Image of car dealer markup price courtesy of Sarah Jane
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Reports of $10k to $20K Dealer Markups Now Common Due To Vehicle Shortage - Your Options

Shopping for a new or used car? Be prepared to pay as much as $20,000 more than MSRP for a popular model. We break down the causes and make some suggestions for shoppers dismayed at dealer markups.
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Car dealers across America are adding market adjustments to the MSRP and Delivery Fee prices of new cars to the tune of $20,000. That means that some RAV4 crossovers now cost over $60K. Some Kia SUVs approach $75K after huge markups. Trucks and sports cars are not immune as our examples below will illustrate.

Related Story: EVs In Demand: RAV4 Prime and Mustang Mach-E Dealer Markups See Rebound

Dealer markup image by Noe Arribas

What Is MSRP
MSRP stands for “Manufacturer’s Suggested Retail Price.” Emphasis on the “Suggested.” There is no set price for any automobile in nearly every case in the US. The dealer can charge what they want, and more often than not in the past, they charge consumers less than the suggested price, not more. For the coming year or possibly more that may not be the case. Expect dealers to charge more than suggested.

Dealer markup image by Noe Arribas

What Is a Delivery or Destination Fee
Many folks forget that buying a car “At MSRP” usually costs you more than the sticker price. A delivery fee, also called a destination fee by some brands and dealers, is an added fee that pads the profits of the people you buy your car from. They are now universal. Delivery and Destination fees are simply a way for the company you buy a car from to have you pay more for what they provide.

Delivery fees are not set in stone, not mandated by law, and dealers do not have to charge the same fee in every dealer location in the US. For example, Mazda charges a $945 delivery fee in some states, and $990 in another. (Mazda is known for having some of the lowest delivery fees overall.) Also, manufacturers charge different delivery fees for different vehicles in many cases. Tesla charges customers who pick up their new cars at the factory that builds them a delivery fee. Are you getting the picture? There is no rhyme or reason to delivery fees. A Ford Mustang Mach-E made in Mexico has a delivery fee if you buy it in Texas, and a Subaru Forester made in Japan has a similar delivery fee if you buy it in the same Texas town. Yet, one came from halfway around the planet and one a short ride away.

Subaru dealer markup image by Noe Arribas

Why Are Car Dealers Adding Market Adjustments Now
Dealers have used “Market Adjustments,” as the markups over MSRP are called, for as long as cars have been around. A few years ago, when cars were abundant and buyers had been buying fewer than the normal amount, we spotted a Subaru STI sports sedan with a markup of $10K at the dealer who services our Forester. That compact Subaru cost $75K. The reason the dealer could add that requested markup was it was a special edition and they only made a few of them.

Today’s more common markups are different. A global disruption with many factors has taken place. Manufacturing of all types is impacted, not just cars. Many parts are in short supply. Microprocessor chips are the most commonly discussed parts hard to find, and increasingly expensive. However, tires and other more “old-tech” parts are also now suffering shortages. In the case of electrified vehicles, the batteries they use are not in a temporary short supply situation, automakers have never had enough. Despite any governmental effort to control prices, short supply and high demand results in consumers paying more.

Dealer markup image by Noe Arribas

Why Can Car Dealers Get Away With Markups
In nearly every case, the place you buy your car is not owned by the carmaker, but rather, a separate completely independent company. Those separate companies are among the most politically powerful business types in the nation. They help elect politicians, they sponsor your kids’ hockey, baseball, and soccer teams, and the workers they employ are very active in the community. Every one of them is a charitable leader in the community in which they reside. Car dealers employ two million Americans according to Statista. All of them are expensive to the dealers who employ them. Government-mandated health insurance, unemployment insurance, workman’s compensation insurance, family leave, sick leave, paid holidays, overtime, and a long list of payroll taxes at the federal, state, and local level, are all included in the price you pay for the car you buy. As are the property taxes the dealership pays on the land it occupies. Have any of those costs gone down lately? To the contrary, they are rapidly increasing.

What About Tesla
When Tesla began, the company promised a fresh approach to car sales. The idea was that Tesla would cut out the middle man and sell direct. Dealers fought back, and they had good reason. It is not unethical to protect a business you worked hard to create. Tesla lost in a few states, and its sales model was not adopted universally. However, in other states, like Massachusetts, Tesla was allowed to do exactly what it wanted. Tesla dealerships in Mass. enjoy every business opportunity that other brands in the state do, but they are owned and operated directly by Tesla. We compared the ratings that consumers give those two full-service Tesla dealers to the ratings shoppers gave to other legacy brands in the same area. Tesla had the lowest ratings. Surprise!

