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Some customers were just breaking even with cash-for-clunkers or even worse

While many of the domestic automakers offered steep price cuts on top of "Cash for Clunkers", many buyers chose to purchase vehicles from foreign manufacturers instead.  Leading the pack was Toyota, whose Corolla was the leading vehicle purchased under the program by the first week of August.  Even recently retired Sen. Bill Frist (R-Tenn.) traded in his 1991 Chevrolet Suburban for a brand-new Toyota Prius, joking, "You don't see a lot of Republicans driving a Prius." 

Now it appears that a handful of Toyota dealers raised their prices to offset the government rebate and cash in on the high demand for its vehicles.

DailyTech has an exclusive inside look at some Toyota dealers' so-called "market value adjustments" (MVAs) on popular vehicles such as the 2010 third-generation Prius hybrid.  With the typical sticker price of the Prius coming it at around $26,000, many dealers across the country have been charging $3,000 to $10,000 markups, more than offsetting the "Cash for Clunkers" rebate of $3,000 to $4,500 in some cases.

On the forum PriusChat, one customer reports, "We live in Lake Placid Fl. and could not deal with the dealer here. One charge they wanted was a market adjustment for this area of $3999.99 also dealer fees of $695.00."

A number of others on the same site share similar stories of their own.  States one buyer, "A certain dealer in NJ that I am not at liberty to mention charges 6500 over sticker and calls it fair market value adjustment. luckily I found another one close by with better morals. They are charging sticker price and not a penny more."

Speaking with a trusted source who had recently been shopping for a Prius, DailyTech was able to confirm one such dealer that was spiking prices.  Located in the heart of the U.S. auto industry, Suburban Toyota of Troy, Michigan was charging more than a $2,000 markup on a Prius it had in store. 

States our source, "Suburban Toyota in Troy was one of the ones that wanted a $2,000 additional fee over the MSRP, to the best of my recollection. The other places weren't named, but only referred to by a salesman who was offended by the other dealerships charging what he said was price gouging. I thought it was like ticket scalping. They know they have a hot item and could probably sell all they have, even for $5,000 additional MSRP. The Prius is a great car but they didn't produce enough, especially ones with the amazing solar roof that keeps your car cool when it's parked in the summer."

Hoping to gain further insight into this, DailyTech posed as an eager buyer and called Suburban Toyota.  The following is our conversation:

DailyTech:  "I've been calling all over trying to find a new 2010 Prius and no dealerships have any in stock.  Do you have any?"
Sales Agent:  "We do... it's been sold to Ford but the sale isn't finalized yet."
DailyTech: "But I heard from another dealer that I might have to pay more than the MSRP on it -- something about MVA or something like that -- is that true?"
Sales Agent:  "Yes"
DailyTech "How much more?"
Sales Agent:  "About $4,000 to $5,000."

The sales agent went on to elaborate that we might be able to buy it if we moved fast.  The agent explained, "When one comes in, typically it's sold before it even gets the chance to hit the lot."

DailyTech then proceeded to contact six other Toyota dealerships in lower Michigan.  None of the other dealers had stock in, but when related a slightly altered version of the story of the MSRP markup by Suburban, they all said that they sold their vehicles at MSRP.  A couple expressed shock or surprise at the development, but at least one commented, "I know who you're talking about."

It appears that most dealers are clean, but based on the feedback DailyTech has picked up on in various Prius forums, there are dealerships in at least several states that are similarly price gouging on the 2010 Prius via MVA's. 

Toyota was contacted by DailyTech and we are awaiting their comment.

Markups such as these are really nothing new, but are typically limited to low-production vehicles or vehicles that have been recently introduced.  The Prius itself has also been the victim of occasional price gouging since its introduction in the U.S.  While it's unknown exactly how many people were willing to pay the MVA's on the Prius, the fact that the elevated MSRP erased or even surpassed the Cash for Clunkers rebate was likely a hard pill to swallow for many buyers.

Update 1: One of the dealerships DailyTech contacted earlier this morning received a vehicle this afternoon and offered it to our "buyer" at MSRP.  This essentially invalidates the argument that no vehicles are available on the local market.



