Scandalous dealer markups on in-demand vehicles have become very common over the last few years, but they still sting. That being said, if you're not the person handing over a lot of money for a desirable car and do not see yourself looking for one of the market's hottest cars for a long time to come, it can be entertaining to see just how far some have been willing to go to get their hands on something others cannot.
Whether lofty markups are ethically responsible is a matter of one's perspective, but as long as they continue to be legal, they're a part of the automotive industry in America. But how did they get so bad?
The COVID-19 virus created the perfect storm in the new car market, which also had a knock-on effect on the used car market.
First, a semiconductor chip shortage was created by the world going into lockdown. Once the worst was over, the work-from-home model was quickly adopted, creating a massive demand for computers. A snowball effect quickly formed, and chip manufacturers couldn't keep up. In addition to creating the semiconductor chip shortage, the virus also had a knock-on effect on manufacturing in general, which created other parts shortages. There wasn't enough time to build a sufficient inventory, so specific manufacturing sectors would always lose out. Then Russia invaded Ukraine, creating more supply challenges due to embargo and air travel restrictions in the region.
These things combined led to a shortage of new cars delivered to dealers.
The average customer recovered much quicker than automakers. Financing was readily available, and governments worldwide wanted to kickstart the economy as soon as possible, not to mention that many people simply bought new cars as retail therapy for going through two years of hell. A new car might seem like a dumb purchase after a solid year of businesses closing down and people losing their jobs, but many locked-down Americans continued to earn without spending anything on gas or family outings, allowing a larger percentage of their salaries to be saved.
In summary, there was demand but not enough supply. There was no inventory. Dealerships used this to their advantage, at first to recoup losses over lockdown periods and later for hitherto unseen greed, and dealer markups became part of the everyday lexicon. To be fair to dealers, markups and haggling have long been a part of the American car-buying experience.
To understand what a new car markup is, we first need to understand the concept of an MSRP and the behavior of car buyers.
MSRP is an acronym for manufacturer-suggested retail price, or sticker price, as it's colloquially known. It's what an automaker thinks is a fair price for whatever vehicle is being sold. The MSRP is not chosen at random. The prices are set to ensure that the dealer and the manufacturer profit from the sale.
The most important letter in the acronym is the "S" for "suggested." The price is not set in concrete. It's worth noting that the idea of a markup on cars is not new. It has just become more prominent as demand has not correlated with falling inventory.
Previously, markups were usually restricted to limited-production vehicles that buyers knew would retain value. Wealthy buyers had no issue paying a $100,000 increase over the MSRP of a 911 R because they knew it would be worth three times as much in a few years.
It's easy to blame dealers for the price of new vehicles these days, but there has to be demand for it to work. Basically, there were plenty of cars purchased for well over MSRP, so buyers have to take some responsibility as well. If buyers refused to pay expensive car rates for something as every day as full-size pickups, this problem would not exist.
There is no evidence to back this claim up, but it's basic business, and it was easy enough to spot the trend. Dealers wouldn't charge double for a Z06 if they weren't sure they could get away with it.
Is there such a thing as an average markup on new cars? According to the US Securities and Exchange Commission, markups over MSRP increased by 140% between 2019 and 2022. That's just the number of markups. The average markup in 2019 was 4.9%, and by 2022 it had increased to 11.5%. So if you're wondering about the average dealer markup on new cars, that's the answer.
While 11.5% doesn't seem like much, let's put it into context using the best-selling car in the USA. A base Ford F-150 costs roughly $34,500. Slapping the average new vehicle markup on that increases the price to close to $40,000. You can easily refuse that offer unless you desperately need a new work truck.
Thankfully, the latest inventory data suggests that dealer markups might soon be a thing of the past. The supply of vehicles is much steadier, which improves inventory. Dealers are slowly losing the ability to place a markup on a car because a customer can often go somewhere else.
The money-grabbing is slowly disappearing, as evidenced by certain manufacturers willing to once again go below MSRP. Ford has also announced that it will block dealer markups from next year, and Tesla keeps winning direct sales rights in states across the USA.
Now that the situation is slowly rectifying itself, it's time to look back at the most outrageous markups of 2023, 2022, and 2021, when the markups peaked.
According to a recent report, the humble Jeep Wrangler is the biggest vehicle markup offender. Here, we're talking about volume and not one-off crazy prices.
On average, Wranglers were marked up by 24.4% above MSRP, which, on average, works out to just under $8,500.
Jeep dealers may not have caught as much flack for slapping $10,000 on top of the MSRP of a Wrangler 392 or $2,000 on a base Wrangler, but we're willing to bet that they made a lot more money selling a high-volume vehicle at a slightly increased price than one Chevrolet dealer selling a Z06 for twice its value.
This one really stings because it goes against what a hot hatch should be. The typical hot hatch should be fun, fast, practical, and affordable. You usually buy a hot hatch because you can't afford a blistering sedan like the M3, and it gives you 85% of the thrills.
