17 April 2015

You’ll Pay for That

A brief history of dealer price gouging

At a classic car auction, the generally accepted maxim goes something like this: A car is worth whatever people are willing to pay for it. As with classics, new cars are similarly categorized, and the laws of supply of demand often lead some dealers to take advantage, content to play fast and loose with the meaning of Manufacturer’s Suggested Retail Price. But in creating the demand, in needing to have the car that gets their blood pumping to the point of muddling their senses, buyers are just as complicit. And car dealers, consummate pros in the supply-demand bazaar, know exactly how to pounce.

It wasn’t always this way. Dealers of the 1950s and ’60s wanted to make as much money from a sale as possible, but they did so with “extras” like floormats and paint protection. Ka-CHING! This continued in the early 1970s, notably with the Datsun 240Z. The revolutionary sports car could out-perform cars costing two and three times as much as its $3,500 price tag, and enthusiast buyers lined up to get one. For more than a year, dealers added what they called mandatory accessories like air conditioning, pinstripes, wire wheel covers and yes, floormats, all in an effort to squeeze out every last cent from desperate buyers. Prices often eclipsed $5,000 as a result.

Things really got out of hand in 1976 with the Cadillac Eldorado convertible. GM claimed the big Eldo would be the last American convertible ever(!), which fueled media hyperbole and consumer hysteria alike. Already not cheap at $11,049, buyers and speculators flocked to the showroom to get theirs, lest they be forced to live beneath a fixed roof for all eternity. Some dealers seized upon the demand, offering cars at thousands above MSRP. Because hey, why not? In 2008, Hemmings Motor News claimed one New York dealer had offered a pair of Eldos for a staggering $138,000. Even at today’s meteoric auction prices, it’d be hard to get a return on that investment.

Two years later, in 1978, Chevy created a similar scenario with the Corvette when it built a special edition (Indy 500 Pace Car replica) of a special edition (25th Anniversary). Originally rumored to number just 300 — which really would have made the Pace Car special — the figure climbed substantially, first to 1,000, then 2,500, until Chevy decided every dealer in the country should have at least one Pace Car replica. So they built 6,502, and there’s nothing limited about that. In his book The Corvette Factories: Building America’s Sports Car, Mike Mueller quotes a Wall Street Journal article written during the height of speculation, which said the cars would be “selling for $75,000 within 90 days. This is a one-time shot; either you’re in now or you’re not in at all.”

At $13,653, the Limited Edition Corvette was already $4,300 more than a base Corvette. Stories like that in the WSJ didn’t help matters, and some dealers marked up the price by tens of thousands of dollars. Needless to say, it wasn’t the surefire investment experts said it would be.

Like the 240Z ten years before, the original Mazda RX-7 hit American shores at just the right time. In a post-oil embargo world of underwhelming cars, the fuel-sipping (relatively) RX-7 was a revelation, offering incredible performance (relatively) for just $6,500. But with buyers lining up to get theirs, dealers once again seized the opportunity to, well, get theirs, and consumers suffered.

Dealers and dealerspeak have evolved and they now call this practice a “market adjustment fee,” but you and I know it for what it is: price gouging. Buyers encountered it in a trio of Mopars, staring in 1992 with the Viper, then in 1997 with the Prowler, and again in 2000, for some reason, with the PT Cruiser. The most recent example is the ridiculously powerful Dodge Challenger Hellcat. It’s got an MSRP of $59,995, but you don’t really expect to get 707 horses for Hyundai Equus money, do you? No, what you get instead are dealers trying to get away with adding $150,000 (that is not a typo) to the price. To its credit, Dodge is doing its best to curb the practice by building as many Hellcats as it can, in the hope that anyone who wants one can get one.

The trend here, of course, is toward adjusting the price of rare, desirable, and/or performance cars. But you may recall that during the Cash for Clunkers program in 2009, some unscrupulous Toyota dealers artificially inflated the price of the decidedly unsexy Prius hybrid in the hopes of taking advantage of people who were just trying to change their carbon footprint. Some dealers charged $3,000–$10,000 over MSRP for the Prius, which negated any incentive do-gooders would have received for their clunker.

These are by no means the only examples of cars that have been subjected to, erm, market adjustment fees, and they won't be the last. But as one commenter on a Corvette forum declared, after much grousing by other commenters over C7 pricing: “It's only gouging if they are doing it to a product or service that is deemed essential. Somehow I doubt the purchase of a Corvette is essential.”

