The pros and cons of charging over sticker for a hot new vehicle There have been some famous temptations throughout history — Jesus and the Devil, Adam and Eve, Bill Clinton and Monica Lewinski. But what about a dealer holding a hot new vehicle with a high demand and low supply? Even a deity would have to think twice about resisting what to do in that situation.
In recent times, many dealers have been more tempted than usual to jack up the prices on high-demand vehicles. Chevrolet’s Corvette, Mazda’s Miata, Volkswagen’s new Beetle, Plymouth’s Prowler, Audi’s TT, Lexus’ Sport Coupe convertible and Chrysler’s PT Cruiser presented retailers with the delicate balance between customer satisfaction and getting what the market will bear for a hot commodity.
When Beetle hit the showrooms in March of 1998, its sticker price was $16,000, yet some dealers were getting as much as $30,000 for the ’60s throwback.
“We tried to encourage our dealers to be mindful that these customers would be coming back and not take advantage of the situation,” says VW spokesman Tony Fouladpour.
The situation abated as production rose to meet demand and as public infatuation with the car waned three years into the product cycle. Beetle sales this year are off 18% compared to last year. “Now there are dealer incentives on the car,” says Mr. Fouladpour. Mark Snethcamp, a Detroit area Chrysler-Plymouth-Jeep dealer, says, “It’s a tough balance. It’s a good problem to have.”
He notes that if a dealer sells a high-demand car at sticker price, nothing prevents the owner from turning around and selling it as a collector’s item for much more than that.
“A doctor bought a Porsche from us at sticker, and three days later it was on E-Bay for $50,000 over sticker,” says Porsche dealer Gary Ackerman, who also runs Ford Country and Gaudin Ford in Las Vegas.
Many dealers say they should be able to get what the market brings for a new hot product with a low supply, considering the razor-thin margins they get on some of the slow-moving, high-inventory vehicles they are expected to sell regularly.
To them, it’s simple supply-and-demand economic. If they are sometimes forced to sell an unpopular vehicle for well below sticker price, they figure the reverse is true — that they should be able to charge premiums for hot new products in demand.
But manufacturers worry that such high pricing can harm brand image. And some dealers warn that excessive price mark-ups are short-term gains that hurt business in the long-term by alienating customers.
The most recent temptation for Ford dealers is the 2002 Thunderbird. Its MSRP is about $39,000. Demand is high for the retro-styled two-seater with a first-year production schedule of 25,000 units and heritage and emotion behind the nameplate.
A Ford retailer gave a customer a severe case of over-sticker shock with his mark up on the T-bird. Now, the customer is suing the dealership.
Detroit area businessman Alan Must put $500 deposits down on two 2002 Ford Thunderbirds at McLaughlin Ford in Royal Oak, MI in November. When it came time to finalize the deal in August, the dealership had added $16,000 to the sticker price.
Mr. Must sued in Oakland County Circuit Court, accusing the dealership of breaking an oral contract to sell the T-birds for list price.
“The dealership confirmed the price would be the MSRP, sticker price,” says Mr. Must. “If the MSRP had been $49,000, that’s what I would have paid for them.” Brian McLaughlin, the dealership’s general manager, disputes Mr. Must’s claim. “That deposit gave him the right of first refusal,” says Mr. McLaughlin. “He doesn’t have a leg to stand on.”
He declined further comment until after the lawsuit is settled. Apparently, nothing on paper indicated what the dealership wanted Mr. Must to pay for the cars, which led him to believe that he’d pay sticker price. Arguments will be made on both sides that the lack of a clear receipt favors their respective positions.
A civil suit trial is scheduled for January. In the meantime, the judge in the case is allowing the dealership to sell the vehicles, meaning any judgment for the plaintiff will be financial.
Mr. Must has since ordered another pair of T-birds from another area store. Ford Motor Co. helped him find that dealer. Otherwise the company is staying out of it.
Says Susan Krusel, manager of Ford Division communications, “Under dealer franchise agreements and state law, manufacturers cannot control the selling price of a vehicle. “Dealers can and do modify vehicle prices, either higher or lower than MSRP, based on market conditions and customer demands.”Says Keith Whann, an Ohio attorney who specializes in automotive retail law, “I don’t know of any new-car dealer who has been sued and lost just for selling a car over sticker. Usually where the dealer has a problem is ...when they’ve taken money for a car and won’t deliver it. They want more. That’s the problem.”
Mr. Ackerman says he sold all of his first-year allocation of Thunderbirds in about a month at both of his Ford stores. “But now I have good customers that didn’t get on the bandwagon quickly enough saying they don’t mind paying over sticker, just get them a car,” he says. “There are no cars to get them. Next year, we’ll probably do something over sticker but not as high as our competition.”
