High demand and low supply will result in higher prices, even prices that exceed MSRP. The question is, may dealers sell above MSRP?
Originally published in May 2021.
The "S" is for Suggested
Today’s topic is prompted by an email message I received from a regular Drop the Bow Tie viewer who wrote:
With the increasing shortage on vehicles we’ve noticed dealers selling cars over MSRP. We’ve also been asked if there is a preferred way to do this. In other words, is it better to have an addendum that includes some perceived value to justify the mark up – or is it okay just to raise the price? Would love to hear your thoughts on this topic.
What that letter suggested is, in fact, true: supply chain disruptions, including chip availability, have reduced the availability of certain models. Other new models, such as the mid-engine Chevy Corvette, are enjoying unusually high demand. And as I recall from ECON 101, high demand and low supply will result in higher prices, even prices that exceed MSRP. The question is, may dealers sell above MSRP?
The short answer is yes, you may sell a vehicle for more than the MSRP. The S, after all, stands for “suggested.” But if it were that easy, I wouldn’t be recording this episode, would I? Here’s where it can get sticky.
State Laws
First of all, it may be illegal in your state to sell a vehicle above MSRP without a supplementary sticker explaining the upcharge. In California, for example, there is an actual statute that says dealers may not sell a vehicle above MSRP unless they affix a supplementary sticker that meets certain requirements, including the term “added mark-up.”
In Connecticut, there is no statute specifically addressing sales above MSRP. At least two court cases, however, have found that selling above MSRP without a supplemental sticker constitutes a deceptive trade practice.
Best Practices for Selling Above MSRP
Does that mean anything goes if you’re not doing business in California or Connecticut? Not quite. Here are a couple of caveats, wherever you do business:
Never suggest the asking price is higher than the MSRP because of a particular customer’s credit score. That’s a violation of the Equal Credit Opportunity Act. While you may increase the cost of credit based on creditworthiness, you may not increase the cash price of a vehicle.
Transparency is always the best policy, at least when it comes to avoiding lawsuits and ticked-off customers. If you’re charging more than MSRP because market conditions allow you to do so, do it. Just add a clear and conspicuous supplemental sticker that spells it out. You can identify the upcharge as an “Availability Surcharge,” Market Adjustment,” or “Because We Can.” Just be upfront about it. If the vehicle is really that much in demand, you’ll get it.
But be realistic – mandatory pinstriping for $3,500 is going to cause you more problems than it’s worth. And if you’re in California, check the statute – it has some rules concerning this practice.
And this is a big one – be sure you advertise the vehicle at the increased cost. If you advertise a vehicle at MSRP and ambush the customer with a higher price on the lot, that violates advertising rules. Remember, you’re required to sell vehicles at no more than their advertised prices, regardless of whether or not the customer even saw the ad.
So yes, you may sell a vehicle for more than the MSRP – just be sure you do it right. And keep those emails coming in – you just might get answered on the air.