GM Discourages Dealers From Markups on Hot Vehicles
Earlier this month, we reported Ford’s corporate offices had warned its dealers against demanding extra deposits or other payments on reservations for hotly anticipated vehicles like the upcoming F-150 Lightning. Now comes word GM sent a similar letter to its Chevrolet, GMC, Buick, and Cadillac dealers around the same time.
Originally posted to Corvette Action Center and attributed to GM North America president Steve Carlisle, the letter has since been confirmed by GM as authentic. In it, Carlisle notes most dealers are playing fair, but says “a small number of dealers have engaged in practices that do not support a positive sales experience for our customers.”
Market Adjustments And Additional Dealer Markups
Carlisle specifically calls out dealers demanding extra money beyond the cost of a reservation and or adding huge markups to the final vehicle cost. Known as “market adjustments” or Additional Dealer Markups” (ADMs), these surcharges are added to the price of the reservation and or the final price of the vehicle by the dealers and are pure profit.
At the root of it are simple laws of supply and demand, exacerbated by plain old greed. These vehicles are highly anticipated and have either limited reservation slots available or long waiting lists. Dealers charge markups because, simply put, people are excited enough about the vehicles to pay whatever it takes. In some cases, this can mean tens of thousands of dollars or more above the Manufacturer’s Suggested Retail Price (MSRP).
Dealers can get away with this because they’re effectively allowed to charge what the market will bear. The S in MSRP is critical: Thanks to strong state franchise laws pushed by dealers and their political allies, automakers cannot dictate the final sale price of a vehicle. That’s why nearly all vehicle sales at dealerships are negotiations.
Automakers Strike Back, Sort Of
While GM can’t tell its dealers what to charge for a car or prevent them from adding a markup, it does have some leverage. According to Carlisle’s letter, Article 5 of the GM Dealer Sales and Service Agreement states “Dealer agrees to effectively, ethically and lawfully sell and promote the purchase, lease, and use of Products by consumers …” and “Dealer agrees to advertise and conduct promotional activities that are lawful and enhance the reputation of Dealer, General Motors, and its Products. Dealer will not advertise or conduct promotional activities in a misleading or unethical manner, or that is harmful to the reputation of Dealer, General Motors, or its Products.”
In essence, Carlisle is saying demanding extra money on top of the mandatory reservation fee and adding markups to the final price could put the dealers in violation of their agreement. Carlisle specifically calls out dealers that tell customers an extra fee on top of the reservation price is mandatory to keep that reservation, which is not true under GM’s reservation policies.
As punishment, GM is threatening to take away an offending dealer’s allocation of the vehicles in question and give it to another dealer that’s following the rules. The offending dealer would still get its normal shipment of other vehicles, but would be cut off from receiving hot new vehicles to sell, such as Hummer EVs, Corvette ZO6s, Silverado EVs, and Lyriq EVs. The letter also threatens “other recourse prescribed by the Dealer Sales and Service Agreement” but does not specify what that would consist of.
Closing The Broker Loophole
Carlisle also calls out dealers planning to sell hot new vehicles to independent brokers who will flip them for much higher prices. In such a scheme, the dealer would either sell the vehicle to the broker at an inflated price but not as high as what the broker can get from desperate customers, ensuring a profit on both sides, or receive a kickback when the broker resells the vehicle at a higher price.
The letter reminds dealers that selling to brokers is specifically prohibited by the Dealer Sales and Service Agreement, which reads “Dealer agrees that it will not sell new Motor Vehicles for resale” and “Dealer is not authorized … to … sell Motor Vehicles to persons or parties (or their agents) engaged in the business of reselling, brokering (including but not limited to buying services) or wholesaling of Motor Vehicles.”
Dealers caught selling hot new vehicles to brokers and resellers will likewise have their allocations of those vehicles “redirected” to another dealer.
No Restrictions On Private Customers
Unlike Ford, GM has not gone as far as to bar private buyers from reselling their vehicles for a profit. Ford has provided language for dealers to include in their sales agreements that requires customers to keep their vehicle for at least one full year before reselling it or face a lawsuit for breach of contract. This would prevent the average person from flipping their personal vehicle for a profit, at least for a year. GM has not yet provided such language to its dealers or addressed private resales so far as we know.
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