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Why Dealers Have Earned Massive Markups

Earlier this week, someone sent me an addendum sticker from Mercedes-Benz of Selma, in Texas. The addendum added two line items to the sticker price. The first line item was VIN etching, at $199. That’s controversial enough, since some people have said that VIN etching is the scam of the decade – but those people haven’t seen the second item: A “Market Adjustment” charge for $125,000.

You read that right. One-hundred and twenty-five thousand U.S. American dollars – and that’s on top of the Mercedes-Benz G63 AMG’s already steep $178,000 asking price. But, frankly, it’s not the 70 percent markup that’s the most offensive thing here, It’s not even the $199 charge for the VIN etching.

Frankly, the worst part of this is that MB of Selma will very likely get their markup. And, when they do, they will deserve every single penny.

WHY THIS IS HAPPENING

Dealer markups have been getting crazy in recent months. Our own Tim Healey even reported on a dealership in Tennessee that had marked up a Mitsubishi Mirage fully six-thousand dollars (yes, they still make those – I’m as surprised as you are) back in July. A number of factors were cited there, most notably a dwindling inventory caused by a nationwide chip shortage. Tim closed that article with the phrase, “it’s another reason to not buy a car in the short term unless you absolutely have to.”

But, considering the fact that car dealers are selling new cars almost as fast as the OEMs can build them, and the fact that it’s unlikely that all of these people “absolutely have to” buy a new car now, we have to assume that something else is behind these exorbitant markups.

My hypothesis for what that “something else” is? Simply put, these markups exist because the dealers are getting them.

CAR DEALERS KNOW HOW TO SELL CARS

“The price of cars is high because people are paying a lot for cars,” is hardly nuanced, sure – but it’s tough to argue against, isn’t it? Someone out there is doing an awesome job convincing millions of people that right now, with prices at an all-time high, is the right time to buy.

They may be doing that in a number of ways. They may tell prospective buyers that, during a period of rapid inflation, the best thing they could possibly do is borrow as many “good, today” dollars as possible, and pay them back with “shitty, tomorrow” dollars down the road. As long as interest rates stay below inflation, that’s probably true – but I don’t think that’s the kind of logic that would move someone to pay $125,000 (sorry, $125,199) above sticker on a G63. That’s not a logical decision on any day of the week, I would argue, but MB of Selma thinks they can get all the money, and they’re (probably) not stupid. That means they understand that buying this new car, right now, is a purely emotional decision.

Frankly, you could probably say the same thing of just about any car on the market today – even that little Mitsubishi Mirage in Tennessee. Heck, the website from Ole Ben Franklin Mitsubishi, the dealer in question, is proudly showing new cars on its website without Monroney stickers on them. Fear not, however, you can still “lock in” a sale price that is probably MSRP … and there’s little doubt that someone, eventually, will hit that button.

When they do, I’d be willing to bet that one of two things will happen. They’ll be contacted by an untrained, unprofessional salesperson who will fumble the sale and convince them to keep shopping, or they’ll be contacted by a professional who will deliver outstanding customer service and convince them to pay whatever they can.

If that’s $6,000 or $125,000 above sticker? So much the better – and they’ll deserve every penny.

WE DID THIS TO OURSELVES

Even if you’ve never sold cars before, you probably have some idea of the type of person who would be drawn to the car business. I myself have worked just about every job you can work in a dealership – from porter to service advisor to sales and, eventually, F&I and management. I have met, hired, and even fired quite a few people along the way, but while I couldn’t honestly say that there was a specific “type” of person that was drawn to car sales, I can tell you that there is a specific type of person who is successful in sales, and I’ll let one of them tell you in her own words.

“The beautiful thing about automotive is that the ceiling doesn’t exist,” writes Seana Corsale. “There’s nobody stopping you from creating a rewarding career, and having fun while doing it … I never thought I could love an industry so much – every part of it. It’s become part of who I am.”

I don’t know Seana. She’s a friend of a friend on social media – but I’ve known horses like her. People who enjoy meeting new people, who put themselves out there and radiate a genuine, positive vibe, know their product, and follow every step of the sales process every time. These are almost always successful because people want to trust them, and most people end up buying the salesperson as much as they end up buying a car.

As such, I’d be willing to bet that Seana has a lot of repeat business, and it’s not because she offers the best prices in town. More likely, it’s because she offers the best experience to her customers, and a positive experience has value to everyone involved.

I want you to key in that last part, because I think it’s important to spell out that good customer service requires you to be a good customer. If you walk into a store – any store, selling any things – and immediately ask to speak to a manager because you don’t want to deal with someone who is inexperienced, that’s not awesome. If you went into a family-owned hardware store and demanded to see their invoice price on a Makita cordless drill, do you think they’d show it to you?

What’s more, if you offered them 5 percent over their invoice price on it, do you think they’d sell it to you? Would you go on Yelp and call them all crooks and thieves and liars for refusing your offer? Would you whine about not getting your way on your blog?

And yet, people do this to car dealers all the time. They’re reviled for trying to make 4 or 5 points on a deal, but nobody tells off the crooks selling you on 401Ks and retirement plans when they turn up for open enrollment, even if they do have a 50.1 percent margin on the plan they talked your useless HR Toby into – not far off from the margin MB of Selma will make if they get their full ask on that G63, now that I think about it.

We have become terrible customers, and I’m no different. When I bought my most recent Volvo XC90, it was the fourth car I’d bought from that dealer (the Autobarn Volvo of Oak Park, Illinois, if you’re curious). It was the second Volvo I’d bought from Nick Kourafas, too, and I’m sure I’ll buy a third soon enough. All the same, when it came time to settle up, I fought him on every charge – and I consider Nick a friend! He’s knowledgeable, fair, and incredibly patient with me every time I walk into that store. He even remembered I wear a size $20 Starbucks gift card on my birthday! Imagine how I would have treated some poor green pea anywhere else … now, imagine how you would treat them.

As far as I’m concerned, these markups mean big money for salespeople and dealerships, and they deserve every penny they’re getting. Call it karmic retribution for all the horrible treatment they’ve gotten over the years, earned and unearned, and find solace in the knowledge that this worm shall turn, and we’ll get back to beating them up for free car washes and gas cards in exchange for halfway decent survey scores sooner or later.

[Image: Screenshot taken by the author]

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