- Dealerships are charging too much for cars right now.
They call it a market adjustment.
I call it a fricking rip off.
We've all heard their reasoning,
supply chain issues,
increased demand during the second half of the pandemic,
but it's still pretty outrageous
that we're seeing stuff like a Nissan Versa
selling for 33% above MSRP.
The thing is,
dealer markups aren't necessarily a new problem
for consumers,
and with tensions rising between dealers and auto makers,
things could get worse before they get better.
Today on "Wheelhouse,"
the great American car dealership conspiracy.
What's being done to combat it?
Will we ever buy a fairly priced car again?
I sure hope so.
- I like cars.
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You like cars.
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We like cars.
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- Before the pandemic knocked the world off its ass
and ushered us into an alternate universe,
dealer markups began with a simple automotive math equation.
A new car plus tons of hype equals markups,
which makes sense.
Take the basic law of supply and demand,
apply it to a hot new luxury vehicle or sports car,
and boom.
You can understand why dealers would sometimes
take a little extra off the top,
but as we've seen recently,
it's really easy for a limited supply of cars
to become a slippery slope towards flat-out greed.
For example, back in 2016,
dealer markups basically killed the Ford Focus RS.
But before we get to that, if you're liking this video,
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When Ford first announced
that the Focus RS was coming to America,
hot hatch enthusiasts were stoked.
I was stoked.
Everyone at Donut was stoked.
It had been available in Europe for years,
but performance hatchbacks are like soccer,
really popular in Europe and way behind in America.
So, it took until 2016 for this version of the Focus
to hit the States.
(engine roaring)
Anticipation for it only grew,
when the 350-horsepower, all-wheel drive Focus RS
immediately took down the Subaru WRX STI,
and the Volkswagen Golf R in motor trends comparison tests.
Dealers saw this as an opportunity
to make big bucks off years of Euro hype,
and basically treated this car like a Lamborghini.
They refused to allow test drives,
and put their stock behind literal velvet ropes
on showroom floors.
It was also very common to see dealer markups up to $10,000
on a vehicle with an MSRP of 35K.
I mean, it's a good car,
but it's also a Focus.
Come on guys.
By the time prices came down to a reasonable level,
and dealers stopped treating every Focus RS
like a crystal sculpture instead of a car,
the Civic Type R had come out, and was way easier to get,
although it also suffered from markups of its own.
Meanwhile, people figured out that the Focus RS
wasn't an incredible game-changer,
but simply a solid, but overpriced, performance hatchback.
By 2018, Ford pulled the plug on it.
That was sad, man.
That was a sad time.
It's a boy racer car.
At the time, I was but a boy.
I could not afford it.
It's like they say in my favorite Eighties song,
"Video killed the radio star,
and Ford dealers killed the American hot hatch."
But the Focus RS is just one isolated
and very special example from the past.
These days, the problem is everywhere.
In January of 2022, more than 80% of US car buyers
paid above MSRP for their new vehicle, according to Edmunds.
Same month in 2021,
only 2.8% of buyers paid a dealer markup.
And in January of 2020, it was just 0.3%.
On average, right now, consumers are paying an extra $728
for every new car.
Rising dealer prices have swept across nearly all brands.
Popular sedans like Honda and Hyundai
are commonly seeing markups in the low four figures.
The luxury Cadillac line has been marked up over $4,000
on average,
and the extra cost can run more than 10 grand
for popular EVs and hybrids.
It's insane.
The problem is also increasingly complex,
because since the pandemic began,
the US auto market has swung from one extreme to the other.
(bright music)
During the initial wave of the coronavirus in early 2020,
almost no one was buying cars.
The world was in lockdown,
and there was hardly any reason to drive at all,
much less risk their money on buying a new car.
So, auto companies cut production, and prices fell,
as unsold cars sat on dealer lots for months,
but after a year of inside time,
in 2021, Americans were eager
to plop down fatty stacks of cash
for cars that can take them far, far away
from home isolation.
However, the coronavirus still raged elsewhere in the world,
leading to supply chain obstacles
that have slowed manufacturing.
Microchips are the most discussed shortage,
but it's not the only problem.
More recently, a rubber shortage caused by flooding
and tree disease in Asia,
has led to increased tire prices,
and car manufacturers have also been forced
to scale back production of spare parts,
so they can keep up with new car demand.
Meaning, it's been difficult in some places
to get a simple brake pad or oil filter.
Meanwhile, manufacturers basically never had
enough EV batteries to keep up with demand,
and the problem has only gotten worse during the pandemic.
COVID itself has also contributed to a labor issue
for all auto manufacturers of all stripes.
While juggling positive tests
and subsequent isolation periods among their workforces,
some companies have resorted
to sending white collar office workers
onto the factory assembly line to keep production moving.
The labor problem is only exacerbated
as most major car companies move their focus
to electric vehicles,
which often require additional skills and training
to build compared with traditional gas cars.
