Why are Dealers Pricing Over MSRP on Vehicles? And Why We Aren’t

So you may have seen an advertisement like this for a new Chevrolet vehicle. Then, you are stunned and ask “What is a $3995 market adjustment?” That means the dealer is taking MSRP, adding the market adjustment, then subtracting the rebate. In other words, the price before rebates is OVER MSRP.

The other advertisement you might see is this one. The dealer crosses out MSRP, shows the available rebate from Chevrolet, and then says to please call to get a price. That means the dealer is likely charging over MSRP but doesn’t want to put how much over MSRP it is on the website.

The final thing you might see is MSRP and the rebates and nothing else but when you contact the dealer, the dealer tells you that is just the MSRP and rebates on the website, but our price is reflective of current market conditions. You won’t know if this is the case until you contact the dealer.

Are these dealers bad people?

They are competitors of ours, so it would be easy to label them as bad people, but that isn’t the case. In the marketplace, since GM isn’t making enough of these vehicles, there is much more demand to purchase them than supply to sell them. By raising the price above MSRP, these dealers are not handing over a “consumer surplus” in economic terms, or not giving away value the market says they can charge the customer at the price, in real-world terms. That is one way to handle a shortage of something. Use price to ration the shortage. There is absolutely nothing wrong with that – nothing unethical or illegal.

Why aren’t we pricing above MSRP?

In super rare cases, like one time when we got a stock unit Corvette that was not pre-sold, we did price above MSRP but below market price and still got hammered with customer requests to buy it. But if you order a Corvette with us, we charge you MSRP on the order. And, for our precious Tahoe, Suburban, Camaro, and Silverado HD inventory, we are anywhere from $100 to $250 under MSRP, so approximately priced at MSRP. So if we could price above MSRP, why don’t we? Here are a few reasons.

1. We recognize that many people wonder why they can’t buy directly from Chevrolet instead of using a dealership. And we know we perform all kinds of vital services that Chevrolet would find more costly to do than we do it, and we are more knowledgeable about our local market. We won’t get into a tangent on the pros and cons of a franchise system. But if the manufacturer suggests a retail price, and they obviously sell the vehicle to us for some amount below that, we are exposing ourselves to an argument that we are in the way of buying from Chevrolet and making things worse and more expensive. Not entirely true, but certainly casts us in a poor light.
2. Unless we start to experience hyperinflation or sustained bad inflation, the equilibrium in the market will rebalance. When you buy from us today, you are not selling that vehicle in today’s market. You are using for personal use. So, you are exposed on average to 2-3 years of value movement on that vehicle outside of normal depreciation from use. When the market rebalances, we are concerned about your trade value and financial position at that time. There is no escaping a value hit when you buy at the top of the market, but we want to scale ourselves back some to provide a little protection to the consumer. We do that because we want you to be able to afford the next vehicle.
3. There has been a lot of economic damage from COVID, and our business, while thought initially to be exposed to major losses and had major losses for a short time, has done well financially from the supply issues. We don’t want to price gouge, so we try to stay under MSRP.
4. We have been one of the top sellers of Chevrolet in the state of Alabama, and by doing that we have not been as hurt on supply as other dealers because we have continuous earned more product through our high sales. Therefore, we aren’t in danger of having nothing to sell for a model for 3 months. That gives us the flexibility to price more moderately and deliver better pricing to the consumer than competitors in the marketplace because we have enough inventory to sell that way.

What are the lessons for you as a consumer? If you really want to purchase that vehicle for $4000 over MSRP, and you really need it, and you cannot find a better alternative, then that may be the purchase you need to make. But, if a dealer is pricing over MSRP, you may want to tone down your impulses and do more research. We have vehicles on order we can allocate to you. You can find them here if you are unable to find a built vehicle on a lot you can buy today. You also may want to hold out in the vehicle you have longer if you can do so.

Tags: MSRP, Pricing
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