Opinion: Why Dealers Have Earned Massive Markups

Jo Borras
by Jo Borras

Earlier this week, someone sent me an addendum sticker from Mercedes-Benz of Selma, in Texas. The addendum added two line items to the sticker price. The first line item was VIN etching, at $199. That’s controversial enough, since some people have said that VIN etching is the scam of the decade – but those people haven’t seen the second item: A “Market Adjustment” charge for $125,000.

You read that right. One-hundred and twenty-five thousand U.S. American dollars – and that’s on top of the Mercedes-Benz G63 AMG’s already steep $178,000 asking price. But, frankly, it’s not the 70 percent markup that’s the most offensive thing here, It’s not even the $199 charge for the VIN etching.

Frankly, the worst part of this is that MB of Selma will very likely get their markup. And, when they do, they will deserve every single penny.

WHY THIS IS HAPPENING

Dealer markups have been getting crazy in recent months. Our own Tim Healey even reported on a dealership in Tennessee that had marked up a Mitsubishi Mirage fully six-thousand dollars (yes, they still make those – I’m as surprised as you are) back in July. A number of factors were cited there, most notably a dwindling inventory caused by a nationwide chip shortage. Tim closed that article with the phrase, “it’s another reason to not buy a car in the short term unless you absolutely have to.”

But, considering the fact that car dealers are selling new cars almost as fast as the OEMs can build them, and the fact that it’s unlikely that all of these people “absolutely have to” buy a new car now, we have to assume that something else is behind these exorbitant markups.

My hypothesis for what that “something else” is? Simply put, these markups exist because the dealers are getting them.

I’d expect them to throw in the $199 etching at least pic.twitter.com/Zn61Ya9b4g

— Zerin Dube (@SpeedSportLife) October 20, 2021

CAR DEALERS KNOW HOW TO SELL CARS

“The price of cars is high because people are paying a lot for cars,” is hardly nuanced, sure – but it’s tough to argue against, isn’t it? Someone out there is doing an awesome job convincing millions of people that right now, with prices at an all-time high, is the right time to buy.

They may be doing that in a number of ways. They may tell prospective buyers that, during a period of rapid inflation, the best thing they could possibly do is borrow as many “good, today” dollars as possible, and pay them back with “shitty, tomorrow” dollars down the road. As long as interest rates stay below inflation, that’s probably true – but I don’t think that’s the kind of logic that would move someone to pay $125,000 (sorry, $125,199) above sticker on a G63. That’s not a logical decision on any day of the week, I would argue, but MB of Selma thinks they can get all the money, and they’re (probably) not stupid. That means they understand that buying this new car, right now, is a purely emotional decision.

Frankly, you could probably say the same thing of just about any car on the market today – even that little Mitsubishi Mirage in Tennessee. Heck, the website from Ole Ben Franklin Mitsubishi, the dealer in question, is proudly showing new cars on its website without Monroney stickers on them. Fear not, however, you can still “lock in” a sale price that is probably MSRP … and there’s little doubt that someone, eventually, will hit that button.

When they do, I’d be willing to bet that one of two things will happen. They’ll be contacted by an untrained, unprofessional salesperson who will fumble the sale and convince them to keep shopping, or they’ll be contacted by a professional who will deliver outstanding customer service and convince them to pay whatever they can.

If that’s $6,000 or $125,000 above sticker? So much the better – and they’ll deserve every penny.

WE DID THIS TO OURSELVES

Even if you’ve never sold cars before, you probably have some idea of the type of person who would be drawn to the car business. I myself have worked just about every job you can work in a dealership – from porter to service advisor to sales and, eventually, F&I and management. I have met, hired, and even fired quite a few people along the way, but while I couldn’t honestly say that there was a specific “type” of person that was drawn to car sales, I can tell you that there is a specific type of person who is successful in sales, and I’ll let one of them tell you in her own words.

“The beautiful thing about automotive is that the ceiling doesn’t exist,” writes Seana Corsale. “There’s nobody stopping you from creating a rewarding career, and having fun while doing it … I never thought I could love an industry so much – every part of it. It’s become part of who I am.”

