Price gouging on hot cars is a sleazy practice, and few dealers will admit they do it. But when short supply meets high demand, as it has with the new green cars, the market can and will push prices up. The Japanese tsunami and earthquake have aggravated the situation, and anyone who actually has cars to sell holds all the cards.
If you think the $41,000 MSRP is too much to pay for the Chevy Volt, how would you like to pay $61,000? That's the jacked-up price a Los Angeles-area dealer is charging for GM's first plug-in hybrid. And reports of a $55,000 Nissan Leaf are not apocryphal -- that's how much a consumer recently asked for his car on eBay. Some desperate buyers are offering to pay $70,000 for the Leaf.
In fact, it takes ingenuity for dealers to price-gouge on the Nissan Leaf, because the online ordering system puts buyers in line for cars, and not many are up for grabs on the lots. But the tsunami has made Leafs exceedingly scarce, and that creates an opportunity for some dealers to profit (sometimes by buying used vehicles on the open market). And some first-in-line customers are reselling their hot cars at what-the-market-will-bear prices.
The excitement fades, and customers feel cheated
Price gouging, although it helps early adopters get instant gratification, ultimately hurts the brands when the gold rush is over and premium buyers feel cheated. That's why both Nissan and Chevrolet are discouraging the practice, but can't do much to stop it because both dealers and their customers are independent agents and, as they say, it's a free country.
Unrealistic buyer fever ultimately leads to a bubble, buyer's remorse and a big crash. That's the lesson Gordon Gekko explains in the second Wall Street movie, using the Dutch tulip bubble of 1637 as an example.
If you want an unclaimed Leaf in northern California, the premium is often $5,000, says Ron Coury, who heads Leaf sales at North Bay Nissan in Petaluma, California (where the first Leaf was delivered to a customer). North Bay sells Leafs for five percent under MSRP, and it was one of its cars that ended up on eBay with a $55,000 asking price. According to Coury in an interview:
He has every right to do what he wants to do. It's his vehicle. But price gouging by dealers is pretty sad. If customers pay $5,000 over list they'll end up not liking you, and not liking your dealership, either. If a dealer stuck you for that much, would you want to go back there?"Price gouging is a negative thing to do," agrees Herbie Klussman, whose Connecticut Chevrolet dealership charges list price for the few Volts it can get. Dealer good will is great, but supply and demand will dictate at least some of what will happen on the ground. And the demand is huge.
Demand through the roof
Paul Scott, the vice president of advocacy group Plug In America who doubles as a Santa Monica Nissan salesman, told me:
I was offered $70,000 for mine four weeks after buying it. We've had several people offer as much as $10,000 over. The demand is through the roof. Lots of people are desperate to get off oil and into a clean car.A customer paying $70,000 for a Leaf would never, ever earn back that premium in lower operating costs, so they'd have to be motivated -- and many are -- by the urge to do right by the planet. Still, it's a dirty deal for a clean car.
Rob Peterson, a Volt spokesman, said that some of the wilder gouging stories may not be true (one was from Florida, which is not an early market state), but Edmunds posted a letter from an unnamed California dealer stating, "Demand is going to far exceed supply for this vehicle, [so] initially our asking price for the Volt is going to be MSRP plus $20,000." Consumer Reports paid an extra $5,000 dealer markup for its test Volt. "It set us back $48,700," the magazine said.
Peterson claims that "a majority of Volts are going out at MSRP." That's undoubtedly true, but eBay is there for any enterprising reseller. Here's a car in Texas that's currently reached $42,100 ($1,000 over MSRP) without the reserve being met. An informal GM-Volt.com poll reports that 61 percent of respondents say their dealers are marking up Volts, and 23 percent say the amount is $10,000 or more.
Peterson has kids, and he makes an analogy to the in-demand Christmas toy that reaches crazy prices but is widely available at steep discounts after the holidays. "Eventually supply and demand will align and the price will match that," he said.
Short supplies of the Leaf and Volt won't last more than a few more months, six at the outside. After that, customers will be in the driver's seat.