Based on all other comments I have an unpopular opinion: I think this is fine. If 10 people want to buy 1 car, how do you choose which person gets it? You raise the price until there's only 1 person. How else would you do it?
The concern is not that. Yes increase price if demand is high and supply is low.
However, they play those games where they advertise one price but actually have tons of mandated fees when you show up to purchase. So it makes shopping around very hard, you can’t compare between 2 dealerships as even calling them won’t give you that info. It’s predatory and anti consumer.
This is literally the process of purchasing a vehicle in 2022. I needed a car (My old one had broken down after 9 years of service)
Advertised price was 24,500. I walked out totaling 30,000 after all the bullshit and that was with a 4000 downpayment. I left an honest review on Google Reviews about how misleading and unhappy I was with that dealer in particulars process but I loved the car so I just sucked it up.
When we bought my wifes car I had a much better experience. Some dealerships are just sleazy, and if you need the car you need the car.
This is pretty much 98% American and it's everywhere. I took a lyft cab to O'hare this morning. The quoted ride was $28. The final price was $38. The itemized list was too long to read.
> they advertise one price but actually have tons of mandated fees when you show up to purchase
I had a similar experience booking a hotel room recently. Despite advertising a rate of $x, when I'd click through to complete the booking, towards the end of the process every single one would tack on a mandatory "service fee" of somewhere between $40-80. It seems to me to be a way to keep their room rates artificially lower to stay competitive on the price comparison websites.
(Maybe this has been a thing for a while - I haven't booked a hotel in years)
The market is SO inefficient. While you’re right in describing the principles of supply and demand, the reality is that buying a car should be 10x simpler and the price should just be the price. No games, no haggling, no BS add-ons that increase dealer profits. Retail auto is due for a wake up call, and I sense it’s happening right now. You wouldn’t need markups to make extra profit if the cost infrastructure associated with selling cars was lower than it currently is.
Tesla is leading the way today (somewhat painfully in some areas) but they're not the first to try fixing this. GM's Saturn tried to make buying simpler in the 1990s and surely there were other previous examples, too.
There's plenty of dealerships who have historically had simple purchase processes with standard no haggle pricing but often buyers have to do extensive research in order to find such dealerships.
The market is inefficient because dealerships form a cartel, divvy up the geographical areas where they operate and don't allow any competition there. If it was an actual market, carmakers would sell off cars to dealers (e.g. at mega-auctions), who can set up wherever they want (or sell online), and all the games, haggling etc. would disappear.
And to be clear, consumers shouldn't have to negotiate for hours to try and get a "fair" price during "normal" market conditions.
The current "markup" phenomenon is the same as the prior experience (pre-pandemic) where OEMs intentionally subsidized the purchase of their vehicles well below MSRP, and savvy customers could negotiate thousands off a car deal. It's mind boggling to me that we allow for such an inefficient market to perpetuate! 100 years of franchise dealerships is enough! Time for business and consumers to wake up and enact change.
Conditions may be different now, with the internet at all, but the fact is this has been tried a number of times by individual dealers, and at least in one very large scale circumstance that I can recall - the now defunct Saturn division of GM. Saturn famously touted fixed, non-negotiable sales prices as a feature of their vehicles, part of the total package of the car similar to its warranty and so on.
Even with all of the might of GM behind it, and with the cars themselves having a distinct position in the market with a few unusual features no other brand had, such as polymer body panels that were lightweight, rust proof and easy to repair (by simply replacing entirely), Saturn only lasted a few years before folding.
I was selling cars myself for a few months during their peak, and recall that they mainly got used as a rhetorical backstop by customers who would bring in an invoice for our vehicle (printed out from edmunds.com, which had just barely become a thing at the time), and argued that they should pay some absurdly small fixed number ($100, $300, possibly $1000 if they were buying an NSX, our "halo" vehicle) over invoice to get a fixed price like saturn.
This was a couple years before dealerships had organically responded to the internet by adding all sorts of hidden costs that do not show up on an invoice to the base price (in addition to the usual ones) so unlike today the invoice was literally our invoice price. But they were not there to buy a Saturn they were there to buy a different brand of car.
This works fine for unfinanced products, but when financing enters the picture, it becomes a "who is the most willing to take on debt" contest. People who can't think ahead win these, the prices are driven up for everyone else, and nobody has a good time in the long term.
Well yeah, if you want as much money for the car as possible, then you'd do it like that. Personally when I sell stuff second-hand (which tends to be cars, computers, instruments and various accessories), I sell it to whoever is first and closest, in that order.
Right. And I don't think we should fault dealers for wanting to make as much money as possible. They're a business after all.