In late 2022, a GR Corolla Core Edition (the base model) was advertised for $60,223. Toyota's MSRP was $38,953. That's a price difference of roughly $21,000, nearly enough to buy a base non-GR Corolla sedan as an extra car.
The Nissan Z arrived in the USA last year when dealer markups were at an all-time high. There were rumors of the limited edition Proto Spec going for as much as $100,000, but we quickly learned that story was somewhat inaccurate.
That doesn't mean the Nissan Z was safe from inflated pricing, even though the Japanese manufacturer used a unique allocation system.
We found base models going for as much as $53,000, even though Nissan launched it with an MSRP of just under $40,000. And while the Proto Spec may not have reached $100k, at least one dealer charged $78,990, which was $26,000 above the MSRP.
The Honda Civic Si is an excellent option for those who want something sporty but practical. Its turbocharged four-cylinder produces 200 horsepower and 192 lb-ft of torque, which is on par with the sixth-general Golf GTI. And with an MSRP of only $27,300 in 2022, there was nothing remotely as much fun for the same price.
Unfortunately, Honda struggled to get these vehicles to dealers, which led to a massive markup. Once again, it was a case of a dealer going against everything the humble hot hatch stands for.
The dealer wanted $42,694 for a Civic Si with a six-speed manual, which put it in the same price category as the Golf R, Audi S3, and Subaru WRX STI Limited.
The Type R launched a year after the Civic Si, and its markups were even worse. Honda launched the CTR with an MSRP of $44,385, which was on par with the hyper hatches mentioned above in the Civic Si text block.
Shortly after, CTRs started popping up for nearly $80,000. The cheapest markup was $5,000, but the average was roughly $25,000. To own a Civic Type R, you'd have to pay approximately 85% of the price of the Civic Si over and above MSRP.
This outraged one CTR fan so much that they made a list of offending dealers and placed it on Reddit. As we discovered with the case of one ridiculously marked-up Corvette Z06, internet outrage is the only antidote to this nefarious business model.
The Ford Bronco has become a poster child for insane dealer markups. It launched at the right time, was highly desirable, and Ford couldn't make enough of them.
The Bronco Sport wasn't immune either. Dealers were charging $10,000 over sticker price, and desperate customers who wanted the most fabulous car of 2021 were willing to pay.
Ford launched the Bronco First Edition in 2021, and production was limited to 7,000 units. It sold out within hours, and greedy dealers were among the first to get their hands on the car. Ford expected customers to pay $59,115, but one dealer added another $20,000 on top of that.
The Kia EV6 is the corporate cousin of the Hyundai Ioniq 5, and both cars won several prestigious awards for design, tech, and just being a good car.
Kia's idea was to introduce an affordable EV to go head-to-head with Tesla, so the car was launched with a base price of $43,650 before incentives. The then top-spec GT-Line (the EV6 GT has since usurped it) retailed for $59,945, including a few options.
One dealer added $27,000 to the price, taking the final price to $87,000. Effectively, it took the EV6 out of the realm of the Tesla Model 3 and made it a direct price rival to the Model X.
The 992 Porsche 911 Sport Classic is a limited-edition model that borrows several cool features from other models. It has a detuned Turbo engine but does without the all-wheel-drive system. It's also the only Turbo model available with a manual gearbox. Porsche only made 1,250 examples, so we knew markups would be a factor.
What we weren't expecting was just how much the markups would be. Porsche launched it with an MSRP of $288,910, and dealers slapped an additional $250,000 on top of that. That's an increase of over 80% and more than the base price of a 911 GT3 RS.
This particular dealer's estimation was correct because the Sport Classic is selling for more than $600k these days.
In late 2022, a Chevy dealer made headlines for all the wrong reasons. We already knew about Z06s selling for twice the price, but this dealer took it to another level by charging $375,000.
To us, this goes against what the Corvette has always stood for. It offers supercar money for a third of the price, which makes it a blue-collar hero. By charging nearly $400k for a Z06, this dealer took some of the 'Vette charms away.
The Dodge Challenger SRT Demon 170 is the maddest gas-powered model the American automaker has ever produced. To make matters worse, Dodge is done with V8 engines, which means this car represents an end of an era.
Dodge knew there was a potential for ridiculous markups. The MSRP for the Demon 170 is $99,666, and Dodge said that preference would be given to dealers who would sell the car at the suggested price. This approach failed because several allocations went to Dodge dealerships, who advertised allocations on Facebook Marketplace for $200,000 over sticker.
After discovering that people would be willing to pay that, the price in some places quickly jumped by another 50 grand.
This creates a huge problem. People who pay $100k for the Demon 170 would be more likely to take it to the drag strip. But once you've spent $350,000 on a car, would you risk it? This car was meant to be enjoyed by audiences at drag strips, but now they'll be stored in climate-controlled garages.
This article originally appeared on CarBuzz: New Car Markup: The Most Outrageous Markups In Recent Years2023-06-02T00:11:42Z dg43tfdfdgfd