GT500 preorders - $$$ over MSRP gets even nastier

[jrichard]

dsabldvt and abbas: implicit agreements or taking away product if you don't conform to a manufacturer-set price structure are all illegal forms of retail price support. Our legal system isn't so weak that it can't see price support for what it is.

 

Jetsolver, I hope you dont feel like I'm picking on you. You've clearly expressed how some feel and I'm expressing an alternate viewpoint. I think part of our differing viewpoint is one of definitions. When you use the term "free market" it means something different than when I use the term "free market." (What follows is economic drivil but it addresses a question or two jetsolver asked...those that don't want to hear it or feel like I'm an idiot should skip the rest of this post.)

 

What you described in your last post is, generally, a free market the way economists understand it. So, for example, since the only place a customer can go is a Ford dealer, our anti-trust laws create a competitive market among Ford dealers by prohibiting Ford from setting prices (otherwise, there would be no "competitive market" and Ford would simply set the price...and, in that situation, manufacturers are not as benevolent as we'd like to think).

 

So dealers set the asking price and they have to figure out where to set it. Generally, with a product where volume is not an issue, they'll want to set high rather than a low because it's easy to lower a price until they find the sweet spot but virtually impossible to raise the price (given that many dealers only get one). The other option to find the market price is to auction the product.

 

But, if they do set an asking price, they'll look everywhere...local, national, and, if feasible, international to determine what to ask. And, actually, a broad search is evidence of a freer and more competitive market (...think about how many products you can get more cheaply in the internet age because your local retailer must now compete with someone in the middle of no-where with much lower costs...).

 

When the dealer does this, he isn't artificially 'setting' the market. He wishes it was that easy...he'd do it with his Expeditions and Excursions. And he isn't setting valuation. He's just setting his asking price. And he's doing this by looking at what other dealers are doing and getting. But that isn't collusion...that's exactly how free markets work. Free markets don't require that prices be set based on a "local" market or in a vacuum. The reality is they are set by suppliers looking at both ( a ) how much demand they see (...and it's a lot for the GT500...) and ( b ) what other suppliers are doing (...one dealer calling another dealer to find out their asking price, etc., is not collusion unless they agree to certain pricing).

 

And this is not tacit collusion (e.g. wink and a nod). Though tacit collusion might occur in local markets among several dealers, its a functional impossibility across a market with so many suppliers (...3500 dealers...). And buyers have no real boundaries for the purchase of the vehicle, so local tacit collusion won't be maintained over time...if it is maintained for the sale of a few cars, that is a very small part of the market. Again, the national nature of the market makes it more free and competitive...not less competitive.

 

In any event, collusion requires cooperation...and a large body of dealers won't cooperate (even if you could overcome the logistics of communication and reaching consensus, there will be defections as players decide to unload their product). Collusion is very difficult to maintain. In fact, a small cartel like OPEC cannot maintain its collusion for any period of time...some OPEC member will always defect with respect production level. Cheaters in a collusive environment profit much more than cooperators.

 

With respect to starting point, they are at the same place: invoice. But, actually, the "starting point" has nothing to do with market pricing. MSRP itself is no reflection on anything but Ford's guess as to the market clearing price of the car. I think it's clear that Ford guessed low. So, since it's difficult for Ford to raise prices for a variety of reasons, Ford reacted by doing the only other thing it can to capture more value from the market: it increased production. This will have the effect of lowering prices and transfering wealth from dealers to Ford. This is exactly as economists expect a free market to operate.

 

Jetsolver, your last post helped me understand your previous posts...and sorry if my earlier posts were too harsh. As I mentioned at the start of this one, I think we have some vocabulary differences.

 

I'm frustrated with the ADM situation, too. But I'm frustrated because the demand is so high that it's driving price up...not because dealers are 'screwing' and 'raping' customers with ADM. I think I mentioned in another post that those angry about ADM should roll up a newspaper and hit themselves on the head because they are a significant part of the problem...they are part of demand.

 

I'm also frustrated because there are a number of dealers that are reneging on deals (and otherwise lying, cheating, or stealing)...and that's not part of a "free market" in any analytical or real sense. And it's also an area that Ford can address.

 

One other thought: If Ford sold direct to the public along with maintaining a dealer network, the net result would be a maximum price cap. Though I'm opposed to government imposed price caps, I think it's great if Ford and its dealers can come to terms on this issue in light of their existing agreements. I don't know the legal issues with respect to the auto industry, but this strategy is used in other industries.

