Recession is looming around, along with demand soaring like anything. The effect is universal and not just for the automobile sector. Think about inflation, fuel prices, and living costs; everything has been going bananas since the last year or so. As for automobiles, new car prices are off the charts, and used car prices are just as absurd.

Insane markups are leading to more profits per unit, but not necessarily for the automaker. Dealerships are the one's minting money, taking advantage of the low supply and high demand situation. While not every dealer is a fan of this practice, most of the bigger ones, especially non-rural establishments, are exploiting this opportunity for a quick buck.

That’s why General Motors and Ford have taken drastic measures to combat the high markups charged by some dealerships. The American auto giants have even threatened them about withdrawing in-demand model allocations if they continue overcharging customers.

Updated February 2023: Last year, Ford and GM embarked upon a mission to warn dealers who were slapping on insane markups on high-demand cars and pickup trucks. And the stern warning seems to have worked but to an extent. Because even in 2023, there are instances of Cadillac cars being sold for unreasonable markups. We have updated this article with the latest happenings with the infamous markups on American cars.

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Ford and GM Are Doubling Down On Stopping Vehicle Markups

Carmakers are facing a lot of backlash for allowing dealerships to continue their insane “price adjustments.” While demand is certainly a good indicator of consumer interest, activities like these paint a bad picture of the brand. Hence, why Ford is committed to eliminating the "unreasonable markups" charged by certain dealerships amid the supply crisis, reports Fox Business.

Ford CEO, Jim Farley, said, "we have very good knowledge of who they are, and their future allocation of the product will be directly impacted." Blue Oval was quick to react when it found out bookings of the Ford F-150 Lightning were overcharged.

Fox Business reports that Ford's head of sales, Andrew Frick, had previously sent a letter to dealers warning they could lose their F-150 Lighting allocations if they tried to get reservation holders to pay additional fees to place final orders. Other Blue Oval models getting marked up were the Ford Bronco, Bronco Sport, F-150 Raptor, and the Mustang Mach-E.

Similarly, General Motors North American President, Steve Carlisle, is not letting the “market adjustment” exercise get out of hand and affect its products. Especially the C8 Corvette Z06, GMC Hummer EV, and the Cadillac Lyriq. According to Detroit Free Press,

Mr. Carlisle has sent Chevy dealerships a letter warning about the practice and the consequences should they fail to cooperate. The letter explains, "unfortunately, it has come to our attention that in connection with some of these announcements and launches, a small number of dealers have engaged in practices that do not support a positive sales experience for our customers."

Towards the end, the letter specifies that "GM will be forced to take action if it learns of any unethical sales practices or brokering activities…and that this letter serves as notice that GM reserves the right to redirect your vehicle allocation or take other recourse prescribed by the Dealer Sales and Service Agreement."

RELATED: Chrysler Says No To Dealer Markups On The 2023 300C

Why Are Dealerships Marking Up New Car Prices?

The advent of COVID—and all that ensued after—led to a series of events that caused a spike in inflation, supply and demand disruptions, and a global semiconductor shortage. The latter had a significant impact on new car production. You may have come across reports of several complete cars waiting for chips, the kind that powers the electronic components inside the vehicle.

But how did it affect the price? When supply doesn’t meet demand, prices tend to rise. It’s the fundamental principle behind the supply-demand concept. So naturally, since there isn't enough supply, dealerships started marking up the existing inventory, which led to consumers paying more.

The fact is, it’s hard to put the blame on just one entity. Had supply been normal, dealerships wouldn’t have had to markup anything and could’ve sold cars at MSRP, meeting customer demand. From a dealer standpoint, they are sacrificing volumes and have to make up for that by charging a premium. However, it’s how the premiums are charged that brings about a bad reputation.

Markups of $50,000 to $70,000 have been reported on F-150 Lightnings, which are frankly absurd. Nominal premiums of, say, $2,000 or $3,000 on a $50,000 MSRP would’ve been morally sound. After all, the MSRP is a recommendation, and it needn’t be the same across dealerships.

According to Investopedia, the MSRP is designed to keep prices at the same level from store to store. But retailers are not required to use this price, and consumers do not always pay the MSRP when they make purchases. Items may be sold for a lower price, so a company can reasonably move inventory off shelves or the other way around if demand is high.

Despite Warnings GM Markups Are Still Prevalent In 2023

And the recent instance is with the ever-so-popular 2023 Cadillac Escalade. GM Authority states that despite last year's warnings, a few Cadillac dealerships are still adding exorbitant markups over the MSRP. A new 2023 Escalade starts with an MSRP of $79,795. But a dealer markup of $20,000-30,000 is quite common out there.

And this is not even for the beefier and more powerful Cadillac Escalade V, but the standard trims. But balancing out this injustice are certain Cadillac dealers that are offering discounts on the MSRP as well! But then again, even the nitpicked markups shouldn't exist after the shrewd warnings by the American auto giants.

Sources: Fox Business, Detroit Free Press