car buy sticker shock
If you’ve ever bought a new car, you probably paid at or below the list price after some negotiation.
Today, it looks like a relic from the pre-pandemic era.
Average new car prices are reaching record highs of over $47,000. The used car market fares no better for consumers, with prices averaging around $28,000.
The sticker, or Manufacturer’s Suggested Retail Price, is the amount recommended by the automaker. But the dealer has control over the final price. High demand and low supply have resulted in higher prices and dealer profit margins.
“Not only can consumers expect to pay the full sticker in this climate and not expect much haggling, but they might find dealerships adding those markup fees,” said Matt Deegan, editor of head of Kelley Blue Book.
What is a markup fee?
A dealer mark-up or market adjustment is an amount added to the price of the vehicle related to high demand and availability. Car prices are based on supply and demand.
The same way a consumer could negotiate a reasonable price from a dealership because the lot was full of vehicles, it has now tipped due to low inventory, said CarsDirect editor Alex Bernstein.
Dealer profit margins can be common on limited production vehicles or those with high demand. The difference now is that, rather than a sports car getting a markup, it’s the sedan whose sticker is much higher than a buyer would expect, Bernstein said.
Other additional costs to watch out for come from plans.
Dealerships may try adding protection packages or services to the cost of the new vehicle, such as clear coating or VIN etching.
It’s worth talking with the dealership and seeing if these packages are something you really want or just another way to get some extra bucks.
“Those really unusual challenges that I think most consumers probably wouldn’t expect,” Bernstein said.
A dealer markup can be found on the actual sticker on the vehicle, or can be as blatant as a sign that reads “additional dealer markup,” Deegan said.
That may seem like a blow to some who desperately need new vehicles, knowing they’re paying more due to the circumstances, Deegan said. But if a consumer must have a vehicle, they may have to.
“If (dealers) could do it, they probably would,” he said.
What do manufacturers think of dealer profit margins?
Dealer profit margins can be painful for consumers, and manufacturers worry that price hikes will hurt their brands.
The relationship between a dealer and a manufacturer is symbiotic: one manufactures the car and the other sells it. It’s important that the two are on good terms, Deegan said.
For example, a consumer looking to purchase a new Ford F-150 may not know who sets the price. If the cost is higher than the consumer expected, they might get mad at Ford, not the dealership, which actually sets the price, Deegan said.
Automakers want consumers to have a good time at their dealerships because they want loyal, brand-loyal customers. Most dealerships want the same thing, Deegan said — they are a business, after all.
“But humans are humans, and people sometimes take advantage of others,” he said.
Dealer Margin Tips
It may seem impossible to avoid higher costs when buying a new vehicle, but there are ways to navigate the market.
- Expect. Delaying the purchase of a new vehicle for six months or a year can save you money, as inventory is slowly replenished.
- Shop. It’s always important to shop around and not be tied to one dealership. Each dealer can be different on pricing, and that’s a good way to see where the market is.
- To research. Websites like Kelley Blue Book and CarsDirect offer options to research new vehicles and see how dealers rate them. Knowing the value of the vehicle can be a good starting point for negotiating.
- Compromise. Especially in this limited supply environment, the dealer may have the car you want, but in the wrong color. In this case, it may be wise to compromise if you really need a car.
- To negotiate. Negotiation has always been a big part of buying a car, and it can seem like the dealership is more in control. But in the end, it’s your money to spend. You may not be able to negotiate below the listed price, but knowing what a markup looks like can help you have an honest conversation about what the higher price entails.
This story was originally published May 6, 2022 5:00 a.m.