The 2020 pandemic might be in the rearview mirror, but it may be largely responsible for today’s exorbitant car prices and consumers seriously sour taste of the automotive industry. On average, you’re likely to pay up to $5,613 more for a new ride, a 13.5% hike from last year’s prices. The high cost may account for the plummeting car sales, which are down by almost 30%.
But here’s the kicker; despite losing almost a third of their sales, car dealerships are making record profits. So, how are dealerships making bank against a backdrop of dipping sales?
One can only suspect – by padding their prices. The unfortunate events of 2020 created an ideal environment for markups to take place.
Dig in as we explore why dealer markups are so rampant and their impact on the automotive industry.
The Crippling Microchip Shortage
The global supply chain was disrupted at the height of the Coronavirus epidemic, creating a massive microchip shortage. Car makers withstood the worst of this shortage because modern vehicles largely depend on them.
Microchips control almost every modern convenience you enjoy in a new car. The infotainment system, engine system, and everything in between run on microchips.
The shortage limited carmakers’ production capacity, causing the demand for new cars to outstrip the supply. Subsequently, the prices skyrocketed, allowing all parties to profiteer from the shortages.
Worse still, the deficit provided valuable lessons that works against car shoppers.
Carmakers learned that maintaining a reduced inventory in car dealerships gave them an edge. Dealers were less incentivized to offer discounts to move the units since car shoppers readily bought any available units. This approach has nearly doubled the profit of new-car sales in 2022. Today, the gross profit per sale is $6,000, almost double the 2019 profit margins.
But wait, there’s still more.
A lean inventory also gave car dealerships the ultimate leverage over car shoppers. They could blatantly tuck in exorbitant markups, and motorists would still gladly pay the asking prices. Some car sellers even take it one step further by tucking on costly dealer add-ons such as pin stripping, VIN etching, undercoating, nitrogen tires and seat-fabric protection.
Questionable "Bait and Switch" Practices
Dealers are aware that people often turn to the internet to compare prices, so some car dealers have taken the classic bait and switch practices to guru levels. They use every trick in the book to hide or disguise their exorbitant markups.
Knowing that publicizing their wickedly high car prices, some car dealers have even stopped to o false online pricing. They’ve posted juicy ads featuring your dream car and ask you to call or email for prices. Or they’ll gladly underquote you over the phone, only to saddle you with a higher price when you walk through the door.
Don’t fall for these tricks. These car dealers use this online pricing tactic as their main form of lead generation. Once you call or email them for prices, they have your data, your details, and information. You then become a prime target for their high-pressure sales sequences that they’ve refined into an art form.
It’s enticing to think that you can haggle the prices down at the dealership, but it won’t work because:
- You’re pitted against seasoned sales reps out to make a killing.
- They will run around you in circles.
- They will bombard you with offers and “deals” that will seem equivalent to the added price.
Unbridled Exploitation for the Foreseeable Future
Haggling with a car dealership with marked-up prices may be fighting a losing battle. You can either waste your time or lose your money or just avoid it all together. Your choice. Fun car shopping… right?
A savvy car buying approach entails using online solutions such as markups.org to identify car dealerships based on vehicles listed above and below MSRP. The platform maintains a crowdsourced database full of car dealerships listings. Searching the database helps you avoid exploitative stealerships, and allows you to easily shop at trusted dealerships.
While we don’t believe markups have killed the automotive industry, we do believe that markups have left a serious tarnish on the dealership model. The automotive industry is multi-dimensional, and has the resilience to withstand the tarnish it’s dealership model has succumed to. But rest assured, there is change in the autumn air. With collaboration and innovation, the dealership model can be saved.