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Why TPAs Should Care About Dealer Participation Programs

March 22, 2023Industry Insights
Business people shaking hands

I n the world of automotive sales there are many different avenues dealers and manufacturers have created to generate revenue. One of these pathways is through dealer participation. Dealer participation programs are a type of incentive program offered by automotive manufacturers or financial institutions to their dealership partners. The goal of these programs is to motivate dealerships to sell more of a specific product or service by creating an earned revenue model through markup or volume sales.

When dealer participation is talked about, it’s usually met with scrutiny and in some cases, legal challenges. However, many if not all dealerships are not only interested in making use of these types of programs, but it’s become a method at which dealerships stay profitable. So, as a TPA (third party administrators), or a dealer yourself, it’s important to understand the benefits of dealer participation and the methods at which you can secure this type of added revenue.

The Different Types of Dealer Participation Programs

There exist many ways to navigate the dealer participation conversation, and as a TPA it’s important to understand the benefits and challenges of each.

The types we’re going to cover are:

Dealer Participation Infographic - retro, reinsurance, cash advance, and DOWC


Retro, short for “retrospective adjustment,” is a common feature of dealer participation programs. A retro is a way for the TPA to share the benefit of favorable loss ratio with participating dealerships. They are often paid annually after some period of measurement.

Retros can be calculated in a variety of ways, but it is usually based on a formula that considers the expected loss ratio to actual loss ratio at predetermined points in time. It allows the dealer to participate in the success of his warranty program and the results thereof.

Dealer Participation - retro


Reinsurance is a financial arrangement in which one party transfers a portion of its risk to another party or entity. In the context of dealer participation programs, a reinsurance program facilitates dealership sharing in excess loss reserves.

dealer participation - reinsurance - money falling

Cash Advance

In the context of dealer participation programs, cash advances can be used to provide dealerships with upfront funds to cover the cost of marketing and advertising campaigns, facility improvements, or other business expenses. Under a dealer participation program that includes a cash advance option, the OEM or a third-party lender provides the dealership with a lump sum payment upfront. The dealership can use these funds to cover the cost of business expenses or investments that can help facilitate growth. Over time, the dealership repays the cash advance, usually through a percentage of their future sales or revenue.

dealer participation cash advance

Dealer-Owned Warranty Companies

A dealer-owned warranty company (DOWC) is usually set up as a method for dealerships to create their own warranty products and coverage. In a DOWC program, the dealership establishes a separate company to issue and administer warranty contracts to customers, which means the entity itself creates a new line of revenue.

DOWC programs can provide several benefits to dealerships, including the ability to offer customized warranty coverage options and the potential for increased profits. By creating their own warranty programs, dealerships can differentiate themselves from their competitors and build customer loyalty.

Dealer Participation - DOWC

Why Should TPAs Care About Dealer Participation?

The short answer is that your dealerships care. The longer answer is that there’s a large potential for profitability and added revenue behind successful dealer participation programs, and managing these can make or break your client’s success as a dealership.

Dealership participation, provides incentives for the dealer to control cost, reduce fraud, improve customer service; and for the TPA builds dealership loyalty and retention.

Using Administration Software for Dealer Participation Programs

While this concept of dealer participation and incentive-based revenue can be a lot to manage, there exist various software approaches that help with administering and managing these programs.

Administration software can help TPAs make the most of dealer participation by automating and streamlining the process from contract issuance to claims management, and tracking and reporting on the performance of the program, to include:

  1. Workflow automation: Appropriate software can automate the entire process within the core administrative system, eliminating any redundant work and facilitating real time reporting to all participants.
  2. Data analysis/reporting: Software can help TPAs analyze data and generate reports (dashboards/portals), related to dealer participation and performance. This will keep TPA’s and dealers informed as well identify trends and patterns that can improve the program offerings.
  3. Compliance monitoring: Software can help TPAs monitor compliance with applicable laws and regulations related to dealer participation.
Dealer Participation - administration software

What’s Next?

If you’re interested in learning more about dealer participation and how PCMI tackles these key challenges, you can take a look at the different features of the dealer participation module within PCRS.

We also have an on-demand webinar on DOWC and dealer participation. It covers how TPAs can make the most of these programs and ensure dealership profits through accurate administrative practices.

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