Reversing a century of tradition, most cars now sell above the manufacturer’s list price. This is due to high demand coupled with hampered production due to global parts supply issues. But the brand with the highest average markup percentages might be the biggest surprise.
It’s not a luxury or performance brand; it’s Kia, the South Korean car brand generally considered a value buy. On average, Kia cars and SUVs sell for about 6% above their list price, according to data from Edmunds.com. Roughly tied for second place, 4% above sticker price on average are Honda, Hyundai and luxury SUV brand Land Rover.
In dollar terms, Land Rover has the highest profit margins, with customers paying an average of $3,686 more than list price, according to Edmunds.com. But the average purchase price of a Land Rover SUV in the United States is over $94,000. Even on a dollar figure basis, Kia still ranks second among all car brands in America, with customers paying an average of $2,183 more than the sticker. This is all the more remarkable considering Kia’s average purchase price was around $36,000.
There are three main reasons why Kia ranks first in dealer price markups. First, it’s a testament to what customers have long found in Kia cars and SUVs: value for money. With today’s tight auto market, dealers are able to take advantage of some of this perceived value.
“You still get a lot for the money even if you’re paying more now or more than the competitor,” said Ivan Drury, automotive industry sales analyst at Edmunds.com.
Kia has also deliberately worked to move away from its brand image that people buy on the cheap, Russell Wager, Kia America’s vice president of marketing, said in a recent interview with CNN Business.
“It’s not a question that Kia isn’t good value because I still think we are,” he said. “We don’t market ourselves that way.”
Instead, he said Kia is now marketing the design and attributes of the vehicles themselves, such as sportiness and, in the case of electric and hybrid vehicles, technology.
As with other automotive brands, Kia dealerships are independent businesses that may set their own prices. But their pricing power has clearly benefited from Kia America’s marketing and product line decisions.
Even before supply chain issues began to slow vehicle production, some Kia models, like the Telluride SUV, were already consistently selling for too high prices. The new Kia Carnival minivan was also popular, especially since it is one of the few models of its type on the market today. The Telluride and Carnival are selling, on average, about 7% above list price, according to Edmunds.
“You get one with the Premium package, absolutely people will fight for this car.” Ben Burton, managing partner of Jackson Kia in Cocoa, Fla., said of the Carnival minivan.
Adding to the pressure is that while manufacturing slowdowns have hit the entire industry, Kia models are particularly hard to come by. Kia’s “days supply” – a measure of dealer inventory levels relative to how quickly vehicles are selling – is in the single digits, said Zack Krelle, industry analyst at TrueCar. The average, he said, is about 28 days.
Even models that aren’t the hottest things are marked. John Grui of Shelby Township, Mich., said he paid $1,000 more than July’s list price for his base-model Kia Soul.
“Actually, it could have been more,” he said, but the car had done a few hundred miles despite being sold as new.
The third factor In Why Kia Vehicles Sell So Much Above List Price is that Kia sells a relatively large number of hybrid, plug-in hybrid and fully electric car models. With growing concern over fuel prices, after recent spikes, these types of vehicles have much higher profit margins, on average, than gasoline-powered vehicles, according to Edmunds data. Since customers expect to save money on gas, they are willing to pay more to purchase the vehicle. Models such as the Sportage Hybrid, Sportage Plug-in Hybrid and Sorento Hybrid sell for more than 8% above list price. The Kia EV6 all-electric car is selling for 6.4% above the list price, according to Edmunds.
Given their generally low starting prices compared to competing models, Kia customers may not feel too bad about paying a little more, said Chris Sutton, vice president of automotive retail. at the consulting firm JD Power. And since prices have also increased for used cars, a customer’s trade-in vehicle will also be worth more, he pointed out. So the price hike on the new vehicle may be easier to swallow in the end.
Ultimately, he said, it depends on how the dealership communicates with the customer about the markup. A smart dealer, he said, will think about his long-term reputation and not just about easy money.
Burton, of Jackson Kia in Florida, said his customers are generally aware that paying for a sticker has become the norm before they come to buy a car. Its dealership also adds extras like additional warranty coverage to help justify higher prices. Higher interest rates are actually more of a shock to customers, he said. But he realizes that these high prices and sales profits won’t last forever. He expects the market to return to normal by the end of the year, he said, and he will return to selling cars on a list price basis.