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Dealerships are Charging Too Much for Cars: A Market Adjustment or Rip Off?

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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 [insert topic or section here].

WEBVTTKind: captionsLanguage: en- Dealerships are chargingtoo 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 thesecond half of the pandemic,but it's still pretty outrageousthat we're seeing stufflike a Nissan Versaselling for 33% above MSRP.The thing is,dealer markups aren'tnecessarily a new problemfor consumers,and with tensions risingbetween dealers and auto makers,things could get worsebefore they get better.Today on "Wheelhouse,"the great American cardealership conspiracy.What's being done to combat it?Will we ever buy afairly priced car again?I sure hope so.- I like cars.(shutter clicking)You like cars.(shutter clicking)We like cars.Celebrate your love of carswith the new Joy of Cars T-shirt.You can get it in au natural.Also in vintage black.Get it for the low, low price of 29.98,only at donutmedia.com.Check it out.It's my favorite shirt to date.- Before the pandemicknocked the world off its assand ushered us into an alternate universe,dealer markups began with asimple automotive math equation.A new car plus tons ofhype equals markups,which makes sense.Take the basic law of supply and demand,apply it to a hot new luxuryvehicle or sports car,and boom.You can understand whydealers would sometimestake a little extra off the top,but as we've seen recently,it's really easy for alimited supply of carsto become a slippery slopetowards flat-out greed.For example, back in 2016,dealer markups basicallykilled the Ford Focus RS.But before we get to that,if you're liking this video,go ahead and hit that subscribe button,it really helps us out, and thank you.When Ford first announcedthat 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 hatchbacksare like soccer,really popular in Europeand way behind in America.So, it took until 2016 forthis version of the Focusto hit the States.(engine roaring)Anticipation for it only grew,when the 350-horsepower,all-wheel drive Focus RSimmediately took down the Subaru WRX STI,and the Volkswagen Golf R inmotor trends comparison tests.Dealers saw this as an opportunityto make big bucks off years of Euro hype,and basically treated thiscar like a Lamborghini.They refused to allow test drives,and put their stock behindliteral velvet ropeson showroom floors.It was also very common to seedealer markups up to $10,000on 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 camedown to a reasonable level,and dealers stoppedtreating every Focus RSlike a crystal sculpture instead of a car,the Civic Type R had come out,and was way easier to get,although it also sufferedfrom markups of its own.Meanwhile, people figuredout that the Focus RSwasn't an incredible game-changer,but simply a solid, butoverpriced, 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 myfavorite Eighties song,"Video killed the radio star,and Ford dealers killedthe American hot hatch."But the Focus RS is just one isolatedand very special example from the past.These days, the problem is everywhere.In January of 2022, morethan 80% of US car buyerspaid above MSRP for their newvehicle, 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, consumersare paying an extra $728for every new car.Rising dealer prices haveswept across nearly all brands.Popular sedans like Honda and Hyundaiare commonly seeing markupsin the low four figures.The luxury Cadillac line hasbeen marked up over $4,000on average,and the extra cost canrun more than 10 grandfor popular EVs and hybrids.It's insane.The problem is also increasingly complex,because since the pandemic began,the US auto market has swungfrom one extreme to the other.(bright music)During the initial wave ofthe coronavirus in early 2020,almost no one was buying cars.The world was in lockdown,and there was hardly anyreason to drive at all,much less risk theirmoney on buying a new car.So, auto companies cutproduction, and prices fell,as unsold cars sat ondealer lots for months,but after a year of inside time,in 2021, Americans were eagerto plop down fatty stacks of cashfor cars that can take them far, far awayfrom home isolation.However, the coronavirus stillraged elsewhere in the world,leading to supply chain obstaclesthat have slowed manufacturing.Microchips are the mostdiscussed shortage,but it's not the only problem.More recently, a rubbershortage caused by floodingand tree disease in Asia,has led to increased tire prices,and car manufacturershave also been forcedto scale back production of spare parts,so they can keep up with new car demand.Meaning, it's beendifficult in some placesto get a simple brake pad or oil filter.Meanwhile, manufacturersbasically never hadenough EV batteries tokeep up with demand,and the problem has only gottenworse during the pandemic.COVID itself has alsocontributed to a labor issuefor all auto manufacturers of all stripes.While juggling positive testsand subsequent isolationperiods among their workforces,some companies have resortedto sending white collar office workersonto the factory assembly lineto keep production moving.The labor problem is