No one outside of a car dealership’s break room likes dealer markups. Customers obviously hate them, and even manufacturers don’t like them. However, dealership markups are more than just frustrating—they actually played a significant role in raising inflation, according to a recent study by the U.S. Bureau of Labor Statistics.
As reported by the Wall Street Journal, the study conducted by economist Michael Havlin shows that dealer markups jumped during the Covid-19 pandemic and have continued ever since. Admittedly, the pandemic threw a massive curveball at dealers and customers alike. Customers were getting federal stimulus checks, and many spent those on new cars, all while dealerships saw shrinking inventories. The supply/demand scales tipped heavily in dealerships’ favor, causing markups to rise.
The study shows that average new-vehicle profit margins for dealerships went up from 4.9% in 2019 to 11.5% in 2022, mostly caused by dealer markups. That jump reportedly contributed almost a full percentage point of the 16% increase in the consumer-price index—the average change in consumer prices over time—between 2019 and 2022.
Unsurprisingly, the National Automobile Dealerships Association disagrees. A NADA spokesperson told the WSJ: “By that logic, every consumer who sold or traded in a used vehicle for more than its Kelley Blue Book value profiteered off that sale and thus bears responsibility for contributing to consumer inflation.”
Havlin also found the gap increase between the consumer-price index (what customers pay for cars) and the producer-price index (what manufacturers charge dealers and other intermediaries for cars) was mostly due to dealer markups. Havlin’s study shows the gap between those rose to 17.7% at its peak in September 2022. Havlin also looked into the markup percentages of publicly traded dealership companies and AutoNation’s markups jumped from 5.1% in 2019 to 14.6% in 2021. Asbury Automotive Group went from 4.5% in 2019 to 14.7% in 2021.
It isn’t just car dealership markups causing inflation to rise, though. The Federal Reserve Bank of Kansas City reported that markup growth across all industries “contributed more than 50 percent to inflation in 2021.”
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