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From the Suburban Collection
By Daniel Boismier on 8/25/2009 2:45:34 PM , Rating: 4
Hello,

I am the Internet Sales Director for the Suburban Collection.

I would like to comment on this issue regarding the Prius.
As a free market economy we operate in general by the laws of supply and demand. As an organization in business to make a profit we comply with this competitive force.

The majority of our vehicles are priced below MSRP, because that is what the market dictates. There are even times when discounts are below costs.

To allude that we are somehow unethical (lacking morals) because we price our vehicles according to market demand seems to be short sighted.

The mere fact that
quote:
“DailyTech then proceeded to contact six other Toyota dealerships in lower Michigan. None of the other dealers had stock in”
demonstrates the extremely low supply of this vehicle.

If our current pricing strategy for the Prius does not work the marketplace will force us to adjust it accordingly.

Also, please remember that the acronym MSRP has "Suggested" in it.




RE: From the Suburban Collection
By JasonMick (blog) on 8/25/2009 3:00:13 PM , Rating: 1
Hi Daniel,

First let me say I think the 2010 Prius is an impressive vehicle and I find Toyota to be quite responsible with its corporate policies.

That said, I would like to address your comment. First of all, I'd like to point out that of the other dealers I contacted, at least one flat out said what you were doing -- that selling over MSRP was wrong. Another said such practices are bad business. These are your fellow Toyota dealers. It seems that you are in the minority marking up prices.

Secondly, while I acknowledge that the realities of economics can mandate a markup at times, I think that your dealership has overstepped charging such a huge markup, particularly at a time when so many good deals abound. I'm sure you're not the only Toyota dealership across the nation to do this, but I think you are in the minority of Toyota dealers (feel free to contradict this).

It is understood that MSRP is a suggestion, as the acronym implies, but from most I've talked to in the automotive industry it appears that it is considered bad business to charge customers more than MSRP on a mass-produced vehicle, especially during times of economic duress. If the vehicles command more, the company should raise its MSRP on a year-to-year basis.

I do appreciate you sharing your perspective, though. Best of luck.

-Jason M.


RE: From the Suburban Collection
By TomZ on 8/25/2009 3:04:48 PM , Rating: 4
quote:
...that selling over MSRP was wrong
Jason, that's stupid. Of course a competiting dealership is going to make such a statement about their competition. And do you think that car salesmen are experts in ethics anyway?

Pricing over MSRP for a commodity that is in high demand is the norm , not the exception, and there's nothing wrong with that.


RE: From the Suburban Collection
By Lord 666 on 8/25/2009 6:29:34 PM , Rating: 2
If an item was in scarce supply and available from only one vendor, it would not be called a commodity. By definition, a commodity is something that is indistinguishable regardless of supplier; gas and electricity are good examples.

Hence, this is why Toyota dealers can mark up the prices since they are the only source of a new Prius.


RE: From the Suburban Collection
By MonkeyPaw on 8/25/2009 7:00:54 PM , Rating: 2
quote:
Of course a competiting dealership is going to make such a statement about their competition.


I've had to buy 2 new cars this year (thanks to a guy running a red light killing the first one a month after we bought it), and car salesmen always call the "other guys" big crooks that kill puppies and kittens in their spare time. Oddly enough, our second car came with a nice scented candle--made by our car salesman. :o


RE: From the Suburban Collection
By MadMan007 on 8/25/2009 7:15:00 PM , Rating: 4
How much you want to bet the candle was made in part from dead puppies and kittens? ;)


RE: From the Suburban Collection
By Lord 666 on 8/25/2009 7:33:20 PM , Rating: 2
Nah, it was to hide the scent of dead kittens and puppies in the trunk and the mildew smell from it being a salvage vehicle.


RE: From the Suburban Collection
By acejj26 on 8/25/2009 7:45:47 PM , Rating: 3
Absolutely no one complains when a car is sold less than MSRP, which is a byproduct of greater supply than demand at that price point. It is basic economics that says that when the opposite occurs, when the supply, at a given price point, cannot keep up with the demand, the price must go up.

A dealer can charge whatever he would like. If no one wants to buy the car at that price, he will lower it to a point where someone will. There is always a middle ground, and market forces will determine that price.

