When buying a car in Canada, the price you see on the sticker often isn’t the final cost. Dealer markups, often called "market adjustments", are extra fees added to the Manufacturer's Suggested Retail Price (MSRP). These markups can range from $1,000 to over $10,000, depending on supply and demand.
Key Points:
- Why Markups Happen: Limited inventory (due to supply chain issues, semiconductor shortages, or production limits) and high demand for popular vehicles (like SUVs and electric cars) allow dealerships to increase prices.
- What to Watch For: Dealers add fees like freight, Pre-Delivery Inspection (PDI), and "market adjustments" on top of MSRP. These are negotiable in many cases.
- How to Save: Understand the invoice price (what dealers pay manufacturers) and negotiate from there. Tools like pre-negotiated pricing or discount reports can help avoid overpaying.
Understanding how these markups work and knowing what fees are negotiable can save you thousands of dollars when buying a car.
Dealer Markup Statistics and Cost Breakdown for Canadian Car Buyers
I explain standard Ontario new car fees you can expect over MSRP
What Are Dealer Markups?
A dealer markup is an extra fee that dealers can add on top of the MSRP (Manufacturer's Suggested Retail Price). Often referred to as a "market adjustment", this fee isn't set by the manufacturer but is instead influenced by current market conditions. This means dealers can charge more - or sometimes less - than the sticker price, depending on demand and supply.
"The MSRP is merely the starting point in negotiations at the dealership. In fact, many people disregard MSRP altogether while negotiating." - Admin, CarCostCanada
Knowing how dealers arrive at their final pricing can help you spot which charges are fixed and which ones you can negotiate. The final price may dip below the MSRP if incentives are applied - or climb higher if markups are included.
Let’s break down how these markups are calculated.
How Dealers Calculate Markups
Dealers determine the final price by layering fees and discretionary charges on top of the invoice price. The invoice price itself may be lower than what’s charged, thanks to hidden incentives and a manufacturer holdback (usually 1%–3% of the MSRP). Dealers also add standard fees like freight/destination charges and Pre-Delivery Inspection (PDI) fees.
| Item | Included in MSRP? | Description |
|---|---|---|
| Base Vehicle | Yes | Covers the base cost and standard features. |
| Factory Options | Yes | Upgrades installed at the factory that increase the MSRP. |
| Freight/Destination | No | Shipping costs from the factory to the dealership; added on top of MSRP. |
| PDI Fee | No | Dealer charge for inspecting and cleaning the vehicle before delivery. |
| Holdback | No | A hidden profit (1–3%) built into the dealer’s cost structure. |
For vehicles that are in high demand or have limited availability, dealers often add a "market adjustment" to justify pricing above the MSRP.
These pricing methods explain why markups can vary so much from one dealership to another.
Why Markups Differ Between Dealers
Markups fluctuate based on factors like vehicle popularity, inventory levels, and local market conditions. For instance, economy cars tend to have smaller markups compared to luxury SUVs. As Admin, CarCostCanada points out, scarce and popular models often command prices above MSRP. Additionally, regional regulations influence whether fees are bundled or itemized, while local competition can pressure dealers to adjust their pricing strategies.
How Supply Affects Dealer Markups
When inventory levels drop, dealers gain the upper hand in pricing. With demand surpassing supply, they can skip offering incentives and still sell vehicles. By the first quarter of 2023, Canadian new car dealerships were operating with just 42% of their pre-pandemic inventory levels. This scarcity has given dealers the opportunity to tack on hefty markups.
Automakers have also shifted their production focus during these shortages, prioritizing high-margin vehicles like SUVs and pickup trucks instead of entry-level sedans. Rebekah Young, an economist at Scotiabank, put it plainly:
"A big part [of price increases] was auto makers dedicating their limited supply of components into their most profitable vehicles".
As a result, affordable vehicle options have become harder to find, while pricier, high-margin models dominate dealership lots. These higher-margin vehicles already carry significant markups, pushing prices even higher.
Adding to the challenge, manufacturers often prioritize larger markets, leaving Canadian dealerships with longer wait times and elevated prices. Between 2019 and 2023, the average price of a passenger vehicle in Canada surged by 30%, largely due to these inventory pressures. These ongoing supply issues continue to ripple through the market, creating further disruptions.
