Tight supply sends some prices well over sticker

In the past, above-sticker prices for new vehicles typically have been limited to extremely hot newcomers, such as the Chevrolet Corvette C8 or Honda Civic Type R. Now with high demand and scant inventory, the practice is becoming almost common.

Through Wednesday, May 26, 69 percent of new-vehicle transactions in the month were near or above the manufacturer's suggested retail price. That's up from 41 percent last May and 36 percent in May 2019, according to J.D. Power.

The market research company builds some leeway into transaction prices because of add-ons and accessories that may not be fully reflected in a vehicle's sticker price. But in any case, cars and trucks are in high demand and selling quickly — even with few incentives or with a "market adjustment" added to the suggested price.

"Dealers are exceptionally profitable right now," said Tyson Jominy, vice president of data and analytics at J.D. Power. He pointed to figures released Friday, May 28, that show total retailer profit per unit, including grosses and F&I income, is on pace to reach an all-time high of $3,245 — more than double the $1,567 earned a year earlier. Grosses have exceeded $2,000 for nine of the last 10 months, according to J.D Power.

Automakers generally discourage raising prices above the MSRP, but they acknowledge that dealers are independent retailers that set their own prices based on local market conditions.

"GM and its brands do not approve of this practice," the company said in a statement.

"However, dealers are independent and control local market prices. While temporary fluctuations may occur, our observation is that pricing for most models remains relatively consistent."

A casual perusal of online new-vehicle listings shows several mainstream models — such as Ford F-150s and Kia Tellurides — offered for well over the sticker price. Some may have aftermarket add-ons that are not accounted for in the MSRP.

Several dealers told Automotive News that they have refused to charge above sticker for new vehicles, citing a desire to maintain long-term relationships with customers. But some say they've seen competitors selling new vehicles for thousands above.

One salesperson, who asked not to be identified, acknowledged that his dealership was charging above sticker price for some new vehicles but said it was also adding protection products to make up for the increase, which was a couple of thousand dollars.

In general, higher prices come as vehicles are in short supply. Inventory was already relatively tight for several automakers headed into spring 2020, when the coronavirus began to spread, and supply has since been further constricted by a global shortage of semiconductor microchips.

Automakers including the Detroit 3 and Volkswagen have trimmed production as a result, and that has left dealers with scant inventory on the lot.

Jim Yelverton, general sales manager at Turan-Foley, a General Motors dealership in Gulfport, Miss., said he won't charge more than sticker price, working instead to line up shoppers with models he's expecting to receive from the factory.

When transporter trucks pull up, many of the vehicles have already been spoken for, he said: "If there's eight cars there, as a general rule, maybe six, seven are already sold."

He said he doesn't need to jack up the price to boost his bottom line.

"Instead of trying to gouge the customer for over MSRP, which we don't do, we're saving so much money on floorplan interest, we're saving so much money in advertising, because we're not having to go out and advertise as much as we did," he said.

Some of the large, publicly traded dealership groups expressed similar sentiment in terms of customer relationships when Automotive News spoke with them last month as they released their first-quarter earnings.

"We do business locally with our customers, and what we don't want to do is make a short-term decision on pricing that affects a long-term relationship with a customer," said Daryl Kenningham, Group 1 Automotive Inc.'s president of U.S. and Brazil operations.

The company did not want to charge an "exorbitant amount" because of a "unique supply chain situation," he said.

"It's no secret that pricing is going up right now," he said. "But when you hear any retailer — and not just car dealers, any retailer — that's charging some exorbitant amount, just because they can, it's generally bad for long-term business. And that's our philosophy."

Asbury Automotive Group CEO David Hult said it's a rare moment in time when demand is far outpacing supply.

"Oddly enough, and I don't have insight, I don't know this, but my gut would tell me those folks that are selling well above sticker are probably finding buyers for the car," Hult said last month. He added that the group seeks to treat customers the same in good times and bad.

"We're here for the long run, and it's more about the relationship," he said.

"So we just choose not to do it that way. It's not really judging them or what they're doing. It's just not right for us."

While the lack of inventory gives companies pricing power, Hyundai Motor America CEO Jose Muñoz said his preference would be to have more vehicles to sell.

"There is more demand than supply," he said. "And when you have that situation, it is a good market for basically the OEMs and the dealers. We are having a very strong retail performance while at the same time we are reducing the incentives. The dealers are selling at MSRP. Is this sustainable? It's sustainable as long as the demand is there, and in the short term, that seems to be the case. I would like to get more, steady supply from both our Alabama plant and Korean supply, but I think we're doing a pretty good job with what we've got."

Laurence Iliff, Hannah Lutz, Michael Martinez and Jackie Charniga contributed to this report.