I usually do the same when I sell stuff second-hand because my priority is getting rid of it as fast as possible, not to make the most money. Since dealers have very limited inventories these days, they should take more time to get a better price.
I also think it is precisely within the rights of the dealership. That’s how it is supposed to work.
Similarly, I also love that this website exists as a consumer, to provide balance to the market and better distribute demand (keeping prices overall lower).
Generally, I would agree with you...let the market decide the price. But, car dealers have successfully "cornered the market" with state franchise laws. It is not a competitive market so it won't operate normally.
So much is "wrong" with the dealership model relative to a competitive market I don't even know where to start. But, I do believe over time the franchise laws and dealer cartels will change dramatically. We're seeing that start to happen now with Tesla's model and Ford is creating a new model that looks a lot like Tesla's. Some states, looking at you TX, will continue to protect the local dealers cause the dealer associations donate a lot of money to state politicians but the tide will eventually turn...at least I think it will.
American society is structured such that a car is considered more or less a requirement. Is it okay to charge the max people will possibly pay for other requirements of living like medicine? Martin Shkreli Was universally loathed for that.
Dealers aren’t supposed to charge extreme markups any more Than they are supposed to give cars away for free. They do it because right now they can, but that doesn’t make it moral or American. It is just greed, which is often waived off as “how capitalism is supposed to work”. It’s just greedy usury because they can get away with it.
That’s not what’s happening though. Dealers are artificially limiting supply to induce that sort of logic. They have massive lots of cars parked here in staging areas yet if you check their in stock inventory they quote lead times and wait lists. Surprise though, they have plenty they’re just a bunch of liars taking advantage of the situation.
The other issue is the classic bait and switch they do. They’ll market one price online but once you’re in person suddenly that price is marked up 15k.
The solution? Remove dealers from the equation and let the manufacturers sell directly.
I don't think the process of buying a new car is efficient at all. And I'm not defending the dealership system either. I'm just saying they're acting rationally, and that the markups don't shock me.
It's called an allocation strategy[0], and what you describe is the "market" one. There's also queues / lines and lotteries, for example. In a line system, there's a first come first served principle, and a lottery consists of people signalling their intent to buy, and then the buyers are selected randomly from that pool.
how about you sell it at the listed price to the first who comes in to sign the contract?
Maybe those who were too late will come back and be quicker to decide next time, because they think you are fair.
If you make it all about who has more money, they'll go to another dealer.
There's no shortage of them.
Imagine if any store did that: you go to an Apple store to buy a new iPhone, there are 20 people in front of you. Are you ready to outspend some of them?
Hypothetically, if I were your competitor and you adopted this policy, what would stop me stationing an employee with purchasing power at your door and just being the first one to buy every car as it comes into your lot, taking it home and then marking it up to the actual market rate?
Hardly seems fair to people who work long hours to feed their family and don't have the luxury of time to constantly try to scoop up the available vehicles. Plus, the ones who do have the time will recognize the obvious, easy money to be made in re-selling vehicles they purchase.
How do you account for dealers which sell for $0 above MSRP but then include a non-negotiable $700 "paint protection" service?
As a crowdsourced site, you'll get a ton of reports that a particular dealership has no markup and few if any reports from people who have actually been far enough into the purchase process to discover these hidden markups.
Great point (I’m the Zach Shefska referenced in the article), and have been working in this space to advocate for consumers. Two things:
1) new FTC proposed rules (which are open for public comment!) would ban the practice of “surprise” add-ons at the dealership.
2) a lot of folks that contribute to markups (and other crowdsourced initiatives) go all the way to getting a buyers order and then report those add-ons when they show up then.
The FTC (or congress) should mandate this for everything. The price for something should be the final, out the door price. It's amazing to travel in the UK and buy something at the supermarket. If it says ￡1, then that's the cost at the register.
Right now in the US, there's resort fees, booking fees, regulatory compliance fees, and on and on that all get added during checkout. It's so deceptive.
Hey, cool to see you post on HN. I started following you and your dad on YouTube during the pandemic.
It's been fascinating how you've (very intentionally) built your online following. Between social media vectors, the website, forums, paid tier access, pricing tools, and now insurance, you have quite the operation.
Other folks on HN should take notes on what you've accomplished so far.
Right now we are currently accounting for both markup and mandatory add-ons as a total in the same numerical value. If it's 0 markup but $2995 for N2 filled tires then the total markup is $2995.
We are finding the opposite to be true. Most of our posters are folks that have actually spent at least a little time dealing with a dealership and are reporting the numbers back to us. Our hope is that as we get more postings the false or innacurate postings will be drowned out by the accurate quality ones.
