Ok, but do me a favor and put it in your head that just because I'm answering your question; does not mean I actually am in favor of the Additional Dealer Markup (ADM). I feel like since I understand the dealers, that you somehow think I am in favor of the dealers. I want to be clear;
I am not endorsing the following:
1) "Extortion"
ADM by definition is
not extortion because (when done legally) it is just a line item of a price negotiation. Before COVID and the supply chain issues, The average purchase used MSRP as the high point and negotiated down. But now, with MSRP as a starting/low point, the ADM is just the reverse of the pricing conversation. Nobody has ever said that if a customer goes to a showroom and wants a discount; such request is "extortion". So the reverse is not "extortion" since nobody is under duress to make a deal.
Where the mark-up starts to go on the wrong side of the law is when the ADM is masked and disguised.
FTC may ban some car dealer tactics
In the examples provided by the FTC, some dealers were adding in "no-value-add option" to juice the price. So they'd charge $20,000 for waxing the car; which is not in the spirit of a fair negotiation. Or, they were hiding fees in the fine print without expressly describing the pricing action. And, some dealers were creating artificial constructs in the financing.
But taken at face value, if a car buyer is told "you need to pay $10,000 ADM over MSRP to buy this car", that is not "extortion." It is a pricing conversation. Such ADM may violate the franchise agreement with the automaker though.
Where ADM starts to feel like "extortion" is when someone puts a reservation for the privilege of purchasing an EV to be built in 30 months. At some point in time, the reservation becomes a pricing conversation. Some people (I'm going to go out on a limb and assume you're one of them) think the reservation committed to MSRP pricing. However, nowhere in the fine print for the Mach-E, F150 Lightning, EV6, Jag EPACE, ID4, whatever reservation forms mentioned that the pricing was locked in at MSRP.
Lucid, Rivian, Tesla, etc do not charge ADM, so those customers get their vehicles purchased at the prevailing manufacturer price at the time. But, just because Tesla does one thing and Ford does another, does not make Ford's dealer practice "extortion." It feels bad to the consumer (I previously discussed pinch points) because repeatedly pinching a customer has proven to be profitable to the dealer and not the customer. But the dealer pinches are usually legal, and politicians continue to fight to ensure the pinches continue.
2) Explain how ADM helps the customer?
It helps the customer have a discrete line item to negotiate price.
As you're aware, contracts are an agreement between the seller and buyer. Since auto transactions historically have involved MSRP as a starting point, the ADM provides a clear line item pricing adjustment to increase the price. Way back in the day, dealers simply just put a price tag on a car and asked a customer to negotiate everything. This led to a lot of deceptive practices, You can read up about the
Monroney Sticker (window label) about why having a clearly printed line item price and MSRP was favorable to achieving a good deal. Nowhere on the legislation does it say "it is illegal to go over MSRP".
I agree with you, a higher price does not "help the customer." But a line item description to assist in a pricing conversation (one that allows the pricing action to be clearly seen and understood) does help the customer. Because maybe the customer is like you, and if they see a ADM, they walk away. So the ADM helps you learn when to walk away.
3) Explain the value add of ADM (in the modern age of online ordering)
I think there's broad consensus that except for the dealers themselves, the other parties do not see value in paying the ADM. Obviously the buyer of a vehicle receives a negative value (in the form of paying more $$$ if they agree to the terms). And, the automaker experiences negative value because disappointed/angry customers have a negative experience with a manufacturer's brand. Without going too deep into marketing; achieving a conquest sale from another automobile brand is harder than to lose a loyal customer who likes your brand. GM, Ford, Stellantis, Toyota, Honda, etc are indirectly harmed when someone in their dealer network creates a bad experience while flying those corporate banners.
As I mentioned above, even the DOJ found that consumers by and large were better off with direct-ordering practices, which presumably would remove pricing negotiations (both up with ADM and down). The only groups that seem to want each purchase to be a negotiation are the dealers themselves. They see the value, and they will continue to lobby to maintain the value add for themselves.
The "American Way" is to get as much benefit for yourself as possible in a free market. There are a massive number of hurdles to overcome for the government to get behind egalitarian pricing for all. Manufacturers like Lucid, Rivian, Tesla, etc think egalitarian pricing is in their own best interest, and it's their own prerogative to operate that way. But for now, the dealers are entrenched as the status quo, and they think ADM is both legitimate and in the industry's best interest. This PV is debatable or course, but the POV for the most part is legal.
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Edit:
If you disagree with the above, start finding ways to make a difference; because posting about it on this forum isn't very effective at changing policy. Sure, you can vote with your dollars; but if you want to see big change, you'll have to do more than that. Yes, over time, if everyone votes with their dollars to stop buying from Ford and GM dealers, the problem will resolve itself. But that'll take decades.