The guy may just have a point.

31 Reader Comments

  • 1
    Dean Koehler United States April 22, 2015 at 15:51
    Even the more mundane cars are subject to gouging. The first couple years of Tahoe and Yukon (95/96) had $3K markups over MSRP in the PNW.
  • 2
    Brett oregon April 22, 2015 at 15:56
    The northwest dealers have been requesting "additional dealer mark-up", on the everyday window stickers, of almost all of their offerings for many years.
  • 3
    Grumpy Old Man Washington DC April 22, 2015 at 18:10
    Have maintained for years that car dealers have their own code of ethics, their own unique view of right and wrong. This article barely scratches the surface.
  • 4
    David Randall Ipswich, Ma April 22, 2015 at 18:23
    You are talking about a few of the MILLIONS of cars sold each year. sounds like you guys had no idea what to write. I'd say there were most likely 99.5% of the cars could be bought at some kind of a discount. Give the dealer argument a rest.
  • 5
    57Tim Cameron Wi April 22, 2015 at 18:29
    No one forces anyone to buy the "price adjusted" vehicle. I sold cars when the PT Cruiser came out. We sold ours for MSRP and had over 50 orders of which we delivered 35 over a one year period of time. It was fun to price out one for a customer and take a $200 down payment and sell it for a fair price. No one complained about paying MSRP, just the wait time. Chrysler underestimated the demand for the quirky looking car which as it turned out was very high in quality coming out of Mexico.
  • 6
    Bill Berry United States April 22, 2015 at 19:08
    The Mazda Miata was another one! Holy cow, I couldn't believe what dealers were getting for such a simple car!
  • 7
    Frank Van Iersel Canada April 22, 2015 at 19:22
    Strange that Insurance companies talk about price gouging from car dealers... not all dealers and sales people are crooks... 13 years in the business and made many friends from my clients... same as all insurance companies aren't bad... or are they
  • 8
    Michael Banahan Oceanside newyork April 22, 2015 at 19:44
    If floor mats are price gouging. & four thousand more for a corvette. Than what do you call the pricing for a ford gt in 2006 & 2007 car jacking ?
  • 9
    Tim Blackburn Springfield. OH April 22, 2015 at 20:14
    In '85 I searched EVERYWHERE within a 100 mile radius for the lowest over list cost for a Honda CRX si. Turned out that the closest dealership to me was only gouging me by $450 extra. (Wish I still had it, btw.)
  • 10
    michelle Oregon April 22, 2015 at 20:48
    Customers cannot be price gouged if they do not line up to buy like fevered lemmings. It takes two to tango.
  • 11
    Steve United States April 22, 2015 at 09:07
    When I bought my 1991 Miata used from the original owner he gave me all of the paperwork he had, including the sales contract. It showed he paid $2k over MSRP to get the loaded silver model. The same thing happened with the Fiat Abarth when they first came out. Dealers were asking $3k over sticker where I lived in Northern California. Of course, now they have rebates and discounts. The dealer in San Jose had a $15,000 markup on the Chrysler 300 SRT-8 when it first came out. My work mate drove about 90 minutes, bought one in Sacramento, and then purposefully drove by the San Jose dealer to show them the sale they lost. I believe that same car was still sitting on their showroom floor a few months later. There is nothing wrong with trying to maximize profit on an item one doesn't need. And consumers certainly dicker on prices and try to minimize their cost as well. There are always other dealers just an Internet click away. And as the old Doritos commercial used to say, "crunch all you want... we'll make more." Supply eventually surpasses demand for most new cars. Just wait a few months.
  • 12
    Ed United States April 22, 2015 at 23:22
    I disagree with the comment in the second to last paragraph. Some people, including myself, would consider the purchase of a Corvette essential.
  • 13
    frank grass valley, calif April 23, 2015 at 01:58
    the NSX, too. Stacked 30k on top and wouldn't even allow a test ride
  • 14
    Fred Sigarto United States April 23, 2015 at 03:35
    I was lucky enough to purchase a 240Z in June, 1972. Each Dealer got 1 for every 29 cars they sold. I went to 3 Datsun dealerships in the Cleveland area, all wanting $1000 down and 6 month wait. Drove west to Elyria,Ohio to Stang Motors and talked with Terry Tracy. I told him i was recently discharged, saw the car in Japan when I was on leave in late 71, a right hand Fairlady 240ZG. Showed him the letters & brochures I received from Nissan. He took a $100 deposit, said "I'll see what I can do." A week later i get a call, he has three cars, I got first choice. I chose a white w/ maroon interior. When asked how they were able to get 3 in, it was because they also sold AMC, MG's & Triumphs, along with Datsun. I currently own a 72 240Z and a right hand drive 10/69 Fairlady ZL 5 speed..
