Proposed Volt Price Gouging and Tax Rebate Reforms

[nasaman]

Early this AM I received an email from Chelsea Sexton announcing an article -- one I consider both timely and of potentially pivotal importance -- just posted at her blog on this topic.* (For those who don't know her, Chelsea was on the 16-member Volt Consumer Advisory Board; she is among the world's best-known and most articulate EV advocates, one who has so far dedicated close to half her life to the cause of plug-in EVs.)

As the car-buying public becomes more aware of the huge advantages of EVs, and of the Volt in particular, most observers believe the demand will grow -- perhaps exponentially. And many believe that the demand will likely exceed supply, at least for the next few years. Mid-east upheavals, political instabilities and ensuing oil price increases may additionally unbalance the EV supply/demand ratio. And this may very well exacerbate EV market conditions, further encouraging dealer price gouging (or "surcharges") that are already beginning to emerge.

Chelsea says, "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 (Ewanick-Sexton) 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."

She continues, "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."

And adds, "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."*

I'm taking the liberty of re-posting these key arguments of her much more detailed article here in the hope that gm-volt.com's wide readership -- and the consistent attention it garners from GM executives -- might help advance the cause of reforming price-gouging/surcharging while also switching the federal and state tax rebates to rebates at time-of-sale, by contributing our member's thoughts to this very worthy effort.

*From http://evchels.wordpress.com/2011/02...the-p-on-msrp/

**I've bought two new Saturn vehicles from two different dealers, in part because I liked the Saturn "no-haggle" policy, a cornerstone of their success and a nation-wide example of how dealer surcharges WERE PREVENTABLE!

[Rooster]

I like the idea of making the rebate contingent on the price of the vehicle selling for MSRP or less, if you can afford to pay over sticker, then you don't need the rebate.

That said, I'm more concerned for the long term health of the $7500 rebate in general. It is an entitlement that is funded with debt at the moment, and our annual budget deficit is approaching 10% of GDP...that is not sustainable, and at that rate is won't be long before US gov't bonds are derated...increasing the interest the US pays to run a deficit (i.e., Ireland).

We have got to balance the budget, and if the gov't provides an entitlement, they have to find a way to fund it. I like the $7500 rebate, but I don't like the fact it is financed with debt. IMO, we need to make it premanent and fund it with at gas tax....as that would be good policy that together would incentivize consumers to move away from low MPG vehicles. If we as a nation can't find away to make it sustainable, then eventually it will be eliminated...probably sooner than later. If you really want to get radical, we could consider feebates as advocated by Amory Lovins in Winning the Oil End game...course that would never pass the House...but it does make for interest policy that pays for itself.

[DonC]

I actually suggested this three or four months ago. However, after giving it some more thought it seems like a bad idea. First it's very difficult to enforce. MSRP seems simple but who would make the claim and who would look to validate it? (Think convicts claiming the EV credit for Hummer purchases). And then there are the issues of how to define MSRP. Does it count the $2000 special air inflation? How about a car sold at MSRP but financed at an interest rate of 13%? How about "custom options"? The list goes on and on.

Second there are market based ways to stop this. GM can and should stop the practice. While they may claim they're helpless, they're obviously not. We have a a good idea here which dealers sell at MSRP and GM has much better information than we do. Given that GM claims the allocation process is "exquisitely tuned", GM can easily stop the practice of selling over MSRP by not allocating cars to dealers which do. They're probably lousy dealers anyway.

As consumers we can also stop the practice as well. If you don't buy above MSRP then dealers aren't going to sell above MSRP. I think the vast majority of posters here are buying at MSRP, which, I might add, is a darn good deal for dealers given that (1) when was the last time you bought a vehicle at MSRP and (2) the dealers don't need to inventory a car they can sell immediately. If you live on the East Coast call Neal Diamond, he seems to have an unending supply of Volts selling at MSRP. If you're in SoCal call Roger Stewart at George Chevrolet where Noel Park is buying his car. Or look in the forums for other referrals. There are lots of alternatives.

Third, this issue will probably resolve itself in the near future. As production ramps up there will be more supply and dealers selling above MSRP simply won't have any customers. (Not that they should). Coming up with an involved solution which will result in increased transaction costs for time immemorial in order to address a limited time problem seems to fail the cost benefit test.

Having said this, if you don't like a market based solution, the legislative solution is easy. Just allow any manufacturer selling a vehicle eligible for a tax benefit to enforce price maintenance regardless of state franchise laws. That would take care of this problem and any others that might show up in the future.

[DonC]

That said, I'm more concerned for the long term health of the $7500 rebate in general. It is an entitlement that is funded with debt at the moment, and our annual budget deficit is approaching 10% of GDP...that is not sustainable, and at that rate is won't be long before US gov't bonds are derated...increasing the interest the US pays to run a deficit (i.e., Ireland).

We have got to balance the budget, and if the gov't provides an entitlement, they have to find a way to fund it. I like the $7500 rebate, but I don't like the fact it is financed with debt. IMO, we need to make it premanent and fund it with at gas tax....as that would be good policy that together would incentivize consumers to move away from low MPG vehicles. If we as a nation can't find away to make it sustainable, then eventually it will be eliminated...probably sooner than later. If you really want to get radical, we could consider feebates as advocated by Amory Lovins in Winning the Oil End game...course that would never pass the House...but it does make for interest policy that pays for itself.

