When do car dealers drop their prices

Emily Stewart covers business and economics for Vox and writes the newsletter The Big Squeeze, examining the ways ordinary people are being squeezed under capitalism. Before joining Vox, she worked for TheStreet.

This story is part of a group of stories called

It’s a wild time out there in the car market. Wild in a good way if you’re a car dealer trying to sell a car. Wild in a less good way if you’re a consumer looking to buy, which is the spot Richie Iglar recently found himself in.

In the fall, he and his wife were in the market for an SUV and made an appointment at a Mercedes dealer in New Jersey. The salesman was “super nice” throughout most of the process, Iglar explained … until it came to the price. The dealership wanted to charge them $20,000 over the manufacturer’s suggested retail price (or MSRP).

“We were both shocked and politely declined, saying while we would like to have the car, we can’t justify over-spending for it,” he said. Iglar emailed another dealer trying to get a sense of what their markups were, and a week later they responded they were adding on $15,000. He decided to put a pause on buying. “I can’t justify spending that much over sticker.”

Iglar is hardly alone. Tens of thousands of dollars over the sticker is something of an outlier, but across the country, people on the hunt for a new vehicle are being met with significant dealer markups, thanks to supply shortages and high consumer demand. New car dealers have the upper hand at the moment, and some of them are willing to use it.

vox-mark

Sign up for the newsletter The Big Squeeze

We're all being squeezed by capitalism. Emily Stewart explains how.

Thanks for signing up!

Check your inbox for a welcome email.

Email (required)

Oops. Something went wrong. Please enter a valid email and try again.

By submitting your email, you agree to our Terms and Privacy Notice. You can opt out at any time. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. For more newsletters, check out our newsletters page.

Cars are still selling, on average, for more than the manufacturers’ sticker prices, but at least they’re closer, according to analysts. And a number of car brands are now selling for below sticker price, something that was once normal but that had become rare over the past year or more.

For the first six months of this year, new car prices averaged $700 over the manufacturer’s suggested retail price, or MSRP, according to Ivan Drury, an analyst with Edmunds.com. Over the past few months, though, prices have fallen to only about $230 over MSRP, on average, according to Edmunds.

Some car brands are still going for much more, though. Land Rover models, on average, still sell for $4,500 over sticker price while Kia models sell for about $1,600 over sticker price. Hondas are selling for about $1,360 over their suggested retail price, on average, according to data from Edmunds.com.

A car dealership Ann Arbor, Michigan, on November 8. Car dealers have more inventory to sell.

In general, buyers shopping for mainstream, non-luxury vehicles tend to pay more over sticker than luxury car buyers, according to analysts at Cox Automotive. While luxury car buyers, who make up about 17% of the market, still pay higher prices, overall – $66,000 compared to an average of $44,000 for non-luxury brands – they were, at least, paying closer to sticker. The slight difference in price mark-ups may reflect the fact that non-luxury cars, in many cases, have appointments and features similar to those in luxury cars, said Cox spokesman Mark Schirmer. Dealers are now simply demanding that customers pay for what the product actually provides rather than a lower price the manufacturer has dictated. He added that luxury car dealers may place more value on the customer’s experience and, so, be less aggressive on pricing than mainstream dealers.

Overall, Cox’s auto pricing analysts show buyers paying $527 over sticker on average. That’s higher than what Edmunds claims but, again, lower than earlier in the year. (The difference has to do with methods of analysis and specific data sources, according to spokespeople for both companies.)

Dealerships asking customers to pay over sticker price for a car is normally considered unusual, something only done for particularly desirable or hard-to-find models like high-performance sports cars. For the past 17 months, though, according to Cox Automotive, vehicle inventory shortages have enabled car dealers to push prices above MSRP. Unlike most things, car prices are usually individually negotiated by dealers leading to broad price flexibility. Manufacturing slowdowns caused by supply chain problems – car companies have had trouble getting some parts, like computer chips – have meant few cars are available to sell and that’s given car dealers enormous negotiating power.

Some manufacturers, like Ford and Honda, have noticed customers’ willingness to deal with low inventories, higher prices, and longer wait times to get their vehicles. Executives from those companies have said they don’t plan to ever go back the days when dealer lots were filled with cars and SUVs waiting to be sold.

While still tight, especially for some manufacturers like Honda, vehicle inventories are at their highest since June of 2021, according to Cox.

“If consumers are flexible on make and model, it will be possible to find a good deal at year-end sales events,” said Rebecca Rydzewski, for Cox Automotive.

Some big SUVs like the Lincoln Navigator and Volvo XC90 are selling for relatively large discounts of $1,400 and $1,900 below sticker, on average, according to Edmunds. Volvo and Lincoln, in general, are the two car brands offering the biggest discounts from MSRP, according to data from Edmunds. Buick is another brand offering fairly big discounts, according to Cox.

The grille of a Kia Telluride sports utility vehicle (SUV) during the 2022 New York International Auto Show (NYIAS) in New York, U.S., on Wednesday, April 13, 2022. The NYIAS returns after being cancelled for two years due to the Covid-19 pandemic.

Kia, once the 'value' brand, now has the biggest price markups

In terms of new car loans, customers can now get fairly good interest rates on shorter-term loans of 36 to 48 months, said Drury. Those shorter loan terms result in higher monthly payments, of course, but with the benefit that buyers can save thousands of dollars in interest, especially with rising interest rates. The Federal Reserve is expected to continue raising its benchmark rate which can, in turn, push up interest rates on things like auto loans. An individual’s own credit rating has the biggest impact on how much auto lenders charge, but there are still good financing deals for the well qualified. according to Bankrate.com. Offers of 0% interest rates have increased sharply at the beginning of this month, according to a report from Cox Automotive.

Used car prices are also starting to come down a bit, something that could prod new car shoppers back into the market, said Drury.

“Consumers who have been waiting on the sidelines watching their trade-in appreciate will now start to feel the need to act if they want to extract maximum trade-in value from their vehicle,” he said.

With inflation and high gas prices, owners of cheaper, fuel-efficient models will get the best values for their trade-ins, Cox Automotive analyst Brian Finkelmeyer wrote in a recent report. Those trading in bigger, more expensive vehicles could be disappointed, though.

“Used-car inventories across the country are currently bloated with expensive used merchandise priced over $35,000,” he wrote.

It will be a long wait before shopping returns to the way it used to be, with buyers able to negotiate steep discounts on most vehicles, said Edmunds’ Drury. That won’t start happening until the end of 2023 or even into 2024, he said.

What is the cheapest month to buy a car?

What day of month is best to buy a car?

What time is the cheapest to buy a car?

What should you not say to a car salesman?