This is seen in the computer parts market as well. When newegg gets a new product with very high demand and a low supply, the price is often times higher than the MSRP. Why? Because they can. No one forces someone to buy that computer part, just as no one is forcing someone to buy a new car at a price that is higher than MSRP.

Perhaps you should change the title of your article to "Economics 101 - Capitalism," and then proceed to use this example as a perfect demonstration of supply and demand.


RE: From the Suburban Collection
By deeznuts on 8/26/2009 3:03:44 PM , Rating: 2
quote:
It is understood that MSRP is a suggestion, as the acronym implies, but from most I've talked to in the automotive industry it appears that it is considered bad business to charge customers more than MSRP on a mass-produced vehicle, especially during times of economic duress. If the vehicles command more, the company should raise its MSRP on a year-to-year basis.
You really advocating manufacturers yo-yo'ing MSRP due to demand? What if they raise it up and demand softens and they're not quick to lower it? Dumbest argument ever Jason (not calling you dumb, just your comment).

Economic duress? People in economic duress don't overpay for cars. Dealers are in more economic duress than greenies overpaying for Priuses.


RE: From the Suburban Collection
By TomZ on 8/25/2009 3:01:47 PM , Rating: 5
I'm glad you replied. A good rule of thumb at DailyTech is "don't feed the trolls," and the problem here specifically is that Jason is a troll who is writing "news articles." His job depends on writing "controversial" articles that generate page clicks, and trash like this is how he does it.

What - pricing based on supply and demand and prices sometimes going over MSRP? That happens all the time in every industry, and in most cases there is nothing unethical or illegal about it. Only the mind of a child would think otherwise.


RE: From the Suburban Collection
By grath on 8/25/2009 7:32:00 PM , Rating: 3
Yeah I was surprised and disbelieving to see "Exclusive" in the title, and even more so when it appeared that Jason had done some legitimate investigative reporting.

If the question is "How much can you reasonably charge above MSRP?" the answer is "As much as you can get away with." Thats not immoral or unethical, thats capitalism. Is capitalism inherently immoral and unethical? Probably, but that wasnt the question.

Cash for Clunkers adds an interesting aspect though, it makes it more than a matter of supply and demand. The intent of the rebate was to make the new car more affordable to the buyer, not for the dealer to pocket that $3000-$4500. The dealer already benefits from the program through more cars being bought, but thats not enough for some, so they use supply and demand as an excuse to take the subsidy out of our wallets. That, I would argue, should cross the line into realms of legality and questionable ethics.

As far as Micktastic articles go, I suppose this one wasnt entirely worthless...


RE: From the Suburban Collection
By zxern on 8/26/2009 12:39:25 PM , Rating: 2
He never does this much research for one of his "stories". I have a feeling he was looking to buy a prius and couldn't find a deal and the "story" was born.


RE: From the Suburban Collection
By MadMan007 on 8/25/09, Rating: -1
RE: From the Suburban Collection
By DotNetGuru on 8/25/2009 3:56:30 PM , Rating: 3
Ethics and morality have nothing to do with supply and demand. It is a law of economics, just as laws related to nature, math, physics. Ethics and morality are somewhat imaginary, or at least they do not fuction in the domain of these 'real' laws.


RE: From the Suburban Collection
By The0ne on 8/25/2009 5:37:43 PM , Rating: 2
Yea lol. That was too funny.


RE: From the Suburban Collection
By MonkeyPaw on 8/25/2009 7:20:58 PM , Rating: 3
Actually, ethics and morality do matter in business, but those concepts aren't the issue here.

It would be "unethical" if the dealer secretly changed the price after you signed the papers. It would be "immoral" if they forced you to buy the car at gun point. From what I can see, they didn't do that.

If one wanted to sensationalize this article, the fodder was easy--people were willing to pay too much for a hybrid. These people just turned in cars that got under 19 MPG, so even a car that gets 25-35 MPG would be a huge net savings. So basically people overpaid for something in a bad market.


RE: From the Suburban Collection
By Hiawa23 on 8/25/2009 4:05:11 PM , Rating: 2
Just because pricing follows supply and demand doesn't make it moral and ethical.

moral or ethical....what's this?