  • 15
    Bill O'Connell United States April 23, 2015 at 16:11
    Remember also the 98 VW "Beetle" at several grand over sticker, and several years of Harleys around and after the 100th anniversary 2003 models at WAY over sticker. ( Harley wouldn't allow it, so most dealers sold them to a relative, rode em home a couple times, and sold them as "used" at what ever they could gouge. ) And some others "customized " them with a few chrome doo-dads and called theirs "Customs" ! I think it has come back to bite them as they are building them at over 400 thousand copies per year and many showrooms are flooded and prices have lowered considerably, and many dealers didn't make a lot of friends those days.
  • 16
    Tom Escover The Sea Ranch April 23, 2015 at 16:41
    Great commentary. I remember those days, and they really haven't disappeared at all. SF area dealers are currently adding a "market adjustment" of $150k to $175k for the BMW i8.
  • 17
    Bill O'Connell United States April 23, 2015 at 16:46
    Remember also the 98 VW "Beetle" at several grand over sticker, and several years of Harleys around and after the 100th anniversary 2003 models at WAY over sticker. ( Harley wouldn't allow it, so most dealers sold them to a relative, rode em home a couple times, and sold them as "used" at what ever they could gouge. ) And some others "customized " them with a few chrome doo-dads and called theirs "Customs" ! I think it has come back to bite them as they are building them at over 400 thousand copies per year and many showrooms are flooded and prices have lowered considerably, and many dealers didn't make a lot of friends those days.
  • 18
    ScottK SoCal April 23, 2015 at 17:35
    "Gouging" has negative connotations that there is something unethical or immoral In the transaction. When the market is hot, and suckers...er, I mean customers, are willing to pay above sticker, that's the free market in action. How many cold turkeys did the dealer have to take to get that "hot" car? Would one feel this way about collector car prices? Is it gouging to sell a Ferrari for mega millions? Before Senator Monroney mandated that new car price stickers with the manufacturers suggested retail price be affixed to all new cars, it was fair game for dealers to charge what they could, and during the post-war car boom they did, and how! Today, with the Internet and common sense, many new car buyers are completely savvy, and can negotiate an excellent deal on nearly any car, and then refuse the warrantees, floor mats and "paint treatment" in the finance department (where the real money is made). I elected not to buy the first generation Honda Civic when it came out, because dealers were charging over Monroney sticker. Later, I finally found a dealer- after much searching- to sell me a new '01 PT Cruiser for straight list, ordered it and waited 7 months for it. It wasn't worth the wait, but the dealer earned another new car sale from me later because of his fair treatment before and after the sale. The hysteria hype eventually ends, like it did quickly with the introduction of the Miata, because there was an abundant supply from Mazda.
  • 19
    Dave sacramento April 23, 2015 at 20:47
    No matter how it's said, nothing compares to the over pricing done at classic car auctions!! (not to mention the buyers premium charged on top of the high prices). But at least you can say you "won" the bid.
  • 20
    Sprie Williams Las Vegas Nevada April 23, 2015 at 21:07
    This is so true. Has anyone noticed how expensive Jeep Wrangler's are now compared to pre 2007 ??? They're as costly as a larger more luxury SUV... It's a shame because my wife and I leased two (98 &07) and wish we had purchased the 07, before the prices scyrocketed.
  • 21
    Rick Lappin Locust NC April 23, 2015 at 09:12
    I remember seeing a $10,000 dealer mark up on a special edition Datsun 280Z (I think) back in the late 1970's. It was called "black gold" or something like that. I remember saying to my brother that I couldn't afford the dealer mark up let alone the car itself, which a sales person standing nearby didn't particularly care for.
  • 22
    Laguna Mike Austin, TX April 23, 2015 at 10:09
    Don't for get the VW Rabbit diesels. "Five over window" was a deal in the LA market!!
  • 23
    Al Kansas April 23, 2015 at 10:42
