I was recently shopping for a car that happens to be in very high demand. I found a local dealership that showed three vehicles “in transit” and called to tell them I was ready to buy.
“In full disclosure,” the salesperson began (never a good start), “we are currently charging $10,000 over MSRP (Manufacturer’s Suggested Retail Price).”
I politely explained to him that a $10,000 upcharge basically wiped out both the federal ($7,500) and state ($4,000 in my state) electric vehicle credits being offered.
“I know,” he said. “I don’t agree with it, but I also can’t do anything about it.”
The $10,000 charge, dubbed a “dealership fee” or some such innocuous-sounding moniker, is nothing short of price gouging. Demand is high, supply is low; who could blame the dealership for wanting to cash in on so many people shopping for a car?
There’s only one problem: That’s no way to start a relationship with a customer. Relationships are supposed to be built on trust, respect, and mutual benefit. How can a relationship begin if one party is already taking advantage of the other?
It turns out my car-shopping experience wasn’t a one-off. According to Kelley Blue Book, new-vehicle buyers have, on average, paid above MSRP every month this year across almost every vehicle brand.
This is classic short-term thinking that does the opposite of engendering customer loyalty.
Loyalty, says J.D. Power, “is a key objective of automakers not only because it leads to a customer repurchasing or leasing another vehicle from the same manufacturer but because that customer is more likely to recommend the brand to friends and family members shopping for a new vehicle.”
Yes. Exactly. What he said.
Too many companies focus on individual transactions and ignore the lifetime value of a customer. This is what erodes loyalty and customer retention. Shopping for a car should be the beginning of a long-term relationship, not just a blind date gone bad.
Amazon is a notable exception, as the company has notoriously shunned short-term revenue for long-term profit, focusing on lifetime customer value instead of any single transaction.
Remember: Without customers, we don’t have a business.
The automotive industry is going in exactly the opposite direction: Focus only on the one-time sale transaction.
Even if I did accept a needless $10,000 upcharge (and I’m sure someone else shopping for a car did), what are the chances I’m going to be excited to buy another car from that dealership – much less refer my friends and family? What am I going to think when the car requires maintenance – long the biggest profit center of dealerships? I’m going to question whether I’ll be price-gouged there, too.
In other words, even if the dealership makes the sale, there is zero loyalty. And that is not the way to grow a business long-term.
CBS MoneyWatch has reported that some dealers are standing on principal and won’t charge car buyers more than MSRP. Jeff Williams, one of the owners of a family-run car dealership in Lansing, Michigan, is one of them.
“I think it’s wrong when someone wants to gouge customers when supply is short,” he told CBS MoneyWatch. “MSRP is a fair price and I think it’s adequate. You can gouge a customer if you want, but they’re going to remember that down the road. I just don’t believe in it.”
Why can’t more dealerships be like Jeff Williams? Why can’t they all be like him? Simply put, it’s because customer experience and loyalty just aren’t that important to some businesses. Sales and profit are all that matters.
But mark my words: those businesses will suffer when the economic tide turns.
When vehicle supply stabilizes and we go back to negotiating car prices, are customers starting at the dealership that tried to gouge them when times were tough and inflation was high? Or are they going to Jeff Williams, who builds relationships with his customers based on trust, respect, and mutual benefit?
If you treat your customers the right way, they will remember. And they’ll return the favor with loyalty and referrals.