Elaine Gasaway ofCommerce Township,Michigan understands supply and demand.
So when Glassman Subaru inSouthfield told Gasawayit now charges afeeabove sticker price to order her anOutback SUV– the only carthat would accommodate her cello–she signed on the dotted line.
"They’re charging me $3,000 over sticker to order it," said Gasaway, who is a semi-professional cellist. "They said if it was a car on the lot, it would be $4,000 over. They can charge more for the cars now and they are. I am really busy ...so I don’t have time to go from dealer to dealer."
Many other car buyers may find themselves paying over sticker priceon their next car as a vehicle shortage meansdealershave more customers than wheels, giving them a pricingadvantage.
Called a market adjustment fee,the surcharge is usually handwritten near thesticker price or verbally conveyed by the sales person. Itis becoming more widespread across the nation onallmakes and models, not just hot sellerssuch as the Chevrolet Corvette or Ford Bronco Sport, auto experts said.
The fee ranges from afew hundred bucksto $20,000 ormoreabovethe Manufacturer's Suggested Retail Price (MSRP).
Intended tooffset thelowsales volume dealerships are experiencingdue to the trickle of new vehicles coming fromfactories as manufacturers struggle with parts shortages, the feeis raising questions about ethicswithin the industry and forcing drivers to make tough choices. There are some who raise the specter of price gouging, too, which would be a legal issue.
Michael Glassman, vice president of Glassman Automotive Group, said new vehicles are increasingly hard to come by, sohe has to try to meethis customers' budgets while still making enough to pay hisfixed costs. He said market availability dictates prices and he noted many trade-in vehicles command a high price.
“This is a unique time for us and other dealers," Glassman told the Detroit Free Press, part of the USA TODAY Network. "There are some vehicles we’ve had to (mark over sticker) because theyare in high demand. But it’s a tough thing to review with a customer. We negotiate every deal in good faith, but it’s unchartered territory. We’re doing our best to help customers."
In October, consumers paid an average of$535 over MSRP,said Ivan Drury, senior manager of insights at Edmunds.
“It’s happening even on vehicles like the unthinkable: the sedan. That'sthe vehicle the automotive industry considered dead,” saidDrury. “We’re seeing markups on the Toyota Camry, Honda Civics ... there is a desperation by buyers to get anything and they’re paying those markups.”
Parts jam
By now, you've probably noticed near-barren dealership car lots.There are a couple of reasons for it.
First, when theCOVID-19 pandemic hit last year andnearly everythingshut down for several weeks, people stopped spending on services and shifted to buying products.
The sudden spike indemand fortangible goodsput the supply chain out of whack in many industries, driving up prices.
Plus,U.S.ports remainjammed withships that can'tunload their goods because the ports are filled with empty containers that can't be moved to make room for new containers because of the logjam. Some of those products on those ships areengines and car parts.
Beyond that, the pandemic-induced shopping frenzy last year included people buying morepersonal electronics and computers, which are made with the samesemiconductor chips also used in a variety of car parts.
So when the auto plants idled for eight weeks at the start of the pandemic, the chip makers, most of which are in Taiwan, shifted their orders to the lucrative laptop industry. Now automakers struggle to get back to the front of that line to get the chips.
► The microchip shortage explained::How it's impacting car prices and the tech industry
Whenautomakers do get chip parts, they have been directingthemto the factories that build the most in-demand and high-profit vehicles, such as pickups and SUVs, idling other car production. Or they buildvehicles withoutthe chip parts,then parkthousands of vehiclesuntil more parts arrive.
The result is a dribble ofnew vehicles to dealerships, long waits and higher prices for customers.
The markups
Edmunds' data showsthe average transaction price for new carshas been higher than the MSRP for the last three months, Drury said. That indicatesthat "a majority" of the 16,668 new car dealerships in the nation are charging fees above sticker price,he said.
“Most people are coming across this when they go to the dealerships," Drury said, noting that Edmunds also did a recent survey of car buyersthat included inquiriesonpandemic pricing. "I don’t think anyone saw that one coming. We went from discount,discount,discount to, all ofa sudden, we’re paying over MSRP.”
The average transaction price for a new car last month was$45,630compared withthe year-ago periodwhen it was $39,891, Edmunds data showed. Even used car prices are up 28% year-over-year as the lack of new car inventory has led to fewer trade-ins. The average transaction price for a used car was a record high of $28,756 last monthcompared with$22,454a year ago.
