Are Dealer Markups Finally Disappearing?
Car buyers have faced a brutal market over the last few years. If you visited a showroom recently, you likely saw frustrating “market adjustment” stickers adding thousands of dollars to the price of a standard family SUV. Fortunately, the days of outrageous dealer markups are finally coming to an end.
The Shift in Supply and Demand
To understand why markups are disappearing, you have to look at dealer lots. During the pandemic, a global microchip shortage halted vehicle production. Dealerships had almost no cars to sell. Because supply was incredibly low and buyer demand remained high, dealers started adding Additional Dealer Markups (ADMs) to maximize their profit on the few cars they actually had.
Today, that situation has completely reversed. Automakers are building cars at full capacity again. According to data from Cox Automotive, the industry average inventory is now sitting above a 70-day supply. This is a massive improvement from the 20-day supply seen at the height of the shortage.
Some brands actually have too many cars right now. Dealerships selling Jeep, Ram, Dodge, and Lincoln vehicles are frequently sitting on over 100 days of inventory. When a dealer has rows of unsold Ram 1500 pickup trucks or Jeep Grand Cherokees sitting on the lot for months, they cannot afford to ask for a markup. Instead, they are forced to offer heavy discounts just to move the metal.
Average Transaction Prices Are Dropping
The surest sign that markups are dying is the drop in the average transaction price. Kelley Blue Book reports that the average price paid for a new vehicle has been steadily trending downward, hovering around $47,000. More importantly, the average buyer is now paying below the Manufacturer’s Suggested Retail Price (MSRP).
Just two years ago, the average buyer was paying hundreds or even thousands of dollars over sticker price for basic commuter cars. Now, normal market conditions have returned. Buyers are successfully negotiating discounts on popular models like the Ford F-150, Nissan Rogue, and Chevrolet Equinox. Automakers are also bringing back factory incentives, low-interest financing offers, and cash rebate deals to attract buyers.
The Electric Vehicle Price War
The electric vehicle market experienced some of the most extreme dealer markups in 2021 and 2022. Early adopters faced massive price gouging on highly anticipated models. Dealerships routinely added $10,000 or more to the price of a Ford F-150 Lightning or a Hyundai Ioniq 5.
Those days are entirely gone. Tesla initiated a massive price war by aggressively slashing the prices of the Model 3 and Model Y. To stay competitive, legacy automakers had to respond. Ford dropped the price of the Mustang Mach-E and introduced heavy factory incentives. Dealerships are now heavily discounting electric vehicles like the Volkswagen ID.4 and the Kia EV6. If a dealer tries to charge you a markup on a standard electric vehicle today, you should immediately walk away.
Where Markups Still Hide
While markups are disappearing for 95 percent of vehicles, there are a few exceptions where dealers still hold all the cards.
High-Demand Enthusiast Cars
If you want a low-production sports car, you might still face a premium. Dealers know that eager buyers will pay extra to be the first to drive something special. You will likely still see markups on exclusive models like the Porsche 911 GT3, the Toyota GR Corolla, or the Honda Civic Type R. High-performance trucks like the Ford Bronco Raptor also command a premium in certain markets.
Tight Inventory Brands
Not all brands have fully recovered their inventory. Toyota and Honda are still running leaner operations than their American competitors. Hybrids are in incredibly high demand right now. Finding a Toyota Sienna minivan or a Toyota RAV4 Prime plug-in hybrid at MSRP can still require a long waitlist. While extreme $10,000 markups on these family cars are mostly gone, many dealers are refusing to discount them below the sticker price.
How to Avoid Paying Over MSRP
If you are shopping for a new car, you have the power to refuse market adjustments. Here are the best ways to protect your wallet:
- Expand your search: Do not limit yourself to the dealer closest to your house. Email dealerships within a 100-mile radius and ask for their best out-the-door price. A short drive could save you thousands.
- Look for high inventory: Target brands and models that have plenty of supply. You will get a much better deal on a Nissan Pathfinder than a Toyota Highlander right now simply because Nissan dealers have more cars to sell.
- Watch out for forced add-ons: Some dealers have stopped calling it a “market adjustment” and now force you to buy overpriced accessories instead. Watch out for mandatory $900 paint protection packages or $500 nitrogen-filled tires. Treat these mandatory add-ons the exact same way you treat a markup. Refuse to pay for them.
Frequently Asked Questions
What is a dealer market adjustment?
A market adjustment is an extra fee added to the sticker price of a car entirely for the dealer’s profit. It does not add any physical parts, warranties, or services to the vehicle. It simply means the dealer believes the car is in high demand and wants to charge you extra for the privilege of buying it.
Are car prices going to drop further this year?
Industry experts expect car prices to continue a slow, steady decline. As vehicle inventory builds up on lots, automakers will have to introduce better cash rebates and subsidized lease deals to attract buyers.
Can you refuse to pay a dealer markup?
Absolutely. A markup is entirely negotiable. You can tell the salesperson that you are ready to buy the car today, but only if they remove the market adjustment. If they refuse, you can take your business to another dealership.
Which car brands still have the highest markups?
Currently, Porsche, Land Rover, and Toyota tend to have the tightest inventory, which leads to less discounting. Toyota hybrid models specifically face the highest demand from everyday consumers, making them harder to negotiate down.