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Huge Dealer Markups May Not Be What They Seem

We’ve now seen markups of over $100K on some luxury models, and RAV4s with prices approaching six figures. Here’s why not all markups are what you might think.
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Torque News has been reporting on dealer markups now for quite some time. The combination of the market disruption last year and parts shortages of electronics and other components has resulted in an unprecedented in peacetime shortage of new vehicles for dealers to sell. While we recognize that the markups have many reasons, excuses, or causes, not all of the markups may be what they seem.

Related Story: You Will Not Believe the Markup Price on This 2021 Toyota RAV4

Among the social media members of various automotive clubs are dealer employees. Some keep a low profile, so to speak, and others are open about their employers. Among both groups, we have begun to see some posts and comments that help to explain some of the most outrageous markups. You can draw your own conclusion as to why some of the models in the shortest supply are marked up to extreme levels. Here’s what some dealer employees say under the cover of anonymity.

Markups Are For Demonstration and Test Drive Vehicles
Imagine that you own a dealership and are sent a model in great demand by your shoppers. But it’s just one. Not one of many. A single vehicle. And you are not sure if any more are coming any time soon. You have customers who wish to own that individual car, and you are a dealer, who is supposed to sell it. However, you are also a dealer who can take pre-orders for that same model.

In this scenario, a dealer might mark up a vehicle beyond what any reasonable person might be expected to pay. Say, $40K above sticker for a RAV4 Prime that might normally have an MSP in the $47K range. In order to keep that vehicle on the dealer’s lot for test drives, one strategy is to mark it up past what any sane buyer would pay for it. The vehicle remains on the lot available for shoppers to check out statically in the showroom, or for test drives.

Markups To Avoid An Empty Lot
Similarly, an empty lot is not inviting to shoppers who may be driving around the “auto-miles” of the various regions in America. Why stop at a dealer with an entirely empty lot? Are they out of business? If there are no cars to see, why stop in? Dealers also have an online presence. They may wish to have cars shown as available to help encourage shoppers to "come on down." Showing zero available new vehicles for sale could preclude that.

Dealers want to portray themselves as having cars to sell for many obvious reasons. A markup beyond what anyone will reasonably pay is one way for dealers to retain some models for display in the showroom and along the roadway. This preserves the dealership’s curb appeal. Inside, salespeople can place a vehicle on order at a more reasonable cost.

We will be the first to use the terms price-gouging, stealing, rip-off, greed, and other such wording when it is appropriate. However, when we see vehicles with a markup that literally doubles their cost to the consumer, we look deeper. It did not take long to find an ongoing dialogue on social media about dealers using markups for strategic purposes beyond immediate profits. The next time you see a post on social media showing a vehicle with an outrageous price well beyond the $5K to $20K markup range, be aware that you may be seeing a dealer’s single demonstration vehicle’s window sticker. Just like the expression, “If it seems too good to be true it likely is,” when you see a markup that makes no sense, “If it seems too bad to be true, it may well be.”

Image by John Goreham

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 news outlets 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

It's good to add some perspective to apparent price gouging. Of course having a Demonstrator Not for Sale sign also works, and doesn't have the greed factor.