I don’t know Seana. She’s a friend of a friend on social media – but I’ve known horses like her. People who enjoy meeting new people, who put themselves out there and radiate a genuine, positive vibe, know their product, and follow every step of the sales process every time. These are almost always successful because people want to trust them, and most people end up buying the salesperson as much as they end up buying a car.

As such, I’d be willing to bet that Seana has a lot of repeat business, and it’s not because she offers the best prices in town. More likely, it’s because she offers the best experience to her customers, and a positive experience has value to everyone involved.

I want you to key in that last part, because I think it’s important to spell out that good customer service requires you to be a good customer. If you walk into a store – any store, selling any things – and immediately ask to speak to a manager because you don’t want to deal with someone who is inexperienced, that’s not awesome. If you went into a family-owned hardware store and demanded to see their invoice price on a Makita cordless drill, do you think they’d show it to you?

What’s more, if you offered them 5 percent over their invoice price on it, do you think they’d sell it to you? Would you go on Yelp and call them all crooks and thieves and liars for refusing your offer? Would you whine about not getting your way on your blog?

And yet, people do this to car dealers all the time. They’re reviled for trying to make 4 or 5 points on a deal, but nobody tells off the crooks selling you on 401Ks and retirement plans when they turn up for open enrollment, even if they do have a 50.1 percent margin on the plan they talked your useless HR Toby into – not far off from the margin MB of Selma will make if they get their full ask on that G63, now that I think about it.

We have become terrible customers, and I’m no different. When I bought my most recent Volvo XC90, it was the fourth car I’d bought from that dealer (the Autobarn Volvo of Oak Park, Illinois, if you’re curious). It was the second Volvo I’d bought from Nick Kourafas, too, and I’m sure I’ll buy a third soon enough. All the same, when it came time to settle up, I fought him on every charge – and I consider Nick a friend! He’s knowledgeable, fair, and incredibly patient with me every time I walk into that store. He even remembered I wear a size $20 Starbucks gift card on my birthday! Imagine how I would have treated some poor green pea anywhere else … now, imagine how you would treat them.

As far as I’m concerned, these markups mean big money for salespeople and dealerships, and they deserve every penny they’re getting. Call it karmic retribution for all the horrible treatment they’ve gotten over the years, earned and unearned, and find solace in the knowledge that this worm shall turn, and we’ll get back to beating them up for free car washes and gas cards in exchange for halfway decent survey scores sooner or later.

[Image: Screenshot taken by the author]

Jo Borras
Jo Borras

I've been in and around the auto industry since 1997, and have written for a number of well-known outlets like Cleantechnica, the Truth About Cars, Popular Mechanics, and more. You can also find me talking EVs with Matt Teske and Chris DeMorro on the Electrify Expo Podcast, writing about Swedish cars on my Volvo fan site, or chasing my kids around Oak Park.

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  • Sirwired Sirwired on Nov 02, 2021

    Dealers absolutely have done this to themselves over the years. The 4-square worksheet, selling customers random useless crap at ridiculous markups (if I have another dealer try to sell me "Teflon" car wax for $$$, it'll be too soon), dishonest games (and outright lies) on financing, low-balling trade-ins (accompanied with more lies), etc. It's all been built around taking advantage of people who only do this a few times over their entire lives, and fleecing them for all they can get. If I go into a store to buy a drill, there will be a price on the shelf, and that's probably the one I'm going to pay. And if I want to compare it with shopping elsewhere, I can do that easily. The most they will try and sell me as an add-on will be an extended warranty at a modest cost. They are not going to offer me a price, and then, when it comes time to sign, change their minds because "the manager" didn't agree to it. I don't know what dealerships you've worked at, but they sure aren't the ones I've been shopping, 'cause they consistently treat me like a mark, and not a customer.