As a result of all this,
not only are dealers jacking up the price of new cars,
but a trickle-down effect has also increased prices
on the used car market by 40% compared to last year.
Naturally, the dealers don't see these markups as greed,
but as "business imperative."
Supply shortages mean dealers have fewer cars in the lot.
Fewer cars means lower sales volume.
So, to compensate, they have to mark up prices
on whatever stock they have.
On the surface, this argument makes a bit of logical sense,
but basically falls flat
when you look at the actual dollars involved.
According to the National Automobile Dealers Association,
US dealership profits went up 65%
through the first nine months of 2020,
setting an all-time record.
These guys are making a lot of money.
There's another factor at play here.
And like most things that are controversial,
and car related, it starts with Tesla.
(upbeat music)
See, in most US states,
direct manufacturer auto sales are illegal,
meaning Chevy can't sell you a Chevy.
Only an independently owned Chevy dealership
can sell you a Chevy.
But Tesla found a way around those laws by using galleries
that don't intend you to sell a Tesla,
but rather talk you into buying a Tesla online.
Tesla's sales model,
which is also being adopted by other EV companies,
like Rivian and Lucid,
has led to tension between dealers and automakers,
and the recent epidemic of dealer markups
has only made that tension worse.
Dealers are worried
about eventually being completely cut outta the loop,
while legacy automakers think that markups
are costing them sales,
particularly as they rush to compete with Tesla
in the EV market.
Ironically, dealers may be incentivizing car companies
to work around them in the future.
GM, Ford, Stellantis, Volkswagen, and Daimler,
are already exploring ways to imitate Tesla's model
for their own EVs.
At the very least, the major automakers are not happy
that dealers are getting so fat on markups.
General Motors recently scolded their affiliate dealerships
for ignoring MSRPs,
which GM calls unethical.
Several years after the Focus RS disaster,
Ford continues to be somewhere near the center
of the dealer market problem.
The new Bronco, in particular,
has seen huge markups and long waits,
because of its immediate popularity,
as well as manufacturing issues
related to its molded hardtop roof.
The problem is so bad
that some people who reserved a Bronco two years ago
are losing their place in line,
because Ford keeps adjusting the order of its deliveries
to prioritize big city dealerships.
Not exactly fair.
Auto companies generally allocate the most cars
to dealers near big cities that move a high volume.
Ford is doing the same thing here,
sending Broncos to their most successful dealers
as soon as they roll off the assembly line.
These dealers are able to move them at huge markups
to motivated Richie Riches.
Meanwhile, people in rural areas who reserved a Bronco
at a normal price at their local Podunck dealership,
are getting screwed.
It's enough to make a man suspect
that perhaps corporations don't have our best interest
at heart.
The messaging from Ford has been mixed.
CEO Jim Farley recently said he's committed
to eliminating unreasonable markups.
Big if true,
but we'll see if that means they also start fulfilling
those missing Bronco orders.
Farley also claimed that only 10% of its dealers
have been charging markups,
even though Barclays estimates Ford dealers
have made $3.6 billion from the practice.
I'm a bit skeptical.
In the best bit of news,
and something that hopefully more companies will try,
Ford specifically threatened to withhold shipments
of the highly anticipated F-150 Lightning
from any dealers who try to charge a markup on reservations,
and they have good reason for doing so.
It is imperative that Ford figures out this problem
before the Lightning arrives,
since that truck will be competing with Rivian's
direct-to-consumer business
to basically establish the electric truck market.
Dealers could inadvertently screw this up for themselves
and allow the Rivian to take a bite outta their market.
Dealer markups are bad for consumers.
There's really no other way to say it.
You can argue for supply and demand all day,
but this is ultimately the result
of an artificial car bubble caused by temporary shortages,
at the same time as a wild peak in demand.
Things have been exacerbated
by dealers who see extinction on the horizon,
and thus are motivated to grab short-term cash.
The biggest bummer,
many consumers don't have the luxury to opt out here.
As enthusiasts, maybe we can wait until the market cools off
to make our next buy,
but most car buyers need a car now.
They have to work with what's on sale at that moment.
So, really, until the market changes,
it's on car companies to make sure that dealers sell,
and deliver, cars at a fair price.
And luckily,
car companies have never disappointed us once ever.
(cash register chimes)
Thank you very much for watching "Wheelhouse."
This is a topic that I'm very invested in.
It's very frustrating.
I don't even really like going online anymore
and looking at cars for sale,
because everything is so damn expensive,
and hopefully it smooths itself out soon.
If you've bought a car recently,
let me know down in the comments
if you feel you were ripped off.
I would love to hear it.
Yeah. Broncos should not be as expensive as they are.
A Bronco Sport Badlands should not cost $50,000.
That's for damn sure.
While we're speaking of off-roaders,
how about you go check out our Find Yourself hat.
It's brand new.
We also have a Find Yourself sticker.
It looks really great on any off-roader.
All right. Follow me at Nolan J. Sykes on all social media.
Be kind. See you next time.