We live in a time of heightened volatility and uncertainty. You have a recession looming, as well as skyrocketing demand like anything. The effect is universal, and not just for automobiles or the financial sector. Think about inflation, fuel prices and the cost of living; everything has been bad since last year.

When it comes to automobiles, new car prices are out of the ordinary and used car prices are just as absurd. Insane profit margins mean more profit per unit, but not necessarily for the automaker. Dealers are those who raise money, taking advantage of low supply and high demand.

Although not all dealerships are fans of this practice, most larger ones, especially non-rural establishments, are taking advantage of this opportunity to make a quick buck. But the problem is that the end customer gets scammed, and the company/OEM is blamed for allowing such shady activities.

That is why General Engines and Ford have decided to take drastic measures to combat the high margins practiced by certain dealers. The American auto giants have even threatened them with withdrawing in-demand model allowances if they continue to overcharge customers.

RELATED: Here’s Why Dealers Are Adding Big Markups to the Kia EV6

Ford and GM are doubling down on stopping vehicle profit margins

Automakers are facing a lot of backlash for allowing dealerships to continue their insane “price adjustments.” While demand is certainly a good indicator of consumer interest, activities like these give the brand a bad image. That’s why Ford has pledged to eliminate “unreasonable markups” being charged by some dealerships amid the supply crisis, Fox Business reports.

Ford CEO Jim Farley said, “We have a very good understanding of who they are, and their future product allocation will be directly impacted.” Blue Oval was quick to respond when it discovered reservations for the Ford F-150 Lightning were overbooked.

Fox Business reports that Ford sales manager Andrew Frick previously sent a letter to dealers warning them that they could lose their F-150 lighting allowances if they attempt to charge reservation holders additional fees. to place final orders. Other Blue Oval models marked were the Ford Bronco, Bronco Sport, F-150 Raptor, and Mustang Mach-E.

Likewise, General Motors North American President Steve Carlisle is not letting the “market adjustment” exercise spiral out of control and affect his products. Especially the Corvette C8 Z06, the GMC Hummer EV and the Cadillac Lyriq. According to Detroit Free Press, Mr. Carlisle sent Chevy dealers a letter warning them of the practice and the consequences if they do not cooperate. The letter explains: “Unfortunately, it has come to our attention that in connection with some of these announcements and launches, a small number of dealerships have engaged in practices that do not promote a positive sales experience for our customers.” .

Toward the end, the letter states that “GM will be obligated to take action if it becomes aware of any unethical sales practices or brokerage activities…and that this letter serves as notice that GM reserves the right to redirect your vehicle assignment or take any other remedy prescribed by the dealership’s sales and service agreement.”

RELATED: Chrysler Says No to Dealer Markups on the 2023 300C

Why do dealerships mark up new car prices?

The advent of COVID – and everything that followed – brought about a series of events that caused soaring inflation, supply and demand disruptions and a global shortage of semi- drivers. The latter had a significant impact on the production of new cars. You may have come across reports of several complete cars waiting for chips, the type that powers the electronics inside the vehicle.

But how did this affect the price? When supply does not meet demand, prices tend to rise. This is the fundamental principle of the supply-demand concept. So naturally, with not enough supply, dealers started marking up existing inventory, leading to consumers paying more.

The thing is, it’s hard to put blame on a single entity. If supply had been normal, dealers would not have had to mark up anything and could have sold cars at MSRP, meeting customer demand. From the dealers’ perspective, they are sacrificing volumes and have to compensate for this by charging a premium. However, it is the way the premiums are charged that leads to a bad reputation. Markups of $50,000 to $70,000 have been reported on F-150 Lightnings, which is frankly absurd.

Nominal premiums of, say, $2,000 or $3,000 on an MSRP of $50,000 would have been morally sound. After all, the MSRP is a recommendation, and it doesn’t have to be the same from dealer to dealer. According to Investopedia, the MSRP is designed to keep prices the same from store to store. But retailers aren’t required to use this price, and consumers don’t always pay the MSRP when making purchases. Items may be sold at a lower price so that a business can reasonably pull inventory from the shelves or vice versa if demand is high.

Sources: Fox Business, Detroit Free Press


Automotive Dealer Services Company: Strong, with Challenges


For car dealerships, cybersecurity is more critical than ever

Check Also