Ford and General Motors (GM) recently warned car dealerships to stop the practice of price gouging beyond the manufacturer’s suggested retail price (MSRP), with consequences including losing access to new vehicle models.
Andrew Frick, Ford’s vice president of sales in U.S. and Canada, sent a letter to dealerships on Jan. 7 noting that some customers who are already on the reservation list for Ford’s upcoming 2022 F-150 model car have been asked to make additional deposits or payments.
Such actions could result in customers not converting their reservations into orders and also damaging the company’s brand name, Frick warned. These types of behaviors are not allowed as per Paragraph 6 of the Sales and Service Agreement.
“The dealer shall conduct dealership operations in a manner that will reflect favorably at all times on the reputation of the dealer, other company authorized dealers, the company, company products, and trademarks and trade names used or claimed by the company or any of its subsidiaries. The dealer shall avoid in every way any ‘bait’, deceptive, misleading, confusing, or illegal advertising or business practices,” Paragraph 6(i) states.
If any dealership continues to engage in such practices, Ford might decide to “redirect” the dealership’s allocation of F-150 Lightning, the letter warned, while adding that the company has received information regarding a “limited number of dealerships” still involved in such tactics.
“We have very good knowledge of who they are. And their future allocation of product will be directly impacted,” Ford CEO Jim Farley said during the company’s earnings call on Feb. 3. He added that roughly 10 percent of Ford’s dealer network has been charging over the MSRP on the brand’s existing models.
Despite high customer demand, supply of cars remains constrained due to chip shortages and other issues. As a result, dealerships have not only done away with providing discounts but are even charging higher than MSRPs.
Following Ford’s letter, General Motors issued a letter to dealerships on Jan. 18, noting that some dealerships have asked customers to pay sums “far in excess of MSRP” in order to purchase or lease a vehicle.
Dealerships also attempted to demand higher reservation amounts from customers. Such actions “puts our collective interests at risk,” generating negative press and ending up poorly reflecting on GM’s brands and its dealerships. The document reminded dealers that they are “ethically and lawfully” obliged to follow Article 5 of the Dealer Sales and Services Agreement.
“Dealer agrees to effectively, ethically, and lawfully sell and promote the purchase, lease, and use of products by customers…. Dealer agrees to advertise and conduct promotional activities that are lawful and enhance the reputation of dealer, General Motors, and its products. Dealer will not advertise or conduct promotional activities in a misleading or unethical manner, or that is harmful to the reputation of dealer, General Motors, or its products,” Article 5 states.
GM issued a warning to the “small minority of bad actors” engaged in damaging conduct and identified in the letter that the company might decide to redirect their vehicle allocations or take other measures as outlined in the agreement.