Get the money, but tread lightly on raising prices

Just because dealers can sell popular vehicles for far above the sticker price doesn't mean they should do so without considering the long-term consequences.

J.D. Power said that through May 26, more than two-thirds of new-vehicle transactions in the month were near or above sticker price. That's up from 41 percent in May 2020 and 36 percent in May 2019, Automotive News reported last week. Some of the markups may have reflected customers' add-ons and accessories, but certainly not all.

Because of the global microchip shortage, vehicles are scarce. Those that are available are selling quickly, even with few incentives and a "market adjustment" added to the price — which is, of course, just a suggested price.

In addition to the risk of angering consumers, dealers should tread lightly when they are earning record profits while many states are considering revisions to franchise laws.

The industry is in the midst of an unprecedented sales dynamic. It's a seller's market, which means dealers have the upper hand. Shoppers are unlikely to get a better offer by threatening to leave: When a salesperson suggests a customer buy soon because the deal won't last — a vacant lot shows it's no bluff.

Dealers have every right to sell above sticker price: That's their business, as protected by law. Although automakers would rather that dealers sell at or below sticker, they don't have a say in how retailers run that side of the business. Supply is short, demand is high, and it's perfectly natural for a market maker to raise prices when customers are willing to pay. But if dealers gouge customers now, they risk losing them later. As dealers always say, a sale is part of an ongoing relationship, not a one-time gain.

There are better ways to leverage the power imbalance retailers have over shoppers. We've seen dealers advertise models at a fair price — but one that is available only with a trade-in. It's clever because the lack of new vehicles has also spurred a shortage of used models, what economists would call a nearly perfect substitute.

In recent years, dealers have griped about abundant discounts that hampered profits. Today marks a rare opportunity to sell at the full sticker price — without gouging — and honestly let customers know they're getting the best deal.