Pandemic-related supply chain problems stretch the new-vehicle shortage into a second year, with near-empty dealer lots, sky-high prices, and months-long waits for new wheels. The prolonged disruption exposes fault lines in the car business’s century-old retailing model and prompts a broader rethinking of the entrenched way Americans buy cars. The laws of supply and demand are driving the market, but strategically dealers are hurting themselves.
A Ford dealer in New Jersey listed a new Broco for $30,000 above MSRP as a dealer adjustment. All across the country, dealers are charging consumers MSRP or above because of the shortage of new cars. Before the pandemic, practically nobody paid above the sticker price for a new car. Last month, an unprecedented 82% of buyers did, according to consumer research site Edmunds.com.
Car companies say they don’t want dealers charging above sticker and, in some cases, are pushing back, but dealerships are independent businesses that control the final transaction. Subaru, Genesis, Hyundai, and Kia have all sent letters to dealers warning that charging over MSRP will not be tolerated. Still, they also admitted there isn’t much they can do about it.
In addition to higher prices, some dealers are forcing buyers to use financing instead of paying cash. One car dealer told a customer that he would have to pay an additional $2,000 for the SUV if he didn’t finance his new Lexus.
Buyers are starting to take notice, and they’re not happy. Some are walking away without purchasing new cars; others are turning to used cars, which have also gone up in price. When I went shopping for a new Kia last year, the dealer told me I had to pay a market adjustment price of $5,000 and that financing was the only way he would let the SUV leave the lot. I walked out disillusioned and determined never to own a Kia.
These tactics are hurting car brands, but the dealers could care less. Already there are rumblings about more branded-owned retailers springing up instead of franchises. Car manufacturers can directly control how their brands are presented and sold if they take control. They spend too much money trying to get people into showrooms to have dealers ruin the experience for buyers.
Disruption is coming to the auto market, and it will be sooner than later. The power of buying WILL shift back to consumers, and those greedy car dealers who have burned will have a lot to say.