Auto dealers drive up vehicle prices in the wake of inventory shortages

02/16/2022 / By Nolan Barton

Auto dealers are now selling vehicles well above the manufacturer’s suggested retail price (MSRP) to make up for the money lost from inflation and inventory shortages.

The New York Post reported Saturday, February 12, that the All American Ford car dealer in Old Bridge, New Jersey was selling a 2021 Ford Bronco for $49,855. The MSRP was $34,855, meaning the car dealer was upcharging with a “market adjustment” of $15,000, or 43 percent. It was also selling an olive green 2021 Ford Bronco for $62,970. That model had an MSRP of $37,790, according to the report.

“We are going to be like Cuba soon,” an All American Ford customer told the Post. “No new cars and we’ll all be driving ’57 Chevys.”

A sales manager at All American Ford told the Post that the price increases were simply a necessary reaction to severe shortages. “We normally have over 100 Ford F-150s on the lot,” the manager said. “Right now we have only five.” (Related: Ford expects car production to SHRINK IN HALF during the second quarter due to semiconductor chip shortage.)

While other dealers in that area are not raising prices quite as much as All American Ford, the Post reported that many were adding “market adjustments” to their prices.

At Quality Chevrolet in Old Bridge, multiple 2022 Chevy Silverado and Equinox models have upcharges of $5,000 compared with MSRP.

Auto shoppers are also losing leverage in price negotiations as the demand for new cars is typically higher than the supply. Dealerships can turn away buyers until they find one who is willing to pay the listed price.

“Nothing is going under sticker anymore,” an employee of All American Ford said.

Ford, General Motors warned against dealerships charging more than sticker price

Ford and General Motors have warned against dealerships charging more than sticker price. Ford Chief Executive Jim Farley said dealerships who engage in the practice might be cut off from future supplies.

Ford has determined that about 10 percent of the roughly 3,000 dealerships in its U.S. network are charging above the sticker price.

“We have very good knowledge of who they are,” Farley said during a conference call. “If they don’t stop, Ford plans to take punitive action by shipping them fewer sought-after models.”

In a letter to its dealers last month, General Motors said it would act against “a small minority of bad actors” who were selling or leasing vehicles at rates “far in excess” of sticker prices set by the auto company. The company could withhold some vehicle shipments to those dealerships.

The practice of charging above MSRP 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, dealerships have routinely been charging above the list price across many models, as a continuing computer-chip shortage pinches the supply of new cars. (Related: Chip shortage cripples car production amid high demand.)

High demand spills over used-car market

The high demand has spilled over to the used-car market. “As is always the case, the new car and used-car markets are tied,” said Cars.com Executive Editor Joe Wiesenfelder in September last year. “High prices in one affect the other, and that’s where we are.”

The average price for a used vehicle has jumped more than 21 percent to about $25,400 from $20,900 a year ago. For new cars, buyers are paying roughly $40,800 – up by 4.9 percent year-over-year.

“It’s difficult to gauge how long it will take for things to improve. All of this relies on new-car inventory returning to healthier levels,” said Wiesenfelder.

This has become a global issue since last year. The rise in prices of second-hand cars was identified as a key driver of U.K. inflation last July.

“I’ve never seen anything like this,” said Mark Lavery, chief executive of Cambria Automobiles, a dealer group. “It’s an absolute freak set of circumstances.”

Britain’s Society of Motor Manufacturers and Traders cut its forecast for new car registrations for 2021 by 24 percent, from 2.4 million to 1.8 million. It also reported the worst July for UK automotive production since 1956.

A study by Cap HPI last year showed 52 six-month-old vehicles with 5,000 miles on the odometer significantly gaining in value compared with when they are brand new.

It found that a second-hand Dacia Sandero is being advertised for £12,398 ($16,802), which is higher than its average new price of £10,173 ($13,786). A Toyota Yaris GR is being advertised at £35,967 ($48,744), while its new price is only £30,963 ($41,958).