The new car dealer markup spree may be over. Last month, the average car sold for under sticker price for the first time in nearly two years.
But, while it was here, it had a meaningful economic impact on the country. A new report from the Bureau of Labor Statistics (BLS) explains, “During the recent economic expansion associated with the recovery from the COVID-19 pandemic, price increases for new cars and trucks contributed moderately to overall consumer inflation.”
Related: How to Avoid Dealer Markups in 2023
Less Than 1% of Total
BLS researchers found that “the transmission of dealership markups to consumer prices contributed roughly 0.3 to 0.5 percentage point to the overall 15.6-percent increase” in the consumer price index (CPI) – a major measure of inflation – from December 2019 through December 2022.
AutoNation, the company that operates more dealerships than any other, saw its average markup rise from 5.1% of the car’s price in the first quarter of 2019 to 14.6% in the fourth quarter of 2022, study authors found.
Dealers: Car Value Went Up Everywhere
The car dealership industry, unsurprisingly, doesn’t like the conclusion. A spokesperson for the National Automobile Dealers Association tells the Wall Street Journal, “By that logic, every consumer who sold or traded in a used vehicle for more than its Kelley Blue Book value profiteered off that sale and thus bears responsibility for contributing to consumer inflation.”
Dealerships also bear limited responsibility for the laws of supply and demand. The worldwide supply of new cars plummeted during the pandemic amid a global shortage of microchips that left automakers unable to build many new cars. Dealers had to pay their employees and their bills with the profits from fewer sales.
Buyer, Automaker Backlash Grew
But markups were the source of controversy. Automakers criticized their own dealer networks, threatening to withhold cars from dealers that added egregious markups. Studies showed that shoppers blamed dealers for high prices, and many vowed not to return to the dealership they bought from as prices peaked.
A Little Perspective Is In Order
We’d encourage readers, though, to keep their rage in check. If dealer markups contributed as much as half a point to a 15.6% CPI increase, other sources were responsible for 15.1 or more. Gizmodo notes, “In December 2022, egg prices soared 60% year-over-year, while food inflation overall saw a 10.4% increase year-over-year.”
And, while markups on in-demand vehicles remain, the average car now sells for below its listed price.
