Is This the Beginning of the End For Dealerships? GM, Ford and Now Hyundai Issue Stark Warnings to Dealers

February 24, 2022

The ongoing chip shortage has tightened new vehicles supply to the extent that many dealers are adding enormous markups to their inventory. YAA previously reported that both General Motors and Ford have sent sternly-worded memos to their dealerships warning against the anti-consumer practices that automakers are hearing about from frustrated car buyers. Now, Hyundai and Genesis are getting serious about dealers tarnishing their brands with outrageous markups.

Automotive News reports that North American branches of Hyundai and Genesis are fed up with overly aggressive pricing strategies. The letter obtained by Automotive News warns U.S. dealers against damaging the brand’s reputation with markups that mislead buyers and balloon transaction prices.

While Hyundai Motor Group acknowledges that the MSRP is just that, the suggested retail price, they have tools they are not afraid to use if U.S. dealers don’t change their pricing practices. The letter reportedly floats reductions in future allocations, advertising benefits and the loss of other incentives as possible repercussions.

The letter to American Hyundai dealers specifically calls out the trickery of advertising one price online, and then surprising customers with a higher price once it’s time to start paperwork. 

A Win For Consumers

Charging IONIQ 5
2022 Hyundai IONIQ 5

Sales executives from the North American divisions of Hyundai and Genesis noted that angry consumers brought this to their attention.

“We are writing now because with great regularity our customers around the country are voicing displeasure with certain pricing practices which, if left unchecked, will have a negative impact on the health of our brand,” the executives said in the letter.

Finding a new vehicle at MSRP is a challenge no matter what brand you’re in the market for, however Hyundai has seen some of the most outrageous dealership markups of all. One buyer in Massachusetts had worked out a deal over the phone for a new, all-electric Hyundai IONIQ 5. The salesperson he worked with committed to selling the EV at MSRP. The customer then drove three hours to the dealership, only to be met by a different sales manager who demanded a $5,000 markup for the same car. 

Fortunately, this customer was able to find a better deal elsewhere, but many first-time Hyundai customers are not willing to give the brand second chances. Kia and Hyundai markups are among the largest in 2022, according to Edmunds. Hyundai transaction prices average $1,498 above sticker price; and for Genesis it was $1,603 higher. Hyundai markups are among the largest out there, and corporate leadership knows that is a bad look for the brand.

It’s refreshing to see an automaker playing the long game with customer relations. The letter warns dealers that once inventory stabilizes, customers will remember how they were treated.

“Once supply and demand come into greater equilibrium, customers will feel that they were overcharged for their vehicle and thus look to other brands the next time they are shopping. We believe that the risk of losing customers and potential future customers far overweighs any short-term gains to be had from what customers describe as unfair pricing.”

Not the First Dealer Warning, Likely Not the Last

Ford F-150 Lightning
2022 Ford F-150 Lightning dealer markups got the attention of Ford

Hyundai and Genesis aren’t the first automakers to threaten their dealers with strongly worded memos. Earlier this year, GM and Ford dealers received letters from their leadership telling them to treat customers more fairly and equitably. The industry-wide push to electric vehicles brings higher production costs and lower margins, so higher prices may become the norm. Still, consumers expect a fair deal, and the automaker’s MSRP typically sets expectations.

Could these warnings be signs of dealer’s weakening grip on car sales in America? It’s a real possibility. You know which automaker actually increased sales in 2021? Tesla, the brand that dares to go without the dealership model. Rivian, Lucid and Fisker are promising to follow Tesla’s lead into the direct-to-consumer sales model. 

If dealers won’t respect consumers or automaker guidance, automakers will be thinking a lot harder about alternative sales avenues that benefit consumers and their brands alike. When there’s an inefficiency as big as this, the free market tends to find a solution rather quickly. We’ll be following the developing situation closely.

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