Are Ford And GM Cars About to Get Cheaper?

Will Ford and GM cars become cheaper?

Due to the pandemic and a global shortage of semiconductors, the average price of a new car is way up. According to Kelley Blue Book, the average new car in America sold for $46,329 in November. That is $5,392 more than the year prior, a 13% gain.

Sales of new cars have decreased in the past six months, and prices have increased for eight straight months. In January 2022, buyers paid above the manufacturer's suggested retail price (MSRP) in 82.2% of new-vehicle purchases, compared to just 2.8% in January 2021, according to Edmunds.com.

Ford and GM warn dealers to stop charging excessive prices

According to Ford and GM, some dealers are charging desperate buyers significantly more than the sticker price. In a letter to dealers, Ford stated, “It has come to our attention that a limited number of dealerships are interacting with customers in a manner that is negatively impacting customer satisfaction and damaging to the Ford Motor Company brand and Dealer Body reputation.” Dealers who continue to engage in these practices could lose the right to sell Ford’s upcoming F-150 Lightning electric pickup.

GM followed suit thereafter. In a letter, it similarly warned dealerships that “a small number of dealers have engaged in practices that do not support a positive sales experience for our customers.” GM also stated that it would withhold some vehicle shipments to dealers who did not comply with their warning.

Dealer model vs. direct sales model

Tesla sells its cars directly to the consumer. There is a set price and because there are no dealers, there is no negotiation over the price of a Tesla. This model has disrupted the automotive industry. Traditionally, automakers recommend a retail price to their dealerships, but the dealers can set any price they want. Due to the lack of supply from the automakers and higher customer demand, prices of new and used cars have risen to historically high numbers.

The direct sales model lowers the cost of entry for new automakers. New EV companies such as Lucid and Rivian do not have to build an expensive network of dealers. GM's and Ford’s concerns are valid -- both automakers and dealers need to compete with companies like Tesla, especially as EV cars become more predominant. Auto prices need to be reasonable to make profit for automakers and dealers, yet remain competitive with direct sales firms like Tesla.

In response to the letter, at least one Ford dealership has already reversed course in its excessive pricing. While the demands from Ford and GM may prevent prices from going up, the shortage of chips will continue to keep auto prices at a high.