Additional Dealer Markup

Time to Move On

Its time to move on, time to get going
What lies ahead I have no way of knowing
But under my feet, baby, grass is growing
Its time to move on, it s time to get going

Tom Petty, Wildflowers, 1994

I remember the first automotive additional dealer markup stickers. They appeared on Datsuns and other thrifty cars during the 1978 fuel crisis. There was a small-car buying panic in progress as a Federal gas rationing plan left many areas without fuel. Dealers responded by posting these stickers next to the MSRP or Munroney sticker. It was done to save time, to deal only with those who were frenzied buyers.

Later, dealers realized they could put a markup sticker on anything selling well, using it as a bargaining chip.

They didn't necessarily sell the cars at the marked up sticker price, but often customers would pay MSRP, thinking they were getting a good deal after negotiating down from the inflated extra sticker price.

"If You buy it today, I'll get the mark up removed"

Basic economics tells us that higher prices are needed to ration demand to meet supply. Additional Dealer Profit will work where buyers have been hyped for a new model release.

Of course dealers are "greedy", that's how they make their living. Some consumers will always fall for the idea that a new car model is worth a price premium.

The problem for me is the source of the demand, almost always marketing hype.

"ADM" is the acronym for "Additional Dealer Markup", sometimes it will be added to the contract without having been stickered on the car.

Fad Cars: Everybody's Somebody's Fool

Fad cars often have markups for the first year or so. PT Cruiser, Thunderbird, Pontiac Solstice/Saturn Sky, Chrysler 300c, Nissan 350Z, Mustang GT 500, Honda S2000, Pontiac GTO, Honda Accord Hybrid, and other hot initial sellers lost their shine in about a year. Thunderbird, Accord Hybrid, and GTO are now gone, market failures.

Solstice, 350Z, and PT Cruiser now face soft demand. Chrysler 300 has heavy depreciation. What happened to the dealer added price premium on these hotties?

Gone in 60 seconds, along with the normal 20% depreciation.

BMW tried to pressure dealers not to mark up the Mini at introduction, but they found work-arounds using dealer-installed options.

Dealerships with a regional monopoly on a brand will sometimes do additional marking across the whole product line. This is especially true in isolated markets where many dealerships are owned by one group. Las Vegas is often mentioned in this context.

Additional markups often masquerade under other names;
"Arizona package",
"regional markup",
"dealer surcharge",
"market adjustment".

There is nothing morally wrong with dealers selling cars for whatever price the market will bear. Dealers know that speculators will buy all the inventory of these pop stars, reaping the profits for themselves.

Consumers who get the hots for the latest fad are equally to blame.

Buyers who just have to be the first on the block to own these cars will pay more, and loose more, than those who wait until the car cools down.

Early production of new models often has bugs which take about 9 months to resolve.

Forget no test drive, sign waiting list, make deposit early, and additional markup at dealerships. Just say no to fad cars. By next year, the glitter will rub off.