Dealer Markups Reduce Service Opportunities

Greetings,

It’s been a busy week in the car biz.

New numbers are starting to show a divide in the market (hint: pricing drops for used vehicles but rises for new ones). A study shows that buyers are angry about above-MSRP transactions and taking it out on service departments.

This week also marks the return of the Detroit Auto Show and the debut of Ferrari’s first SUV.

Cheers!

Market At A Glance

If there’s one thing to remember about August 2022 is that it’s the first time there’s been a month-long decline in the CarGurus used car price index since the start of the carpocalypse.

Breaking Headlines

• Ford CEO Jim Farley says EV pivot will spur industry wide consolidation - Ford Authority

• Biden announces $900 million in funding for EV charging stations across 35 states - AutoDealerToday

• 2024 Ford Mustang looks to broaden gas power appeal as rivals bow out - AutoNews

• Former car dealership workers sold 24 vehicles and pocketed customers' money - NYT

• Auto lobby seeks revamp of FTC dealer pricing disclosure plan - AutoNews

Dealer Focus

• Ford dealers must set no-haggle prices, invest up to $1.2 million to keep selling EVs - AutoNews

• How your dealership can effectively use TikTok for business - CBT News

• Parts and labor supply problems frustrate dealers and customers - DallasNews

New Vehicle Prices Set Another Record in August

It’s another month of bad news for car shoppers, as new vehicle prices continue to grow at a record-setting pace. Kelley Blue Book is again reporting another meteoric rise, with the average new ride selling last month for $48,301. That’s a $222 increase from July and $4,712 more (10.8%) from last August.

Dividing the numbers into broader market segments, the typical new non-luxury vehicle sold for $44,559 in August, up $132 from July. The average new luxury vehicle transaction came in at $65,935 last month, an $878 jump from the previous month.

The report drills into brand-specific details, with Honda, Hyundai, Kia, and Land Rover selling for the most above MSRP (5-9%) last month. Meanwhile, Alfa Romeo, Buick, Fiat, Lincoln, RAM, and Volvo were selling closest to or below sticker. It’s no coincidence that these weaker-priced brands have the greatest supply of vehicles.

Above-MSRP Pricing Causes Drop in Return Service Customers

With higher vehicle prices comes growing consumer discontent with dealers that mark up vehicles beyond MSRP. New research from GfK AutoMobility, which surveyed car buyers between May and June, shows how many consumers are frustrated by the practice.

Overall, 31% of buyers who paid more than sticker would not recommend the dealer involved with the transaction. That compares to 14% who paid MSRP. The data also shows this discontent growing, as 28% of above-MSRP buyers in May would not recommend that particular dealer. However, the number of unhappy campers in June zoomed to 35%.

There are a few other eyebrow-raising stats. 23% of May buyers who paid more than MSRP won’t be back for service; they’ll go elsewhere. It gets worse, as almost one-third (32%) of above-MSRP customers in June will skip the original dealer’s service department. The inverse relationship suggests the benefits of higher margins now may hindered by loss of service revenue over time.

Reviews

• Lincoln displays move to EV's with stunning concept preview - Forbes

• 2023 Toyota GR Corolla - a 300-hp hatch - Car And Driver

• 2023 Nissan Kicks receives average marks - The Car Connection

• Old-money luxury gets an electric edge: 2023 Genesis EV G80 review - DigitalTrends

Detroit Auto Show Returns

Perhaps you’re already in the Motor City, but this week marks the return of the Detroit Auto Show, officially called the North American International Auto Show (NAIAS). For the first time since 2019, automakers, dealers, the motoring press, the public, and other automotive junkies will descend upon Michigan’s largest city.

The show’s organizer—the Detroit Area Dealers Association (DADA)—is hoping that by holding the event during September (instead of the traditional January), they’ll breathe some life into an event that’s been on the decline for years. The warmer weather also allows some activities, including ride-and-drive events, to be held outdoors. Other shows, notably Frankfurt and Geneva, have been axed, a fate DADA wants to avoid for the 123-year-old affair.

Ferrari’s First SUV

If you can’t beat ‘em, join ‘em. Legendary automaker Ferrari took this expression to heart with this week’s debut of the Purosangue SUV, a category first for the folks from Maranello. The car is only Ferrari’s second AWD production vehicle (the first being the FF, a three-door grand tourer from last decade).

Offering 715 horsepower and 0-62 mph time of 3.3 seconds, the Purosangue (which means thoroughbred in Italian) will do battle with the Lamborghini Urus, Aston Martin DBX, and other ultra-brand SUVs. This is no mid-engine supercar, but a 6.5-liter V12 and suicide doors will help it stand out. There’s no official news on pricing, but something north of $400,000 won’t be a surprise when this rolls out of the factory next year.

Read the 6,500-word news release if you’ve got nothing better to do.

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