only exacerbatedas most major carcompanies move their focusto electric vehicles,which often requireadditional skills and trainingto build compared withtraditional gas cars.As a result of all this,not only are dealers jackingup the price of new cars,but a trickle-down effecthas also increased priceson the used car market by40% compared to last year.Naturally, the dealers don'tsee these markups as greed,but as "business imperative."Supply shortages mean dealershave fewer cars in the lot.Fewer cars means lower sales volume.So, to compensate, theyhave to mark up priceson whatever stock they have.On the surface, this argumentmakes a bit of logical sense,but basically falls flatwhen you look at theactual dollars involved.According to the NationalAutomobile 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 thingsthat are controversial,and car related, it starts with Tesla.(upbeat music)See, in most US states,direct manufacturerauto sales are illegal,meaning Chevy can't sell you a Chevy.Only an independentlyowned Chevy dealershipcan sell you a Chevy.But Tesla found a way aroundthose laws by using galleriesthat don't intend you to sell a Tesla,but rather talk you intobuying a Tesla online.Tesla's sales model,which is also being adoptedby other EV companies,like Rivian and Lucid,has led to tension betweendealers and automakers,and the recent epidemic of dealer markupshas only made that tension worse.Dealers are worriedabout eventually beingcompletely cut outta the loop,while legacy automakers think that markupsare costing them sales,particularly as they rushto compete with Teslain the EV market.Ironically, dealers may beincentivizing car companiesto work around them in the future.GM, Ford, Stellantis,Volkswagen, and Daimler,are already exploring waysto imitate Tesla's modelfor their own EVs.At the very least, the majorautomakers are not happythat dealers are gettingso fat on markups.General Motors recently scoldedtheir affiliate dealershipsfor ignoring MSRPs,which GM calls unethical.Several years after the Focus RS disaster,Ford continues to besomewhere near the centerof 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 issuesrelated to its molded hardtop roof.The problem is so badthat some people who reserveda Bronco two years agoare losing their place in line,because Ford keeps adjustingthe order of its deliveriesto prioritize big city dealerships.Not exactly fair.Auto companies generallyallocate the most carsto dealers near big citiesthat move a high volume.Ford is doing the same thing here,sending Broncos to theirmost successful dealersas soon as they rolloff the assembly line.These dealers are able tomove them at huge markupsto motivated Richie Riches.Meanwhile, people in ruralareas who reserved a Broncoat a normal price at theirlocal Podunck dealership,are getting screwed.It's enough to make a man suspectthat perhaps corporationsdon't have our best interestat heart.The messaging from Ford has been mixed.CEO Jim Farley recentlysaid he's committedto eliminating unreasonable markups.Big if true,but we'll see if that meansthey also start fulfillingthose missing Bronco orders.Farley also claimed thatonly 10% of its dealershave been charging markups,even though Barclaysestimates Ford dealershave made $3.6 billion from the practice.I'm a bit skeptical.In the best bit of news,and something that hopefullymore companies will try,Ford specifically threatenedto withhold shipmentsof the highly anticipated F-150 Lightningfrom any dealers who try tocharge a markup on reservations,and they have good reason for doing so.It is imperative that Fordfigures out this problembefore the Lightning arrives,since that truck will becompeting with Rivian'sdirect-to-consumer businessto basically establishthe electric truck market.Dealers could inadvertentlyscrew this up for themselvesand allow the Rivian to takea bite outta their market.Dealer markups are bad for consumers.There's really no other way to say it.You can argue for supplyand demand all day,but this is ultimately the resultof an artificial car bubblecaused by temporary shortages,at the same time as a wild peak in demand.Things have been exacerbatedby dealers who seeextinction on the horizon,and thus are motivatedto grab short-term cash.The biggest bummer,many consumers don't havethe luxury to opt out here.As enthusiasts, maybe we canwait until the market cools offto make our next buy,but most car buyers need a car now.They have to work with what'son sale at that moment.So, really, until the market changes,it's on car companies tomake sure that dealers sell,and deliver, cars at a fair price.And luckily,car companies have neverdisappointed us once ever.(cash register chimes)Thank you very much forwatching "Wheelhouse."This is a topic that I'm very invested in.It's very frustrating.I don't even really likegoing online anymoreand 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 commentsif you feel you were ripped off.I would love to hear it.Yeah. Broncos should not beas expensive as they are.A Bronco Sport Badlandsshould not cost $50,000.That's for damn sure.While we're speaking of off-roaders,how about you go checkout 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 NolanJ. Sykes on all social media.Be kind. See you next time.