Bigger Picture - Why Are Dealers Marking Up Cars Over MSRP
Car dealers are scrambling for inventory. They cannot get the volume of the cars they want right now, so supply to shoppers is also constricted. Overall, dealers are selling fewer cars, yet their landed costs are mostly the same. Should they roll over and go out of business, or try to recoup their lost revenue by charging more for each sale to keep the business afloat? There is no free money “Car Dealer Bailout Bill” like there was for airlines.

During times of plenty, it is routine for auto dealers to discount vehicles. Truck buyers, in particular, have come to expect $5K to $10K off the MSRP of a new truck. Was it unfair when the dealers discounted below MSRP? If not, why is it then unfair for a dealer to mark up a vehicle?

Dealer Markups - Pay It Or Wait
There are two opposing arguments for and against buying a car now at a premium. First, anyone rushing out to buy a new car today is crazy. Wait, fix your existing car, or if you must buy, purchase an unpopular model, color, or trim to keep your cost down. This will pass and car prices will return to “normal.”

Here is the counterargument. Why buy when the market is at its peak? Because the peak may become the new norm. Also, with global commodities suddenly in short supply as the economy booms back from the closures of the past year, inflation is a real likelihood. Wages are usually the last part of the economy to catch up to inflation, so your earned dollar value is shrinking as goods and services are increasing in price. Wait a year if you like, but if the automakers simply raise MSRP prices, you may be buying your next car at an inflated price with a dollar that has less value.

This topic is an emotional one. We invite you to comment, vent, educate, correct, boo, or applaud in the space provided below the story. Your opinion is valued, and we’d love to hear your thoughts on this topic.

Image Notes: Torque News would like to thank Sarah Jane for her top-of-page image and acknowledge the help of Noe Arribas for his help with researching this topic and his many photos.

John Goreham is a long-time New England Motor Press Association member and recovering engineer. John's interest in EVs goes back to 1990 when he designed the thermal control system for an EV battery as part of an academic team. After earning his mechanical engineering degree, John completed a marketing program at Northeastern University and worked with automotive component manufacturers, in the semiconductor industry, and in biotech. In addition to Torque News, John's work has appeared in print in dozens of American newspapers and he provides reviews to many vehicle shopping sites. You can follow John on TikTok @ToknCars, on Twitter, and view his credentials at Linkedin


