What Is the Average Markup on New Cars in America?

Many car manufacturers sell cars in America, and the markup differs among them. Each company has different mark-ups on its vehicles, and the amount varies depending on the make and model. It can also change from year to year. You can determine the current average mark-up on a particular vehicle with readily available information.

Cost

The first step in figuring out a vehicle's mark-up is to find its cost. Many websites like Kelley Blue Book and Edmunds provide this information for free. You simply choose a car and add the relevant options. The website will show you both the dealer cost and the manufacturer's suggested retail price. The difference between these two numbers is the base mark-up.

Misconceptions

Many consumers believe the invoice cost is the true dealer cost for a new car. This is a misconception because there is another important factor. An amount called a holdback is paid to the dealership for each car it sells, according to the Edmunds automotive site. This gives the dealer a profit amount that is not readily visible to most buyers. The holdback is a percentage of the manufacturer's suggested retail price. It varies by manufacturer, but the percents are listed on the Edmunds website. Some luxury brands do not have holdbacks.

Considerations

Dealer incentives may also affect a new car's markup. Manufacturers often give incentives to dealerships to raise new car profit margins. Cars.com explains that they are similar to consumer rebates. The dealership gets a certain amount of money for particular models. However, it keeps the money rather than passing it along to the buyer like a regular rebate. Incentives change frequently. For example, they might be offered during slow seasons to encourage salespeople to push harder for sales. You can find current incentives listed on automotive research sites and use this knowledge when negotiating a new vehicle price.

Use

It is useful to know the mark-up on a new car if you are planning to purchase one. It tells you how much room the dealer has for negotiations. There is more room to get a lower price on a high mark-up vehicle. The dealer can't give much ground when the mark-up is low or it will negate his profit.

Warning

Some dealerships may challenge your figures if you claim to know a new vehicle's mark-up and try to use the information for making a deal. Make sure your numbers are correct before you start shopping by checking them on multiple websites. Print out the information and bring it with you. If you are confident in your information and the salesperson insists it is wrong, ask to see the invoice. Leave and work with another dealership if the salesperson will not show you the invoice.