The reality is that the national debt depends on four things. Three are on the spending side. In this order they are: (1) Medicare; (2) Defense Spending; (3) Social Security. Nothing else on the spending side matters. Worrying about a tax rebate for electric cars is pointless since it's not even a rounding error in the fifth decimal place. (If you really want to worry about tax expenditures look at the deduction for home mortgages, that at least will register on the budget). The fourth is on the revenue side. The Bush tax cuts turned the largest surpluses in US history into the largest deficits in US history in a few short years. Let them expire and presto, the budget is back in balance.

The conceptual problem you have is that your concerns are BACKWARDS. In recessions government debt always goes up because tax revenue goes down. The WORST thing you can do is to cut spending. In a recession you have a failure of demand, and government spending "fills in the gaps" so to speak until private sector investment and consumer spending returns. Thus for economic purposes you want government spending to be counter cyclical. In recessions governments should run deficits. The bigger the recession the bigger the deficits should be. Then, on the up cycle, government should run a surplus as spending stays constant and revenues go up. Talking about "living within our means" makes perfect sense in the long term, but, if applied to the short run, it amounts to going on a starvation diet when you want to lose weight and then gorging when you've lost a few pounds. Only recommended if you want to end up very ill.

This is why the spending plan out ouf the House of Representative is moronic. It wants to cut short term spending, which needs to stay up, and ignores long term spending, which is what desperately needs to come down. On the long term spending side, given that the US spends more than the next 16 countries in the world on defense combined, we can easily whack 30% out of the defense budget and still have the largest military in the world by a good amount. Social Security can easily be fixed with a few simple tweaks. The big problem is Medicare and Medicaid. While health reform has some important cost containment provisions, we are going to have to do more, a lot more, in order to contais health care costs going forward. (To provide some perspective on the magnitude of the spending levels, Medicare fraud -- fraud not payments -- in ONE YEAR is 15x the cost of every last Volt rebate which will ever be issued.) IOW it's nice to worry about caulking the windows but when the front, side, and back doors are wide open it's a complete waste of time. First things first.

[mmalc]

As consumers we can also stop the practice as well. If you don't buy above MSRP then dealers aren't going to sell above MSRP. I think the vast majority of posters here are buying at MSRP, which, I might add, is a darn good deal for dealers given that (1) when was the last time you bought a vehicle at MSRP and (2) the dealers don't need to inventory a car they can sell immediately. If you live on the East Coast call Neal Diamond, he seems to have an unending supply of Volts selling at MSRP. If you're in SoCal call Roger Stewart at George Chevrolet where Noel Park is buying his car. Or look in the forums for other referrals. There are lots of alternatives.

And if you're in the Bay Area, call Kurt Mietz at Fremont Chevrolet.

Overall I agree. There's nothing that forces you to buy a car. Moreover, it is not a commodity you need during a civil emergency... To reiterate the above point, if you don't want to pay above MSRP, then find a dealer that doesn't charge above MSRP, or don't buy the product. The alternative scenario I can see emerging is that individuals will buy vehicles just to resell them at a profit themselves. I'd rather see the additional monies go to a dealer than a scalper. If would-be customers hold back en masse, then the market will adjust accordingly.

[barry252]

Everyone has to remember that under the current law, the $7500 is available as a "Tax Credit". It is not a rebate at this point. If one owes less than $7500 on their 1040, then they may not qualify for the full amount. It doesn't look as if the law will change any time soon, but at least the credit has been extended.

[Tagamet]

DonC,
Did you read the post above that says it's from DonC??? Nothing other than the big 3 spending items MATTERS? (LOL). And did I see the word "moronic" in your post?
I know that my view is unpopular here - that the Volt is great enough to be wildly successful without taxpayer support, but to say that the only spending cuts that make sense are the Big 3, is, well, it's not very smart. If politicians won't cut the small stuff, you think that they will address the big stuff?
The solution to the perceived gouging is for GM to simply crank up production, HIRE PEOPLE, and sell Volts. With enough supply, there will be no ABILITY to gouge. Regarding the rest of your point of view, we might as well agree to disagree. *Obviously* spending a trillion dollars of taxpayer money creating jobs was exactly what would create jobs and solve the recession and, no, wait, it didn't work. Never mind. (g).
Be well,
Tagamet

[lordcn]

Is that GM $350 lease ($2500 down) real? Just discussed this with a local (DC area) dealer and they wanted something approaching 2X/month. At that price I will wait a while for sure. If I could afford that I'd purchase a BMW or Mercedes although the engineering surrounding the Volt is much more interesting!

[Stilgar99]

Is that GM $350 lease ($2500 down) real? Just discussed this with a local (DC area) dealer and they wanted something approaching 2X/month. At that price I will wait a while for sure. If I could afford that I'd purchase a BMW or Mercedes although the engineering surrounding the Volt is much more interesting!

For the base model...yes (assuming you qualify..).

Stilgar

[lordcn]

Anyone gathering stats on how many folks actually are able to lease via the advertised $350/month ($2500 down)?