Transportation is frequently the second-largest expense in our budgets, after housing. While the price of new cars continues to rise, the majority of people are looking for a decent deal. Yet, dealerships are in the business of making a profit, and they frequently do so by tacking on additional fees and levies to the sale price. Some dealers may even go out of their way to conceal fees, leaving you with a total that is surprisingly high.
How Much Are Dealer Fees?
Typically, auto dealer fees cost between 8 and 10 percent of a vehicle’s price. Yet, they can vary based on the sort of vehicle you’re purchasing and the dealer’s ability to collect money from you. Certain dealer costs, such as sales tax, are typically required by state law. Others, like dealer documentation fees, are negotiable. Whether you’re purchasing a new or used vehicle, auto dealer fees may be quite expensive, so let’s examine which ones you might be able to avoid to save money.
1. Destination Fee
Freight charges, sometimes known as “destination fees,” are the cost of transporting a vehicle from the manufacturer to the dealership. Typically, dealers will pass on this tax to the consumer, but the sticker price will not normally reflect this. The manufacturer’s suggested retail price will typically be printed in large, bold letters on the vehicle, but the destination charge will be published considerably further down in fine print.
Depending on the vehicle’s weight and shipping distance, destination costs can often add an additional $900 to $1,500 to the retail price. This number is nearly double what it was a decade ago, so it can be a regular source of frustration when searching for a vehicle. Be prepared to pay an additional $1,000 or more in destination costs for every new vehicle. Dealers are unlikely to waive this fee unless they are trying to shift old inventory. But, you should be wary if they attempt to charge you an additional delivery price in addition to a destination fee.
2. Dealer Preparation Fee
Some automobile dealers will charge a “setup fee.” It includes costs associated with preparing the vehicle for sale, such as removing plastic wrap, washing the paint, testing the fuses, and filling the tank with gas. Preparation typically takes less than an hour.
This may cost the dealer approximately $100 in labor and materials, but they may attempt to bill you several hundred dollars for the service. Some dealers have even switched from a flat cost to a percentage of the manufacturer invoice price for dealer prep.
This is one fee that you should attempt to negotiate down if it appears on an invoice. Preparation is included in the dealer’s usual operating expenses, thus they should not use it as an excuse to charge you extra.
3. Vehicle Registration Fee
The administration, registration, or doc fee is what the dealer charges to register the vehicle on your behalf with the state department of motor vehicles (DMV). This cost can be as little as $80, and at that price it is probably worthwhile. Nonetheless, some dealers have been known to charge documentation costs of $600 or more.
These businesses are attempting to nickel-and-dime you. You should generally anticipate to pay approximately $200 in paperwork fees. To fight this practice, a number of states have enacted legislation limiting the amount dealers can charge for DMV paperwork or registration fees. In California, for example, the maximum permitted fee is $55.
4. VIN Etching Fee
A growing number of auto insurers advise car owners to have the vehicle identifying number (VIN) etched on the vehicle’s glass, engine, and other components to deter car thieves. With VIN markings everywhere over the vehicle, it is difficult for criminals to sell parts without being linked to the crime. If you reside in a region with regular auto theft, VIN etching could save you a lot of trouble. Otherwise, it’s not really required.
In a few instances, dealerships have charged as much as $400 for this service to be performed during the sale, which is unjustifiable. You can get glass etching kits for as cheap as $20 and engrave the glass on your own.
5. Advertising Fee
Occasionally, dealers will attempt to charge you for advertising, including newspaper advertisements, web banners, and commercials. Advertising expenses may also be labeled as “marketing” or “solicitation” on your invoice, and you should never pay them. What type of firm, after all, charges its customers for commercials?
Frequently, dealers will advertise a car at a reduced price, but add up to $1,000 in advertising fees. Hence, you are not receiving a discount at all. It takes some deception to get your foot in the door. If the sum of the price plus the cost of advertising exceeds the sticker price, pressure the firm to reduce the fee or take your business elsewhere.
6. Window Tinting Fee and Other Upgrades
Dealers may attempt to upsell you extras such as window tint or nitrogen-filled tires to generate additional revenue, or they may charge you for them without your knowledge. For example, they may charge up to $300 for nitrogen and up to $1000 for needless rust protection. They may also charge $400 for window tinting that a professional detailer could provide for roughly $150.
Every step of the journey, a trustworthy dealer should notify you of any available improvements and provide you the option to accept or deny them. If you find any unexpected dealer options, try to negotiate their removal or order a vehicle without them installed.
7. Sales Taxes
Despite the fact that this is not exactly a dealer free, it nevertheless adds a significant quantity to new vehicle sales. Calculated after various fees, tax rates vary by state but average roughly 7 percent on average. If you purchase a vehicle for a total of $30,000, you will be charged an additional $2,100 in sales tax. This is a fee that cannot be negotiated.
Yet, there may be tax deduction benefits for items such as electric vehicles. If you trade in an old vehicle, the amount of your trade-in can be reduced from the sales tax, which can alleviate a significant portion of the expense. Not all states impose a sales tax on automobiles. New Hampshire, Delaware, Oregon, Montana, and Alaska are the five states in which sales tax is not required.
8. Extended Warranty
Frequently, dealer service departments offer extended warranties upon purchase. This plan would cover powertrain repairs after the manufacturer’s normal warranty (usually 50,000 miles or 80,000 kilometers) expires. Nevertheless, bodywork, tires, and normal maintenance are likely not covered, so careful. This additional coverage is also worthless if you sell or trade in the vehicle before the regular warranty expires.
The dealer may attempt to charge as much as $2,000 for the accessory. In actuality, an extended warranty is not required at the time of vehicle purchase. You may usually obtain one straight from your vehicle’s manufacturer just before the original warranty is set to expire, and it can be redeemed at any garage authorized by the manufacturer.
9. Dealer Markup Fee
For vehicles that are either uncommon or in high demand, dealers may impose a premium merely because they can. Customers are so frustrated by this behavior that some automakers have enacted procedures to penalize dealers who engage in it. For especially desirable sports cars, we have witnessed markups as high as a stunning $50,000 above the MSRP.
If you encounter a dealer markup, it is doubtful that you will be able to negotiate with the salesperson. In the end, the price is established because they believe someone will pay it. If you lack patience, you could absorb the markup cost, but it would be preferable to wait until the vehicle’s supply increases, so stabilizing the market. You might also contact other local dealers in an effort to negotiate a lower price for the coveted automobile.
As an incentive to transfer obsolete models or slow-selling bundles, manufacturers will sometimes provide factory refunds. Nevertheless, note that this refund is not a direct dealer discount. It comes from the automaker and is often applied to the vehicle’s down payment. This means that you may still owe sales tax on the refunded amount, but the amount may be calculated differently depending on your state.
Thus, a manufacturer’s rebate should have no influence on the vehicle’s base price. You receive a price reduction as a result of the automaker’s payment to the dealer, which is essentially a bonus. You should keep this in mind during negotiations, as the rebate costs the dealership nothing. Models with available rebates are likely the ones that salesmen are most eager to move to make room for new inventory.