 

 

Since when are dealers going after each other in price? I live in Michigan, there are a lot of Ford dealers here, I don't see them going after each other on new cars, maybe used, but that is a different case. The deals on TV that they claim either have a catch to them, or are just an advertisement of some rebate or financing deal that Ford is offering. I still don't buy people defending the gouging ADM's.

 

 

The retail auto market is extremely competitive on price. That is why I can go into virtually any Ford dealership and buy virtually any car at invoice. The GT500 is currently in short supply relative to demand. But that doesn't make the market any less competitive. The fact that ADM will come down over time (...and already has come down...) is evidence that dealers compete with each other on price on even the most desirable Ford products. Another bit of evidence as to price competition: A local Ford dealer was asking outrageous ADM on a Ford GT. I told him I could buy it at MSRP at another dealer. His response: he'd do that deal. Talk about price competition.

[yamahar1]

The retail auto market is extremely competitive on price. That is why I can go into virtually any Ford dealership and buy virtually any car at invoice. The GT500 is currently in short supply relative to demand. But that doesn't make the market any less competitive. The fact that ADM will come down over time (...and already has come down...) is evidence that dealers compete with each other on price on even the most desirable Ford products. Another bit of evidence as to price competition: A local Ford dealer was asking outrageous ADM on a Ford GT. I told him I could buy it at MSRP at another dealer. His response: he'd do that deal. Talk about price competition.

 

So the dealers are setting the invoice price then, is that what you are telling me? That is where you get your competition? Bullshit. A rare price battle on a Ford GT does not constitute price competition because 90% of us cannot afford a Ford GT anyway. You guys are so full of it. Snake oil salesmen. Is that what it takes to be a salesman, I don't want to go into that field.

 

...those that don't want to hear it or feel like I'm an idiot should skip the rest of this post.)

 

 

 

 

Thanks for saving me the trouble, I did have to read that other crap coming out of your mouth. The retail market is extremely competitive on how much you can screw the customer over the MSRP, not on price. If that is the case, then we are talking about that small percentage of dealer profit between your invoice price and the MSRP price on the window. Is that what you are talking about when you say the retail market is extremely competitive? Have you sold a $15,000 car for like $2k or $3k under your invoice price because the market is so competitive? I don't think so. We are just talking about how much we can screw the customer over the MSRP price. Even if I can get some plan price on a car, that is great, but I consider an MSRP deal to be fair. And you still make thousands on that deal.

[JETSOLVER]

 

What you described in your last post is, generally, a free market the way economists understand it. So, for example, since the only place a customer can go is a Ford dealer, our anti-trust laws create a competitive market among Ford dealers by prohibiting Ford from setting prices

Thanks, thats pretty much how the legal system is supposed to see it. As well as informed consumers. As to Ford not setting prices, why do they advertise on price in so many media? Seems to me it is to positon a product in the market.

 

But, if they do set an asking price, they'll look everywhere...local, national, and, if feasible, international to determine what to ask. And, actually, a broad search is evidence of a freer and more competitive market

This makes some sense, however in your GT example, you negate the entire point.

 

 

Again, the national nature of the market makes it more free and competitive...not less competitive.

So the small town dealer who was not media aware and sold a car at MSRP, or one who took a moral stand and did the same is anti-competitive?

In any event, collusion requires cooperation...and a large body of dealers won't cooperate (even if you could overcome the logistics of communication and reaching consensus, there will be defections as players decide to unload their product). Why do you think so many cars on E-bay are trending the same way? It can't be related to the fact that a good number of early cars with diligent buyers went out the door at MSRP, or we would see that as the market. And lets be honest. How many people have been told, "thats what they are going for on E-bay" More than a few.

 

With respect to starting point, they are at the same place: invoice. But, actually, the "starting point" has nothing to do with market pricing. MSRP itself is no reflection on anything but Ford's guess as to the market clearing price of the car. I think it's clear that Ford guessed low. So, since it's difficult for Ford to raise prices for a variety of reasons, Ford reacted by doing the only other thing it can to capture more value from the market: it increased production. This will have the effect of lowering prices and transfering wealth from dealers to Ford. This is exactly as economists expect a free market to operate. Ford had made representations as far back as last summer saying they would produce as many as they could find customers for, The numbers since then are obviously a result of supplier and or legislative issues or they would build nothing but GT500's. To claim increased prduction over the ADM hype holds no water.

