Dealer markups became one of the most frustrating stories of the pandemic-era car market, and the debate over what, if anything, should be done about them hasn’t gone away. The practice of adding several thousand dollars — or in extreme cases tens of thousands — above MSRP on high-demand vehicles touched a nerve with buyers who had few alternatives when inventory was tight.
The arguments for and against government intervention in dealership pricing are worth taking seriously. On one side: dealers are independent businesses operating in a free market, and if a buyer agrees to pay a markup, that’s a transaction between consenting adults. The vehicle is worth what someone will pay. On the other side: the franchise dealership model, which is protected by state franchise laws in all 50 states, is itself a government-enforced system that prevents direct manufacturer-to-consumer sales. If the state is going to mandate the dealership structure, the argument goes, there’s a legitimate question about whether it should also set some guardrails on pricing practices.
The practical reality is that most proposals to restrict dealer markups run into significant opposition from the dealer lobby, which is among the more effective in state legislatures nationwide. A handful of states have moved against egregious practices — prohibiting markups above MSRP on certain vehicles — but these efforts have been the exception rather than the rule.
The market has done more to address the markup problem than legislation has. As new vehicle inventory has recovered from semiconductor shortages and overall vehicle demand has moderated, the leverage dealers had to demand above-sticker prices has diminished. Buyers who are willing to be patient and shop across a broader geographic area have found themselves in a much stronger negotiating position than they were at the height of the shortage.
Whether this normalization holds is the key question. The next supply disruption — from whatever cause — could recreate the conditions for markups. Buyers who have alternatives, including the patience to wait or the ability to consider a different vehicle, will always be better positioned than those who need a specific car immediately. That’s the reality of the market regardless of what regulators do or don’t do about it.