Should You Pay More Than MSRP for a Car?

Nearly every time a hotly anticipated new or redesigned vehicle first hits dealer lots, a number of enterprising dealerships will take the opportunity to make some additional profit. Recent examples include the Ford Shelby GT500 and the Ram 1500 TRX. At the peak of their popularity, these vehicles had "market adjustments" ranging from $10,000 to upwards of $30,000 over the manufacturer's suggested retail price (MSRP).

This issue doesn't just affect flashy performance vehicles. The past year has seen low inventory at dealerships, caused in part by a semiconductor chip shortage. In this scenario, ordinary vehicles such as the Kia Telluride, the Chrysler Pacifica and the Toyota RAV4 Hybrid have been selling for a few thousand dollars above MSRP. It's a textbook case of supply and demand in which there are more customers than cars. The good news for consumers is that there are ways around these markups.

While frustrating and costly, this price adjustment is within a dealership's rights. After all, the "S" in MSRP stands for "suggested." Edmunds offers ways for consumers to deal with dealership markups on a high-demand vehicle.

Get in early
Once you've caught wind of a new or redesigned vehicle you suspect will be in high demand, get in touch with the dealership to place an order. This strategy not only secures you a vehicle but also reduces the chances of a markup. You may have to put down a deposit, which is normal, but just make sure you get the selling price in writing and know the refund policy in case you change your mind. Once the vehicle arrives, the dealership should charge you the MSRP plus destination.

Know the market value
If you didn't place an order or weren't aware that you needed to, now is the time to determine the market value of the vehicle you're interested in. Find comparable vehicles at a few dealerships and get price quotes to see what they're selling for. This research will give you an idea of whether a markup is in the ballpark or way off-base.

Negotiate the markup
Here's a secret about some — but not all — of the more outrageous markups: Dealers set the markups high with the expectation that customers will negotiate them down to a more reasonable level. It's a win-win for the dealership because even if you manage to cut a $10,000 markup in half, it still makes $5,000 on the sale. If you want that car now, this technique can reap a significant improvement on the asking price. Let the salesperson know you're a serious buyer and be ready to act if the dealership is willing to reduce its markup.

Find a dealership without markups and pay MSRP
Not all dealerships will subscribe to this "market adjustment" philosophy. Your goal is to find those dealers and shop with them. You might have to cast your net wider to a dealership out of town or in the next county. That said, this tactic won't automatically translate to a discount. Since the vehicle is in high demand, paying the so-called sticker price would be considered a fair deal, and anything below that would be a bonus.

Wait for the market to cool
How badly do you want that car? If you can wait a few months or even a year, prices will eventually fall and you won't have to deal with any of these issues. In the meantime, we recommend periodically checking on prices to see if they've dropped. Unless the vehicle is a limited-production model, you shouldn't have an issue getting a better price down the line.

An indirect markup
You might run into a vehicle that doesn't explicitly have a dealer markup but has instead been loaded with accessories and is priced well above the initial starting point. This scenario tends to be more common these days as dealers want to maximize the profit on each vehicle. On the one hand, you're actually getting something for your money, but the premium may be similar in magnitude to a markup. Unless you want those accessories, the same advice applies. Shop around for a vehicle without the add-ons since you'll have a harder time persuading a dealership to remove them.

Edmunds says
Patience will always be your best option to avoid paying above sticker price on a new car. But if you need to be the first on the block with the latest model, you now have a better idea how to minimize or avoid the added fees.