17 April 2015

You’ll Pay for That

A brief history of dealer price gouging

At a classic car auction, the generally accepted maxim goes something like this: A car is worth whatever people are willing to pay for it. As with classics, new cars are similarly categorized, and the laws of supply of demand often lead some dealers to take advantage, content to play fast and loose with the meaning of Manufacturer’s Suggested Retail Price. But in creating the demand, in needing to have the car that gets their blood pumping to the point of muddling their senses, buyers are just as complicit. And car dealers, consummate pros in the supply-demand bazaar, know exactly how to pounce.

It wasn’t always this way. Dealers of the 1950s and ’60s wanted to make as much money from a sale as possible, but they did so with “extras” like floormats and paint protection. Ka-CHING! This continued in the early 1970s, notably with the Datsun 240Z. The revolutionary sports car could out-perform cars costing two and three times as much as its $3,500 price tag, and enthusiast buyers lined up to get one. For more than a year, dealers added what they called mandatory accessories like air conditioning, pinstripes, wire wheel covers and yes, floormats, all in an effort to squeeze out every last cent from desperate buyers. Prices often eclipsed $5,000 as a result.

Things really got out of hand in 1976 with the Cadillac Eldorado convertible. GM claimed the big Eldo would be the last American convertible ever(!), which fueled media hyperbole and consumer hysteria alike. Already not cheap at $11,049, buyers and speculators flocked to the showroom to get theirs, lest they be forced to live beneath a fixed roof for all eternity. Some dealers seized upon the demand, offering cars at thousands above MSRP. Because hey, why not? In 2008, Hemmings Motor News claimed one New York dealer had offered a pair of Eldos for a staggering $138,000. Even at today’s meteoric auction prices, it’d be hard to get a return on that investment.

Two years later, in 1978, Chevy created a similar scenario with the Corvette when it built a special edition (Indy 500 Pace Car replica) of a special edition (25th Anniversary). Originally rumored to number just 300 — which really would have made the Pace Car special — the figure climbed substantially, first to 1,000, then 2,500, until Chevy decided every dealer in the country should have at least one Pace Car replica. So they built 6,502, and there’s nothing limited about that. In his book The Corvette Factories: Building America’s Sports Car, Mike Mueller quotes a Wall Street Journal article written during the height of speculation, which said the cars would be “selling for $75,000 within 90 days. This is a one-time shot; either you’re in now or you’re not in at all.”

At $13,653, the Limited Edition Corvette was already $4,300 more than a base Corvette. Stories like that in the WSJ didn’t help matters, and some dealers marked up the price by tens of thousands of dollars. Needless to say, it wasn’t the surefire investment experts said it would be.

Like the 240Z ten years before, the original Mazda RX-7 hit American shores at just the right time. In a post-oil embargo world of underwhelming cars, the fuel-sipping (relatively) RX-7 was a revelation, offering incredible performance (relatively) for just $6,500. But with buyers lining up to get theirs, dealers once again seized the opportunity to, well, get theirs, and consumers suffered.

Dealers and dealerspeak have evolved and they now call this practice a “market adjustment fee,” but you and I know it for what it is: price gouging. Buyers encountered it in a trio of Mopars, staring in 1992 with the Viper, then in 1997 with the Prowler, and again in 2000, for some reason, with the PT Cruiser. The most recent example is the ridiculously powerful Dodge Challenger Hellcat. It’s got an MSRP of $59,995, but you don’t really expect to get 707 horses for Hyundai Equus money, do you? No, what you get instead are dealers trying to get away with adding $150,000 (that is not a typo) to the price. To its credit, Dodge is doing its best to curb the practice by building as many Hellcats as it can, in the hope that anyone who wants one can get one.

The trend here, of course, is toward adjusting the price of rare, desirable, and/or performance cars. But you may recall that during the Cash for Clunkers program in 2009, some unscrupulous Toyota dealers artificially inflated the price of the decidedly unsexy Prius hybrid in the hopes of taking advantage of people who were just trying to change their carbon footprint. Some dealers charged $3,000–$10,000 over MSRP for the Prius, which negated any incentive do-gooders would have received for their clunker.

These are by no means the only examples of cars that have been subjected to, erm, market adjustment fees, and they won't be the last. But as one commenter on a Corvette forum declared, after much grousing by other commenters over C7 pricing: “It's only gouging if they are doing it to a product or service that is deemed essential. Somehow I doubt the purchase of a Corvette is essential.”

The guy may just have a point.

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