Quick Facts About Car Prices
- Inventory improved significantly at many dealerships.
- Hard-to-find vehicles include Asian non-luxury and Japanese and European luxury car brands.
- Some vehicles still sellabove MSRP.
While finding a new car today is easier than last year, the search can still be tricky. But striking a good deal doesn’t need to be. Dealers began offering Incentives on new vehicles again as inventory started building up. Still, on specific models, you’ll need to guard against any dealers treating a short supply of cars like a winning lottery ticket. Many continue to tack on thousands of dollars in dealer markups to the manufacturer’s suggested retail price (MSRP). By law, every new car’s window sticker must display the MSRP.
It is best to read several dealer reviews before arriving at the dealership. For models in short supply, vehicles arriving on transport trucks will often be presold or at least promised. It’s an oscillating market for some car shoppers. In this article, we’ll explain markups and market adjustments, why dealers use this practice to increase prices of new vehicles beyond MSRP, and what, if anything, you can do about it.
- What’s Supply Got To Do With It?
- Car Prices Determined by Supply and Demand
- What Is Dealer Markup?
- Manufacturers Warn Dealers About Markups
- What You Can Do About High Markups on Cars
What’s Supply Got to Do With It?
If you start shopping for a new car, you may encounter dealers who refuse to budge from the vehicle’s posted window sticker price. In other words, they aren’t willing to negotiate.
New car inventories returned to normal for some automakers but remain exceedingly tight for others due to residual supply-chain issues and other factors. According to data from Kelley Blue Book’s parent company Cox Automotive, new car prices neared $48,759 at the end of 2023. That’s a 2.4% decrease from the same month a year earlier. Car prices remain about 18% higher than at the end of 2020 as the COVID-19 pandemic dragged on.
The new vehicle inventory was nearly 2.6 million units, or 71 days of supply, at the beginning of 2024. That’s much improved, and it sounds like a lot. But it’s historically low. Before the pandemic, dealerships kept 3.49 million cars in stock, or an 86-day supply of vehicles for consumers to buy.
Every car a dealer sells today will be unavailable to sell tomorrow. That’s always the case. However, some dealers at car brands like Toyota, Honda, and Lexus have potential buyers lined up as if it’s an opening day for a viral movie. At the same time, others stock an oversupply of vehicles, like Lincoln, Jeep, and Chrysler.
Car Prices Determined by Supply and Demand
If you never pay much attention to the fundamental theories of economics, you may not realize the current marketplace works like a Petri dish for the effects of supply and demand. In an open market, demand dictates prices. The more people want a thing (like cars), the more they are willing to pay for it, and the higher its price goes. That higher demand motivates additional production of that thing, and the price eventually falls.
Car dealers do not exist in business to break even. When you find your dream car and the dealer wants the full MSRP — or more — you can always walk away. Waiting for that dealer to return with a better offer probably isn’t the best use of your time. If it’s a popular model and you wait, someone else might snatch it up.
These days, a dealer demanding the full MSRP isn’t cheating you. You’re paying the manufacturer’s assigned price to that car. In this economy, it’s probably a good deal.
Brands with the deepest inventory may have dealers more inclined to negotiate or stick with the MSRP. In the first quarter of 2024, Cox Automotive analyzed the vAuto available inventory data. Read the findings below.
Car Brands with the Most Inventory
- Ram
- Chrysler
- Jeep
- Dodge
- Lincoln
- Genesis
- Volvo
- Infiniti
Car Brands with Low Inventory
- Toyota
- Honda
- Lexus
- Land Rover
- Kia
- Cadillac
- Chevrolet
- Subaru
If you’re shopping for an electric car, you’ll likely find a great deal with plenty of incentives, including potential instant government rebates on some vehicles that meet defined criteria. But you could be out of luck if you’re searching for a Toyota, Honda, Lexus, or Kia. At the beginning of 2023, Honda and Kia buyers paid between 6% and 8% over sticker price at the end of the year, while Buick sold 2% or more below MSRP. Fast-forward a year, and incentives averaged $2,700 on new cars.
