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.