Auto Dealer Markup Reasons in Calabasas, CA

March 31st, 2022 by

Chip shortage, wire harness, and labor shortages.

A simple google search of “Automotive Chip Shortage” will give you plenty of great articles on the complicated nature of the modern “just in time global supply chain”. Every day we learn more information on what manufacturer is shutting down, New Car production delays, or OEMs deleting certain options because of a lack of microchips.

“…every car has at least two or three dozen microchips, which control everything from infotainment screens to fuel management and stability control. Luxury vehicles and cars with high-tech equipment like advanced safety systems and driver assistance features may have 100 or more processors onboard…”

Vehicle manufacturers are often not able to start the build process on a New Vehicle until certain items requiring semiconductor chips are installed early in the production cycle. This means manufacturers had to stop all production until certain key safety components requiring chips arrive onsite.

  • 1.7 million fewer vehicles were produced in 2021 compared to 2019
  • There are little to no cars on dealer lots at any given time
    • The lack of New Cars in the market pushes New Car buyers to shop and buy Used.
    • Lack of supply and more demand increases the price for both New and Used.
  • Eastern Europe and Asia.
    • Many parts, including vehicle wire harnesses, are made in Ukraine.
    • Many semiconductors are made in Asia which is seeing a rise in Covid cases that result in factories shutting down for weeks, or even months on end.
    • Neon gas, and other precious metals used in semiconductor, battery, and tire production are mined in Ukraine and Asia and assembled in factories around the world.

The automotive industry is no different than the general labor market. People are looking to work remotely or move out of cities to find a better work-life balance. This leaves businesses like car dealers and vehicle parts manufacturing unable to find enough qualified people to work in their locations.

You may think those vehicle markups are just a means for the business to gain higher profits. That’s not really the case.

  • We are selling fewer cars per month.
    • Operating costs have to spread over a few units sold means dealers need to sell cars at a higher price just to maintain the same profitability level.
    • If we sell 50% fewer cars we need to make 50% more per unit to break even.

Why the Dealer Markup over MSRP in Calabasas, CA?

Dealer markup is certainly more prevalent now but they have been there for a while now. Legacy dealers have MSRPs. Traditionally we held a vehicle “Market Value” as a representation of the discount below MSRP, or in the digital age, sale price relative to the invoice value. Non-traditional Electric Vehicle OEMs like Telsa, Rivian, or Lucid simply change the selling price listed on their site or app. Over MSRP or simply adjusting up the selling price, the result is the same. Prices are going up and guests are paying more to get themselves into a new vehicle.

Green Car report has this great graph above that illustrates Tesla’s new and Used Price in 2021. Click here or the image above to read the whole article.

Yahoo News did a great article on the markup above MSRP per model.

Jeep Wrangler | 26.7% | $8,925
Ford Maverick Hybrid | 25.0% | $5,601
Porsche Macan | 23.3% | $13,254
Jeep Wrangler Unlimited | 22.9% | $9,534
Jeep Gladiator | 22.5% | $9,824
Ford Maverick | 22.2% | $5,368
Lexus RX 450h | 21.0% | $10,365
Ford Bronco | 20.6% | $7,783
Genesis GV70 | 20.0% | $8,611
Mercedes-Benz GLB | 19.8% | $7,992
Chevrolet Corvette | 19.3% | $15,218
Ford Mustang | 19.1% | $6,941
Mini Countryman | 18.9% | $6,325
Lexus RX 350L | 18.6% | $9,242
Mercedes-Benz GLA | 18.6% | $7,142

The report from iSeeCars suggests that the average new car is currently priced 9.9% over its MSRP, equaling a $3,753 bump over the sticker the car shipped with.

Question and Answers.

We have been fielding a lot of calls, chats, and emails from our guests about what they should do. Here is a frequently asked section that we have taken from our recent online chats and recent phone conversations with our guests

  1. I’ve bought many cars from you in the past and don’t want to pay a markup over MSRP. What can you do for me?

    First of all, Thank you 🙂  We appreciate your business. 

    The good news is we have solutions for you. While some vehicles extremely high-demand vehicles like Electric vehicles, Convertibles, and high-performance cars (BMW M or MINI JCW) will likely have some type of market it should be in line with the mark-up it was prior to the supply issues. 

    The best advice I give my personal guests is to place an order for your next car early. Many vehicles that are pre-ordered especially for a guest are not marked up. While you may have to wait 3-5 months to get the car. You will get exactly what you want and not have to waste money on options or features you don’t need or want. 

    Order your BMW here or MINI here.

  2. Why are electric cars so expensive in Calabasas, CA?

    As you can imagine this is a complicated question. 

    Firstly I tell my guests to calculate their projected fuel savings from their current car to any potential car they are looking to buy. The EPA has a great fuel cost and saving calculator. Click here to start 

    Many BMW and MINI vehicles have great MPG. Often times an internal combustion engine will be the cheaper cost of ownership, especially if you don’t keep your cars longer than 3-5 years. 

    If Electric is still the direction you want to go. Check with your tax professional on all the Federal, State, and local government rebates and incentives. Residents in CA can also use the California Clean Fuel Reward program to help reduce the cost. 

  3. My current vehicle lease is coming due soon. What can I do?

    Starting 9 months before your lease ends you will start to get emails, calls, and text messages from our team, as well as BMW MINI Financial Services. We will go over all your options with you but it is important to respond to those messages when you get them.

  4. I cannot find the car I want?

    Inventory on the dealer lot changes daily. About 70% of the cars we receive are pre-ordered for a guest. Check with your BMW Sales Advisor or MINI Motoring Advisors often. While not common we do get quests who back out of a pre-order vehicle or the OEM will send us a few supplemental cars toward the end of the month. Your advisor is here to help you so it’s important to communicate often. 

    Don’t discount looking at used or Certified Pre-Owned Vehicles. While used car prices are higher compared to last year these vehicles still represent the best value in the market right now. 

  5. What if I just want to keep my current car?

    For many guests, this is the best option. Holding onto your current car and adding in a vehicle maintenance plan and/or warranty to help protect your investment is a great solution. We can provide you with low-cost options over the phone, or in person. We just need your VIN and the current miles on your car. 

  6. When will the market return to normal again?

    Excellent question and the honest answer is, we do not know. 

    Certain parts of the traditional car-buying experience are not likely to return. Dealers and manufacturers are not likely to keep a large volume of vehicles on the lot. The industry is moving to have more cars ordered online, built specifically for a guest, and the car delivered to the customer at the dealer, or at home, at a later date. 

    Right now we do not anticipate a significant uptick in semiconductor chip production, an increased supply of rare earth materials, or a correction in the labor market in 2022. But, like everything, no one really knows. We will continue to share information as we get it. 

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