RELATED:When Will New Car Prices Drop?
What Is Dealer Markup?
For our purposes here, we define dealer markup as profit and a selling price the dealership assigns above and beyond the carmaker’s MSRP. A dealer tacks these arbitrary amounts onto the MSRP to increase profit on high-demand models. Sometimes, such markups appear as a second window sticker separate from the MSRP.
Historically, you would find them primarily for highly anticipated all-new or redesigned models. Dealer markup may show up under the following terms listed on the label and your sales invoice:
- Market adjustment
- Additional dealer markup (ADM)
- Additional dealer profit (ADP)
- Adjusted market value
These costs are the ones to look out for and, if possible, avoid.
Other markups you might encounter include the cost of dealer add-ons like delivery fees, window tinting, ceramic coating, seat-fabric protection, VIN etching, and pin stripping. You could often negotiate such traditional add-ons out of the final transaction price. Even that is tougher to do today.
Manufacturers Warn Dealers About Markups
During the past two years, cars were in high demand across nearly all vehicle makes and models, and the temptation to price gouge was too great for some dealers to resist. Car shopping became so competitive because of the limited number of new cars available that some manufacturers like Ford, General Motors, Subaru, Hyundai, and others began cracking down on dealership pricing.
Crowdsourced-data website Markups.org reveals just how drastic the price increases look, offering specifics on dealerships and providing, in some cases, visuals to accompany the markup information. Although many vehicles don’t show any dealer markups, many others do. We found one as high as $50,000 that an Arizona Ford dealer tacked on a 2024 Ford F-150 Raptor R.
Ford’s CEO Jim Farley has warned dealers to “cut” the markups during company earnings calls. Also, Farley wants the company to move to a new business model of non-negotiated prices and 100% online.
Hyundai sent warning letters to dealers and mentioned specific practices, including:
- Advertising one price online, then naming a different price when the customer negotiates.
- Affixing window stickers with markups included as itemized parts of a vehicle’s price.
What You Can Do About High Markups on Cars
- Wait: Although new car inventories continue to improve, and some automakers have stock levels at or above normal, this market remains in flux. If you aren’t desperate for a high-demand new car, wait for more favorable times.
- Contact several dealers: The more dealers you contact, the better your chance of scoring the best deal. To simplify the process, use our tool to obtain a free price quote from dealers in your local area. You can choose from a list and decide who contacts you with quotes.
- Be prepared to compromise: The Rolling Stones said it best: “You don’t always get what you want.” If you are going to buy off a dealer’s lot or from those coming in on a truck, remain flexible. The odds are you won’t get one precisely the color you want, with the engine you want, or the accessories you want. Decide what is most important and be willing to compromise on everything else.
- Don’t take dealer ads at face value: New car advertising typically comes with many disclaimers and caveats regardless of the market conditions. If a new car price seems too good to be true, it probably is. When you see a specific model advertised, call the dealer to confirm it’s there before making the trip. When an ad claims they have several units of the same model on hand, don’t count on it. Often, those numbers include vehicles that have yet to arrive, are already spoken for, or are sold.
- Consider ordering from the factory: Except for some electric brands like Tesla and Rivian, most carmakers still require you to order a vehicle through a franchised dealership. However, you can specify precisely the color, model, and options you want when you order the car. You will probably still pay MSRP or maybe even a little more. But at least you’ll have the exact vehicle you want. The issue with special ordering is that the car may take many months to arrive.
- If leasing, watch for fees. Many leases contain a vague list of fees and costs related to the upfront charges and picking the purchase option when returning a lease. Check your lease contract and know your rights. Some dealers started charging market adjustment fees on leases. Question everything, shop for the best deal, and don’t pay anything not listed in the contract.
Editor’s Note: This article has been updated for accuracy since it was initially published.
Read Related Articles:
- How to Buy a New Car in 10 Steps
- Study: Dealer Markups Contributed to Recent Inflation
- How To Buy a Car From Out of State
