Kia, once the ‘value’ brand, now has the biggest price markups

By Peter Valdes-Dapena, CNN Business

Reversing a century of tradition, most cars now sell for over the manufacturer’s sticker price. This is thanks to high demand paired with hobbled production due to global parts supply problems. But the brand with the highest average percentage markups might be the biggest surprise.

It isn’t some luxury or performance brand; it’s Kia, the South Korean car brand usually thought of as a value purchase. On average, Kia cars and SUVs are selling for about 6% over their sticker price, according to data from Edmunds.com. Roughly tied for second, at 4% above sticker price on average, are Honda, Hyundai and the luxury SUV brand Land Rover.

In dollar terms, Land Rover has the highest dealer markups, with customers paying an average of $3,686 over the sticker price, according to Edmunds.com. But the average purchase price for a Land Rover SUV in the US is over $94,000. Even on a straight dollar amount basis, Kia still ranks second of all car brands in America, with customers paying, on average, $2,183 over sticker. That’s especially remarkable since the average Kia purchase price was about $36,000.

There are three main reasons for Kia’s top ranking in dealer price markups. First, it’s a testament to what customers have long found in Kia’s cars and SUVs — a good value for the dollar. With today’s tight car market, dealers are able to cash in on some of that perceived value.

“You’re getting a lot, still, for the money even if you’re paying more now or more than for the competitor,” said Ivan Drury, an auto industry sales analyst with Edmunds.com.

Kia has also been deliberately working to get away from its image as a brand people buy for the low price, Russell Wager, Kia America’s vice president for marketing, said in a recent interview with CNN Business.

“It’s not a question of that Kia might not be a good value because I still think we are,” he said. “We’re not marketing ourselves that way.”

Instead, he said Kia now markets the design and attributes of the vehicles themselves, such as sportiness and, in the case of electric and hybrid vehicles, technology.

As with other car brands, Kia dealers are independent businesses that can set their own prices. But their pricing power has clearly benefited from Kia America’s marketing and product line-up decisions.

Even before supply chain problems started slowing vehicle production, some Kia models, like the Telluride SUV, were already regularly selling for over sticker price. The new Kia Carnival minivan has also been popular, especially since it’s one of only a few such models on the market today. Both the Telluride and Carnival sell, on average, for about 7% over sticker price, according to Edmunds.

“You get one of those with Premium Package on it, absolutely, people will fight over that car.” Ben Burton, managing partner of Jackson Kia in Cocoa, Florida, said of the Carnival minivan.

Adding to the pressure is that, while manufacturing slowdowns have hit the whole industry, Kia models are especially hard to find. Kia’s “days’ supply” — a measure of dealerships’ inventory levels balanced against how quickly the vehicles sell — is down to single digits, said Zack Krelle, an industry analyst with TrueCar. The average, he said, is around 28 days.

Even models that aren’t the hottest things are getting marked up. John Grui of Shelby Township, Michigan, said he paid $1,000 over the sticker price in July for his base model Kia Soul.

“It actually could have been more,” he said, but the car had a few hundred miles on it despite being sold as new.

The third factor in why Kia vehicles are selling for so much over sticker price is that Kia sells a relatively large number of hybrid, plug-in hybrid and fully electric car models. With concern growing about fuel prices, after recent spikes, these sorts of vehicles have much higher dealer markups, on average, than gas vehicles, according to Edmunds data. With customers expecting to save money on gas, they’re 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 sticker price. The Kia EV6 all-electric car sells for 6.4% above sticker price, according to Edmunds.

Given their generally low starting prices compared to competing models, Kia customers may not feel too awful about paying a little more, said Chris Sutton, vice president for automotive retail at the consulting firm J.D. Power. And since prices have risen for used cars, too, a customer’s trade-in vehicle will also be worth more, he pointed out. So the price bump on the new vehicle may be easier to swallow in the end.

Ultimately, he said, it comes down to how the dealership communicates with the customer about the markup. A smart dealer, he said, will think about their long term reputation and not just the easy cash.

Burton, of Jackson Kia in Florida, said his customers are generally aware that paying over sticker has become the norm before they come in to buy a car. His dealership also adds extras like added warranty coverage to help justify higher prices. Higher interest rates are actually more of a shock for customers, he said. But he realizes these prices and high sales profits won’t last forever. He expects the market will return to normal around the end of the year, he said, and it will be back to selling cars based on the sticker price.

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