New-Car Markups: From Buyer Remorse to Resentment

Dealers and automakers are enjoying a windfall from record-high transaction prices and record-low incentives for new vehicles, thanks to high demand vs. low supplies. But the short-term gains may come at a cost in the long run, in terms of customer satisfaction and loyalty.

That’s because customers who pay at or above sticker price express negative feelings after the fact. Fallout extends to both dealers and automakers, according to a survey from research and analysis firm GfK Automobility.

“The fact that people are paying over MSRP is not news. But we wanted to understand the implications of that,” Julie Kenar (pictured, below left), senior vice president at GfK AutoMobility, tells Wards.

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Among those 3,500 respondents, GfK reports additional complaints that would likely make customers feel worse about the price they paid, even if some complaints weren’t strictly price-related. For example:

For their part, dealers and automakers note that high customer demand seems unaffected by tight inventories or the current record- or near-record transaction prices. Customers have continued ordering big, expensive trucks and a high level of trim and optional equipment, too.

In interviews on the sidelines at the National Automobile Dealers Assn. show in Las Vegas earlier this year, dealers say it burns them up to see customers buying certain, highly sought-after new cars and trucks and immediately reselling them for substantially more than they paid.

A Ford dealer says one example is the “Sasquatch” trim and equipment package on the Ford Bronco, which comes with giant 35-in. tires. “Are any of us charging over window sticker for certain models? Yes, we are,” the dealer says.

Other dealers maintain even if they don't charge sticker price, they don’t go substantially higher. “It’s a ‘market adjustment,’ is what people call it, but I don’t believe in gouging people,” says Marcus Withers, dealer principal at Chrysler-Dodge-Jeep-Ram of Lawrenceburg in central Kentucky. “We could do it if we wanted. We just don’t.”

As a matter of policy, some of the biggest new-car dealer groups say they officially discourage charging substantially more than Manufacturers Suggested Retail Price. So do automakers, and in any case, the OEMs aren’t allowed to set the customer’s final price except for newcomers such as Tesla, which have factory stores (pictured, below).

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But in the latest GfK survey, there’s a lot of resentment aimed at both dealers and OEMs, Kenar says. This may not be so obvious at dealerships, because face to face, customers may be reluctant to confront dealership personnel over high pricing. They are not so reluctant to complain in surveys, she says.

“I think it’s human nature,” Kenar says. “People are probably not going to tell the dealer they are ‘never coming back here again,’ or that they’re going to 'tell a lot of other people not to come here,’ either.”

But a lot of people say just that in the survey, she says, adding negative reactions are more pronounced among those who say they paid more than sticker price vs. respondents who say they paid sticker price but no more.

About 53% of all 3,500 respondents report they paid suggested retail. About 27% say they paid more than MSRP, Kenar says. GfK doesn’t single out particular name brands, but the survey shows the luxury-brand SUV segment is particularly prone to being priced substantially above sticker.

GfK says 31% of buyers who paid above MSRP said they would tell others not to go to the dealership they used. That’s a little more than double the 14% who paid MSRP but no higher.

The survey also says 27% of those who paid above MSRP said they would never buy the same brand again, vs. 10% of those who paid MSRP.

“Even though the manufacturer can’t control the pricing, are manufacturers being blamed for this?” Kenar says. “We found some people are saying they are never going to buy that brand again.”