Recent Supply Chain Issues
One of the biggest culprits behind vehicle shortages has been the semiconductor shortage. These microchips are essential for modern vehicles, powering everything from brakes to navigation systems. The shortage caused factory shutdowns and slashed production levels, with Canadian vehicle production dropping to just 1.2 million units - the lowest since 1982.
The impact has been felt on dealership lots. For example, in August 2021, Jim Tubman Chevrolet in Ottawa had only 19 new cars available, compared to hundreds in a normal year. Fast forward to June 2023, when an Edmonton dealership quoted an eight-year wait for a RAV4 Prime plug-in hybrid. A floor model of the same vehicle was listed at $27,000 above its advertised price. These examples highlight how shortages empower dealers to implement steep markups.
Trade policy has added another layer of complexity. A 10% tariff on Chinese-built vehicles, effective February 4, 2025, directly impacts models like the Buick Envision and Lincoln Nautilus - vehicles that make up 93% of dealer inventory imported from China. Looking ahead, potential 25% tariffs on goods from Canada and Mexico, discussed in early 2025, could further inflate prices once current inventory buffers run out. While total new-car supply grew by 15% year-over-year by early 2025, inventory levels still lag behind what they were before the pandemic.
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How Demand Drives Dealer Markups
Dealer markups have become a hot topic, especially as supply issues give way to demand-driven pricing. When buyers compete fiercely for vehicles, dealers often tack on market adjustment fees above the MSRP, confident someone else will pay the premium. As Canada Drives puts it, "In some cases, if you don't buy a car at the price the dealer is asking, they know someone else probably will".
Between 2022 and 2025, a striking 36.6% of Canadian car buyers ended up paying these markups. Of those, 85% paid anywhere from $1,000 to over $10,000 extra. On top of that, 41.3% faced additional costs for dealer products, which added another $1,000 to $3,000 to their bills.
Dealers also use psychological tactics to tilt the scales in their favour. By emphasizing low stock or creating a sense of urgency, they weaken buyers' ability to negotiate, especially for limited-edition or exclusive models.
The growing demand for SUVs and electrified vehicles further fuels these markups. SUVs now make up over 60% of national sales, and electrified vehicles surpassed 10% of used vehicle sales as of August 2025. Dealers use this popularity to justify higher prices. These trends, combined with specific models and regional preferences, shape the pricing landscape.
Popular Vehicles with High Markups
Certain models are consistently in high demand, leading to steep markups. The Ford F-150, Honda Civic, and Toyota RAV4 are prime examples. Hybrid and plug-in vehicles also see significant premiums. For instance, the 2026 Toyota Prius lineup shows price gaps of up to $8,000 between trims. Regional incentives, like Manitoba's $4,000 rebate on electric SUVs, can further drive up prices. Add in local preferences and seasonal trends, and you’ve got a recipe for fluctuating market adjustments.
Seasonal and Regional Demand Differences
Seasonal and regional buying habits play a big role in pricing. In Western provinces, trucks dominate the market, accounting for 24%–26% of sales. Meanwhile, Atlantic Canada leans towards compact SUVs and sedans. Prices also vary significantly by region: in December 2025, BC's average used vehicle price hit $37,146, while Quebec's was much lower at $29,500.
Seasonal demand adds another layer. Features like All-Wheel Drive and "Trail" editions see a spike in winter, pushing prices higher. On the flip side, truck prices might dip during colder months. By understanding these regional and seasonal trends, buyers can better navigate the complexities of dealer pricing.
How to Avoid Overpaying on Dealer Markups
Dodging inflated dealer markups starts with understanding how pricing works.
Understanding Invoice Pricing
The invoice price is what the manufacturer charges the dealer, but it’s not the dealer’s true cost. Manufacturers often provide dealers with a holdback - typically 2–3% - and other cash incentives that lower their actual expenses. For instance, on a $30,000 vehicle, negotiating a 5% discount could save you $1,500.
"Starting your negotiation closer to the invoice amount can help ensure you're working toward a fair price while still leaving the dealer a small profit." – Canada Drives
Start your negotiations by focusing on the invoice price. Many dealers will share this information if it helps move the sale forward. Keep an eye out for optional add-ons that could sneak into the final bill, inflating the cost unnecessarily.
Once you’ve got a handle on invoice pricing, you can explore pre-negotiated deals to save even more.