That's exactly what I did. I had my checkbook and was there to put in a deposit when I found out. Here's an abridged version of how the conversation went:
> Me: I don't want that and won't be paying for it.
> Them: Well we do it for all new cars and you can't have us not do it.
> Me: Well then you can either eat the cost of this unnecessary "service" or sell me the car for $700 under MSRP to make up for it.
> Them: Sorry, we can't do that.
I walked out and they haven't called me back to say they were bluffing. Meanwhile, I'm working with a different dealership now.
On Saturday, my friend traded in his 2017 GMC Canyon with 86k miles on it for $19k.
He had paid $25k for it new in 2017. The dealership now has it listed for used sale for $28,995.
If they're turning a $10k profit on a 5yo car driven pretty hard for 5 years and selling it above what it cost when it was new, I have no doubt they're marking up the new ones even higher!
Yeah, the one silver lining of the crunch. When I just bought a new car, I traded in a 2011 Toyota 4Runner with 75K miles and a caved in rear hatch and some non-obvious mechanical problems. Got $15K for it. Was really shocked. Sort of made up for the fact that I pretty much paid sticker plus a couple add-ons.
TBH, the only real issue I have with this is dealers capturing all the markup - this is happening because paying those prices gets you a new car now, and not in 12mo when the supply shortage is relieved.
I'm not exactly sure how these things work, but if the manufacturer is forbidden from selling direct and dodging the dealer, that's a problem. If the manufacturer could, but is choosing not to, well, that's on them - They are simply transferring the PR hit to the dealer (and giving up the profits, which sounds dubious)
Pretty good example of trading one thing for another though! Pay up now for a car now, or wait and save your money for a car that isn't marked up. It's kind of funny seeing corporations try to apply price controls, rather than the government :)
It's not a supply-shortage, it's inflation. It's just that some businesses are yet to incorporate the markup into their costs. Once that's done, it'll be distributed everywhere equally.
I agree and personally it'll be good to see people reducing their consumption. The supply shortage is just a means to get us closer to meeting 2030 goals
Comments in this thread remind me why it’s so efficient to use the auto buying program from Costco. You deal with the fleet managers instead of regular sales staff and all required/optional costs are upfront and non-negotiable.
If you are an expert haggler you can likely negotiate a better price than what you get through Costco, but for the rest of us it gets you 90% of the way for very little effort.
I tried to use Costco Auto program when I bought a car in late May of this year (2022). Once the dealers heard I came from Costco Auto program, they acted disinterested even though they are part of Costco Auto program (e.g., Al Hendrickson Toyota). Plus, there is no Honda dealer that is part of Costco Auto program within 180 miles of where I live (I live in just a little north of Miami). I went to Mazda of North Miami which supposedly is part of Costco Auto Program, and guess what, they gave me $500 discount and they said that's all I get as part of Cost Auto (but the car was like $4000 above MSRP).
I hope that when I purchase my next car, I'll never have to deal with dealerships and can buy it off online. I'm happy to pay 6-10% commission for dealership as long as I don't have to deal with haggling and being pushed to buy shady insurance and other add-ons that I don't need.
When dealer's first question is how much am I willing to spend monthly rather than talk about final price of the vehicle he can just F off and I won't be returning there.
They even try to convince you the total price is irrelevant, only monthly payment is what matters
The last time we bought a car, the salesman tried the 4 square nonsense. I declined to look at monthly payments and was evasive about how much I wanted to spend. I just said, "as much as I need to, to get the car I want at a decent price, which according to my research should be X" or "my monthly budget is not your concern, I am willing to pay X for this car".
Once I had the final price on the car, and it was very comfortable to me, they STILL tried to get me to sign a 'contract' using the four-square numbers. Just monthly payment amounts, no length or other information.
They literally wouldn't move forward until I signed it. Like, wouldn't let me see the manager to finish the deal. The price was so good on this one, though, that I didn't want to just walk out.
So I took a black sharpie and crossed everything out, wrote the total price, and signed it at the bottom.
It wasn't a legal document. It was literally just a sheet with their handwriting on it saying "monthly price agreement". Nothing finance related, no legal jargon anywhere.
Ridiculous. Just absolutely ridiculous, and for what purpose?
Ha ha, yeah, I remember a green sales person trying to use the four-square model on me. I looked at him and said "I'm paying cash" which confused him to no end. He had to go see his manager. In the end I didn't buy a car from that dealer. Where the cash comes from is none of their business; i.e., loan or something else.
