History of the Monroney label or the sticker

Why are automobiles one of the few items sold in the United States that require a label telling you what the Manufacturers Suggest Retail Price is?
Most other goods have actual prices that are suggested by the manufacturer, but retailers are not required to post them.

I will try to give you a little history of what lead to dealers being required to have a sticker displayed.

During World War II, car companies were required to produce only things that would aid the war. Production of the personal automobile was completely halted in 1942.
New car production was restarted in 1946 shortly after the end of the war. As one might expect, demand was extremely high.
There were two primary reasons for this. One was that there had been no production for over 5 years, and secondly, returning veterans had some money that they had not been able to spend while overseas fighting the war, and they all seem to want a new car.
The number one law of economics has always been supply and demand.
There was definitely more demand than there was supply. Opportunistic car dealers who had struggled to make ends meet during the war saw an opportunity to make a lot of money. They had customers who would pay whatever they asked them to pay.
There was no consistency in pricing from one area to the next. Dealers would put people on waiting list for a car. Another customer would come in and offer more money, and they would take it. Customers would buy a car and turn around and sell it for substantially more than they paid for. Price gouging was going in all areas of the car business. At the same time manufacturers were not treating their dealers or prospective dealers fairly; they were taking bribes for additional allocations of cars and money to secure a franchise.
So guess what happens. The government decided they needed to be involved and played “Big Brother”.
In 1955 the Senate’s Interstate and Foreign Commerce Committee formed the automobile marketing practices subcommittee in response to dealer complaints of abusive treatment by automakers, particularly in the awarding of franchises.
Congress passed Dealers’ Day in Court in 1956.
In the course of the investigation, Congress began to investigate “deceptive” dealer practices. Hearings were held in 1958, and as a result, legislation was introduced to fight this abuse. Senator Almer Stillwell Monroney said as he introduced the bill, “The dealer who is honest about the so-called ‘list price’ cannot compete with the one who ‘packs’ several hundred dollars extra into it so he can pretend to give you more on your trade-in.”
The sticker then came to be called the Monroney label after him.
Now you know the rest of the story.

I have given you a history lesson because I believe history often times repeats itself.
While all dealerships are required to have an official sticker on it, some have started to have what is called an addendum label.
Basically it is car dealers adding a window sticker designed to look exactly like the federally mandated Monroney sticker.
Here dealers add accessories that they have installed and additional dealer markups over the manufacturer's suggested retail price. A lot of the add-ons are nothing but a way to increase the perceived sticker price of the vehicle. They are called by several different names: Adjusted Market Value, Additional dealer market up, and about anything you can imagine but what it actually is. Trying to deceive a customer into thinking the vehicle is more than the actual MSRP. Another way this is done is to add something that has very little value and over price it. A good example is adding nitrogen to the tires. Most manufactures do not recommend doing this as there is no real value to it. Dealers will charge as much as $1500 for this. If a customer truly wants to have nitrogen added to their tires, there are places that we can get it done for $30.
Does this sound like the same practices of 1958? Trying to get someone to believe that the product they are selling actually has an MSRP higher than what the factory actually suggests.
Honda will not allow anyone to advertise a price higher than the MSRP even if there is value added options such as spoilers, radios, and things of that nature. Honda says that is deceptive.
They can’t or won’t monitor the sales lots of dealers to see if this is going on.
If you go to a dealer and see an “addendum” sticker on the vehicle, examine it carefully.
Why do they do it? They can make it appear that they are giving your more of a discount or showing you more for your trade or yes even make more money.
We believe in offering a great product at a fair price with all proper disclosures and no deceptive practices.
Stop in and check us out.
Until next time have a Happy Honda day.
Larry

Are low interest rates really a good deal??

Are low interest rates really a good deal?

How much do I really save?

I am sure everyone has asked these questions.

Back in the 1980’s, interest rates reached an all time high for automobile financing.
Banks were capped at 12% APR for part of that time, and it became next to impossible to get loans approved for customers as the prime rate, or cost of money, was over 20%.
General Motors pioneered the idea of what we now call sub vented rates. The manufacturer actually pays to the lender the difference in the special rate and the rate they would normally charge. In other words, they are taking the cash incentive and giving it to the lender to make up the difference in money costs.
In the mid 80’s, General Motors offered 3.9% Apr in lieu of close out incentives that they had given in the past. They believed that customer weren’t buying because the interest rates were too high. It was an instant success. General Motors had a record close out sale for that year. Manufacturers have adopted that philosophy to help sell more vehicles industry wide.
Presently, Honda is offering 0.9 % APR financing for up to 60 months with approved credit on its most popular models.
The Civic, the Accord, the Crosstour, the Ridgeline, the Fit, and the Insight all have 0.9% APR with approved credit. The CR-V, the 2011 Pilot, Odyssey, and Element all have 1.9% APR for up to 36 months and 2.9% APR for up to 60 months available with approved credit. They are offered in lieu of any cash incentives that may be available.
In other words, you either get the special rate or additional discounts on the car.

Let’s look at few situations and see what that would mean to you, the consumer. In other words, what’s in it for me, or WIIFM.

You have decided on a new vehicle and have got the dealer to agree to accept an offer of $25,000. Honda is offering 0.9 % for up to 60 months or $1200 cash to the dealer that he will pass on to you. If you choose the special rate, the payment would be $426. That means for the 60 months of the loan you would pay back $25,560 or just $560 interest.

One of the things to consider is that a dealership arranges a lot of financing on a monthly basis. As a result, we are generally able to get a bank to agree to a lower rate than an individual can get them to do. The volume of business coming in from a dealer means continued growth and new customers for the bank.

Let’s assume that we were able to find a bank that would offer 3.9% for 60 months. After deducting the cash incentive of $1200, your price would be $23,800. Your payments would be $437 for the 60 month period for a total of $26,220. Your interest would be $2420 for the 60 months. Therefore, you would be paying $1200 less for the car, but $660 more in total payments over the period of the loan. Obviously, the higher the price of the vehicle, the more you would save over all.

Let’s look at a less expensive car and see what the numbers come out to on it.
You are buying a car for $15,000. You have the choice of either $1000 in additional discount or 0.9 for 60 months. Financing $15,000 at 0.9% APR your payments would be around $256; that means you would be paying back $15,360 over the period of the loan and paying a total of $360 in interest charges.
Let’s do the same thing but this time take the $1000 cash incentive. That means your price would be $14,000. One of our banks is offering 3.9% APR for 60 months. Your payment would be $257 or $15,420 over the period of the loan. So the 0.9% Apr is still the better deal money wise on that amount.
The one variable that should be considered is how long you will keep the vehicle. In today’s market, people want to trade for a new vehicle after 3 yrs. If you trade then, your payoff will be higher if you took the financing rather than the cash. You would have been better served long term to have taken the dealer cash up front.

The dealership finance manager will always be willing to go over all of your options with you to insure that you get the best option possible for your circumstances.

If you have any questions, just email us at larrydavis@mosesautonet.com or simply comment on our blog.
Until next time, have a happy Honda day.
Larry