F. SSA qualifying part numbers in Dealer s stock = 2,700 Calculation: Parts Breadth % = (F) 2,700 / (E) 3,500 = 77% Retail Parts Objective % = (B) $300,000 / (A) $250,000 = 120% Adjusted Retail Parts Purchases = B (Retail Parts Purchases; $300K) C (Oil; $30K) D (Tires; $20K) = $250,000 PPB = $250,000 x 3.75% = $9,375 bonus payout Retail Parts Objective* Parts Performance Bonus Percentage Parts Breadth** 80% 75.0%-79.9% 70.0%-74.9% 110.0% 5.00% 3.75% 3.25% 105%-109.9% 3.50% 3.00% 1.50% 100%-104.9% 2.75% 1.50% 1.00% 90.0%-99.9% 1.25% 1.00% 0.50% 80.0%-89.9% 0.75% 0.50% 0.00% To Increase Dealer A s PPB Dealer A could increase its PPB by $3,125 for a total PPB $12,500 by stocking 100 more qualifying part numbers from VWoA and thereby achieving 80% Parts Breadth. 10

11 DPB Example Dealer A Parts Loyalty Percentage is National Average 112% of Sales Out Objective Parts Manager of Dealer A will receive $9,375 x 10% = $ To Increase the Parts Manager s DPB Dealer A could increase the DPB payout to $1,250 by stocking 100 more qualifying part numbers from VWoA and thereby achieving 80% Parts Breadth and increasing the dealer s PPB to $12,500. Parts Loyalty Percentage National Average Dealer Personnel Bonus Percentage Parts Sales Out % of PPB Percentage Amount 110% 10.00% 100% 5.00% 11

12 APB Example Dealer A has the following statistics for a given quarter: A. New Vehicle Wholesale Purchases = 100 Vehicles B. New Vehicle Retail Purchases = 100 Vehicles C. MDO Purchases = $35,000 D. DIA Purchases (including DriverGear) = $10,000 E. DIA DriverGear Purchases = $1,000 Calculation: MDO Purchases (C) / New Vehicle Wholesale Purchases (A) = $350 MDO PNVW DIA Purchases (D) / New Vehicle Retail Purchases (B) = $100 DIA PNVR Accessories Bonus Payout = 12.5% (MDO Purchases (C) + DIA Purchases (D) DriverGear Purchases (E)) x 12.5% = $5,500 Accessory Performance Bonus Percentage DIA PNVR MDO PNVW $125 $75-$ $25-$74.99 $ % 12.50% 10.00% $266-$ % 10.00% 7.50% $216-$ % 7.50% 5.00% To Increase Dealer A s APB Dealer A could increase its APB to $6,975 by purchasing $2,500 more DIA and thereby increasing DIA PNVR. 12