They got upset last time when they wanted my social right off the bay and I declined saying I would be paying cash. I’m now driving a Model Y I paid for in cash, so done with dealers.
I've contributed a few dealerships around Illinois.
Wife is looking for a Chevy Bolt after her car was scraped in an accident (the other person's fault).
Every dealership other than a single local one is charging between $5K and $10K "market adjustment".
I'm sure many of these are just charging the markup no matter what. But I have a theory many charge this if you're from out of town and won't be paying them later for maintenance services. This the local dealership that seems to be the odd one out not charging this.
Readit News
However, they play those games where they advertise one price but actually have tons of mandated fees when you show up to purchase. So it makes shopping around very hard, you can’t compare between 2 dealerships as even calling them won’t give you that info. It’s predatory and anti consumer.
Advertised price was 24,500. I walked out totaling 30,000 after all the bullshit and that was with a 4000 downpayment. I left an honest review on Google Reviews about how misleading and unhappy I was with that dealer in particulars process but I loved the car so I just sucked it up.
When we bought my wifes car I had a much better experience. Some dealerships are just sleazy, and if you need the car you need the car.
I had a similar experience booking a hotel room recently. Despite advertising a rate of $x, when I'd click through to complete the booking, towards the end of the process every single one would tack on a mandatory "service fee" of somewhere between $40-80. It seems to me to be a way to keep their room rates artificially lower to stay competitive on the price comparison websites.
(Maybe this has been a thing for a while - I haven't booked a hotel in years)
Isn't that illegal? They are advertising for non-existent product.
Ford seems to be testing the waters about how to simplify the car purchase process: https://fordauthority.com/2022/05/ford-dealers-will-likely-s...
There's plenty of dealerships who have historically had simple purchase processes with standard no haggle pricing but often buyers have to do extensive research in order to find such dealerships.
The current "markup" phenomenon is the same as the prior experience (pre-pandemic) where OEMs intentionally subsidized the purchase of their vehicles well below MSRP, and savvy customers could negotiate thousands off a car deal. It's mind boggling to me that we allow for such an inefficient market to perpetuate! 100 years of franchise dealerships is enough! Time for business and consumers to wake up and enact change.
Even with all of the might of GM behind it, and with the cars themselves having a distinct position in the market with a few unusual features no other brand had, such as polymer body panels that were lightweight, rust proof and easy to repair (by simply replacing entirely), Saturn only lasted a few years before folding.
I was selling cars myself for a few months during their peak, and recall that they mainly got used as a rhetorical backstop by customers who would bring in an invoice for our vehicle (printed out from edmunds.com, which had just barely become a thing at the time), and argued that they should pay some absurdly small fixed number ($100, $300, possibly $1000 if they were buying an NSX, our "halo" vehicle) over invoice to get a fixed price like saturn.
This was a couple years before dealerships had organically responded to the internet by adding all sorts of hidden costs that do not show up on an invoice to the base price (in addition to the usual ones) so unlike today the invoice was literally our invoice price. But they were not there to buy a Saturn they were there to buy a different brand of car.
The pattern seems to be: if you create value, you get optimized away. If you buy, screw things up to create scarcity, and flip, you make bank.
I usually do the same when I sell stuff second-hand because my priority is getting rid of it as fast as possible, not to make the most money. Since dealers have very limited inventories these days, they should take more time to get a better price.
Similarly, I also love that this website exists as a consumer, to provide balance to the market and better distribute demand (keeping prices overall lower).
So much is "wrong" with the dealership model relative to a competitive market I don't even know where to start. But, I do believe over time the franchise laws and dealer cartels will change dramatically. We're seeing that start to happen now with Tesla's model and Ford is creating a new model that looks a lot like Tesla's. Some states, looking at you TX, will continue to protect the local dealers cause the dealer associations donate a lot of money to state politicians but the tide will eventually turn...at least I think it will.
American society is structured such that a car is considered more or less a requirement. Is it okay to charge the max people will possibly pay for other requirements of living like medicine? Martin Shkreli Was universally loathed for that.
Dealers aren’t supposed to charge extreme markups any more Than they are supposed to give cars away for free. They do it because right now they can, but that doesn’t make it moral or American. It is just greed, which is often waived off as “how capitalism is supposed to work”. It’s just greedy usury because they can get away with it.
The other issue is the classic bait and switch they do. They’ll market one price online but once you’re in person suddenly that price is marked up 15k.
The solution? Remove dealers from the equation and let the manufacturers sell directly.
If you think that the process of buying a car at retail is the market working efficiently, your expectations are incredibly low.
I don't think the process of buying a new car is efficient at all. And I'm not defending the dealership system either. I'm just saying they're acting rationally, and that the markups don't shock me.
