MY TAKE: Are Additional Dealer Markups Free-Market Capitalism or Blind Chutzpah?

I first heard of ADM (Additional Dealer Markups) around 1970, when the then-new Datsun 240Z was launched. The press reported that with demand so great for this Japanese sports car, dealers were asking, and getting, hundreds of dollars over its Monroney-label MSRP of $3,500. (There is some misunderstanding about the legally-required Manufacturer’s Suggested Retail Price. The law says that vehicle manufacturers must establish and publish the MSRP; however, dealers, as independent businesses, are free to ask any price, lower or higher, than the MSRP.)

Since that time there have been innumerable cases of car dealers applying ADM to high-demand vehicles. My initial exposure to it was in 1986 when I worked for the first Acura dealer in New Jersey. Dealer management thought that the new Legend, with an MSRP of $19,298, could easily command another $3,000, and “ADM” labels were affixed to the cars. However, as I was working both service and sales for that fledgling dealer, I don’t recall anyone actually paying over sticker for a Legend. The Mazda Miata, introduced in the summer of 1989 as a 1990 model, created enough demand that dealers were successfully getting their requested ADM. Most recently, the same has been happening with the popular Kia Telluride (my daughter-in-law’s brother admitted paying $2,000 over sticker for his, but saved face by still claiming he got a great deal because today’s pricing is supposedly $10,000 over sticker).

Over the weekend, I brought my wife’s Honda to our local dealer for routine service, and waited there while the work was done. Wandering through the showroom, it was impossible to ignore the bright-yellow Civic 4-door in the corner. It was a 2021 Civic Type R Limited Edition, and this one really is limited: only 1,000 copies worldwide, with 600 coming to the U.S. Compared to the “regular” Type R, the LE sheds 46 pounds, mounts track-ready Michelins on lighter forged aluminum wheels, and adds other performance goodies. Yellow is the only color choice. The Monroney grabs as much attention as the searing paint: MSRP is $44,990. But wait, there’s more: the “Limited Edition Market Adjustment” label tacks on another $50,000, for a final price of $94,990.

A 2021 Honda Civic Type R Limited Edition

For quick comparisons, a new Chevrolet Corvette coupe with the 3LT package starts at $74,145; a new Jaguar F-Type Coupe with AWD starts at $81,500; and a new Lexus LC coupe starts at $93,050. Mull those over in your mind for a few moments.

Yellow is the only color choice for this Limited Edition model

Something had a ring of familiarity to all of this, so I scanned through my photos from earlier this year and discovered that I had taken a snapshot of a similar label six months ago at this same dealer. At that time, the ADM for that car was “only” $25,000. Then I caught the “Limited Edition Number”: in both cases it’s #352 of 600 – it’s the same car!

This Honda dealer has had a 2021 Civic Type R Limited Edition in its showroom since at least May of 2021. In May, the ADM was $25,000. Six months later, still not sold, the ADM for this same car has doubled to $50,000. Is this a marketing strategy? We are less than a month away from calendar year 2022; this 2021 Civic Type R is growing old as it sits. Honda has announced that there will be a 2022 Type R, but it’s not out yet, and there’s no word about a Limited Edition.

From the dealer’s point of view, if you want the LE, they have one, and you’ll have to pay the price. From the consumer’s point of view, this car is already one model year old, and one might be inclined to wait for 2022 model to arrive, never mind giving consideration to what else the $95,000 burning a hole in your pocket could buy.

My take? Personally, the dealer can do whatever it pleases, however, this kind of approach can backfire if it’s perceived that the dealer is gouging, even if you’re not in the market for this model. I also don’t think they will get their ask; ten grand over is a maybe. Finally, I don’t picture the target audience for this car having the scratch, and if they did, the competition in this price range is formidable (my three examples just touch the surface of choices).

What do you think of Additional Dealer Markups in general, and of this dealer’s approach with this particular car?

 

All photographs copyright © 2021 Richard A. Reina. Photos may not be copied or reproduced without express written permission.

6 thoughts on “MY TAKE: Are Additional Dealer Markups Free-Market Capitalism or Blind Chutzpah?

  1. I think it a short sighted dealership. Gouge while you can, rip off whoever is stupid enough to get ripped. When market conditions change people will remember this shoddy treatment and purchase a car somewhere else.
    I wouldn’t even bring my car into this clown for service anymore.

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  2. Rich,

    The Honda dealer is displaying shortsighted and self-destructive greed. He/she will be rewarded with an unsold car.

    Thank you for sharing the article.

    Hugh

    Sent from my iPhone

    >

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  3. That Honda is a particularly egregious example of this short-sighted gouging strategy and they are certainly unlikely to get the the extra $50k. Having said that, there is no question that these are strange times and the prices for special interest cars are very volatile. I took a look at the recent Manheim auction sales and the current MMR (the auction network’s average WHOLESALE valuation based on recent transactions) and found that your dealer’s Civic has an MMR of $58300 with a range of $55k-$61k! That would seem to indicate that there are some retail customers out there who are spending at least $60k for these cars and Mr. Honda dealer will realize some considerable excess profit whenever he decides to let it go. Meanwhile, it’s a negative advertisement for his business practices sitting right there on his showroom floor.
    However, it’s not only this car. The 2021 Corvettes with the 3LT package you mention are selling for between $105-110K with even the lower range 1LT versions selling in the $90s….at auction! Even the Lexus and Jaguar models you mention are showing wholesale auction prices above MSRP and these are all used cars, albeit with very low miles, presumably with the warranty clocks running.
    So, it seems like “The Market” is responding to probably the only thing I retained from Economics 101: Supply and Demand. There are indeed folks out there with lots of disposable income and poor impulse control who will pay a huge premium to get what they want NOW. Those with enough perspicacity and chutzpah are there to profit from it.

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    • Hi Bob, thanks for your measured and somewhat constrained response. I know the market is crazy right now regarding all automotive pricing, new and used, but it had not occurred to me that the three examples I cited, somewhat randomly, would themselves be selling above sticker. Even so, my money would be spent on that Lexus or Jag before it went to a Civic. Best, Richard

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