Vehicle markups are widespread, even amid improving vehicle inventory. While charging over MSRP may boost profits in the short term, there may be long-term consequences to the practice as well, according to new research.
In a recent report from Automotive News, which cites a survey from Gfk, 34 percent of car buyers paid vehicle markups for a new car last December, leaving a bad taste in the mouth of consumers.
Per senior vice president of consulting at Gfk, Julie Keener, who spoke during a webinar last month, brands are being negatively impacted by the practice of vehicle markups, even though brands do not have direct control over dealer pricing. As the survey indicates, 27 percent of customers who paid over MSRP said they would never buy that brand of vehicle again. What’s more, 31 percent of customers who purchased a vehicle over MSRP said they would advise other buyers to avoid the dealership, while 29 percent said they would never use that retailer for service.
According to Kenar, customers who paid sticker price tended not to have the same negative outlook as a customer paying vehicle markups. However, those customers that did pay over sticker tended to have a substantial increase in negative feelings. Paying over sticker price amid stabilizing vehicle inventory could also paint a negative picture.
The Gfk survey also indicated that some demographics paid more than others, with 43 percent of millennials charged over MSRP, the largest proportion of any age group studied. Nearly 50 percent of households earning more than $150,000 also shelled out extra for vehicle markups.
As GM Authority covered previously, a variety of GM dealers have charged well above sticker price for certain vehicles in the last few years, sometimes more than doubling the original MSRP. Popular models like the C8 Corvette, Cadillac Escalade, Cadillac Lyric, and GMC Hummer EV have all been listed with substantial vehicle markups, prompting GM to send a letter warning dealers not to engage in the practice of applying large market adjustment fees. According to GM, “any unethical sales practices or broker and activities that undermine the integrity of GM” or its brands would result in consequences, including rerouting allocation for popular models to different storefronts. However, in a recent GM Authority poll, 78 percent of poll respondents indicated that the warning did not fix the vehicle markups issues whatsoever.