Why Do Car Companies Let Hefty Dealer Markups Happen?

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As Jalopnik’s resident car buying expert and professional car shopper, I get emails. Lots of emails. I’ve decided to pick a few questions and try to help out. This week we are discussing dealer markups, purchasing a Toyota Corolla or a Subaru Impreza, and which Dodge Challenger should depreciate the least.


First up, why do the automakers allow dealers to mark up cars?

“I’m in the market for a new Hyundai Kona EV and the dealers in California are putting $5,000 and even $10,000 markups on these! I can get a Tesla for that kind of money. Doesn’t Hyundai know this is bad for business? Why do the automakers let their dealers markup cars?”

Our old friend Doug DeMuro, who is known for finding “quirks” in various cars on YouTube, covered this topic a while back. But why do car companies let the dealers get away with this practice? We’ve all seen the most egregious examples of this, like when a Dodge Demon gets marked up to $175,000.

The answer is simple—the automakers can’t control what their dealers sell the car for. A lot of people forget that within MSRP is the word “suggested,” meaning the automaker suggests that the dealer sell that car for the posted price. Where you have more demand than inventory, dealers are going to try to maximize their position use markups.

While I understand the frustration, what people need to keep in mind is that markups happen because there are some people that are willing to pay them. It doesn’t matter if the car is a Porsche 911 GT3 or something “normal” like a Hyundai Kona EV. However, if every potential buyer said “Screw that, I’m not paying a markup.” prices will come down.


Remember, supply and demand cuts both ways. The MSRP on a Hyundai Sonata starts around $20,000. Almost no one is willing to pay full sticker for a Sonata and because there are scores of new Sonatas available, supply and demand economics favors the buyer.

Eventually, Kona EV inventory will build up and if Hyundai dealers will sit on them long enough they will be forced to discount them in order to find customers. Of course, this is where Tesla’s sales model is a refreshing approach. It doesn’t matter how many people are “in line” for the new Model 3—the posted price is the price.


Next up, Corolla or Impreza—which one is better?

“I was looking at a Toyota Corolla and also a Subaru Impreza. My two questions for you are this, do you have any insight on which would be a better buy? It would be used mostly driving around the city (Pittsburgh with its stupid hills and twisty, narrow roads) with very rare highway trips. I put an average of 3,000 miles/year on my car now, so it would be about the same. My other question is, do you have any tips for a first-time car buyer, should I look for a brand new car or try to find a good used one? If the former, lease or buy? If the latter, dealership or Craigslist?”


I’m going to take these questions out of order, the first thing you need to figure out is the budget because that is going to determine your path on new vs used. If you don’t want to spend more than $15,000 you are pretty much exclusively in the used market.

If you plan on spending closer to $20,000 you are going to have some overlap between new and used and a new car with more up to date features may be the better value. If you are going to buy used, look for both private party and dealer listings, private party will likely get you something a bit cheaper but you will have to line up financing on your own. You can finance through a dealer, but you should still have a pre-approval anyway.


As to which car is better? That depends on your needs and driving style. Do you really need the AWD on the Subaru? Pittsburgh has nasty weather but a good set of snow tires goes longer than anything else. Both cars are reliable and well built but each has its own quirks and features. You may find one is far more comfortable than the other, so try both and see what you like best.

And finally, will a somewhat limited-trim Challenger hold its value better?

“I’m in the market for a new Dodge Challenger. I’m torn between a 2018 SRT 392 vs a 2019 Scat Pack. Prices are not that far from each other.

My main question is, which of the two will hold its value better in let’s say, 2 or 3 years? Knowing that the SRT 392 was discontinued in the 2019 model is it still wise to buy last year’s model? And hoping it will hold its value better since discontinued=rare?”


While both cars are very cool, you aren’t likely to see a dramatic difference in resale value on the 392 vs the Scat Pack. Dodge made a lot of copies of each car, even the 392s so while the trim was discontinued it did have a several year run and therefore you will find a lot of used cars on the market. If you look at the Hellcat market those 700 horsepower cars haven’t really been able to maintain their value that well.

Buy the car that you like better and the one that you feel gives you the most value for your money, FCA products tend to take a dive when it comes to resale so don’t get too worked up about your value down the road. Don’t buy a new car as an investment. Just buy what you want and have fun. 


Got a car buying conundrum that you need some assistance with? Email me at tom.mcparland@jalopnik.com!



“I put an average of 3,000 miles/year on my car”

Buy used. Very used. You don’t drive often enough for it to matter much what you buy.