US automakers are waging war against independent car dealers over rising car prices. Many dealers are selling beyond the Manufacturer's Suggested Retail Price (MSRP). Caught in the exchange are ordinary Americans, who pay hundreds or thousands of dollars above a car’s listed price.
Car Dealers Selling Beyond The Sticker Price Set By Automakers
Major automobile manufacturers Ford and General Motors recently called out car dealers for ignoring the MSRP. Adding a premium to the sticker price is a relatively new behavior from dealerships. In fact, GN branded the practice as unethical. Consequently, automakers threatened car dealers with withholding deliveries of their most popular models. This includes Ford’s F-150 electric pickup and other EVs.
Despite the threats, data shows that car dealers' markups are common throughout the industry nowadays. During January last year, only 2.8% of car buyers paid above the MSRP. IN January 2020, only 0.3% did the same. However, this year saw more than 80% of American car buyers paying above the sticker price. Data comes from auto market research firm Edmunds.
American Car Buyers Paying An Average Of $728 Above MSRP
The markups cost American car buyers an average of $728. However, industry insiders say that four-figure add-ons are now common with popular sedans and compacts. This includes models offered by Asian car manufacturers Honda and Hyundai. In addition, some buyers reported that they had to pay an extra $10,000 or more for popular EVs and hybrids.
Meanwhile, Ford and GM’s rejoinder on car dealers exposes the growing disconnect between the two parties. Cracks in the relationship first appeared when EV companies like Tesla, Rivian, and Lucid sold their vehicles directly to consumers. Consequently, legacy manufacturers required by state laws to sell through dealers, are now looking into direct-to-consumer sales.
Used Car Prices Also Up By 40.5%
If you think that getting a used car can help avoid higher prices, think again. Since last year, consumers realized now is a bad time to buy a used car. Conversely, it’s a great time to sell one.
According to data released by the US Bureau of Labor Statistics, the consumer price index for used cars surged by 40.5% between January 2021 to January 2022.
As a result, the number of used car transactions also went up. According to used-car marketplace AUTO1, there were approximately 330,000 vehicle transactions during that period. It helped that the supply for new vehicles remains limited due to the chip shortage. Edmunds.com estimates that the average sticker price for a new vehicle is now around $46,000.
Higher Dealership Prices Can Slow Down EV Sales
Analysts say that higher car dealers’ prices plus a conflict over future sales direction threaten electric vehicle sales. Even as EV and hybrid sticker prices continue dropping, they remain out of reach for the average American car buyer.
Meanwhile, the Biden administration declared its aim to limit vehicle sales to electric models by 2030. According to McKinsey & Co, it will take some time to hit those lofty goals. By the second quarter of 2021, EV sales only accounted for 3.6% of total US vehicle sales.
Even as EV upstarts like Tesla are leading the race right now, legacy automakers are ramping up their electric lineup. They are banking on buyers to migrate to electric vehicles. However, car dealers worry that automakers will pursue the direct-to-consumer path in selling EVs. They fear losing a piece of the projected $1 trillion EV market by 2030.
Do you agree that car dealers should honor the MSRP when selling new vehicles? Why do you think car dealers are slapping higher costs instead of the given sticker price?
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