Edmunds: How to mitigate or avoid dealer markups
Throughout 2022, new-car shoppers have been paying an average of about $700 over the manufacturer’s suggested retail price, according to Edmunds data. Those in the market for a new vehicle today may experience sticker shock after seeing a dealership has priced the vehicle they want well over MSRP.
Dealerships have leverage to set prices by way of added accessories and price increases. These so-called market adjustments and, by extension, dealer-added accessories on new cars were once reserved for highly anticipated vehicles or limited-edition models. But now they are commonplace and part of the cost of doing business in today’s market of low inventory and inflated prices.
Edmunds experts what you can expect from dealerships for the remainder of 2022 and offers tips on getting the best deal.
WHAT ARE THEY?
You’ll find these markups on the windows of new vehicles on a dealer lot or, in rare cases, on the dealership’s website. You’ll want to look for a rectangular sheet of paper, often posted near a new car’s official window sticker or sometimes on the windshield. It is formally called an addendum or supplemental window sticker. The addendum will contain a number of dealer-installed accessories, a market adjustment, or a combination of the two.
While it isn’t an official factory sticker, that doesn’t mean that you can ask the dealer to make the fees go away. What makes things challenging for a shopper today is that if you don’t want to pay for those items, the dealership will happily wait for the next customer who will.
A market adjustment or markup is essentially a fee that the dealership devised to reflect a situation of low supply and high demand. It can range from a few thousand dollars on commonplace vehicles and upward of $50,000 on high-end or limited-production vehicles.
Common add-ons can include anti-theft devices with a cost of about $800 to $1,500, door edge guards that can range from $400 to $800, and nitrogen-filled tires that can range from $90 to upward of $700 if included with a warranty. When combined, these items can add thousands to the price of a new car.
For those who aren’t interested in these extras, it isn’t as easy as asking to have them removed since they’ve already been installed. For instance, you can’t remove a ceramic paint coating once it has been sprayed onto the vehicle. The deal gets more complicated because you’re now negotiating on multiple fronts: the accessories, the price of the car and perhaps your trade-in as well.
TIPS FOR DEALING WITH ADD-ONS OR MARKUPS
Verify the price hikes: If you’ve identified a car you’re interested in, call ahead of time and ask if it has a markup or is equipped with any dealer add-ons. If it is, find out specifically what the items are and how much they cost.
Cast a wider net: Not all dealerships will subscribe to this “market adjustment” philosophy. Your goal is to find those dealers and shop with them. You might have to cast your net wider to a dealership out of town or in the next county. To find them, try searching online with terms such as “no markup (brand) dealers in (city or state),” or “dealers over MSRP in (city or state).” Look for forum threads where people are discussing this topic.
If you want the accessories: There is some value to many of the added items, the convenience of them being installed already, and the ability to fold the cost into your car loan. But it is important to note that you will likely be paying more — the dealership has likely marked up the price of the accessories 40%-50% over what it paid for them.
Feel free to negotiate: Dealers don’t always expect people to pay the full markup, so if the vehicle you really want has a market adjustment, try offering half of its cost. The dealer may counter, but this can be a win-win for both parties — you might save thousands of dollars and the dealership still sells the vehicle for above MSRP.
Order the car: This option takes patience and planning, but in most cases, a factory-ordered vehicle will not likely have been marked up. You can get the exact car you want at MSRP provided you’re willing to wait. If a dealership insists on adding accessories to a factory-ordered vehicle, we suggest shopping elsewhere.
EDMUNDS SAYS: At a time when vehicles are scarce, dealerships want to maximize the profit on each unit given that the margins are already low on new cars. While market adjustments and added items can be frustrating and expensive to consumers, they are within a dealership’s rights. After all, the “S” in MSRP stands for “suggested.”