Hammer Time: Is MSRP A Mathematical Study In BS?

Steven Lang
by Steven Lang
hammer time is msrp a mathematical study in bs

In the olden days known as the late 20th century, an ancient artifact called a “newspaper” would be dropped by your front door.

Inside this mostly unrecycled piece of pulp was an automotive “Classified” section. In better times, this magical list of thousands of vehicles would have offered car buyers an incurably acute case of acronymitis. “1994 Camry, ps, pw, a/c, auto, abs, 1 ownr! $5500 Ph#…”. A short three line list of minimalist communicado would have cost the seller about $50.00 and given them a secondary presence in a newspaper section that made millions for major publishers.

There was only one saving grace if you wanted to find cars for sale that offered big print, big pictures and big discounts. The new car advertising section… and there were two reasons for that.

The first is that the dealer had to follow strict advertising laws that were enforced with an iron hand. You want to sell a car for a low price? Great! Now you get to tell the buyer everything that enables them to enjoy that unusually low price.

Does that price include a $250 discount for trading in a vehicle that is less than 10 years old? Well that’s one way of making it up on the used car side of the ledger if you are Bill Heard Chevrolet. But it’s perfectly legal, and thank you for disclosing it.

Does the cheap price also include seven long lines of legalspeak that are tucked into the nether regions of the ad? With sixteen asterisks and financial terms that would make even a finance major scratch their head? That’s fine. Just make sure you let everyone know the exact model you are selling with those terms, and how many of those specific vehicles are available at your lot.

New car buying was obviously still a bit difficult, even back then. Now it’s even more nuanced when it comes to mathematical misdirections.

Enter the new dealer/manufacturer pricing strategy which, as far as I’m concerned, has become way out of hand.

You start with one model with an insanely small MSRP. It could be $11,990 or $19,995. But you use that model for only about .2% of your sales and about 15% of your publicity.

That car is then given a destination fee that is now usually around the $800 range. So now you have anywhere between another 4% to 7% bump in the real selling price.

Dealer fees then pop up in the sales contract. In certain areas of this country, this is done in concert with low content add-ons. If you want to buy a car somewhere else in the state, good luck. Bogus fees of varying sorts and prices have now become a near universal reality. Especially for those markets that rely on distributors.

These fees often help bump the real selling price another $500 to $700. All of a sudden that cheap low level car of $12k is now at a genuine selling price of $13,500. While the midsized loss leader is edging ever closer to a real selling price of $21,500.

Finally you are levied with tag and title processing fees… and endless time wasted trying to get them reduced or removed.

In many dealerships you may possibly be looking at anywhere between a 7% to 14% jump in the final selling price of the car even before you pay sales taxes.

There is only one thing to blame for all this. The same truth in advertising laws that allowed the same loopholes and gotchas to take place way back in the old media days. It’s deceptive. But many consumers have come to expect these types of deceptions when it comes to buying new cars.

Should this change? Should dealers and manufacturers be compelled to advertise one simple price that reflects all their charges and fees? Or should we continue to play a decades old shell game that’s as useful as VINs etched on a car’s windows, and carpet care treatments, that consist of a low-paid kid from Savannah, Georgia spraying fifteen cents worth of aerosol into the inside of your vehicle.

People should vote with their feet. But sometimes those feet have nowhere to go, thanks to selling practices that go back as far as those old classified sections and the local Sunday comics.

So what should be the standard pricing model for today… when it comes to new cars?

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4 of 66 comments
  • Sideshowtom98 Sideshowtom98 on Dec 05, 2012

    Reading these car buying stories, especially on The Truth About Cars, leaves me perplexed. For many years, third parties have made car prices available to anyone willing to pay for them. Since the Internet, you don't even have to pay, and the sites include incentive cash by vehicle that the dealers might 'forget'. Edwards.com's True Market Value, TrueCar pricing dealerships, COSTCO and Sam's Club pricing deals, all make buying a car the easiest it has ever been. I recently bought a 2013 model, priced it thru all of the above, and the prices for all were within $100 on $32K final price. I ended up using COSTCO, which guarantees you dealer invoice, and negotiated an additional $1600 off because the model I wanted had AWD, which I would never use. Rather than get the car from another dealer, in FWD, the dealer knocked off the price difference between the two. Buying a new car is easy and simple, use the services to know what the cars are selling for, use that as a starting point. Negotiate your best deal, in an hour or two. If you know you got a good price from a dealer, buy. Your time spent running all over town and grinding some salesman for an additional $50 is counter productive.

    • Corntrollio Corntrollio on Dec 05, 2012

      Costco does not guarantee you dealer invoice last I checked. In fact, if you negotiate yourself, in many cases you can get a lower price than the Costco-price. The price you get depends on the type of car and some other factors. For some cars, you may be within a few hundred dollars of invoice, but for others (such as luxury marques) it could easily be almost $2000 above invoice. What the Costco auto buying program does mean is that you will get a decent, but not rock-bottom price, and you will deal with the fleet manager typically instead of the regular up salesman. There can be benefits to this, but you can also email fleet managers as well and negotiate yourself.

  • Olddavid Olddavid on Dec 07, 2012

    Mooches. People who want something for nothing.

    • Zeus01 Zeus01 on Dec 17, 2012

      "Mooches. People who want something for nothing." Are you referring to: a) Customers who want to get a new car for free? Or b) Dealers who want to load up the back end of the deal with useless add-ons that give the dealers a "tip" of several hundred (or several thousand) dollars while really offering nothing of value to the buyer? Just wondering.

  • Inside Looking Out You should care. With GM will die America. All signs are there. How about the Arsenal of Democracy? Toyota?
  • DenverMike What else did anyone think, when GM was losing tens of billions a year, year after year?
  • Bill Wade GM says they're killing Android Auto and Apple Carplay. Any company that makes decisions like that is doomed to die.
  • Jeff S I don't believe gm will die but that it will continue to shrink in product and market share and it will probably be acquired by a foreign manufacturer. I doubt gm lacks funds as it did in 2008 and that they have more than enough cash at hand but gm will not expand as it did in the past and the emphasis is more on profitability and cutting costs to the bone. Making gm a more attractive takeover target and cut costs at the expense of more desirable and reliable products. At the time of Farago's article I was in favor of the Government bailout more to save jobs and suppliers but today I would not be in favor of the bailout. My opinions on gm have changed since 2008 and 2009 and now I really don't care if gm survives or not.
  • Kwik_Shift I was a GM fan boy until it ended in 2013 when I traded in my Avalanche to go over to Nissan.