Pre-Negotiated Pricing Saves Time and Money
Pre-negotiated pricing eliminates the headache of drawn-out negotiations and protects you from extra market adjustment fees. Price Driven, for example, offers transparent invoice pricing and pre-arranged deals. Canadian buyers using Price Driven have saved an average of over $1,200 on their vehicle purchases. For $99.00, you can access guaranteed pre-negotiated pricing and avoid high-pressure sales tactics or unwarranted markups.
Free Discount Reports for Better Deals
Before committing to a purchase, always get the pricing details in writing. Price Driven provides free discount reports that break down dealer-level pricing, MSRP comparisons, and trim-specific details for the vehicles you’re considering. These reports make it easier to compare quotes from different dealerships and identify any unreasonable markups.
Ask for a complete breakdown of the vehicle's price, including taxes, destination charges, and market adjustment fees. Double-check every add-on listed on the final invoice - if you didn’t request it, question why it’s there. Comparing multiple quotes gives you stronger leverage to negotiate the best deal.
Conclusion
Dealer markups often come down to the basic principles of supply and demand. When inventory is limited or a vehicle is especially popular, dealers have the upper hand, tacking on market adjustments that push prices far above the MSRP. Knowing how these dynamics work can help you spot when you're being asked to pay more than necessary.
Getting familiar with the dealer invoice is another powerful tool. It reveals the built-in profit margins, giving you a stronger footing during negotiations. With this knowledge, you can confidently push back on inflated prices or walk away from deals that don’t add up. This kind of transparency naturally feeds into better timing and smarter negotiation strategies.
Timing your purchase - like shopping at the end of the month or the end of a model year - can also work in your favour. Dealers may be more open to reducing markups when they’re feeling the pressure to close sales. Pair this with tools that provide clear pricing, and you’ll find yourself in a much stronger position.
For instance, Price Driven offers resources like transparent invoice pricing, free discount reports, and pre-negotiated deals for $99.00. These tools have helped Canadian buyers save over $1,200 on average.
Use these strategies, negotiate with confidence, and make sure every dollar you spend feels worthwhile.
FAQs
How can I negotiate dealer markups in Canada?
To handle dealer markups effectively, start by digging into the invoice price - essentially, what the dealer pays the manufacturer for the vehicle. Knowing this gives you a clear idea of the car's base cost and helps set a realistic negotiation goal. Pair this with research on current market prices and any Canadian-specific incentives or rebates to strengthen your bargaining position.
When you're at the table, focus on the total price of the vehicle instead of getting caught up in monthly payment figures. This approach ensures you see the full picture and avoid hidden costs. Be ready to walk away if the deal feels inflated or includes unreasonable fees. Familiarize yourself with common dealer expenses like freight, PDI, and taxes to spot any unnecessary add-ons. Armed with the right information and confidence, you’ll be better equipped to negotiate a fair price.
Why do dealership markups differ from one dealer to another?
Dealership markups can differ widely, and this often comes down to several key factors. For one, operating costs - like rent, staffing, and utilities - can vary by location, influencing how much a dealership needs to charge. Then there’s regional market conditions, where local demand and competition play a big role. For instance, a truck might be priced higher in a rural area where it's in high demand compared to an urban centre.
Another major factor is inventory availability. If a vehicle is in limited supply or particularly popular, dealerships might increase the markup to reflect higher demand. On top of that, each dealership has its own pricing strategies and policies, which can further impact what buyers end up paying.
Knowing these factors can make all the difference when you're shopping for a car. Using tools that offer clear pricing and pre-negotiated deals can take the guesswork out of the process and help you feel confident you're getting good value.
What additional fees are typically added to a car's MSRP?
When purchasing a car, the Manufacturer's Suggested Retail Price (MSRP) is just the starting point - additional fees are almost always part of the final cost. These typically include documentation fees, freight and delivery charges, pre-delivery inspection (PDI) fees, and taxes like GST, PST, or HST, depending on your province or territory. Dealerships may also tack on optional fees for extras like add-ons or specific services, which can sometimes be negotiated.
While mandatory charges such as taxes and freight are non-negotiable, other fees can differ between dealerships. To avoid surprises, take the time to go through the cost breakdown line by line. This way, you'll know exactly what you're paying for and can spot any charges that might be open to negotiation.