 

Jetsolver, your last post helped me understand your previous posts...and sorry if my earlier posts were too harsh. As I mentioned at the start of this one, I think we have some vocabulary differences. I appreciate the discussion. And we certainly do. For anyone interested, PM me for the definitions I use.

 

I think I mentioned in another post that those angry about ADM should roll up a newspaper and hit themselves on the head because they are a significant part of the problem...they are part of demand. To say the least, an unpopular viewpoint...why; the very idea of showing up with the amount of $ shown on the sticker, and finding a handwritten note asking for 50-120% more, and having the gall to be upset. Its downright anti free market.

I'm also frustrated because there are a number of dealers that are reneging on deals (and otherwise lying, cheating, or stealing)...and that's not part of a "free market" in any analytical or real sense. Total agreement. And it's also an area that Ford can address. Now would be good.

 

Another bit of evidence as to price competition: A local Ford dealer was asking outrageous ADM on a Ford GT. I told him I could buy it at MSRP at another dealer. His response: he'd do that deal. Talk about price competition. Again, this negates your earlier point re a free and open market being self regualting. It apparently isn't.

 

[yamahar1]

Hey jet o silver, you are all right. I would hire you for a lawyer if I needed one. What dribble will the snakes come up with to counter you? This is like a soap opera. They are really convinced they are not the bad guys in this????? Funny........... I travel a lot, see dealers lots empty and I assume bankrupt from time to time. I feel so bad for them Later, again, nice postings jet o, I understand your vocabulary.

[jrichard]

As to Ford not setting prices, why do they advertise on price in so many media?

 

Advertising price is a marketing issue...and I think you're right: one used to position the product in the market. But it doesn't set prices.

 

This makes some sense, however in your GT example, you negate the entire point.

 

Could be, but I'm not sure how. The point was dealers compete on price in a serious way. If I tell a dealer I can buy a vehicle for a lower price at another dealer, the first dealer will typically lower his price immediately. Of course, if he thinks he can sell it to someone else for a higher price, he won't be so quick to lower his price. Over time, pricing generally ends up near invoice for a reason: that's as low as dealers are willing to go because much below that and they stop making money...which means they stop ordering cars that sell for below invoice.

 

So the small town dealer who was not media aware and sold a car at MSRP, or one who took a moral stand and did the same is anti-competitive?

 

I'm discussing the aggregate (e.g. macro) and you're discussing an individual pricing decision (micro). But, it's a dealer's perogative, in a free market, to price as he chooses. That's part of the competitive landscape. Some dealers believe MSRP is all they should charge because that meshes with their philosophical or business view of the world. And in cases like the GT500, maybe they will get rewarded with future business. That's not anywhere near anti-competitive. However, having said that, small markets tend to be less competitive than large markets because there are fewer dealers competing against each other on price. Say a buyer saysto the small out-of-the-way dealer, "Hey, I can buy it in the big city for less." The small town dealer isn't stupid...he knows that the buyer has higher transaction costs because he has to travel to the big city. Plus he knows the buyer will want local service. Offsetting that, reputational effects are likely greater in small towns...but that is a two way street. The dealer is afraid of asking too much and the buyer is afraid of offering too little.

 

Why do you think so many cars on E-bay are trending the same way? It can't be related to the fact that a good number of early cars with diligent buyers went out the door at MSRP, or we would see that as the market. And lets be honest. How many people have been told, "thats what they are going for on E-bay" More than a few.

 

Cars are selling on ebay consistent with a very competitive market. Buyers appear to take the market value at about $15,000. And that's all they are willing to bid. (There are outliers, but they are a very small group and likely consist of either false auctions or very uninformed buyers.) eBay demonstrates this is a competitive market and that dealers cannot get whatever they want to get from informed buyers. That some (or many) cars sold for MSRP because of deals made months ago is no reflection on the current market. That's kind of like saying if you bought your house 6 months ago for $500,000 it now cannot possibly be worth $600,000.

 

Market pricing is extraordinarily sensitive to time and is time specific. Think of the stock market...on a given day, Cisco might be worth 5% less at the close than it was at the open. But, at the end of the day, the market value of Cisco is the price it's trading at at the end of the day. The price at the open is irrelevant.

