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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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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.


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