A Honolulu dealer adds $8,575 to the
By Rob Perez
manufacturer's suggested price of a new vehicle.
Such markups are common in Hawaii,
meaning buyers can pay big premiums
if they aren't savvy negotiators.
Star-BulletinHawaii residents are so accustomed to paying high prices that it often takes a lot to generate "sticker shock." Prepare for a shock.
In the middle of a row of shiny new cars at Cutter Chevrolet near Ala Moana Center, a 1998 Blazer -- one of those popular sport utility vehicles -- has a manufacturer's window sticker suggesting a retail price of $31,502.
The price includes the cost of getting the Blazer, made by General Motors Corp., from the mainland factory to Honolulu. It also is supposed to cover dealer overhead and what GM considers a reasonable profit on that vehicle.
But next to the manufacturer's sticker is another one, added by Cutter. On it: a 27 percent markup of nearly $8,600 -- an amount that astonishes mainland dealers and even a GM representative.
"Eighty-six hundred?" the representative repeats when told of the markup. "Wow."
The second sticker pushes the Blazer's asking price to $40,077.
While the Blazer at Cutter may be an extreme example, most auto dealers in Hawaii for years have been using similar second-sticker markups that cause consumers to pay stiff premiums if they aren't savvy negotiators.
The dealers say the high cost of doing business here makes the practice essential -- and there's nothing wrong with it.
"It's known as a free marketplace," said Hardy Hutchinson, Hawaii Automobile Dealers' Association manager.
Mel Nishita, general manager of Cutter Chevrolet, didn't return phone calls seeking comment on his dealership's pricing policies.
With the exception of Alaska, Hawaii is the only state in the country where most dealers routinely put second stickers on their new cars to try to boost gross profit margins.
In Alaska, the additional markups generally fall between $1,000 and $2,000, dealers there say. On Oahu, most markups are in the $2,000 to $6,000 range, with an occasional sticker -- like the Blazer's -- topping even the latter amount, according to a Star-Bulletin check of about 20 dealerships. The highest markup was more than $9,000.
Most mainland markets are so competitive that dealers typically use the manufacturer's suggested retail price, called MSRP, as the starting point for customer negotiations, according to the National Automobile Dealers Association.
A popular car in short supply might prompt a mainland dealer to add to the suggested price, but that generally is discouraged by manufacturers concerned about customer backlash, said Tom Webb, chief economist for the association.
If local buyers have questioned the "adjusted market value" or "additional dealer markup" labels on the second stickers, they haven't made a big stink about it.
Just like with other goods and services here, many residents likely chalk up the higher prices to the cost of living in a remote, expensive island state.
The double-sticker practice, though, is coming under attack from outside the state.
An Atlanta multilevel-marketing company, Nationwide Auto Club Inc., alleges that Hawaii consumers are victims of price gouging.
Glennville Haldi, an Atlanta attorney representing Nationwide, said local residents are paying unreasonably high prices because of the additional markups.
"The figures are staggering," Haldi said. "You're talking about potentially tens of millions of excess charges being paid by the people of Hawaii to buy automobiles."
Nationwide, which offers customers a benefits package that includes discounted auto prices, is trying to build its presence in Hawaii, where more than 40,000 new vehicles are sold annually at the retail level.
But the company has run into a major roadblock. The state accuses Nationwide of running an illegal pyramid scheme -- a charge the company disputes.
What isle dealers say
For their part, Hawaii dealers deny any price gouging, arguing that local prices are higher for the same reason milk, cereal and other products cost shoppers more here than on the mainland."Consumers are paying a lot more for cars and everything else because of the location," Hutchinson said. "This is a high-cost state."
While local dealers typically charge more than their mainland counterparts, they earn less after expenses are paid, dealers say.
A successful mainland dealer will make 3 percent of gross sales as pretax profits, said Morrie Stoebner, owner of Honda Windward.
"We're lucky to make 2 percent and that's when things are going good," Stoebner said. "When things are going bad, you make zero or lose money."
Stoebner belongs to a group of 20 Honda dealers from high- and moderate-cost markets nationwide, and they regularly meet to compare business notes.
Stoebner said his worker's compensation insurance costs are four times the group's average. "That's just one example. I can take almost any expense and it'll be higher," he said.
And even though Honda Windward charges more for its cars than any other dealer in the mainland group, its return on investment is "almost at the bottom," Stoebner said. Honda Windward markups range from $1,400 to $2,400, he said.
Several years ago Stoebner tried selling cars by dropping the markups and relying on the MSRPs.
But the strategy backfired. With the lower initial asking prices, the dealership had less wiggle room to negotiate deals, which some customers didn't like. Honda Windward began losing money, and less than two years after changing its pricing policy, Stoebner said, he switched back to the double stickers.
"We just couldn't make it," Stoebner said.
What manufacturers say
Several manufacturers, including American Honda, said they believe their suggested retail prices provide enough of a cushion -- typically about 10 percent over the wholesale cost of the car -- that dealers can earn reasonable profits even in expensive markets.American Honda, in fact, discourages dealers from marking up prices, said spokesman Art Garner. He noted that dealers in Los Angeles and New York City are able to stick with MSRPs despite the high costs in those areas.
