These markups are insane, and I wonder if anyone actually gets anywhere near paying them. I don’t really see the point since for those markups you can just get a nicer car. Unless car collectors really are that out of touch and flush with cash.
Unfortunately lots of people are happy to pay the markups. Some subreddits, including /r/rav4prime , will ban you for speaking negatively about dealer markups or those who pay them. Here's their hilariously condescendingly worded rule 4:
> No demonstrations of economic illiteracy. No negativity regarding markups. You are encouraged to post about current prices and markups and your dealership experiences, but please DO NOT express moral value judgments about markups or their absence (except those involving bait-and-switch).
I’m pretty sure most of the car subreddits are managed by dealership employees who benefit from markups via increased commissions. The fact that they make reference to complaining about price markups as economic illiteracy increases my confidence in this hypothesis.
I’m tempted to go make a post about rent seeking, deadweight loss and price collusion in oligopolistic conditions but somehow I feel my economic literacy will be found wanting.
> complaining about price markups as economic illiteracy
I mean, I hate dealer markups as much as the next person, but it is true. It's just supply and demand. Dealers wouldn't charge crazy markups if enough car buyers weren't out there paying them; and like another commenter said, in these supply-limited conditions, if price wasn't able to rise to a market-clearing level, you'd have shortages instead, and people would complain about that.
> rent seeking, deadweight loss and price collusion in oligopolistic conditions
Can the car market, both at the manufacturer level and the dealer level, really be described as an oligopolistic one, outside of isolated examples (e.g. you live in Elko, NV and there's only one Ford dealer within 100 miles)?
I don’t know if it’s a complaint, more being awe struck by others irrational behavior and how far they’ll go by overpaying. Censoring that observation is a little weird and does seem to favor the dealers grip on a subreddit.
I posted a very bad dealership experience I had to both /r/Kia and /r/askcarsales. The Kia thread had more than a hundred comments, 99% supporting me and my decision to shop elsewhere. The /r/askcarsales commenters immediately started making up scenarios in favor of the dealerships, assuming I was mean, condescending, arrogant; basically all of the characteristics the salesman actually demonstrated, they tried to pin on me.
The markups are a function of demand and are totally normal and expected market behavior. People who complain about it are almost exclusively people who don't understand how markets work. It's tiring listening to uneducated people constantly coming through and complaining.
If dealers weren't marking up the price, there would be no car at all available for sale. People mistakenly think that if there was no markup, they could buy the car at MSRP. No. There would be no supply at all. They would be sold out and you'd be on a waiting list at best.
This is the same dynamic as GPUs of 2021 and perpetually with concert tickets (venues will always have fewer seats than the number of fans in the area).
> The markups are a function of demand and are totally normal and expected market behavior. People who complain about it are almost exclusively people who don't understand how markets work. It's tiring listening to uneducated people constantly coming through and complaining.
1. I'm not uneducated or economically illiterate.
2. A 50% markup on an economy car, even in an upgraded trim, is absurd. This is not even remotely representative of "market conditions".
3. Inflation + supply chain issues provided a pathway for greedy businesses to justify price-gouging customers. There's a difference between supply/demand driving pricing and price-gouging, and it's pretty obvious the direction this went in the car market. There's a /huge/ difference (not just in dollars, but in percentage of MSRP) between a $5k or even $10k markup and a $25k markup on a car with a $50k MSRP. This is especially absurd when you consider MSRP went up across the board due to inflation at the same time. This is dealer's just trying to get an extra slice of pie.
Maybe don't boot-lick price-gougers and learn how supply/demand /actually/ works, and consider not calling people who understand economics "uneducated".
But the rub is that people are actually paying these marked up prices...
Complain all you want about how obscene, unethical, malevolent, greedy, gouged, or deranged these sellers are, but the fact of that matter is that they are making sales at those prices. The market is indeed supporting them.