    When I first saw the prototype of the Chevy SSR I thought that I just had to have one. But when I saw the price tag I knew I couldn't afford one. Even now, the used ones seem over priced. It's too bad because if Chevy produced enough of them and priced them reasonably I'm sure they would have sold a lot of them. But then again, Chevrolet must know what they are doing, they got the government, rather than consumers, to bail them out.
  • 24
    Mark Gillett Dallas, Texas April 23, 2015 at 11:51
    I'm afraid we are going to see a few months of this when the new Miata comes out.
  • 25
    Roger V Vancouver, WA April 23, 2015 at 12:32
    It wasn't always that way indeed. Before the Monroney stickers in 1959, dealers could charge whatever the traffic would bear for a new car. A common practice was called the "pack." A dealer would inflate the price of the new car [without 'extras'] and then "allow" a greater trade-in value for your old car. For example, I have a sales voucher for a new 1956 Plymouth with a sales price of $3,200. The trade-in, a 1952 DeSoto, was valued at $1,200 making the cash difference $2,000. Retail for a four year old DeSoto was about $800, so trade-in value was probably at most $500. That makes the "pack" $700 and the true price of the new Plymouth $2,500.
  • 26
    Bob Scottsdale, AZ April 25, 2015 at 16:13
    it is really too bad! I've owned driven nothing but Fords from 1995 on to 2013. I bought a new full sized bronco in 95, a new expedition in 99, and another new expedition in 04. I went to buy either an expedition or an edge in Dec 2012 and all the dealers in the local area wanted full sticker and one of them would NOT even answer my question "what will you sell it to me for?" I now own a Toyota 4 Runner. I feel bad as I was an American Manufacturing Engineer. But they did not want to sell me a vehicle. I am really starting to like my 2013 4 runner that I bought brand new! Ford may have lost a customer for life! Prior to that, I had NEW GM products from 1979 to 95 and they got greedy on their new Tahoo (which was the K-5 Blazer) and I moved on to Ford. Prior to that, I had NEW Mopars from 1969 to 1979. They didn't want to sell me anything and I moved on to GM.!! Take Heed!
  • 27
    Camaro Dr West Coast April 25, 2015 at 11:53
    Tesla is doing it right by selling cars factory direct. They are eliminating the unethical family-owned dealerships that can tarnish a brand of vehicle and manufacture by price gouging doing a necessary service and not taking care of factory recalls properly. After all the three most UnTrusted people are lawyers car salesman and mechanics.
  • 28
    Paul D Mesa, AZ April 26, 2015 at 17:54
    This is the height of hypocrisy. I'll bet the writer and just about everyone reading this would have no problem at all buying a hot car at list price if they could and immediately trying to sell it for much more on eBay or at an auction. I see it happen all the time.
  • 29
    Larry E Gilbert United States April 28, 2015 at 13:58
    Back in 1968 we had a local Chevy salesman that was making $50 per car selling the 350 and 375 horse SS Nova's and Camero's. He sold more cars in one year than the rest of the salesmen at that dealership combined. So there are folks on both sides of the fence.
  • 30
    JohnnieD Mesa,AZ January 26, 2016 at 19:17
    For the record. 42 years in the retail car biz. Most of this "greed" starts with a "Smart Ass" manager who will share in the inflated gross. However, if you are gullible or dumb enough to pay a premium then you got what you deserve. In most cases smart customers keep shopping untill they find a dealer with brains and at least pay no more than sticker which can be argued is fair. By the way Cali is the genesis of most of the hi jinks again it is "Smart Ass" managers trying to inflate a market which will show in their share of bonus if successful. It's called the "California Hustle".
  • 31
    Michael Florida April 19, 2016 at 19:40
    Manufactures need to take a stronger stance to keep dealerships, independent contractors pushing the product, image and face of the manufacture. The manufacture of a product HAS the power to control this obnoxious practice. First price their product correctly and have the logistics worked out to keep the productions lines rolling off more than enough to satisfy demand. Saturate instead of trickle the market so demand is satisfied before it becomes a negative customer experience. I mean imagine considering a GT350R and settling financing for say $65k, then add $40k due to a greedy dealer. Consider and contemplate $105k, HELL NO. Who's to blame, the scum dealer but that's expected, but the Mfgr Knows and ALLOWS this, and they will NEVER get my future business.

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