Consumers are Asking: Can Dealerships Charge Over MSRP?
On Amy Davis’ consumer series ASK AMY podcast, I was on the show to discuss car buying in 2023 and car dealers who are charging over MSRP.
Typically, Amy’s viewers and specifically local Houston consumers will send in questions about car buying and the big question on the block has been, “Can Dealerships Charge MSRP Markups?” and “Can Dealerships Charge Over MSRP?”
Here’s a breakdown of our podcast and where you can get some of the most asked about car buying related questions answered.
-
3:44
Why going into the dealership is the wrong way to go about negotiating car prices.
minute -
7:00
Don’t negotiate car prices at the dealership.
-
10:00
What to say when you call a dealership.
minute -
13:00
What if they tell you one thing and then something else when you get there.
minute -
15:30
How to negotiate a car in pieces. The right way.
minute -
18:00
What customers need to know about financing
minute -
21:00
Credit application do’s and don’ts
minute -
24:00
Dealerships that don’t allow outside financing
minute -
25:00
How to get a better interest rate for a new car
minute
Watch the podcast here
MSPR is the Manufacturers Suggested Retail Price
The manufacturer can suggest any number they want to. And although some manufacturers have asked dealership franchisees to not mark up their vehicles, they still do it. Amy reached out to Ford, Toyota, GM, and Hyundai for a statement. You can read their statements here: Can Dealerships Charge Over MSRP – KPRC2 Investigates
The manufacturer’s suggested retail price (MSRP) is the price that automakers recommend dealers charge for a vehicle. It includes the cost of the base model, standard equipment, and selected options. The MSRP is displayed on the Monroney Label, the window sticker on new cars.
MSRP serves as a guideline but is not binding. Dealers can adjust prices based on several factors, including demand and inventory levels. While MSRP provides a starting point in negotiations, it is essential to be ready for the final price to exceed it. Knowing the MSRP can empower buyers to negotiate more effectively.
Market Conditions and Dealer Markup
Dealer markup refers to the price increase over the MSRP set by dealerships. Market conditions often influence the extent of these markups. In times of high demand and low supply, such as when a new model is released or during economic volatility, dealers may apply significant markups.
The level of competition among local dealerships also plays a crucial role in determining dealer markup. When only a few alternatives are available, customers may have less negotiating leverage, resulting in higher final prices. Understanding these dynamics can help buyers plan their purchasing strategies more effectively.
Additional Dealer Markup and Protection Packages
In addition to standard dealer markup, many sellers add fees for extras like protection packages. These packages may include items like extended warranties, paint protection, or security features. Such add-ons can significantly raise the total cost of a vehicle.
These additional costs are often presented as beneficial, though their actual value can vary. Buyers should scrutinize these packages carefully and determine if they genuinely enhance the vehicle. It is possible to negotiate these fees or opt out of unnecessary add-ons to prevent overpaying.
Dealer Pricing Strategies
Dealerships have various strategies for setting car prices, particularly when it comes to pricing over MSRP. Key factors influencing these strategies include market adjustments and maintaining transparency with potential buyers.
Market Adjustment Factors
Dealers often adjust prices based on factors like supply and demand. During times of limited inventory, such as the chip shortage of 2021, elevated demand allows dealerships to charge premiums above MSRP. Another element considered is the popularity of certain car models, which can drive prices higher due to scarcity and increased consumer interest.
Economic conditions also play a part. For instance, during economic downturns, dealers might be more willing to negotiate prices closer to MSRP or even below to maintain sales volumes. On the other hand, a robust economy can lead to higher markups as purchasing power increases.
Transparency in Pricing
Transparency is an essential factor in fostering customer trust. Dealers should clearly display any markups over the MSRP on a supplemental sticker attached to the vehicle. This practice not only informs buyers but also aligns with consumer protection laws as highlighted in guidelines such as those about avoiding dealer markups.
Effective communication with buyers about pricing structures, including market adjustments, builds long-term relationships. Consumers value dealerships that are upfront about costs and willing to explain how prices compare to the original sticker price. Transparency can significantly influence purchasing decisions and brand loyalty.
Thus, dealerships that balance market needs with clear communication can maintain both competitiveness and customer trust in varying economic environments.
Dealerships have the ability to charge more than the Manufacturer’s Suggested Retail Price (MSRP), influenced by several factors. Consumers can negotiate to reduce these markups and need to be aware of their rights. The following answers address common questions on this practice.
Frequently Asked Questions
Are vehicle dealerships legally permitted to markup prices beyond the Manufacturer’s Suggested Retail Price?
Dealerships in the United States are legally allowed to charge more than MSRP. The price set by the manufacturer is only a suggestion; it’s essentially a made up number, and dealers can adjust it according to market demand and other factors. This flexibility allows them to cover operational costs or benefit from high demand situations.
What factors lead to dealerships charging more than the MSRP for new vehicles?
High demand and limited supply often lead dealers to increase prices above MSRP. For instance, during shortages, such as the chip shortage in 2021, dealerships marked up prices significantly. Economic conditions and unique features of a vehicle can also contribute to higher pricing strategies.
How can consumers negotiate to avoid or minimize dealer markups on new cars?
Consumers can research car prices, compare dealership offers, and negotiate firmly to reduce unwanted markups. Understanding incentives, discounts, and considering alternative models or less popular colors can be effective strategies. Patience and readiness to walk away are crucial in achieving favorable terms.
Do certain states have regulations affecting the amount dealers can charge above the suggested MSRP?
Most states do not have specific regulations limiting how much dealers can charge above the MSRP. However, certain states may have laws related to fair trade and consumer protection that indirectly impact excessive markups, ensuring transparency and fair practices in the transaction.
What is the typical range of dealer markups on new vehicles in the current market?
In current market conditions, the markup can vary widely. Some dealerships might add a few hundred dollars, while others might charge thousands more. Amy reached out to spokesman at Ford and Toyota for statements: https://www.click2houston.com/news/investigates/2023/01/23/kprc-2-investigates-can-dealerships-charge-over-msrp/
What rights do consumers have when confronting dealer fees and markups?
Consumers have the right to shop around and compare prices before making a purchase. They can also ask for a detailed breakdown of all fees involved in the purchase. If a fee seems unfair or excessive, consumers can question it and seek reductions or removal as deemed necessary.
