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Monday, April 11, 2011

Gas Price Gouging Is Illegal, Why Not Car Price Gouging?

Florida Statute 501.160 states that during a state of emergency, it is unlawful to sell, lease, offer to sell, or offer to lease essential commodities for an amount that grossly exceeds the average price for that commodity during the 30 days before the declaration of the state emergency, unless the seller can justify the price by showing increases in its prices or market trends. Examples of necessary commodities are food, ice, gas, and lumber. As I write this article, gasoline prices are very near or have already exceeded $4.00 per gallon. Oil has surged to over $107 a barrel. Middle Eastern and North African countries are in turmoil. Japan has suffered a huge earthquake/Tsunami disaster temporarily slowing supplies of Japanese fuel efficient cars, especially the number one volume hybrid vehicle in the USA, the Toyota Prius. The global economy is still struggling to come back from the worst recession since the Great Depression and home foreclosures and unemployment in the USA are at historic highs. Doesn’t it seem like the above qualifies as an “emergency”? If gasoline is a “necessary commodity”, doesn’t it stand to reason that what you put the gasoline in, your car, is also necessary? What good is affordable gas if you can’t afford to buy a car? As always happens when gas prices rise, car dealers jack up the price of fuel efficient cars. Up to a point this is understandable and a result of the rules of the free market place…supply and demand. But at a certain level, it crosses the line between understandable economics and enters the arena of greedy price gouging. I believe the line should be drawn at the manufacturer’s suggest retail price of the vehicle. This window sticker is officially called the Monroney label. It’s required by federal law that every new vehicle has the manufacturer’s suggested retail price displayed on the window of the vehicle up until the customer takes delivery. Not to do so subjects the dealer to a $10,000 fine. We can thank Senator Mike Monroney of Oklahoma for this law passed in 1958 (the year I graduated from Palm Beach High School). Every car dealer knows that he can very rarely sell any of his cars for as much as the manufacturers’ suggested retail price. Common practice is to discount new car by hundreds or thousands of dollars below the MSRP. Therefore I think drawing the line between a fair profit and price gouging profit at the MSRP is very fair to the car dealers. But many dealers don’t stop there. They add something commonly known as an “addendum sticker” next to the official Monroney sticker. This dealer sticker is usually designed to exactly resemble the Monroney sticker. Most customers looking at it assume it to be the Monroney sticker. But, what it is truly is the dealer’s way of raising the price of the car above the manufacturer’s suggested retail. There are two approaches the dealers take to marking up the MSRP. The most common is by adding “dealer accessories”. These are items like pin stripes, glass etching, nitrogen in the tires, door edge guards, paint sealant, fabric protection, undercoating, road assistance, etc. A package of these virtually worthless items is typically priced at couple of thousand dollars when their true value is less than $100. The second ploy is a price markup called a “market adjustment”, ADM (additional dealer markup), “Dealer Adjustment Addendum”, or some other euphemism. One of the best examples of price gouging can be seen with the Toyota Prius. A few months ago, they were being sold at, or only slightly above, dealer’s invoice. Toyota was even offering the dealers and customers added incentives to further reduce the price. Now, given the rising gas prices and the earthquake/Tsunami in Japan, you are hard pressed to find a dealer who will sell you a Prius that’s not priced thousands over MSRP! The irony is that the number of Priuses available for sale will be only temporarily interrupted. In fact, Japan will definitely increase their exports of Priuses to the USA because their domestic economy has suffered such a blow. I really don’t expect the Florida legislature to pass a law making it illegal for car dealers to price-gouge. I can’t even get them to pass a law eliminating or controlling the dealer fee. But what you can do is be very aware of what is going on now with respect to insane markups on fuel efficient cars. By doing so, you can avoid being a victim and buy the fuel efficient car of your choice at a reasonable price. This shortage of economy cars is only temporary. Waiting a few weeks and getting at least 3 competitive bids when you do decide to buy can save you thousands of dollars.

5 comments:

  1. At the rate we are going who knows if we will be able to afford food, let alone gas or even the car to put it in!

    This economy keeps getting worse, regardless of what the politicians tell us.

    We need help!

    ReplyDelete
  2. How is it price gouging? Everyone needs water, everyone needs gas but not everyone needs a Prius. If you have something that is in high demand and is not needed to live how is raising the price gouging?

    ReplyDelete
    Replies
    1. Dear Anonymous,

      Price gouging is a pejorative term referring to a situation in which a seller prices goods or commodities much higher than is considered reasonable or fair. This rapid increase in prices occurs after a demand or supply shock.

      Delete
  3. by the way it is a Maroni Label not Monroney.

    ReplyDelete
  4. Dear anonymous,

    I'm afraid you're wrong about the spelling of Senator Monroney's name. I assume you must own a computer because you posted a message on this blog. If so, there's a wonderful search engine named Google. You can use this to learn lots of new and exciting things. I "Googled" Monroney for you and copied and pasted it below.

    The Monroney sticker or window sticker is a label required in the United States to be displayed in all new automobiles and includes the listing of certain official information about the car. Since the mid-seventies the U.S. Environmental Protection Agency provides fuel economy metrics in the label to help consumers choose more fuel efficient vehicles. The window sticker was named after Almer Stillwell "Mike" Monroney, United States Senator from Oklahoma. Monroney sponsored the Automobile Information Disclosure Act of 1958, which mandated disclosure of information on new automobiles.

    A more comprehensive fuel economy and environment label will be mandatory beginning in model year 2013, though carmakers may adopt it voluntarily for model year 2012. The new window sticker includes specific labels for alternative fuel and alternative propulsion vehicles available in the US market, such as plug-in hybrids, electric vehicles, flexible-fuel vehicles, hydrogen fuel cell vehicle, and natural gas vehicles. The new label introduces the comparison of alternative fuel and advanced technology vehicles with conventional internal combustion engine vehicles using miles per gallon of gasoline equivalent (MPGe) as a metric. Other information provided for the first time includes greenhouse gas and smog emissions ratings, estimates of fuel cost over the next five years, and a QR Code that can be scanned by a smartphone to allow users access to additional online information. The previous label was issued in 2008.[1][2][3]

    ReplyDelete

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