There’s nothing wrong with running a profitable business, that is the goal, isn’t it? – dealers are no different and thus should run at a profit. But when they’re gaining increased profitability from selling well above MSRP it’s a problem they’ll eventually have to deal with. It’s only a matter of time. Consumers have a long memory…
The Downsides of Selling Above MSRP
According to the National Automobile Dealers Association, the average U.S. dealership recorded a net profit of about $3.4 million through October 2021. This was primarily due to selling above MSRP. The reasons for selling above MSRP have primarily been “we don’t have enough inventory, and we’ve got to support our sales consultants.” Sure, dealers have had less inventory to work with, but they’ve also had the opportunity to sell more service work to their customers.
If dealerships continue to sell above MSRP, it will come back to haunt them. Think about it, if the average customer is not only paying 5-10k above MSRP but also paying significantly higher interest rates, they’ll be out of the market for much longer than the average 3–5-year cycle. Cash reserves are drying up, payment to income, loan to value, you name it – these are all issues.
Not to mention, when the customer can trade in their vehicle, it will not necessarily be a used vehicle that will be easy to sell with the high mileage and overall age. Especially because many used cars being sold today already have well over 50k miles on them.
Customer Service Reigns King
Instead of increasing the price to above MSRP, let’s stick to MSRP and focus on offering great service to our customers. We should offer them service incentives that will keep them coming back so that when it is time for them to purchase a vehicle—and the industry’s inventory issues have leveled out—they’re not stuck in their current car for another 3-4 years, making it a 10-year-old high-mileage vehicle.
Moreover, given that customer service skills have largely been lacking on the dealer level in responding to or answering customer questions, it’s still the perfect time to ensure your teams offer top-notch customer service. Do we really think the customer we’ve sold a vehicle to for more than 5-10k over MSRP and offered poor customer service will likely return and do business with you again? Probably not.
Before this situation gets too far out of hand – it’s time that we re-idealize what it means to offer our customers a great experience on the dealer level. And instead of solely increasing profitability through selling over MSRP, let’s focus on assisting our customers with their service needs. And do that by first making sure that your teams are adequately trained and taking care of every customer they interact with using the proper customer service skills customers deserve.
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As the COO | Partner of Phone Ninjas, Chris delivers leadership, coaching, and mentorship to 55 team members providing software sales and phone skills coaching. He fosters powerful partnerships and collaborations with leaders across various business sectors, establishing expectations, communicating vision, and escalating performance to maximize productivity and effectiveness.
Chris is an innovation-driven business executive with over 25 years of experience delivering leadership to teams of up to 75 overseeing development, launch, and sale of website lead acquisition, reconditioning process software systems, and technology that support automotive dealerships across the U.S., Canada, and Europe.