For October,these new vehicles had some of the biggest markups, according to Edmunds. Here is the average markup over sticker:
- Mercedes-Benz G Class: $7,179
- Mercedes-Benz GLE Coupe:$6,817
- Ford Shelby GT500: $6,524
- Cadillac Escalade ESV: $4,700
- Cadillac Escalade: $4,592
Even thenon-luxury vehicles are selling over sticker price. Edmunds' October data shows the following markup over sticker price:
- Kia K5 sedan:$1,868
- GMC Yukon :$1,770
- Honda CRV:$1,465
- Toyota Sienna:$1,460
- Honda Civic: $1,448
- ChevroletSilverado 2500 heavy duty: $985
- Ford Bronco Sport: $947
- ChevroletTraverse: $845
- Toyota Camry: $673
- Dodge Charger: $641
- Chevrolet Malibu: $350
“We have seen where people have taken pictures of a window sticker with a $20,000 markup," Drury said. "But you don’t have to pay it.I assume the dealer wants you to hack away at it to some degree. You still have some wiggle room.”
'Hung up on him'
RichardSchmidt, who lives inStatesboro, Georgia, about 60 miles west ofSavannah, discovered the new surcharge while shopping in Augustfor a2021 Chevy Silverado 1500 RST Z71 pickupin North Sky Blue.
Hequickly learned that his Friends and Family discount, thanks to his brother-in-law having worked for GM for 42 years, was not going to be honored at most Chevy dealerships near him as many dealers have been eliminatingthe perk to offset their inventory scarcity.
“No dealership I contacted in the state of Georgia, and there must have been 20 of them, would give me the discount," Schmidt said.
More:Your auto dealership may not honor employee discounts anymore: Here's why
He started shopping at dealerships in nearby states and still had no luck. Then, in October, hefound a Chevy dealernear Flint that had the exact truck he wanted and would honor his discount. But before flying to Michigan, he gave his local dealership one more try.
"The sales manager said, 'Mr. Schmidt we’re trying to earn your business.' I said, 'You’re not doing a good job of it.' I said, 'You guys have a truck on your lot that isn’t what I want and it’s about $2,000 more than a better truck that I can get in Michigan, but I am willing to settle for something I don’t want for $2,000 morebecause I don’t want to travel,' " Schmidt said.
Schmidt said the Silverado advertised on the dealership's website was $49,000. That's when he got a new form of sticker shock.
"He said, 'Oh no,it’s $2,995 more than that,' because they adda market correction fee on it and that 'all dealerships are doing it.' ” Schmidt said. "I hung up on him. I guess he had the intelligence not to call me back. So it would have been$53,000."
Schmidt finally found a nearbydealer that honored his discount and didn't charge him a fee. He said the MSRP was $55,000 and, after his discount, he bought it for $47,000.
'Gotta keep the doors open'
A person familiar with the sales process at aGeorgia dealership Schmidt did not buy fromspoke to the Free Press, but asked to not be identified for fear of losing his job.
The person said the dealership started adding afee to new cars about three months ago after losing about 150 sales this year due to a lack of cars to sell.
“We used to run the dealership with 300 new cars," he said, noting they have about adozen now. "We have to keep the doors open and we have 100 employees to pay. We don’t know when we’ll get more cars.”
The markup depends on the model, but most are around$2,995, he said.
But he said he has seen extremes in the industry: "If it’s an Escalade, Camaro or Corvette…they are selling at auction for $30,000 over sticker asnew," he said. "A Corvette gets a $30,000 market adjustment fee now. A used Escalade with 20,000 or 30,000 mileson itis getting $20,000 over sticker."
He said the prices at auction to buy used cars have soared, too, for dealers.
"They’re bidding them so high, we’re not buying any of them," he said. "We’re relying on trades or buying cars off the street."
But he worries about losing customersby asking for too much over MSRP. Many of his long-time or wealthy clients have said they will postpone theirpurchase until the price returns closer to MSRP,he said.
"Management is not happy about it either,but they don’t have much of a choice because we gotta keep the doors open," he said.
GM does not approve
Not all car dealers are charging these fees, industry experts said.
GM spokesman David Caldwell said "GM and its brands do not approve of this practice. While our dealers are independent and control local market prices, we believe this practice is rare across our volume products. Many dealers are taking extra measures to fulfill customer needs and provide them with the vehicle of their choice."
Ford Motor Co. spokesman Said Deep told the Free Press the automaker did not believe "the vast majority" of its dealers were charging over MSRP and it works with dealers to provide the overall right customer experience.
But as many industry analystssaid, themanufacturers have limited control over dealership pricing.
