One of my favorite Blog sites is www.GM-VOLT.com
. Run by an absolutely independant consumer who fell in love with the VOLT concpet at the NY Auto Show in the spring of 2007, this site attracts some of the most lively commentary about the potential future of a petroleum independant transportation system. The site's founder, and daily blogger, is Dr. Lyle Dennis, a Neurologist by day and a VOLT fan by night. Recently Lyle asked me to comment a few sentences as a dealer on the subject of 'potential dealer price gouging' on the VOLT when it arrives in November 2010. Here are my comments to him:
Happy to respond – I have commented on the site on this subject in the past – although I must say many of the site’s readers have apparently not experienced the best dealership practices in the past based on their comments. This is truly one of those subjects where “all dealers are not created equally”. Feel free to take a quote from below… Once I began thinking about it, I was compelled to just write a full story!
Chevy VOLT Pricing: A Dealer’s Perspective
As a long-time Chevrolet dealer, I am extremely excited about the pending consumer launch of the Chevy VOLT. I truly believe that GM’s EREV technology is a game changer. On the subject of vehicle pricing, for every 100 people you will get 100 different responses. GM has invested huge sums of money into the VOLT concept; and they have every right to expect some type of return on their investment. As American Taxpayers have invested in GM over the past year, they too have a right to a return. And dealers will incur significant costs leading up to the introduction of the VOLT and they should expect a return. Some will argue with this last one, but what many consumers don’t realize is that with the introduction of each new model and new technology, each manufacturer requires each dealership to make investments in required special tools (which can only be purchased from the manufacturer) and training of employees. The ‘special tools’ can amount to investments of well over $10,000 on some models – and will likely be significantly above that amount for the VOLT. Training consists of a wide range of courses for technicians and others; some offered via computer and some require travel for multiple days of hands-on training. Each dealership pays for their employee’s costs as well as their time. On a typical new model, these costs may only be $3-$5,000; but on an all new model like the VOLT, they will likely be well above that. Now do some math. There will be about 3,600 Chevrolet dealers after the dust settles from GM’s bankruptcy. Take the first year’s estimated production of 10,000 VOLTs, and that is less than 3 per dealer. Logic says that GM will want to concentrate the distribution to certain targeted markets, so let’s say that only 1/3 of Chevy dealers get a VOLT the first year. That takes you to an average of about 8 or 9 VOLTs per dealer. Having spent likely $15,000 to $20,000 on direct VOLT costs, the dealer will try to re-coup these costs as quickly as possible. Welcome to the world of ‘additional dealer mark-ups’, ‘price gouging’ or whatever other term you want to use.
Speaking for myself and my dealership, KARL Chevrolet
, we have NEVER charged over MSRP for any new model. Since 1927, when my grandfather opened the dealership for business, our dealership’s reputation for fairness has grown. Over the years, I absolutely believe this has been the right thing to do and has resulted in our dealership doing more business over a longer period of time. We also believe in selling locally to those consumers most likely to return to us for service; which mostly covers Fairfield Couunty in CT and Westchester County in NY. We look to build long-term relationships that are good for both our business and our customers. Sure, you could always ‘get rich quick’ by charging more to the first few folks who buy a model, but not only will they remember; they will also tell their friends and neighbors. So just when supply catches up to demand on any given new model, we have our customers out telling their friends and neighbors what a great deal they got; while some of our competitors’ customers are out telling everyone how they got taken. All dealers are not created equally – ask around – and don’t fall for it.
Here are a few scenarios to consider:
- The ‘Big Deposit to guarantee a slot’. Beware of dealer’s looking to take a large deposit ‘guaranteeing you a spot in line’. There are plenty of stories where supply and demand comes in – think of the long line at the latest hot night-club. A guy steps out of a limo in front of the place, looks at the 100’s of people in line, and calmly slips the bouncer a $100. What happens? He’s in and you’re still standing in line. Welcome to the world of moving wait lists – those willing to pay more can move up the list.
- The ‘Auction’ or highest bidder. There are some stores that just will not take advance orders. They are content to wait until inventory arrives at the dealership, particularly on new models, and have an auction to see who will pay the most. eBay has accelerated this concept, as you’ll see many new models listed. Just take a look at what happened with hundreds of new Camaro’s sold on eBay.
- The ‘Required Extras’. Some dealers will take a new model and add on anything and everything they can think of from fancy wheels to stripes to ‘protection packages’ all in an effort to increase their margin. Some of these extras may add value for you, but likely not all of them.
As I contemplated how to respond to Lyle’s request for a dealer’s perspective, I have come up with a Win-Win-Win idea for GM, Dealers, those lucky enough to buy a VOLT and all American Taxpayers. I will preface this as simply one Dealer’s perspective. Here we go:
Ideas for Chevy VOLT Pricing Strategy for Year 1: estimated production = 10,000 units
- GM establishes the price it needs to make a viable business case for VOLT.
- US Taxpayers deserve a return on investment in GM – so for every VOLT sold, GM is required to pay back 10% of the proceeds to the Government.
- Dealers need a reasonable way to re-coup their additional investment in VOLT – so GM increases the dealer margin from the normal 8 or 9% to 16 to 18%. GM then adapts the Saturn model of pricing, where the price is the price. If a dealer wants a VOLT to sell, they agree they will not charge more than MSRP. The first reported abuse removes that dealer from distribution of VOLT for one year.
I don’t know exactly where this would put first year pricing; but I do believe that transparency would begin to build trust between GM, dealers, and the legion of potential VOLT and EREV consumers. Adding a component whereby a portion of each VOLT sale went directly to repaying the Government loans made to GM simply makes every US taxpayer feel better about GM and turns them into a raving fan rooting for GM’s future success. On first pass, I believe this is a Win-Win-Win scenario. What are your thoughts?