Dealer thinks MSRP could become tomorrow’s auto pricing basis

The American auto industry has hoped for many years to get American consumers to respect posted prices on new cars like real new car prices. General Motors’ long-failed Saturn experiment, for example, began 40 years ago with a “no-haggle” price principle because the price listed on Saturns was supposed to be reasonable.

All of these efforts failed miserably. Overall, U.S. consumers still see the price on the “Monroney” sticker on the new vehicle window as the starting point for price reductions, not something that looks like they’ll end up pay.

But what the auto industry couldn’t achieve by design — because the pricing discussion was so deeply embedded in American consumer culture — the industry might be able to accomplish by accident.

The unforeseen development that brings us to this moment, of course, is the two-year-old microchip shortage that has taken a major chunk out of global auto production and left American car buyers looking for an extreme scarcity of new units available on dealer lots. Instead, most new-vehicle buyers meet at the showroom or place orders online for future vehicles.

“We had inventory depending on the manufacturer, some larger than others,” Jonathan Chariff, owner of South Motors, a chain of 10 dealerships in Florida, told me. “But they can be stronger one month and weaker the next. Their goal is to release the cars with the components they have and try to get them to the end consumer.

“As a dealer, when an OEM tells you they don’t have something your customer wants, you have to adjust your inventory and orders. And you will have customers regardless of the configurations you obtain.

Prices solidified around the manufacturer’s suggested retail price (MSRP) in another important result of the chip shortage. Nowadays, many new cars are sold at this price. And reports have been piling up of dealers across the country insisting on holding their own with hot models to sell them for thousands — and sometimes tens of thousands — of dollars above MSRP.

Automakers strongly discourage this practice because of how it can harm consumer perceptions of not only particular retailers, but OEM brands as well. But because US auto dealers are independent business owners, their will ultimately prevails.

“We do our best to try to sell our cars by the sticker,” Chariff said. “And it’s on a first-come, first-served basis. That’s why we suggest ordering the cars in advance, so the customer knows the car is coming for them.

Interestingly, Chariff thinks that while the automotive supply situation should improve over the course of the year, the retail sector may not just return to traditional haggling-based pricing. The generic element involved in valuing used-car trade-ins will persist, of course, but he thinks that three years of new-vehicle sales at MSRP or above could cause consumers to get used to the long-term what those numbers represent what they’re actually going to have to pay to buy the car.

“The consumer has been used to trading from the MSRP,” Chariff said. “That’s where the industry should really change: ‘It’s the price of the car.’ This means that the car is available on a sticker and you have to go to the dealership that gives you the service and attention you need, and that could very well be what is happening.

Abdul J. Gaspar