"Dealers are independent franchises and ultimately set the final price with a customer," Deep said in an email. "Right now, in a supply constrained environment, dealers are more likely to price around MSRP, unlike in the past when inventory was more available.”
Stellantisrepresentatives did not respond to a request forcomment.
Michigan-based Buick GMC dealer Sam Slaughter said he is not selling new cars above sticker price at either of his stores.
“We believe that reputation is everything and we just feel like that would be taking advantage of a customer unnecessarily," Slaughter said. "We’re also accepting GM employee discounts on every vehicle."
He said he ended last month with no new inventory on the ground at the Subaru store and 80 new vehicles at the GM store. But there are new vehicles "in the pipeline" headed for the stores and between taking orders, selling vehicles as they arrive off the delivery truck and service work, both stores are "doing just fine."
"We’re taking the long-term view and we have employees to take care of, too. But this is no different from getting through COVID," Slaughter said. "You do what you have to do and you get through it."
Refusal to sell, unless...?
At LaFontaine Automotive Group, which has 29stores in metro Detroit, there are some new vehicles that are getting a markup, said spokesman Max Muncey.
"It really depends from brand-to-brand and model-to-model, some that are extremely hard to come across have been garnering a 'market adjustment,' " Muncey wrote in an email to the Free Press. "But we are truly trying to look at it long term with customers not be short sighted on initial gain."
But it wasLaFontaine Subaru in Commerce Township that led Gasaway to Glassman Subaru. She was ready to pay cash to buy anOutback at LaFontaine Subaru, she said, whenthe salesman told her they would sell it to her only if she let the dealership arrange the financing. Dealerships make a lucrativefinder'sfee for setting up financing.
She left, telling them, "I don't appreciate being bullied." Gasaway said. "I walked out the door and I am never coming back."
She said shehascomplained to the state attorney general's office, the Bureau of Regulatory Affairs in the Secretary of State’s Office and left comments for the Better Business Bureau.
Muncey said it isnot a LaFontaine corporate policy to declinecash transactions "or to require individuals to only finance through us."
He said the car Gasaway wanted wasa sold order to another customer who had already put a deposit on it, so the dealercould not sell it.
"I believe the situation could have been handled better and there was a breakdown in communication between the customer and our sales professional and manager," Muncey said. "We’ve tried to reach out to the customer a few times to apologize for the misunderstanding."
'Unethical'but legal
In the past, paying above sticker was contained tolimited-production specials and "not to this extent," said Karl Brauer, executive analyst for iSeeCars.com, an internetsearch engine for new and used cars.
He recommends consumers holdoff on a car purchase unless it's absolutely necessary. If they do shop, be as flexible aspossible on trim, color and locationof a dealership.If a customer has to drive three hours to a dealership, but cansave $1,000, that's "a good day," Brauer said. That's becauseit's unclear if this is the new normal or if it will dissipate in a few months.
“Like most businesses, dealers see the opportunity to make money," Brauer said. "It’s easy to take the consumer’s viewpoint that it’s horrible and terrible treatment, but from a business perspective, if there’s an opportunity to make more money, they do it.”
And, the fact is, they can do it.
“The excuse you hearis, 'We have to make up volume.’ That’s just justification and window dressing," said Steve Melnyk, professor of supply chain management at Michigan State University. "They’re doing it because they can do it, no one’s going to slap their hands.It’s morally unethical as hell, but where is it illegal? The selling price is a recommended selling price.”
It would be illegal onlyif a dealer charged a person more based on their race, age, gender,ethnicity or other discriminating factor, Melnyk said.
Consumers who are concerned about fees or costs on a vehicle, or any product or service,should ask questions, get information in writing, and shop around, Mukomel said.
Erik Gordon, a professor at University of Michigan's Ross School of Business, said the practicedoes raiseaquestion of price gouging:"Think about when there’s a hurricane or blackout and people triple the price of plywood or food.”
Beyond that, a surcharge is bad business, Gordon said. Mostdealers spend a fortune to market animage of trustworthiness. They are potentially "blowing that up with these surcharges" because many consumers have long memories.
“There is a brand of cars where when I was a kid, my parents felt they were treated unfairly by the dealership," Gordon said. "That was 30-plus years ago;neither my parents or their four children have ever walked into a dealership of that brand since. Andthat’s despite the fact that they have had a model I thought was cool. How much does that cost? I don’t know.”
Contact Jamie L. LaReau at 313-222-2149 or jlareau@freepress.com. Follow her on Twitter @jlareauan.