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Comments

depends on the model car--- just got a prius prime well well under msrp--- had both dealer discount and huge toyota rebate plus govt rebate--- about 20k for a brand new prius prime xle
Yah, ... but your stuck driving a Prius. So, you still got screwed.
Capitalism works to match supply and demand. Nothing wrong with that. When I bought my last car I got the benefit of that with over $10k in discounts.
I think there is some market manipulation here as inventory across the country on some of these models is not even. It's not hard to create scarcity... I was told that they had zero inventory and I turned around and they had over 20 vehicles of the same model, which is the model I was asking about. Then the dealer rep said well some models are harder to come by.... As I was shopping they had the opposite in inventory.. Very little of the model I was looking for but a bunch of the other model. So the scarcity is probably true for specific models but thats no different with or without pandemic....
The real kicker is, they claim this is about scarcity, but with if anyone that knows anything thinks about it, it is pure market manipulation. Currently right now due to the pandemic, the amount of people who are capable of working from home has increased drastically. Families have realized they don't need 3 cars. Many had to give cars back due to loss of a job. In general, demand for vehicles is LOW for many reasons. Lower demand, should equate to lower prices. Somehow they are higher prices? It's because since we're not buying, they feel that in order for them to "stay in business" they need to jack up the prices by 10-20k. Now let's think about it. Selling the vehicle at MSRP does provide a profit. What's the profit margin? Roughly 10%. So your 40k new car, they may pull in 4k profit. Them adding 20k, is them increasing their profit by 500%. DO NOT buy any car until they go back to normal prices. You are not "helping people keep jobs". This profit goes directly to the owners. These are not natural forces at work here, it is blatant price fixing. Which we setup laws in the early 1900's to stop corporations from doing this to people. Somehow they've gotten people to ignore / forget that price fixing is illegal.
There is definitely some market/price manipulation going on right now. The vehicle I’m looking to buy is $46K-$53K. I’ve even tested a few in that range, albeit not the exact model I want. I had one dealership tell me “Well, there’s not a lot of them right now, and ordering one takes 6mo to a year, so if you want this one it’s $71K.” And another scenario that has happened twice now: I visit a dealership and they have very few of the model I want, if any, so they want me to order one and pay the non-refundable deposit to have it built. I pass and check out other dealerships. I get a text or email the next day and the dealership has miraculously received the vehicle I wanted in an overnight shipment. It’s weird. I understand there IS a shortage of vehicles being produced, but it makes me wonder if some places are actually stashing vehicles and using this shortage to their advantage. “Oh look, we DO have what you want. We received it last night. We got a shipment we didn’t even know was coming. It’s $17K more than what you’d normally pay. You want it?”
Price fixing is alive and well.....Companies simply do not let business carry, sell or advertise their products with any other price then what the company making the product says it sells for....the Golf industry is a prime example every business selling a top brand golf club, ball etc. must sell at the same price as every other golf store does or they do not carry that product anymore...price is so set that a major chain cannot even give away a premium like a dozen balls if you buy a certain golf club...
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its really easy to get on here and spout off about conspiracy theories-- NO- the shortage is real-i look at our lot and we have 6 Trucks available-normal times its40 per month being sold and replaced promptly--And I bet you are also one of many bragging to your friends about the huge increase in dollars for your trade.-that fake too?--its no different than many other product--less available the higher prices go--why not check out the thousands-many thousands of (esp trucks) sitting in fields-excess parking lots-all awaiting chips before being ready to ship to dealers---You really think the mfg's don't want to sell them--check your facts--billions being lost--one last thing--did you complain for all these years as the over built car industries were giving 5-10k rebates to move units?--No, I didnt think so.- check your your gas prices-housing--furniture--lumber--yep- they must have them hidden away somewhere as well, right?
The problem ousting with the inflation due to supply and demand. It's how much it is being marked up...market adjustments of up to 20k on top of msrp? Forcing overpriced markups on add-ons the buyer never asked for or wants? It's really the greediness that is the problem. I understand making up for losses in the market. But these kinds of profits are over the top. Just because everyone else is doing it, doesn't make it ok. The greed is selling you cars way over what they are worth and your loan will be underwater as that car depreciates. Unless a person really needs a car or has to buy one for work or coming off a lease, people shouldn't get sucked up into the desperation of the situation or caught up in the moment of whatever the salesperson is telling them to make that sale. Wait it out. If there are truly 1000s of cars in parking lots and fields waiting to be sold, then there will be a flood of cars needing to be moved once the chip shortage is worked out at already depreciated value due to year manufactured. If you must buy, look further away from home if you have to for a decent dealership that cares more about the repeat buyer and its reasonable in its markup. And say No to the FI guy.. you are allowed to say no! And ask what the buy rate is on that finance rate the are giving you! Chances are they are marking that up to! Know you're score and get other rates before going in so they don't take advantage of this market and you suffer later. Also profits aren't just in sales of cars, that is well known. In fact very little, esp to salesperson. Most profits are on the backend which comprises of incentives, quotas monthly goals rebates etc etc.
