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GM Restrains Customers From Flipping Cars, But Not Dealers From Charging Ridiculous Markups

Sometimes, the laws of supply and demand can lead to some pretty outrageous prices, as demonstrated by low-volume, high-demand vehicles like the C8 Corvette Z06, GMC Hummer EV, and Cadillac Escalade-V. Per previous GM Authority coverage, some vehicle owners have opted to quickly resell these high-demand GM vehicles for vastly inflated prices, a practice known as flipping, prompting GM to come down on those owners with a list of harsh consequences. But what about dealers who charge ridiculous prices? Should there be consequences for the dealers as well?

The Cadillac Escalade-V, a low-volume, high-demand GM vehicle.

First, a little background. As GM Authority was the first to report over the past year, General Motors is imposing restrictions on buyers who purchase a low-volume, high-demand vehicle like the Corvette Z06, GMC Hummer EV, or Cadillac Escalade-V. These restrictions usually involve “forcing” the customer to sign a waiver that their vehicle’s warranty will be voided and they will be prevented from placing a future sold order or reservation for another high-demand model (as determined by GM) if they choose to resell their vehicle within six months of taking delivery, all in the name of discouraging owners from flipping the vehicle for a quick buck.

The question, then, becomes this – what about the incessant dealer markups for these very same vehicles? Shouldn’t these restriction go both ways?

As it stands, GM is somewhat limited in what it can do, as it is unable to set the final vehicle selling price. Technically, GM sells the vehicle to the dealer, which is then free to resell the vehicle at whatever price it deems correct. That said, GM did send a letter to dealers early last year warning against “demanding money above and beyond the reservation amounts set in GM’s program rules,” or “[requesting] customers to pay sums far in excess of MSRP in order to purchase or lease a vehicle.” Per the letter, the consequences for such actions could include rerouting a dealership’s allocations for high-demand vehicles to another storefront, among other actions described by the Dealer Sales and Service Agreement.

Unfortunately, it appears as though the warning letter didn’t really help the situation.

Now, it should be mentioned that there are laws in most states which prevent the OEM from setting the price on its cars, which protects the dealer. However, there could be other avenues to explore in preventing the insane markups seen on high-demand vehicles. For example, dealers could be required to sign a separate agreement when selling high-demand vehicles which could include a clause stating that markups are prohibited.

Either way, GM should put some of its vast resources, which includes brain power and legal knowledge, towards exploring other methods to prevent these markups. And that’s definitely in GM’s interest, as indicated by one recent study showing that markups can negatively impact both the brands and the dealers.

As if that wasn’t enough of a reason to get this done, then perhaps Tesla will actually force the issue. Tesla doesn’t have dealers, but rather, the EV producer sells its vehicles directly to consumers, and thus, there are no dealer markups when buying a Tesla. But if GM is forced into doing something about the markups, rather than being proactive about it, it might be too late – after all, there is a reason GM’s stock hasn’t kept up with inflation, while Tesla’s stock is trading at well over 100 times the inflation rate (and with just a four-vehicle lineup at that).

Either way, GM needs to reconsider this issue and get moving on locking down dealers – just like it’s already locked down on customers.

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Jonathan is an automotive journalist based out of Southern California. He loves anything and everything on four wheels.

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Comments

  1. Agreed. I’m still waiting for delivery of the Edition 1 Hummer EV SUV I reserved in April, 2021. Yesterday the dealer offered to sell me their demo – for MSRP plus a $25k market adjustment. Great way to reward a customer for their continued patience…

    Reply
  2. I’m ready to buy a new Silverado, but I refuse to pay a premium over MSRP. So I’ll wait or buy a Ford.

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    1. Do your research…I just bought a ‘23 Sierra for sticker minus GM discount. There are dealers out there that don’t do market adjustments. The dealer I bought my truck from was doing 5%-15% markups during Covid, but when their business dropped, they went back to selling MSRP. I leased a new car during Covid for MSRP and then mailed/posted social media pictures to the GMC dealer to show them the business they lost to a dealer down the street that wasn’t doing markups. The only reason I went back a month ago was because a close friend of my wife’s started working there…wanted to give him the sale.

      Reply
      1. If that dealer was charging markups during COVID, even if going back to MSRP now, how can you ever trust them again? I would only buy from a dealer that did not charge markups during COVID. There are some out there….

        The pandemic brought out the worst in dealer behaviour, and they made record profits during that time. Don’t reward them for bad behaviours, regardless of their new found humility.

        Reply
  3. Here is the deal. GM has limits that it can take to influence dealer prices.

