Dealers may mark up prices when demand is high, but inventory is tight because of a global chip shortage, a situation we're currently seeing on the car market. Markups typically happen in these cases to help dealers maintain some profit margin to make up for fewer sales.
Dealer markups are going to continue throughout this year as more people are hunting for cars amid dwindling inventory. This means car prices are going to stay high until the ongoing chip shortage and supply chain issues cease to make cars hard to find, or until there is more stock on dealer lots than people want.
This is also more common when it comes to popular makes and models. Most manufacturers give dealers some leeway when it comes to the actual sales price of a car, truck, or SUV. Dealers also have the ability to mark up your interest rate by a point or a few points in some cases.
Currently, the biggest reason for dealer markups is the inventory shortage that we've been experiencing since the start of the pandemic. Now, with ongoing supply chain issues, shoppers are willing to pay a premium to get what they're looking for, and dealers are responding with higher markups.
In light of this, some manufacturers have been warning dealers against some markup practices, such as including the markup in the itemized window sticker, or advertising one price and quoting a consumer a different price when beginning negotiations. Manufacturers like Ford, GM, and Hyundai have been cracking down on these practices in recent months.
Just because a dealer is marking up the sticker price on a car, it doesn't mean that's necessarily what you're going to pay. Often, it's up to you to negotiate with a dealer for your best sales price. Markups are just one thing you can negotiate on your auto loan. Others include the sales price of the vehicle, your interest rate, loan term, down payment amount, and the amount you get for a trade-in.
With all this power at your fingertips, don't feel pressured into paying too much for a vehicle. If you can't get the price down to a reasonable level for you, some things you can do to avoid dealer markups include waiting for market conditions to improve, rate shopping for your best deal, or ordering a new car from the factory.