Earlier this month it was Ford. The company sent a letter to dealers warning them they could lose the right to sell Ford’s upcoming F-150 Lightning electric pickup if they engage in shady practices to raise the price.
Now General Motors has done the same. CorvetteActionCenter was first with the report. The website published a letter from GM’s North American president, Steve Carlisle, warning dealers that “a small number of dealers have engaged in practices that do not promote a positive sales experience for our customers.”
We have contacted GM to confirm the authenticity of the letter. We’ll update this story when we get back to you. But we have no reason to doubt that it is real.
Carlisle specifically cites dealers who have “attempted to charge money beyond the reservation amounts” set by GM to reserve popular models like the 2022 Corvette Stingray and Cadillac Lyriq electric SUV. Other dealerships, he wrote, have “asked customers to pay sums well in excess of the MSRP” or entered into agreements to sell cars through third-party brokers who mark them up significantly.
Car manufacturers and dealers: a complicated relationship
The relationship between a car manufacturer and its dealers is complicated. The two are partners and dependent on each other, but both seek to make money on the same sales transactions. They must keep prices competitive with their rivals while collecting enough profit to keep both parties afloat.
This relationship is governed by national and local laws which may vary. In many states, automakers cannot legally sell cars themselves. They have to go through dealerships.
Tesla shook up the industry
In a handful of states, automakers can sell cars directly. This mainly comes thanks to intense state-level lobbying campaigns by Tesla. The electric car maker operates its own dealerships in states where it has obtained the right to do so. In other states, shoppers can visit a Tesla-owned “gallery” to learn more about the cars, but order them online.
Tesla cars have a fixed price. There is no negotiation on what they will cost. No dealership owner needs to take a stake to stay in business.
This model shook the automotive industry. It drastically reduces the cost of entry for new automakers. Upstarts like Rivian and Lucid began delivering new cars to customer driveways without ever taking on the expense and complexity of building a dealership network.
More traditional automakers have given no indication that they plan to phase out the dealership model. But they’re competing with companies that don’t face that complexity, and the industry is still figuring out how to do that.
More and more buyers expect to order a car
Traditional dealerships, meanwhile, are scrambling to stay afloat in a whole new trading environment. Most customers still come to the dealership to buy a car that the dealership already has in stock and expect to negotiate a price.
But others come looking for an experience close to the Tesla model. They plan to order a car from the factory, not pick one from dealer stock. Dealerships are still learning how to do business with such a model.
Some have started adding “market adjustment” fees, charging their own booking fees, or selling through brokers. GM says several of these practices are explicitly prohibited by dealership agreements with the automaker. Others may not be. But GM clearly fears they will have an impact on the company’s reputation.
What Automakers Can Do About Sketchy Dealerships
What can automakers do to rein in a few dealerships that might give others a bad name? Denying them cars for sale.
“For the small minority of bad actors,” Carlisle writes, “GM reserves the right to redirect your vehicle allowance.”
It’s the same approach Ford took in its letter—overcharge, and we’ll stop letting you sell specific models. In most parts of the country, buyers can reach a second dealership of the same brand within a reasonable driving distance.
What the future holds and what buyers can do
For many years car manufacturers have built more cars than they can sell. They then competed for discounts, and Americans got used to paying less than the asking price for most new cars.
Over the past year, a shortage of microchips and other supply chain issues have allowed automakers to build fewer cars. The prices were raised. And the buyers did not leave. In fact, a recent study shows that most shoppers are happier with their shopping experience than they were before prices started to rise.
Automakers have taken notice, with some saying they won’t go back to the overselling model. Taken to its extreme, it could turn dealerships into places Americans go, not to buy a stock car, but to order one that will later be built for them, Tesla-style.
Automakers and their dealership partners have just begun to explore how this process would work. A few dealers testing the limits seems inevitable.
GM’s letter, however, sends buyers an important reminder of their own power. Just as GM can send cars to more ethical dealerships, you can trust your business to just one.
If you’re trying to order an in-demand model and everything about the price seems fishy, go to another dealership. And, as Ford’s North American director of product communications Mike Levine recently reminded buyers, get a signed purchase contract with an accurate price before you drop any cash.