 

Ford had made representations as far back as last summer saying they would produce as many as they could find customers for, The numbers since then are obviously a result of supplier and or legislative issues or they would build nothing but GT500's. To claim increased prduction over the ADM hype holds no water

 

Not true. The ADM hype is nothing but evidence of huge demand at MSRP and above. If Ford set MSRP at $75k (and invoice at $70,000), then a lower level of production would meet the entire demand for the car. Total demand is a function of price. The lower the price, the higher the demand. Ford set the price low and, it appears, was caught a bit off guard with the level of demand. Subsequently...after it was obvious the demand was huge...Ford announced increased production figures. It is very likely Ford would produce even more if it were not for CAFE restrictions and, perhaps, parts supply restrictions. What else did Ford do? It announced the GT-H to capture more of this market. The GT-H will put downward pricing pressure on the GT500 and allow Ford to capture more of the dollars in this market.

 

To say the least, an unpopular viewpoint...why; the very idea of showing up with the amount of $ shown on the sticker, and finding a handwritten note asking for 50-120% more, and having the gall to be upset. Its downright anti free market.

 

I know it's unpopular. But the huge demand is what got us where we are with ADM. If only 5000 people wanted the car, there would be no ADM. Period. And it's not-anti free market. In fact, it is exactly how free markets operate.

 

And, I agree, it's disconcerting to show up and find huge ADM...especially if it is way out of the going market range. I find that arrogant and offensive, though I understand why dealers do it after asking a couple of them.

 

Again, this negates your earlier point re a free and open market being self regualting. It apparently isn't.

 

It's the difference between asking price and market price. There is a third price: offer price...which is up to the buyer. I walk in, see a huge asking price, make a low offer price by referencing another dealer, and I get immediate agreement on price. If I wanted to buy that car, I would have gone further and pit the two dealers against each other and I would have ended up with the vehicle for under MSRP.

 

Free and competitive markets don't mean that I don't have to do my research and negotiate. The dealer asks, you offer, and a price is negotiated. The final price is the result of what both you and the dealer think are your best alternatives to a negotiated agreement. If, ultimately, you can buy it elsewhere for less...you will. If the dealer can sell it elsewhere for more, he will. Sometimes one of the parties reads the market incorrectly and no agreement is reached even though an agreement would have been best for both parties. But that's all part of it...and doesn't make the market anti-competitive.

[jrichard]

So the dealers are setting the invoice price then, is that what you are telling me? That is where you get your competition? Bullshit. A rare price battle on a Ford GT does not constitute price competition because 90% of us cannot afford a Ford GT anyway. You guys are so full of it. Snake oil salesmen. Is that what it takes to be a salesman, I don't want to go into that field.

Thanks for saving me the trouble, I did have to read that other crap coming out of your mouth. The retail market is extremely competitive on how much you can screw the customer over the MSRP, not on price. If that is the case, then we are talking about that small percentage of dealer profit between your invoice price and the MSRP price on the window. Is that what you are talking about when you say the retail market is extremely competitive? Have you sold a $15,000 car for like $2k or $3k under your invoice price because the market is so competitive? I don't think so. We are just talking about how much we can screw the customer over the MSRP price. Even if I can get some plan price on a car, that is great, but I consider an MSRP deal to be fair. And you still make thousands on that deal.

 

 

Dealers setting invoice price? Huh?

 

And I'm not sure why you don't think the new car market is competitive. The evidence is overwhelming. It's obvious you're upset about the ADM on the GT500...but ADM is the exception, not the rule in the new car market.

 

Prices gravitate toward invoice. I explain why, very briefly, in my post. Rather than rehash it, you can search on wikipedia about pricing theory, marginal pricing, or Alfred Marshall. Or pm me and I'll recommend a book or two.

 

And it appears you think I'm a dealer. I'm not sure why...must be if I don't agree with you then I'm the "enemy."

[JETSOLVER]

Having got my viewpoint out there, I am going to leave this discussion for a while. I have learned something through this, and while I don't agree with jrichard's viewpoints, I do respect his right to present them in a reasoned way. And for anyone else, note that even though we strongly disagree about some things, we did it in such a way as to preclude personal attack, value and character judgements, and use of profanity. IMHO, that's the value of non technical topics on a board. Now; off to write another letter to Ford...