The Three Dirtiest Words in the Car Business: Adjusted Market Value

Adjusted Market Value: What Every Car Buyer Needs to Know

If you’re like most car buyers, "Adjusted Market Value" (AMV) is a term you’ve probably never encountered—until you’re standing in a dealership, wondering why the price you saw online is suddenly 10% (or more) higher. This unexpected price hike can leave buyers with a few options: "I’ll just wait," "I’m going to shop around," or my personal favorite, "You’re trying to rip us off!"

Let’s address the elephant in the room: Yes, prices are going over sticker nearly everywhere. For those hoping to wait out the market, thinking it’ll improve in a few months—well, think again. The supply chain issues plaguing the auto industry aren’t going away anytime soon. What many thought would be a short-term problem is now extending into years, not months.

The accusation that dealerships are "ripping off" customers is what really grinds my gears. So-called "car experts" on YouTube and other platforms are quick to advise consumers to blacklist dealerships charging over MSRP. I recently watched a video by Car Care Nut, a popular channel with nearly 175,000 subscribers, where the host spread misinformation and gave what I consider terrible advice on car buying. The truth is, dealerships nationwide are charging over MSRP, and it’s not just a few bad apples—this is happening industry-wide.

Why Are Dealerships Charging Over MSRP?

Let’s break it down. Dealerships are not immune to the economic pressures everyone else is feeling. In fact, their operating costs have risen significantly this year due to inflation—more accurately, stagflation. Large dealerships with hundreds of employees once relied on high-volume sales to cover their costs. They could sell 500+ units a month at or below MSRP and still turn a profit. But with new cars becoming scarce, those sales numbers have plummeted, leaving dealerships with no choice but to raise prices over MSRP by around 10% to stay afloat.

Experts who criticize this practice seem to forget that dealerships are facing the same inflationary pressures as everyone else. They’re paying 10% to 20% more for everything, from employee wages to utilities, and even for trade-ins. Yet, these critics expect dealerships to stick to MSRP, despite the fact that many are struggling just to keep the lights on.

And let’s not forget the trade-ins. Yes, they’re fetching record-high values—around 10% more than last year—but that increase is often offset by the higher prices for new cars. The so-called experts like Car Care Nut fail to realize that a dealership can’t go from selling 400-500 cars a month down to 100-200 and still operate as if it’s business as usual. They simply can’t. They’re in survival mode, much like restaurants that had to raise prices due to social distancing rules, higher wages, and soaring food costs.

Inflation is Everywhere—Not Just in the Car Market

We’re seeing inflation in every aspect of our lives. Bacon costs 30% more this year than last. The housing market is insane, with short supply and high demand driving up prices. The car market is no different. Why should a dealership that’s already under stress with low inventory sell a car at MSRP when there are dozens, if not hundreds, of buyers willing to pay more? The market dictates prices, plain and simple.

Consider this: Why should a dealership give you top dollar for your trade-in and then turn around and sell you a new car at MSRP? Does it suck? Absolutely. Is it our current reality? 100%.

Just a few months ago, it wasn’t uncommon to see a 2019 or 2020 used car with 10-20k miles selling for what a new car’s MSRP was. People paid those prices because they didn’t want to wait for a new car. This drove new car prices up, too.

The car market right now is a lot like the stock market—volatile and unpredictable. Around June, trade-in values were through the roof, and new car prices followed suit. Then, Hurricane Ida wiped out a quarter of a million cars, and manufacturers cut supply again. Prices have been steadily climbing since.

The Reality of Car Buying Today

The "experts" may think they’re giving sound advice, but in this market, it’s far from realistic. If you’re shopping for a "good deal" on a used car, be prepared to find yourself buying something unreliable. If it seems too good to be true, it probably is. Why would a reputable dealership offer a great deal on a used car right now? Be wary if they do.

As for new car deals, forget about them. TrueCar and Costco pricing are relics of the past. Amazing rebates and interest rates are virtually nonexistent. If a salesperson quotes you a price over the phone or online, it’s almost certain they’ll inform you of an Adjusted Market Value once you’re in the dealership—typically around 10%.

The Best Advice for Car Buyers Right Now

If you want the best advice, be prepared to wait two years for the supply chain to sort itself out and keep driving your current car. We live in an instant gratification society, and that’s a big reason why people trade out of 3- and 4-year-old cars. But the car you’re driving can likely make it to year 5, 6, or even 7. If you absolutely need a new car, make sure you’re trading in a used one. Fight for your trade-in value and remember the tax savings that come with it. Shop for interest rates at banks and credit unions before you visit the dealership. That’s the smartest way to buy a car right now.

If you can only afford a pre-owned car, scale back your expectations. If you have caviar taste on a McDonald’s budget, stick with the Happy Meal and don’t overextend yourself. The worst thing that could happen is ending up severely upside down on a car in a few years. Wait for 2-3 years, use the car for its utility, and skip the frills that drive up the price.

Some people think they can just wait a few months for the market to improve. But there’s zero chance the supply chain issues will resolve themselves that quickly. The complexities of the supply chain, from truck driver shortages to material scarcities, mean it will take a long time to get back to normal. The headlines may focus on big issues like ships sitting off the coast, but the smaller supply chains are just as, if not more, complicated.

Final Thoughts

So, if you need a car, buy one. But do so with realistic expectations. Expect to pay over MSRP at most dealerships for new cars, and be prepared to pay a premium for used ones. It’s simple supply and demand at play.

And if you can wait, then wait. But if you decide to buy, go in with your eyes wide open and understand the reality of today’s car market.