Markups by Auto Dealers Helped Fuel Inflation, Government Study Shows

New government research shows that markups on new vehicles helped drive the inflation plaguing consumers.

A recent study by the U.S. Bureau of Labor Statistics (BLS) shows that those added profits contributed 0.3 to 0.7 percentage points to the almost 16% increase in the Consumer Price Index (CPI) between the close of 2019 and the end of 2022.

Demand for new cars surged once consumers received pandemic stimulus checks. At the same time, the pandemic hamstrung supply chains, leading to lower supplies and higher new car prices. The BLS says much of that added money went to car dealers.

“It was really from famine to feast for dealers,” Michael Havlin, the economist who wrote the BLS paper, told The Wall Street Journal (WSJ) in an interview published Sunday (April 23).

A spokesperson for the National Automobile Dealers Association argued that the idea that dealers contributed to inflation was “absurd.”

“By that logic, every consumer who sold or traded in a used vehicle for more than its Kelley Blue Book value profiteered off that sale and thus bears responsibility for contributing to consumer inflation,” he told the WSJ.

The most recent government inflation figures showed the CPI climbing 0.1% in March on a seasonally adjusted basis, as measured month over month, after rising 0.4% in February. The 12-month reading was at 5%, the lowest in around two years.

“We’re a far cry from the 9.1% CPI reading from June of last year,” PYMNTS wrote recently. “But drilling down into the data, some of the key essentials of life — clothing, shelter and food — remain expensive, where inflation is pushing prices higher, or at best, prices are steady, off of already elevated levels.”

And while it would make sense to assume consumers avoid major purchases due to these higher prices, recent research by PYMNTS and LendingClub shows that bigger-ticket items have managed to resist this type of thinking.

The reason, as argued here last week, could be because a number of everyday big-ticket items can quickly go from nice-to-haves to necessities.

For example, appliances can only last so long before needing to be replaced, after all, and even furniture can reach the point of no-more-repairs.

The same mindset can be applied to auto purchases. Although car sales in America are at their lowest level in more than 10 years, the decline is just 8% year-over-year.

“That means there is still a significant market for auto purchases, including older used cars, and auto repair and parts stores are seeing a bump in sales as consumers try to make their vehicles last a bit longer,” PYMNTS wrote.