The problem isn't with the inflation due to supply and demand. It's how much it is being marked up...market adjustments of up to 20k on top of msrp? Forcing overpriced markups on add-ons the buyer never asked for or wants? It's really the greediness that is the problem. I understand making up for losses in the market and inflation, But these kinds of profits are over the top. Just because everyone else is doing it, doesn't make it ok. The greed is in selling you cars way over what they are worth and your loan will be underwater as that car depreciates. Unless a person really needs a car or has to buy one for work or coming off a lease, people shouldn't get sucked up into the desperation of the situation or caught up in the moment of whatever the salesperson is telling them to make that sale. Wait it out. If there are truly 1000s of cars in parking lots and fields waiting to be sold, then there will be a flood of those cars needing to be moved once the chip shortage is worked out, at already depreciated value due to year manufactured. If you must buy, look further away from home if you have to, look for a decent dealership that cares more about the repeat buyer and its reasonable in its markup. And say No to the FI guy.. you are allowed to say no to all the BS add-ons! And ask what the buy rate is on that finance rate they are giving you! Chances are they are marking that up to! Know you're score and get other rates before going in so they don't take advantage of you. Also profits aren't just in the sales of cars, that is well known. In fact very little, esp to salesperson. Most profits are on the backend which include incentives, quotas, monthly goals, rebates, kickbacks etc etc.
“Greediness?!” You mean when schmucks like you were beating down dealers for ridiculous prices leaving sales people with hardly any commission, right? Your greediness don’t care if sales people were able to feed their families or not as long as you got the vehicle you really couldn’t afford! Revenge is sweet!!!
False, I always made sure the salesman got at least $1000. He didn’t do Jack anyway. He can’t make deal. The managers make them. So he’s just a middleman/pencil pusher.
Have to disagree from the dealer . Priced a truck 6 months ago my cost 23k out the door taxes and everything . Priced the same exact truck last week the crooks jacked it up 10k . told him to stick it where the the sun don`t shine . They wanted 34k plus plus .
over built car industries were giving 5-10k rebates to move units?--No, I didnt think so. You are 100% right— the car buyer needs to understand the complete landscape— when does the single car buyer understand the complete landscape. Overbuilt industry—again you’re right— the industry has to fix their situation and the single care buyer needs to pay for it— really? Industry won’t go broke and if possible the buyer should wait till the buyer and seller can make a fair and reasonable agreement.
Lose the attitude, the hate, and Defiance in your reply and maybe someone will believe you you sound like a salesman that doesn’t make much money get a new job
Well said.
Spot on. I just priced a GMC Yukon at Randolph N.J. GMC. The dealer added $7,600 to the MSRP and called it a "Market Adjustment Fee". I replied with "this is no different than "Price Gouging" during a gas shortage. And told him I will take my business elsewhere. "WE" can control this if we stick together and boycott one manufacturer at a time. BUT.... as always the silent majority remains silent.
I totally agree I understand supply and demand but just because dealers need to keep lights on and pay employees is no reason to price gouge. They’re already making a profit at MSRP so to add to that is ridiculous
LOL NO WE ARE NOT. The difference from invoice to MSRP is $600 most dealers are totally justified, Bet you werent complaining when you get 7500-10k off why complain now?
No complaints here, it's a free market and a free country (so far), I hope you like the metallic and plastic flavor or have an extra can of grease to easy the friction going in though.
dealer makes money not by selling cars in the past, the real profits come from the service department and the more car they sell the better incentive they get from the manufacturer. So dealer markups are TOTAL BS and GREED!!!
Price fixing? You mean the thing the FEDS regulate! Holy conspiracy nuts in here
Wish I had followed thru on that Toyota Rav4 Adventure purchase earlier this year. That 20% discount from MSRP looks damn good now...
Inflation is not sustainable, these prices will drop once the bubble bursts again. For anyone who was alive during 2006-2007, this should all look pretty familiar. Americans spending way beyond what is reasonable or what items are actually worth. In my opinion, hang onto your vehicle especially if it is paid off. If not, take advantage of those low interest rates and get your payment down while you can. Re-sale value won't hold just because you were too impatient and overpaid when the market was hot.
MSRP + fees? Sure. You can go on about supply and demand, but don't pay markup and encourage that kind of behavior.
I'm not upset about charging over MSRP IF IT IS LABELED AS SUCH. I went to a local dealer for a car marked on their website AND on the car for $35k. Salesperson told me that there was a $3500 markup fee for the car on top of MSRP + dealership fees. Nowhere on the car or on the website was this stated or written down. I asked where that was in writing, and I was told that this is just the new policy. I immediately walked out of the dealership. Bottom line: If you want to charge more for any product, it has to be written down and clearly visible to the buyer. If not, that is unethical and potentially illegal.
just happened to me and my wife. I wanted to reach across that table and slap the taste out the mouth of that salesperson. 7500 on top of their website cash option of 46k. they don't have to list that markup anywhere. it's just the latest sleazy car salesmen tactic. they are the lowest of the low.
I totally agree with this and my husband and I ran into a similar issue—the website didn’t mention it and the salesperson didn’t mention it until AFTER our test drive. Lol. Their markup fee was $5,000. We quickly translated that to how many hours we’d have to work to line someone else’s pockets and walked away from the deal. My husband and I are the worst type of customers in today’s car shopping environment because we recognize a new car (to replace one that is 24 years old) is a “nice to have” but not something we absolutely need.
it is sir-go to any dealer website-scroll down to the boiler plate-it always says prices do not include dealer adds and fees and can be changed at any time.

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