What is a ‘market adjustment,’ and do you have to pay dealer markup fees?
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Car shopping sticker shock
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If you’ve ever bought a new car, you likely paid at or below the sticker price after some negotiation.
Today, that seems like a relic of the pre-pandemic era.
Average prices of new cars are hitting record highs of over $47,000. The used car market hasn’t fared any better for consumers, with average prices around $28,000.
The sticker, or manufacturer-suggested retail price, is the amount recommended by the auto manufacturer. But the dealership has control over the final price point. High demand and low supply have led to increased prices and dealer markups.
“Not only can consumers expect to pay full sticker in this climate and not expect a whole lot of haggling, they might find dealers adding these markup fees,” said Matt Deegan, an editor at Kelley Blue Book.
What is a markup fee?
A dealer markup or market adjustment is an amount added to the vehicle’s price tied to high demand and availability. Car prices are based on supply and demand.
The same way a consumer used to be able to negotiate a reasonable price from a dealer because the lot was full of vehicles, has now flipped due to low stock, said Alex Bernstein, managing editor of CarsDirect.
Dealer markups can be common on limited production vehicles or those with high demand. The difference now is that rather than a sports car getting a dealer markup, it’s the sedan whose sticker is much higher than a buyer would expect, Bernstein said.
Other additional fees to look out for come from package plans.
Dealers might try to add on protection packages or services to the new vehicle’s cost, such as clear-coating or VIN etching.
It’s worth talking with the dealer and seeing if these packages are something you really want or just another way to squeeze out additional dollars.
“These present really unusual challenges 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 saying “additional dealer markup,” Deegan said.
It can feel like a gut punch to some who desperately need new vehicles, knowing that they’re paying more because of the circumstances, Deegan said. But if a consumer has to have a vehicle, they might have to go through with it.
“If (dealers) could do it, they probably will,” he said.
How do manufacturers feel about dealer markups?
Dealer markups can be a pain for consumers, and manufacturers fear the price hikes could hurt their brands.
The relationship between a dealer and manufacturer is symbiotic — one makes the car, and the other sells it. It’s important for the two be on good terms, Deegan said.
For example, a consumer looking to buy a new Ford F-150 may not realize who sets the price. If the cost is higher than the consumer expected, he or she could get angry with Ford and not the dealer, which actually set the price, Deegan said.
Automakers want consumers to have a pleasant time at their dealerships, because they want repeat business and brand loyalty. Most dealerships want the same thing, Deegan said — they are a business, after all.
“But humans are humans, and people take advantage of others at times,” he said.
Tips for dealer markups
It may seem impossible to avoid higher costs when buying a new vehicle, but there are ways to navigate the marketplace.
- Wait. Putting off a purchase of a new vehicle for another six months or a year can save you money as inventories slowly build back up.
- Shopping around. It is always important to shop around and not be held to one dealership. Each dealer can be different on pricing, and it’s a good way to see where the market is.
- Research. Websites like Kelley Blue Book and CarsDirect have options to search for new vehicles and see how dealers price them. Knowing the value of the vehicle can be a good starting point for negotiating.
- Compromise. Especially in this limited supply environment, the dealer might have the car you want but not in the right color. In this case, compromising might be in order if you really need a car.
- Negotiate. Negotiating has always been a big part of car buying, and it may seem like the dealer is more in control. But ultimately, it’s your money to spend. You might not be able to negotiate below the sticker price, but by knowing what a markup looks like, you could have an honest conversation about what the higher price entails.
This story was originally published May 6, 2022 at 5:00 AM.