General Motors' position on additional markups isn't as strong.
"We think our sticker prices are fair," said Anne Marie Sylvester, a GM spokeswoman. "But we recognize in some high-cost areas dealers will charge more ... We don't condemn it. We don't condone it."
Joy Wolfe, a Ford Co. spokeswoman, said the industry is so competitive on the mainland that dealers who try boosting sticker prices risk losing business. "In most cases market demand and market competition are such that it's not often dealers can get even sticker," she said. "It would be difficult to be able to mark that up."
Dealers that don't
At least two dealers on Oahu shun the practice of adding extra markups. The Saturn and Infiniti lots near Honolulu Airport use only MSRPs. For Saturn, which has a no-haggling, no-negotiating policy on new cars, that means the price of a vehicle will be the same here as on the mainland.Without the extra markups, Saturn of Honolulu makes lower profits on its new-car sales and offsets that with its used cars, according to Alonzo Cobbin, a Saturn sales consultant here.
"We're making the same amount (on a new-car sale) as say a store in Idaho, but we can't keep as much because our overhead is a little higher," Cobbin said.
Asked about the additional markups used by other dealers, he said, "They put it on there as a ploy to make it seem like you're getting more of a discount than you actually are."
An executive at Infiniti-Nissan Motor Sales declined comment on his business' pricing practices.
Honda Windward's Stoebner said the Infiniti and Saturn dealers are able to stick with MSRPs because they are the only ones selling their respective car brands on Oahu. "If I was the only Honda dealer here, I would do the same thing."
Being the only seller of a particular car brand, however, doesn't always result in single-sticker policies. Servco Pacific Inc. owns all the Toyota dealerships on Oahu, but they still add markups to new cars.
Joey Crisostomo, former manager of a Big Island dealership, said marked-up stickers are used primarily for marketing reasons. "It gives a dealer the chance to advertise $2,000, $3,000 off," said Crisostomo, now general manager of a Guam dealership.
Most buyers, however, are able to negotiate deals well below the asking price and often below the manufacturer's sticker price, he said.
But Crisostomo and other dealers acknowledged that the final price depends on how effective the buyer is as a negotiator.
"As long as you have negotiations, someone might get a better buy than someone else," said Stoebner.
No one knows that better than Paige Amidon, manager of auto price services for Consumer Reports, which publishes information and tips on how to buy new cars.
Amidon said consumers must go into negotiations well informed or risk paying much more than they should.
"It especially sounds that way in Hawaii," she said.
"If dealers feel they can get these big markups, they will keep doing it."
Do your homework
By Rob Perez
before shopping for a car
Star-BulletinWhen shopping for a new car, one of the best ways to get a good deal is to do your homework. Find out what the dealer paid for the vehicle you want.
That's especially important in Hawaii because most dealers routinely mark up the manufacturer's suggested retail price by several thousand dollars, citing the high cost of doing business here.
Knowing what goes into pricing helps when the unpleasant part of the process starts: negotiating the deal. It also can help in gauging the quality of information provided by sales people eager to strike a deal.
When a Star-Bulletin reporter, for instance, went to Oahu dealerships to look at new cars, several salesmen told him the extra markups reflected the higher cost of shipping vehicles to Hawaii.
But dealers don't pay any extra to ship cars here, manufacturers say. The cost of shipping a new car from the factory to the lot is the same regardless of where the dealer is located.
The wholesale price -- what the dealer pays for the car -- also is the same. So a dealer in Ohio or Florida generally will pay the same price, including shipping, for the same model as a dealer in Hawaii, manufacturers say.
The retail price recommended by the manufacturer also will be the same, though dealers are free to charge what they want. Federal law, however, requires dealers to keep the manufacturer's sticker price on the car.
In a few markets, the wholesale and suggested retail prices might be different from the national amounts for competitive reasons, but those prices typically will be lower -- not higher -- to stimulate sales or protect market share in that region, manufacturers say.
Shipping costs weren't the only reasons cited by sales people trying to justify the extra markups.
Several said the manufacturer's suggested retail price actually was the wholesale price for Hawaii dealers, so the additional markups were necessary to cover any overhead and profits.
Not so, say manufacturers. The suggested retail price is more than what the dealer pays and typically includes enough of a cushion to cover overhead and a reasonable profit, car makers say.
Some sales people were more blunt in their explanation of the extra markups.
The "adjusted market value" or "additional dealer markup," they said, represented additional profit the dealer hoped to make.
Such contrasting explanations underscore the need for shoppers to educate themselves, consumers say.
"The whole car-buying process can be intimidating and confusing, especially for someone going into it without doing the research," said Paul Kaspore, who was helping a friend shop for a car recently. "You've got to know what's behind the numbers."
Getting the best deal
Here are some tips to help you get the best deal on a new car:
Have several models in mind and the willpower to walk away from a deal you aren't satisfied with.
Source: Consumer Reports, Star-Bulletin
Auto buying club draws scrutiny
