Many industry analysts speculate that Tesla’s recent price reductions on their vehicle lineup, signals the beginning of a price war with rival automakers. On today’s episode of Inside Automotive, we discuss the controversy that is making rounds in the industry. We’re happy to have Kevin Tynan, Senior Automotive Analyst for Bloomberg Intelligence, back.
Automakers typically follow their own requirements and objectives for selling gas-powered vehicles, especially those supported by a lengthy track record of success and income. Telsa’s price reductions are unlikely to elicit a significant response from the market until the brand can become a far more significant participant in the automobile industry, notwithstanding the possibility of price wars.
On the other hand, the retail market has undergone changes, and from the customer’s perspective, dealers would never back out of a sale. According to Tynan, automakers have the right to decline a sale due to the cost structure of the supply and demand balance.
Customers can’t switch back to the products they originally desired since they no longer exist, such as the small money-losing vehicles. As a result, the only option left for automakers is to increase pricing and promotion. Acura is currently averaging $54,000 per unit versus $40,000. Compared to the previous mid-$50,000 range, Mercedes-Benz is now averaging $70,000 per unit.
As dealers are no longer focused on volume to volume for the purpose of gaining market share, up-marketing pricing has made it simpler, cleaner, and more transparent for both dealers and consumers. According to Tynan, since October of 2021, average vehicle transaction prices (ATP) have consistently outperformed MSRP on a monthly basis. Yet in December 2022, it fell below ATP for the first time by $93. It was brought on by automakers raising MSRPs rather than price declines.
From the perspective of the automakers, if dealers can make that much more than the sticker price on each transaction than the MSRP, the automakers are not charging enough. Additionally, manufacturers don’t like to charge more than the sticker price since they think it hurts their bottom line. Therefore, according to Tynan, “moving MSRP is a win-win for everyone.”
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