  • Davidavemian Davidavemian on Nov 28, 2021

    Lots of complete bullshit in this thread. I'm a car salesman of about 10 years The reality of the situation is, before the pandemic, the business had gotten to be just ridiculous in how every car was being discounted. We were discounting the most desirable 60k pickup trucks to where it was a net net 500 dollar deal. That's 0.8% profit margin. There is no other business in the world where the profit margins are that small on such an expensive item - every other business is a 10-20K profit on a 60K product minimum yet the people in this thread are the same people who would cry and write bad reviews if the dealer tried to make 2K instead o 500 on that pickup truck Customers are worse than salespeople. I can't tell you how many deals I've lost over 200 300 400 500 dollars. I work hard at my job - I can't tell you how many people come in and I have to explain to them just about everything on the car, pick out the trim level, go on a test drive, spend 5 hours going back and forth on emails and the people to buy elsewhere over 300 or 400 dollars on a 40k car is just hideously insulting. Customers are every bit as greedy as dealers And you guys wanna talk about lying? You don't think Customers lie? Do you know how many people have told me they're not looking to buy for 3 months and buy elsewhere the next day? It was blatantly a stall tactic so they can shop the price at other dealers. Do you know how many customers tell me they need their wife but then they go down the street and buy the same day? Again another stall tactic to shop the price. Do you know how many customers promise they will buy the car at some stupid offer, I get to that offer and they still back out? You guys seem to think that dealers make a gazillion dollars. We don't- right now the profit margins are ridiculous but under normal times, even a sticker deal (which used to be very rare) was maybe 2-4K profit. We consistently sold 30K cars that the store made a 1000 dollars on and I personally made 100-200 dollars...for 4 hours of work. And you might say that's decent per hour but in our business, you go through long droughts where you don't sell anything I'm not like the salespeople you guys complain about. I am extremely clear in my communication, I never promise a price I don't stick to, I don't lie about financing options, I don't lie about trade ins, I know my product very thoroughly and I'm extremely polite and friendly to my customer. I have a big book of repeat business. With that being said, most of the people in this comment section are exactly the people who used to come in and offer 4,000 dollars off on a 25K car...so we should work for nothing meanwhile you guys charge exorbitant profit levels at your job that are 20 times higher than mine. BTW car salesman are all 100% commission. When you come to a dealer, test drive, ask a million questions over a 2 hour period and don't buy, that's a big fuck you to us. That's the equivalent of taking up a servers time for 4 hours and not tipping at all

  • Teddyc73 As I asked earlier under another article, when did "segment" or "class" become "space"? Does using that term make one feel more sophisticated? If GM's products in other segments...I mean "space" is more profitable then sedans then why shouldn't they discontinue it.
  • Robert Absolutely!!! I hate SUV's , I like the better gas milage and better ride and better handling!! Can't take a SUV 55mph into a highway exit ramp! I can in my Malibu and there's more than enough room for 5 and trunk is plenty big enough for me!
  • Teddyc73 Since when did automakers or car companies become "OEM". Probably about the same time "segment" or "class" became "space". I wish there were more sedans. I would like an American sedan. However, as others have stated, if they don't sell in large enough quantities to be profitable the automakers...I mean, "OEMs" aren't going to build them. It's simple business.
  • Varezhka I have still yet to see a Malibu on the road that didn't have a rental sticker. So yeah, GM probably lost money on every one they sold but kept it to boost their CAFE numbers.I'm personally happy that I no longer have to dread being "upgraded" to a Maxima or a Malibu anymore. And thankfully Altima is also on its way out.
  • Tassos Under incompetent, affirmative action hire Mary Barra, GM has been shooting itself in the foot on a daily basis.Whether the Malibu cancellation has been one of these shootings is NOT obvious at all.GM should be run as a PROFITABLE BUSINESS and NOT as an outfit that satisfies everybody and his mother in law's pet preferences.IF the Malibu was UNPROFITABLE, it SHOULD be canceled.More generally, if its SEGMENT is Unprofitable, and HALF the makers cancel their midsize sedans, not only will it lead to the SURVIVAL OF THE FITTEST ones, but the survivors will obviously be more profitable if the LOSERS were kept being produced and the SMALL PIE of midsize sedans would yield slim pickings for every participant.SO NO, I APPROVE of the demise of the unprofitable Malibu, and hope Nissan does the same to the Altima, Hyundai with the SOnata, Mazda with the Mazda 6, and as many others as it takes to make the REMAINING players, like the Excellent, sporty Accord and the Bulletproof Reliable, cheap to maintain CAMRY, more profitable and affordable.
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