    The federal government limits what mfgs can do on pricing. Hence the suggested mfg price on the window sticker.

    GM can and does restrict allocation as much as they can with out the FTC coming down on them.

    GM would like to shut these dealers down but have been stopped when 5bey have tried. In the bail out they tried to close more down than they did but Washing stopped it.

    To close more means buy outs or getting larger dealers like Penske to buy up and work with GM.

    The first way to stop the high prices would be yo get idiots to stop paying the high prices.

    We can shut down a beer company over a trans can why can we not shut down dealer by not buying from them?

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  4. Regarding dealer markups, think about this for a moment. If a used C8 Corvette is brings at a minimum its original MSRP if not more, what is a new one then worth?

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  5. Simple solution. A new Corvette isn’t a need, it’s a want. Let the cars sit on the lot. If someone is dumb enough to pay $25K over MSRP, the dealer is more than willing to sell it to you.

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    1. Exactly. Remember Pet Rocks and canned Elephant Sh&t. There’s one born every minute.

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    2. Good point however, if vehicle sits on the lot without a buyer, how long do prospective buyers sit it out before one of them blinks and the sale goes to the one who did? It’s just like Poker!

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  6. Those mark ups are helping dealers bail out of used vehicles, they’ve overpaid for. The erratic used car market for the last couple of years has caused some big losses and I see a lot more coming. Dealers don’t win on every new and used vehicle on the lot. I have seen a few $10,000 losers. Yes, dealers are on the winning side about 92% of the time. However, they do have some losers. So, if someone is willing to pay up? Get it while you can. I don’t see anyone crying about individuals flipping for a profit. Dealers have had shrinking volume and rising overhead. The money has to come from somewhere. No one is forced to pay it.

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  7. Until gm and the dealers change their sales practices I feel almost no interest in purchasing new or used from a gm dealership. It’s not gm alone that does this shady stuff but gm is on a very short list of companies I would buy a new vehicle from. The dealer model for sales and service keeps them on the sidelines for me.

    Reply
  8. Why pay surcharges? It’s illegal usury!
    The customer is king and if neither the OEM nor the dealer sees it that way, you don’t have to buy.
    I buy and have never bought with surcharges, always at real, reasonable prices because I have to earn and pay taxes on my money myself. Any regular taxpayer has no money for dealer and OEM usury. What if OEMs want to prevent the product from being sold again within 6 months? Now the OEM can keep its goods, because the customer decides!!!

    Servus and have a nicer day without rain like today in Germany, Bavaria near Regensburg!

    Reply
  9. Ordered a 2023 2SS Camaro 1LE on April 18th. Got a call from my salesman in July telling me the car will NOT be built. Get a call a week ago saying, “Good news, they’re gonna build your car as a 2024 but it’s gone up $10,000 and finance rates have gone from 2.49% to 5.99%. Told them NO THANKS and got my deposit back. Price in April was $63,050. Price in August…$73,040!!!

    Reply
    1. Unfortunate you didn’t get your Camaro. Nice to see someone cancel their order and tell the general to shove it. What they are doing is literally highway robbery.

      Check out the new mustang. 480 HP and new design.

      Reply
  10. I noticed three distinct dealers within an hour of me have had a 70th Anniversary White Z06 for sale. It turns out it is the same car. The first dealer wanted $100K over. The second dealer wanted $60K. And the third wants $35 over. I am waiting for it to show up at the fourth dealer at MSRP before making an informed offer.

    It is like a hot potato. After 60 or 90 days, the dealer trades it to another GM dealer.

    It is easy to see that this is happening elsewhere as well.

    Reply
  11. As a dealer I’ve sold C8s at MSRP to people that I later found had turned around and sold them at well over MSRP, often taking a profit greater than I made on the original sale. The market ALWAYS determines the selling price of any product. Why is a dealer a crook if they sell at a price the market will pay but it’s perfecetly fine for a buyer to re-sell for thousands over original MSRP? If MSRP is always the fair price at which a vehicle should be sold then the next time there are thousands of unsold models sitting around will you not demand a discount and just go pay MSRP? I mean after all that would the fair thing to do, right??

    Reply
    1. I did an informal survey of the corvettes I sold over the last couple of years and very few of them where still in the original buyers hands. Many where smart enough to keep them long enough to sell them without penalty.

      2 family members ordered two corvettes, they arrived two weeks apart, the first one was at the auction by the time the second one arrived. That 2nd car I sold to a happy buyer in Calgary who still has the car, we wouldn’t deliver the car to the second family member.

      Reply

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