Just like the market can react to markups, it can also do so for markdowns.
[0] http://www.econoclass.com/allocation.html
Maybe those who were too late will come back and be quicker to decide next time, because they think you are fair.
If you make it all about who has more money, they'll go to another dealer.
There's no shortage of them.
Imagine if any store did that: you go to an Apple store to buy a new iPhone, there are 20 people in front of you. Are you ready to outspend some of them?
Sell to first buyer, easy.
Deleted Comment
Then it’s bullshit that will lead to violence.
How do you account for dealers which sell for $0 above MSRP but then include a non-negotiable $700 "paint protection" service?
As a crowdsourced site, you'll get a ton of reports that a particular dealership has no markup and few if any reports from people who have actually been far enough into the purchase process to discover these hidden markups.
1) new FTC proposed rules (which are open for public comment!) would ban the practice of “surprise” add-ons at the dealership.
2) a lot of folks that contribute to markups (and other crowdsourced initiatives) go all the way to getting a buyers order and then report those add-ons when they show up then.
If you’re interested in the FTC rules, read here: https://joinyaa.com/guides/ftc-dealer-rules/
Right now in the US, there's resort fees, booking fees, regulatory compliance fees, and on and on that all get added during checkout. It's so deceptive.
It's been fascinating how you've (very intentionally) built your online following. Between social media vectors, the website, forums, paid tier access, pricing tools, and now insurance, you have quite the operation.
Other folks on HN should take notes on what you've accomplished so far.
Right now we are currently accounting for both markup and mandatory add-ons as a total in the same numerical value. If it's 0 markup but $2995 for N2 filled tires then the total markup is $2995.
We are finding the opposite to be true. Most of our posters are folks that have actually spent at least a little time dealing with a dealership and are reporting the numbers back to us. Our hope is that as we get more postings the false or innacurate postings will be drowned out by the accurate quality ones.
Just say "no".
On Saturday, my friend traded in his 2017 GMC Canyon with 86k miles on it for $19k.
He had paid $25k for it new in 2017. The dealership now has it listed for used sale for $28,995.
If they're turning a $10k profit on a 5yo car driven pretty hard for 5 years and selling it above what it cost when it was new, I have no doubt they're marking up the new ones even higher!
Sure, I expect I could get that private-party. But on trade-in??
I'm not exactly sure how these things work, but if the manufacturer is forbidden from selling direct and dodging the dealer, that's a problem. If the manufacturer could, but is choosing not to, well, that's on them - They are simply transferring the PR hit to the dealer (and giving up the profits, which sounds dubious)
Pretty good example of trading one thing for another though! Pay up now for a car now, or wait and save your money for a car that isn't marked up. It's kind of funny seeing corporations try to apply price controls, rather than the government :)
Deleted Comment
The reason car dealers are so powerful is because they influence so many aspects of local government.
Ford CEO Had Enough: Dealers Raising Prices Need to Stop or Else [video] - https://news.ycombinator.com/item?id=32318698 - Aug 2022 (128 comments)
Specifically https://news.ycombinator.com/item?id=32319225
If you are an expert haggler you can likely negotiate a better price than what you get through Costco, but for the rest of us it gets you 90% of the way for very little effort.
I hope that when I purchase my next car, I'll never have to deal with dealerships and can buy it off online. I'm happy to pay 6-10% commission for dealership as long as I don't have to deal with haggling and being pushed to buy shady insurance and other add-ons that I don't need.
Once I had the final price on the car, and it was very comfortable to me, they STILL tried to get me to sign a 'contract' using the four-square numbers. Just monthly payment amounts, no length or other information.
They literally wouldn't move forward until I signed it. Like, wouldn't let me see the manager to finish the deal. The price was so good on this one, though, that I didn't want to just walk out.
So I took a black sharpie and crossed everything out, wrote the total price, and signed it at the bottom.
It wasn't a legal document. It was literally just a sheet with their handwriting on it saying "monthly price agreement". Nothing finance related, no legal jargon anywhere.
Ridiculous. Just absolutely ridiculous, and for what purpose?
Wife is looking for a Chevy Bolt after her car was scraped in an accident (the other person's fault).
Every dealership other than a single local one is charging between $5K and $10K "market adjustment".
I'm sure many of these are just charging the markup no matter what. But I have a theory many charge this if you're from out of town and won't be paying them later for maintenance services. This the local dealership that seems to be the odd one out not charging this.
How do they know you're from out of town when they give you the quote? Do they refuse to quote without a valid and verified address?
After all, can't you just give them a local address when asking for the quote?