Seems like supply demand, as products go up when there is high demand & not enough supply & vice versus, atleast this is what Karl Rove argued with Bill O' Reilly about the ripoff high gas prices. If their are consumers who allow themselves to be ripped off to buy this ugly green bug, more power to em. Sounds like capitalism...ur, or not, the American way...j/k. shaft or be shafted....


RE: From the Suburban Collection
By Smilin on 8/25/2009 4:38:14 PM , Rating: 4
Are you saying it's immoral and unethical to charge a high price on a fvcking Prius??

When you find someone price gouging for AIDS drugs come and find me. Until then spare everyone the righteous indignation.


RE: From the Suburban Collection
By TomZ on 8/25/2009 5:10:14 PM , Rating: 2
Exactly!


RE: From the Suburban Collection
By MadMan007 on 8/25/2009 5:39:13 PM , Rating: 2
Why don't you guys try reading the freaking post to which I replied. 'Morals and ethics have nothing to do with pricing' was exactly my point but not in the way you guys think, it was in response to the dealer writing <q>To allude that we are somehow unethical (lacking morals) because we price our vehicles according to market demand seems to be short sighted.</q> which attempts to use market demand to excuse away morals or ethics.

Now before you say that I agree whatever price they charge is fine, that's not what I'm saying. I'm saying that the one should not be used to excuse away the other. Unless you've been living under a rock 'market demand > morals and ethics' has caused a bit of a stir up in the economy as of late.


RE: From the Suburban Collection
By Smilin on 8/25/2009 5:46:30 PM , Rating: 2
Oops, sorry. Here is your butt back. It's a bit chewed up but it should still work.

Word your post more clearly next time.


RE: From the Suburban Collection
By thurston on 8/25/2009 9:12:09 PM , Rating: 2
quote:
When you find someone price gouging for AIDS drugs come and find me.


How about $20000 a year for AIDS drugs?


RE: From the Suburban Collection
By Smilin on 8/26/2009 9:31:34 AM , Rating: 2
20k/year for AIDS drugs in a modern industrial country is not gouging. You're taking a cocktail of like 5 very expensive drugs. I know someone with ADD that's paying $4,200/year for a single med.

Back to the point though: You are not going to DIE if you don't get a Prius so there is nothing forcing you to buy one. If you get overcharged then it's your own fault.

Does anyone actually want to debate this?


RE: From the Suburban Collection
By thurston on 8/26/2009 9:47:31 PM , Rating: 1
quote:
20k/year for AIDS drugs in a modern industrial country is not gouging.


I couldn't afford it as a healthy working individual in a modern industrial country(US of Motherfucking A, bitches!). So how could I afford it if I was dieing of AIDS, not able to work?

quote:
I know someone with ADD that's paying $4,200/year for a single med.


Then you should also know what a burden paying that much for meds is if they don't have insurance. If they do have insurance then they are not paying $4200/y. Most people dieing from AIDS are not the kind of people with health insurance.


RE: From the Suburban Collection
By Smilin on 8/27/2009 10:26:49 AM , Rating: 1
quote:
(US of Motherfucking A, bitches!)


You know that assistance is available in the US of A for that as well as arrangement to lower the cost?

I on the other hand CAN afford 20k/year if my life depends on it so that's what I'll end up paying. No assistance for me.

While we're debating this whole thing do you mind bringing up a source for that 20k/year figure?

quote:
Then you should also know what a burden paying that much for meds is if they don't have insurance. If they do have insurance then they are not paying $4200/y. Most people dieing from AIDS are not the kind of people with health insurance.


That $4200/year is AFTER insurance. It's irrelevant who is paying though. We're talking about what is being charged.


RE: From the Suburban Collection
By Steve1981 on 8/26/2009 12:52:42 PM , Rating: 2
It is perfectly moral and ethical.

What pray tell is moral or ethical about forcing someone to sell you a product at a price which he doesn't wish to part with it?


RE: From the Suburban Collection
By clovell on 8/25/2009 4:18:15 PM , Rating: 3
Mr. Boimier,

Please explain how this is a free market economy when the government has subsidized the 'demand' that you appeal to with tax dollars. What you're doing is HIGHLY questionable in terms of ethics.

