If you’ve bought a new vehicle this past year chances are you paid list price, if you’re lucky — but more likely found yourself also having substantial fees and markups tacked on to the base MSRP.
Many dealers have turned ongoing inventory shortages in their favor, even as automakers have been raising prices to offset their own rising costs and production cuts. As a result, the average new vehicle customer shelled out a record $48,182 in July, according to Kelley Blue Book. That was a $139, or 0.3% month-over-month increase. And the average transaction price was up $5,126, or 11.9% from July 2021.
While many buyers felt they had little option, the sharp increase in pricing — indeed, the sense of feeling ripped off — could create future headaches for auto dealers and automakers alike. Many buyers now vow never to return to their dealer, and a large number also say they’ll never again buy from a brand they feel took advantage of them, at least according to a new study by Gfk Automotive.
A trend towards near-hostility
As a result of these “concessions and disappointments,” there is a “trend toward near-hostility aimed at dealers, in particular,” the research firm said in an analysis of the study, and it is “gaining momentum at lightning speed.” The study also found “equally strong negative feelings toward car brands themselves.”
The Gfk study shows 80% of U.S. buyers paid MSRP or above in May and June of this year. Prior studies found the figure was typically in the single-digit range. Among those who paid more than sticker, the study found:
- 34% paid fees they had never heard of before
- 31% purchased a model that wasn’t their first choice
- 30% compromised on the features they wanted
- 30% bought from a dealer who wasn’t their first choice
This has generated far more than just buyer’s remorse. Three in 10 of these buyers would advise others not to use their dealership. That’s twice as many as would recommend against a dealer that charged MSRP or below. A third of the customers said they won’t return to the dealer for service. That’s especially bad news for greedy dealers as they typically make more money on service than on sales and count on that side of the business to continue for years.
But dealers aren’t the only ones feeling consumers’ wrath. About 27% of those who paid more than MSRP said they will never buy the same brand again. Among those who paid list or less, the figure was just 10%, noted Gfk.
New car prices have gone up like clockwork over the years, but COVID-19 disrupted the normal formula. During the early months of the pandemic, as U.S. motor vehicle sales collapsed, automakers actually ramped up incentives to draw back buyers, whether shopping online or in those showrooms that remained open.
The cost of COVID-19
But then the semiconductor shortage struck, just as the economy rebounded and buyers returned to the market. With production unable to keep up with demand, dealers found themselves with few vehicles on their lots. This year, inventories have averaged less than 1 million cars, trucks and crossovers compared with a norm closer to 3 million.
Incentives were rapidly pared back and dealers soon followed by eliminating their own discounts. But many also began tacking on markups and fees and, in some cases, requiring buyers to purchase questionable options, as TheDetroitBureau.com has pointed out.
Social media is full of first-person reports. Markups of $5,000 or more on popular products like the Kia Telluride are common, and specialty models, such as the Chevrolet Corvette have commanded premiums that, in some instances, top $50,000.
The sharp surge in pricing is a bit misleading. In many cases, entry level buyers have been sitting on the sidelines. But that’s been encouraged by automakers that have shifted production to higher-end models to maximize margins.
“The extreme effects of supply chain breakdowns and inflation may seem like a perfect storm — one that demands unprecedented pricing practices,” said Julie Kenar, SVP at GfK AutoMobility.
“But manufacturers and dealers need to think beyond today’s troubles to protect their brands for the long term,” she stressed. “While paying above MSRP may not seem terribly different than simply paying the list price, our research shows that the negative feelings generated are much stronger — and more threatening to future business.”