Should Carmakers Replace Dealer MSRPs With Set Prices?
Dealerships are getting out of control with marking up many new vehicles that are in demand or in shortage, and there doesn’t seem to be any end in sight. Consumers are paying the price – literally.
It’s a story we’ve heard countless times recently, unfortunately. Demand for new vehicles is at an all-time high, and supply is low due to chip shortages, the conflict in Ukraine, and rising gas prices.
The reason for the price increase isn’t just world events however, brands have been continuously releasing products that are extremely desirable. One of the best examples of this phenomenon is Ford’s new Bronco, which had been anticipated for so long that when it finally arrived, everybody was clamoring to get their hands on one.
Some of the largest culprits are electric vehicles such as the Ford F-150 Lightning. The all-electric truck is a first for the brand and has already sold out its yearly allotted production. Before the next batch has even arrived at dealerships, markups are already exceeding the 200% mark, with some examples of the $40,000 truck advertised at almost $150,000.
What is the solution? Is it possible to cut out dealerships altogether to sell vehicles directly to customers? Should manufacturers forgo suggested retail prices (MSRP) for dealerships in favor of a set price? One American automaker is already doing that to great effect: Tesla.
“The U.S. automotive industry has been selling cars the same way for over 100 years and there are many laws in place to govern exactly how that is to be accomplished.”
Those are the words of Tesla CEO Elon Musk, a brand that has all but cut out the dealership middleman in order to sell directly to customers. Rather than have a traditional network of dealers that are able to make a profit from the sale of the brand’s vehicles, Tesla’s selling strategy focuses on “Stores” in which potential buyers can visit to receive information about the vehicles, without any pressure to buy. If a customer does decide to buy a vehicle, they can do so completely online.
The process removes the hard sell tactics by dealerships and also eliminates the opportunity for exorbitant markups to make more profit on vehicles that are in high demand. The process obviously works, as every Tesla model is in extremely high demand, and there haven’t been any problems with price gouging.
Should other brands follow in Tesla’s footsteps and have a set vehicle price instead of a manufacturer’s suggested retail price? Or is a dealership an essential part of the car buying experience, and a benefit to the local economy?