The arrogance involved in defending such tactics with a condescending lesson in economics further erodes your credibility. The only thing short-sighted here is that you actually think your back-pedalling will somehow 'defend' your reputation.

Many have argued the utility and intent of the CARS program on these forums and elsewhere, but there is quite a bit of solidarity behind the notion that it was never intended to give dealers a higher profit per copy and consumers the shaft. Mr. Mick has called a spade a spade here.


RE: From the Suburban Collection
By TomZ on 8/25/2009 5:27:53 PM , Rating: 4
I think it is absolutely ludicrous to suggest that the CARS program is wrongly enriching the dealerships. That is entirely the purpose! CARS is effectively a handout from the federal government to big business - dealerships, OEMs, and the automotive supply chain.

Let me guess - you were drinking the Democratic Kool-Aid in thinking that CARS was about helping "common folk"? LOL, you are a fool.


RE: From the Suburban Collection
By clovell on 8/26/09, Rating: 0
RE: From the Suburban Collection
By TSS on 8/25/2009 5:35:18 PM , Rating: 2
Yknow, i really do not want to defend this person or the business practices they employ. Ethically it's very wrong.

But on the other hand, he does have a point. His company is acting accordingly to the free market. If the government has tried to intervene in that market, that doesn't make this behaviour wrong, it makes the government's behaviour wrong.

If you hand out free money people are going to fight over that free money. Appearantly there's no wording in the legislation preventing markups beeing made on CfC vehicles, so how can you expect nobody to take advantage of that? (comming from the same guys who handed out a free trillion, i ain't suprised).

Besides wether a consumer or a dealership gets that $4,500 it's still comming from the tax payers, who are the consumers. To top it off you cannot get $4,500 unless you spend more then $4,500 at a time when consumer debt is at an all time high? So ultimatly, it *was* designed to give them the shaft, no matter how you slice it.

Forget what's wrong for a moment, let's discuss what's *more* wrong: This company breaking ethics on solidarity and applying free market principle, or the government breaking free market ethics and applying solidarity principles?


RE: From the Suburban Collection
By Keeir on 8/25/2009 6:17:38 PM , Rating: 2
quote:
But on the other hand, he does have a point. His company is acting accordingly to the free market. If the government has tried to intervene in that market, that doesn't make this behaviour wrong, it makes the government's behaviour wrong.


Pretty much.


RE: From the Suburban Collection
By DigitalFreak on 8/25/2009 7:57:55 PM , Rating: 2
Come on! Everyone knows that car dealers are the scum of the earth. It's always been a three way race between them, lawyers and politicians.


RE: From the Suburban Collection
By Smilin on 8/26/2009 9:46:02 AM , Rating: 2
Here, here!

I'm in the middle of a multimonth saga of getting a component repaired that only the dealer can handle so I'm forced to go to them. They are buttraping me on labor, diagnostic fees, parts and more parts, and more labor.

Today at least I'm going to say that car dealers are winning that race.


RE: From the Suburban Collection
By tmouse on 8/26/2009 8:31:52 AM , Rating: 4
You would have a point if Toyota was the only dealership involved in the program and people HAD to go to them. The point of fact is the government does not specifically care one way or the other, the goal (misguided or not) was to "stimulate" auto sales, plain and simple. NO one was forced to pay that price it was entirely the decision of the buyer. There is no ethical dilemma here, people were not compelled in ANY way to deal with these greedy people. They had an item there was no moral imperative to make as little money as possible on cars sold through the program. The program offered an incentive, many dealers offered greater ones (many HAD to), Toyota did not need to on their Prius lines and in fact could charge more. This is not morally or ethically wrong since they were not taking advantage of anyone, EVERYONE was free to choose and either take the price or pass. If there was ANY requirement concerning the Prius I would agree with you but there was not. I'm sure many dealers who jacked up the prices will pay in the long lean months to come, some dealers who dropped the prices will also fail in the months to come.


RE: From the Suburban Collection
By Smilin on 8/25/2009 4:47:01 PM , Rating: 4
The readers here understand supply/demand. Nobody is getting "gouged" here except the willing. You are selling out of Priuses as fast as you can get them in. If you don't raise the price I would consider you a fool.

My advice:

Don't let this article worry you.
Don't reply further in the comments.


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