The Chevy Volt Premium

The other day I noted that Amazon has been tussling with book publishers over the pricing of electronic books. Amazon would prefer a wholesale pricing model, in which it sets retail prices, rather than an agency pricing model, in which the publishers set the prices. One reason that Amazon would prefer the wholesale model is because it would allow it to sell e-books for less than publishers would prefer.

A similar pricing kerfuffle has arisen in the pricing of Chevy’s new plug-in hybrid, the Volt. Auto dealers operate under a wholesale pricing model–they buy the cars and then decide what to charge for them. In this case, however, early demand is so strong that auto retailers are charging more than Chevy (a unit of GM) would prefer. As noted on the Wheels blog over at the New York Times, some dealers are apparently charging $12,000 above the sticker price–$53,000 vs. $41,000–for scarce Volts.

This has miffed GM executives:

By law, General Motors cannot dictate vehicle pricing to its dealers. But Rob Peterson, a G.M. spokesman, noted in a telephone conversation that the company had impressed on sales managers to keep prices in line with the company’s suggested retail price.

“The dealers are independent, for better and, in very rare cases, for worse,” he said. “There are some who have moved in the opposite direction of our request. In response, what we’ve done is to urge customers who have contacted us about pricing discrepancies to shop around, because there are dealerships in their area that are honoring M.S.R.P.”

Bottom line: wholesalers are like Goldilocks, they want retail prices to be neither too hot nor too cold.

4 thoughts on “The Chevy Volt Premium”

  1. Anyone who writes books, or loves books for that matter, is a bit dismayed that Jeff Bezos may get to call the shots in that he makes his living off far more than books! So part of the tussle is due to that. I am also reminded of the book you helped to edit recently for sale at Barnes and Nobles. On your recommendation I went looking, and it was priced about 3 dollars higher than you had thought it would be. Everyone, including Barnes and Nobles, certainly likes to be the boss.

  2. GM seems a bit naive. If supply is constrained, dealers will be incented to charge what the market will bear, even if it hurts GM’s desired brand placement. Suggesting that customers shop around will only frustrate people, because low priced dealers will be sold out. A more appropriate message might be “Price will come down soon as we work through supply constraints on this exciting new car”. Now, I wonder whether it would be legal to punish dealers who step out of line by channeling supply to lower-priced dealers and incenting price compliance by using a volume * profit/vehicle approach…

    DSM

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