Price gouging on the Chevy Volt has been big news again lately, with the story of a Florida dealer marking one up by over 60%. There are all sorts of positions on this behavior. I acknowledge the dealer’s right to charge what the market will bear, even as I think GM should have done a better job of heading this off at the pass. For its part, GM maintains that with franchise laws there’s nothing they can do about it. Marketing chief Joel Ewanick insisted in a conversation we had last July both that it’s not preventable, and that my concern was overblown, since none of their dealers would engage in the practice. The next day, the first story broke of a dealer charging an extra $20k for a Volt. Others maintain that the problem will take care of itself either by community pressure or as supply catches up with demand. The latter is certainly true, but we’ll face the problem again each time a new model comes out or gas hits a new high. While it’s been most visible with the Volt, this won’t be an issue unique to that model.
(As a side note, I’d contest the “not preventable by the OEM” bit; we did it on both Saturn and EV1, and Nissan has avoided the practice by structuring their ordering process to give customers their choice of dealer, rather than dealers their choice of customer.)
The frustration over markups is exacerbated by the fact that plug-ins receive a federal tax credit as high as $7500 and in some areas, additional state rebates. Originally meant to make this technology more affordable, these incentives are essentially being handed over to dealers instead. Granted, many dealers aren’t charging over MSRP- though as I’ve also heard from buyers who’ve had to sign confidentiality agreements about their surcharge as a condition of getting to buy a Volt at all, we’ll probably never really know how widespread the practice is.
So what if instead, we use these incentives as a tool to help curb price-gouging? As I mentioned briefly a few weeks ago, any state or federal financial incentives should be conditional on the vehicle selling at or below MSRP. This doesn’t mean that dealers can’t still charge over sticker. They absolutely could, and customers who are willing to pay that price (and forgo the incentive) to get the first car on the block can do so. But taxpayer funding would no longer enable these transactions.
While we’re at it, we need to at least consider other reforms. It makes most sense to do this as part of the current effort to switch the credit to a rebate available at time of purchase, rather than re-open the issue later. For example, those who argue that some of these incentives go to wealthy early adopters who don’t need them have a point. On one hand, it doesn’t keep me up at night; there are worse things than everyone who makes the same “better” choice getting the same benefit. (And for simplicity’s sake, I’m not getting into AMT or how an individual might not qualify for the full tax credit.) But it’s also true that with limited resources, we have to think about how to best use them to enable more plug-in cars on the road, sooner than later- and in the case of market incentives, that means broadening the market by making sure they reach the people for whom the credit or rebate does make the difference between buying an EV or not.
Since the Tesla Roadster was the main qualifying plug-in vehicle, it’s unlikely that the federal credits given out last year meaningfully helped sell more electric cars. I doubt that a $7,500 credit was the defining factor in anyone’s decision to purchase a car that starts at $109,000. For that reason, I encourage cities and states that simply can’t afford to do big financial perks not to worry about it, and focus instead on the incentives that actually move early adopters- things that offer convenience, access, or time saved. But even where financial credits are possible, there are other ways to direct them for maximum effectiveness. A good start would be to cap the price of vehicles eligible for certain incentives, to preclude public funding subsidizing truly high-end vehicles. There’s precedent for this: in the 1990′s, federal EV credits (then, 10% of MSRP, up to $4,000) only applied to vehicles that fell below the luxury tax threshold, around $44,000 the last time it mattered.
Another option is to scale incentives based on the income of the buyer. However, it would also likely be the most complicated to implement, and if not structured and communicated clearly, more frustrating to buyers who end up surprised to find themselves ineligible come tax time. With any policy, it’s important to balance value with complexity, and make sure we provide clear education for consumers. But as weak spots like price gouging emerge, we’ll be a lot better off if we’re the ones to shore them up.