I'm sorry, but if cannot grasp that something is worth what someone will pay, you do not in fact have a good economic grasp. If nothing else, at least be pissed at the buyers who are willing to pay those prices.
I have to agree, at least to a point. Nine times out of ten a person buying a car doesn't need it right away. Therefore if they don't like the mark-up they can just come back later when the market changes. If everybody did that then demand would go down and then so would the mark-up.
If you think my numbers are made up, take the effort to refute them.
Are you saying 9/10 people who buy a car are buying it because they got in an accident? There were 13.7 million new cars sold in 2022. I doubt you'll find 13.7 totaled cars in 2022.
And it still stands to reason that if somebody got in an accident, why would they turn around and buy a new car with a big mark up and massive waiting period when they can just walk onto a lot and get a good used car for much less?
> If you think my numbers are made up, take the effort to refute them.
So I'm required to make effort to refute numbers, but you're not required to make effort to substantiate them? Huh...
> Are you saying 9/10 people who buy a car are buying it because they got in an accident?
I never said any such thing. I just think the number is higher than 1/10.
> There were 13.7 million new cars sold in 2022. I doubt you'll find 13.7 totaled cars in 2022.
I wouldn't expect to. But I'd definitely expect the number to be over 1.37 million.
Hurricane Ian alone resulted in 400,000 vehicles damaged[1], and that was just one environmental event, before we look at collisions.
Washington State (with 2.3% of the US population) reported 104,000 collisions [2]. So we might extrapolate to somewhere in the order of 5 million collisions a year. Indeed, that number is probably closer to 6 million [3].
So we're already approaching 7 million vehicle 'incidents' a year including collisions and one 'act of god'. I think it's reasonable to set a number of 8 million when you factor in all the other tornados, hurricanes, hail storms and others.
It's hard to determine what fraction of those are total losses. However...
US insurers paid out $173B in losses. [4]
$173B across 8 million incidents is around $21,000. Now in a good number of those losses there are 2, or more vehicles involved, which increases the number some. But even if we assume that say 50% of collisions involved another vehicle, then we have an an average auto loss of $10K per vehicle per collision.
Most insurers work on a 70/75 rule for total loss, that is, if the cost to repair the vehicle exceeds 70 or 75% of its value, it is written off.
So if your collision results in "only" a $2-3K repair bill (which can be cheap these days), then you can see that there's a notable amount of payouts on total losses. (It's also hard to get a value of the average vehicle on the road in a given year - insurers are the only ones who'd likely be able to supply that information, and it would be buried somewhere in actuarial tables more than anything).
It's not 9/10. Nor did I ever say it was.
But if I had to make an estimate, I'd say it was closer to 2 or 3/10.
As dealer inventory starts to pile up, car prices are finally coming down. Anyone paying a markup in today's market just isn't doing their homework.
I've yet to pay MSRP or beyond for a car and I don't intend to start now!
Isn't it illegal in many/most states for a manufacturer to sell direct, not through a dealership? I read something like that when Tesla was starting to sell cars. It didn't sound like a "true" free market.
Very few things are in a "true" free market. But considering cars are (or should be, at any rate) substitutable goods, for most people, it should be pretty close to a free market.
I live in a small city (population under 200k), and there's five Ford dealerships, five Chevy, four Toyota, etc. So it's certainly not a free market by any definition if you want a very specific car, but if you want a certain category of car, the forces of competition will work for you.
I'm by no means an expert on cars, but my impression is that they're one of the worst cases of a class of product that should be substitutable, but isn't, because there probably is only one or two makes & models that are close to fulfilling one's list of requirements, and if those are not available, it becomes a painful exercise of letting go.
Unless we consider begrudgingly buying an option because you need something to be buying a substitutable good. Which I guess is fair in some sense, but makes it feel like buying things is a loser's game.
Dealers being able to insist on those huge markups ended a few months back. Overall, US auto dealerships now have more cars in stock than usual. Don't take those markups seriously.
