How Greedy Dealers Make Everything Worse

Car dealerships exist to extract their bit of profit from you in a car-buying transaction by offering you sketchy loan terms and rushing their techs into doing expensive, shoddy repair work when you come in for service. They're generally the worst part about buying a car, but it turns out they can have worse effects than you'd expect at first glance: Dealer markups, popularized by pandemic-era semiconductor shortages, have fundamentally broken the market for both new cars and auto loans. 

A new video from The Drive breaks down the background of dealer markups, how the pandemic's car shortages made them halfway justifiable to consumers, and the ill effects they've had on auto loans and the new car market. As it turns out, paying well over sticker for a car is bad for just about everyone. The people who get it worst, though, are the folks who had to shell out over MSRP for regular transportation. 

Dealers have hit seemingly every car imaginable with markups since semiconductor supplies fell in 2020, charging extra for fancy enthusiast cars and boring old family vehicles alike. Those markups led to higher loans and deeper debt, which buyers now carry into future purchases — the average trade-in negative equity value has climbed to nearly $7,000. Car debt now outweighs even student debt in the U.S. economy, and the problem is only getting worse as interest rates rise. Add in the fact that both new and used cars keep costing more — and why wouldn't manufacturers charge more, given how happy buyers have been to pay markups — and it's easy to see why so many people are underwater on their car loans. Many of them will stay underwater forever, rolling negative equity into future purchases, unless the whole bubble bursts. 

This is the logical endpoint of a system that prioritizes private vehicle ownership — and this private spending on corporate-produced products — over public transit. When a product becomes an absolute necessity, something that you need just to get to work every day, eventually there comes a point where its manufacturers can charge whatever they like for it. After all, how are you going to pay your rent if you can't drive to the office? Dealers know you're stuck with them, so don't expect those markups — or their outlying effects on the economy — to change any time soon.