Dealer markups have been a hot topic for a few years now, particularly since that type of practice has become more common with new vehicle inventory dwindling to record low levels. Though some have willingly paid more than sticker price for the privilege of bringing home a new vehicle over that time span, others have ditched dealerships and even brands over such practices, prompting automakers like Ford to warn dealers not to mark up vehicles in an excessive manner, while also making it a point to include fixed pricing in its new Model e Certified programs. Now, a new study from the U.S. Bureau of Labor Statistics has found that dealer markups have played a big role in new car price inflation, too.
The Consumer Price Index (CPI) tracks new vehicle pricing, but also breaks it down into Producer Price Index (PPI), or prices paid by wholesalers, dealerships, intermediaries, and other businesses, the Import Price Index (MPI) for automobile and light duty motor vehicle manufacturing, which tracks prices for imported cars and trucks, and the PPI for vehicle sales, which tracks dealer markups.
In that sense, things changed dramatically between December 2019 and December 2022 versus prior years, with CPI increasing by 20.7 percent, PPI for new vehicles climbing 7.9 percent, and PPI for dealer markups rising by a whopping 144.7 percent. The lack of inventory and high demand created an opportunity for dealers to take advantage and turn massive profits on a number of new models, and that – in turn – helped to drive new vehicle inflation to higher levels.
On the bright side, new vehicle average transaction pricing declined each month through Q1, with Ford falling around two percent in March and Lincoln rising by nearly three percent, while the overall market dropped by a little over one percent. FoMoCo CEO Jim Farley recently stated that he believes prices will continue to fall for the duration of 2023, though it remains to be seen if dealer markups will become less common than they are now.
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Comments
Had a friend just buy a new Chevy P/U vs a Ford. 10K less with the same equipment and equal models. He’s driven Ford his whole life.
Let the competition begin! That’s one aspect that keeps the free enterprise system working.
So, why did MSRPs on Ford F-150’s skyrocket these past few years? Because dealers were adding unbelievably high mark ups, and they were getting it! The manufacturers sees that and decides they want their “fair share” of the markups as well, so they raise the MSRP. Now that things have flipped, with high interest rates and difficulty in lending, dealers aren’t getting the markups any longer… but the MSRPs will remain high. Manufacturers will never reduce MSRPs, but they might offer manufacturer’s rebates… if Ford wants to sell me a new truck, I’m going to need to see upwards of a $15,000 – $20,000 rebate.
$15-$20K rebate?
Allowing Dealers to hoard back inventory for price gouging is not a brand I want to buy!
Supply and demand. How it is. Buyers pay MSRP plus, that feeds the mark up. Nobody buys, no markups. Why Does a Dino, everybody calls it a Ferrari, that cost 20k new, now sell for 250K or more? Because a buyer is willing to pay for it. Simple.
I purchased an Escape ST Line at Art Hill in Schererville, IN for Z plan price.
Traded a Platinum 2020 Explorer.
I really like the Escape!!!