Mr. Ackerman says other Las Vegas Ford dealerships are selling Thunderbird for $10,000 over sticker and $5,000 over sticker for specialty SVT products.
“The majority of dealers are thinking about their business long-range,” says Christine Cortez, DaimlerChrysler’s vice president of sales and marketing operations. “Vehicles like PT Cruiser are priced for a specific market segment. The intelligent business decision would be to build your position in that segment rather than gouge.” She says most dealers practice corporate pricing strategies, “but you’ll get some cowboys here and there.”
Mr. Ackerman says, “We have always worked under the policy of never charging a premium for a car. We’re in the middle of re-thinking our position, not because our morals or ethics have changed, but we see a trend, really with Porsche that may start happening with Ford if it gets more into this niche marketing and it starts to work.” Mr. Ackerman’s sticker-price policy has come back to bite him, particularly with Porsche.
“A good customer buys a Turbo and two years later he wants a new car,” he says. “He comes to us and wants to trade in his Turbo for sticker. A dealer in LA contacted him and said he’d pay him sticker for his two-year-old car. The dealer in Beverly Hills, CA, can get $10,000 over sticker for a used one.”
Dough Callahan, owner of Bayside VW in Bayside, NY, also maintains a policy of not charging over sticker. Not that he thinks it’s wrong. “It’s just not our policy.” He fears that such a policy could hurt business.
“Most of our customers have been customers for a long time, and to ask them to pay over sticker is kind of an insult,” says Mr. Callahan.
Although the McLaughlin Ford case in Michigan is extreme, it raises the issue of how dealers charging over sticker price can best avoid legal action and customer dissatisfaction?
“The correct procedure is to get the car, put a supplemental sticker on it and make it available for that,” explains Mr. Whann. “Or when you’re taking the order you tell them you’re going to sell this for $3,000 to $5,000 over sticker. You put it on the receipt: Price will be sticker plus $3,000 to $5,000. If you dot the I’s and cross the T’s, then MSRP is just a suggested retail price. There is no problem.”
Mr. Snethcamp used a precise procedure when people wanted to get in on the PT Cruiser craze after the popular vehicle’s debut last year.
He recalls, “PT Cruiser is the only one I ever really had any pre-orders for and I, unlike a lot of people, didn’t accept deposits until I had specific order information. I kept a list of people who were interested. Then, when I had ordering guides from the factory, we called those people in and took deposits for their cars. But I didn’t guarantee any pricing.
“I told them what MSRP was going to be, that they would most likely be paying more than that, and if they were not happy with the price when the car came in then they would get their deposits back.” Mr. Snethcamp also says many customers were leaving $100 deposits all around town and then working the dealers against each other. “It was an interesting game,” he recalls. “By the time the cars started arriving at the stores, the market had been set. I had a few people who complained that they waited too long. But for the most part, it worked out OK.”
The bottom line was that Mr. Snethcamp’s initial PT Cruisers sold for about $2,500 over MSRP.
Meanwhile, DaimlerChrysler was trying to get dealers to stick to the sticker price, starting at $16,000 for a base model. Just before the PT launch, DC managers went into sales zones to emphasize to dealers that the automaker wanted a “great launch for a vehicle with great pricing,” says John P. Critzer, DC’s senior product planner for small car platforms.
Recalls Mr. Snethcamp, “When PT Cruiser was announced, Chrysler was continually preaching to us not to go over MSRP.” But Mr. Critizer notes, “Dealers are independent business people, and we can’t control what they charge for products.”
Yet some manufacturers try to control that, ranging from friendly persuasion to arm-twisting.
Mercedes-Benz USA (MBUSA) seemed prepared to prevent dealers from marking up the price of the new C-Class Coupe, a hatchback with a sticker price starting at $24,950, an unprecedented low MSRP for a Mercedes.
MBUSA CEO Paul Halata, when asked if dealers might charge above that, said flatly, “They are not going to do that.”
While acknowledging that the ultimate price of a vehicle is up to the dealer, Mr. Halata added, “If someone is selling above retail price, we have ways of dealing with them.”
Mr. Whann, the attorney, says dealers should follow certain procedures if they decide to leverage high demand and low supply into an asking price the market will bear.
“Under most of the consumer statutes, what you have to do, if you’re engaging in a consumer transaction, is reduce your agreement to writing,” he says. “In most cases, if you’re going above sticker, you’re going to have to tell somebody that.”
Sometimes premium pricing is short-lived and unrealistic. In the early 1990s, when Chevrolet introduced the Corvette ZR-1, dealers initially charged thousands of dollars over a sticker price of around $70,000.
Two years later, a collector who purchased an early ZR-1 wanted $120,000 for it. But by then, dealers were charging nearly $10,000 under sticker for new ones.
— Steve Finlay contributed to this story.