Image of car dealer markup price courtesy of Sarah Jane
John Goreham's picture

$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
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....
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.
We test drove an Escalade, and in our area, there was a $25k mark up right from the start. It wasn't on their website nor was it on their window sticker. But their 'numbers sheet' listed it, which almost negated our trade in. Without a trade in, this $92k model was $128k after mark up and all taxes, fees, etc. We walked out. Mostly because we didn't like the Escalade enough to entertain this idea, but we also weren't willing to pay such a mark up. I've done some research and I am seeing there are some shortages. (makes me glad I bought my car when I did). A few thousand for a car my wife truly wants may be acceptable. $25k on top for any car (to me) is unreasonable and my wife would never allow it.