Cars

Ford and GM warn dealerships to stop charging so much for new cars

Ford and GM warn dealerships to stop charging so much for new cars

Ford F -4.26%

Motor Co. and General Motors Co.

GM -5.57%

are cracking down on dealers who try to charge more than the list price, a tactic that has proliferated amid the car shortage.

Ford F -4.26%

Chief Executive Jim Farley said Thursday that dealers who engage in the practice will face consequences, including loss of supply of future models. Automakers set a Manufacturer’s Suggested Retail Price, or MSRP, when they ship cars to dealerships. Dealers are not required to follow them, but by commercial standards it is general practice and expectation.

“We know very well who they are,” Mr. Farley said on a conference call with analysts to discuss Ford.it’s

F -4.26%

fourth quarter results.

Ford has determined that about 10% of the roughly 3,000 dealerships in its U.S. network charge above list price, Farley said. If they don’t stop, Ford plans to take punitive action by shipping fewer wanted models to them, he added.

In a letter to its dealers last month, GM also said it could take action against “a small minority of bad actors” who were selling or leasing vehicles at rates “well above” the automaker’s list prices. automobile. He said GM may decide to suspend some vehicle deliveries to those dealerships.

Traditional automakers operate through franchise dealer networks, which are independent businesses that buy cars from the factory. While the automaker controls supply and offers promotional programs, dealerships generally have autonomy over the final transaction with the customer.

Historically, automakers have said they frown on their dealerships charging above MSRP, saying it can negatively impact the brand image and alienate customers. The practice has been relatively rare in the past, occasionally surfacing when hot new models first hit showrooms and are in high demand.

But over the past year, dealers have consistently charged above list price on many models as a continued shortage of computer chips reduces the supply of new cars, creating a seller’s market.

Many dealers tackle what are called market adjustments, which notify the buyer that the dealer is raising the price of the vehicle above the window sticker figure. In some cases, they do this by requiring buyers to agree to additional fees and warranty protection as part of the asking price.

Ford and GM recently introduced their first electric pickup trucks. WSJ automotive reporter Mike Colias breaks down the different strategies the two automakers are pursuing to market their electric vehicles. Photo illustration: Alexander Hotz/WSJ

Consumer website Edmunds.com said 82% of new-vehicle purchases in January were priced above suggested retail, with buyers paying an average of $728 more. In January 2021, before the new vehicle inventory crisis, 2.8% of vehicles were sold above list price, the firm said.

“This is just a temporary symptom of completely out of whack supply and demand,” said a spokesperson for the National Automobile Dealers Association, an industry trade group. “Dealers and consumers have always been free to agree on the price of the vehicle.”

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Mr Farley’s warning highlights rising tensions between automakers and dealers over how to price cars during a time of imbalance between demand and supply. Traditional automakers face increasing competition in electric vehicles from rivals, such as Tesla Inc.,

TSLA -0.12%

Rivian Automotive Inc. and Lucid Group Inc.

— which sell directly to consumers and have no dealers.

Jon Harding, project manager for a Southern California utility company, said he got more than a dozen above-price quotes from dealerships of several auto brands during a recent search for two new vehicles. family.

Ford is facing increasing competition in the market for electric vehicles, like this prototype F-150 Lightning truck at a Michigan factory.


Photo:

REBECCA COOK/REUTERS

A salesman at a Hyundai dealership agreed to sell him a Tucson sport utility vehicle at an MSRP of $36,645, but demanded that it come with $8,183 of dealer-installed options that would normally be ordered by the customer, including a security system and a protective interior liner, according to an email from the dealership that Mr. Harding shared with The Wall Street Journal.

Mr Harding said he eventually found a dealer who agreed to sell him a Tucson at list price, about two hours away. He said he also owned a Tesla Model 3, and the frustration of haggling with a few dozen salespeople for several months left him thinking he should buy another Tesla, even though he was looking for a more affordable car.

Tesla, unlike more established automakers, sells directly to customers with an advertised price and has company-owned stores, rather than a network of independent dealerships.

“The dealer represents the manufacturer, they’re the person you’re dealing with,” he said. “Right now they’re not representing brands very well trying to get people moving.”

Hyundai engine Co.

declined to comment on specific customer interactions. “We strongly discourage our dealers from charging prices above MSRP as this can negatively impact customer experience and brand loyalty,” the company said in a written statement.

Some dealerships don’t charge the list price, saying they think it will hurt customer loyalty down the road.

“It’s bad for the reputation of car dealers,” said Earl Stewart, a Toyota dealer in Florida. “People have long memories. I think it’s going to hurt the brand of the car dealer by taking advantage of this situation, hopefully in the short term.

Write to Nora Eckert at [email protected] and Mike Colias at [email protected]

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