Dealer Add-Ons Can Unfairly Drive Up Dealer Profits» Print This Page
- October 13, 2017
- Lemon Law / Car Problems
Dealer add-ons: you may have heard the term, but are probably unsure what it means. Simply put, dealer add-ons are the additional products services which some dealers “add on” to your contract for the purchase of a vehicle. Dealer add-ons are typically divided into “hard add-ons” which include vehicle accessories and “soft add-ons” which do not involve physical parts. Examples of typical dealer add-on products include:
- Service contracts and extended warranties – extended service contracts and warranties that are beyond those still remaining from the manufacturer. These may or may not be worth it, depending on the price and condition of your vehicle.
- GAP insurance (Guaranteed Asset Protection) – intended to pay off the lienholder if the vehicle is totaled or stolen and there is a deficiency in the amount still owed to the lienholder/finance company. Often, you can get this same coverage at a much cheaper price from your own insurance company than from the dealer.
- Window etching – marketed as a way to reduce the risk of theft or a way to help recover your car if it is stolen. Sometimes, this window etching is not even done. It’s value is dubious at best because your car’s VIN number is already marked on several different components, including in locations that are not well known.
- Pre-paid maintenance plans – they are often of limited value to you, but dealers like them because they make a lot of money from them, and keep you coming back to the dealer and spending more money for additional repairs.
- Credit insurance – intended to pay off your car loan, completely or partially, if you get disabled, pass away, or are unemployed. We have found instances where a dealer sold this to the customer but never forwarded the information to the insurance company. In short, they simply stole the money and were hoping the customer never made a claim.
- Products such as aftermarket navigation systems, entertainment systems, curb feelers, pin striping, pickup bed covers, and other accessories.
According to a study released by the National Consumer Law Center, these add-on products often result in unnecessary and unfair profit to the selling dealers. The report highlights several important facts about dealer add-ons, including:
- Most of these dealer-add ons include huge profits to the dealers. The average profit margin from soft add-ons was 170%. This is far larger than the average profit margin for the actual car (new cars have a mark-up of about 3.4% and used cars have a mark up of about 8.6% markup).
- Some dealers marked up window etching by as much as 1,000%.
- The pricing for dealer add-0ns varies widely, both between dealers and between customers of a particular dealer. This means that one dealership can charge widely varying amounts for one customer than for another customer.
- Because of this wide variation, dealers can easily discriminate on the basis of race or ethnic origin. For example, the report found that Hispanics in the State of Florida experienced higher percentage mark-ups than non-Hispanics.
- Financing companies are often aware of the differences in charges between dealers and between customers of a given dealer.
Based on this report, it is not surprising that dealers spend a lot of time trying to sell add-on products to their customers. That is part of how they inflate a $10,000 used car into a $13,000 used car. Most of the profit made by dealers for F&I (finance and insurance) is derived from dealer add-ons.
Think carefully about whether you really need or want any dealer add-ons before you sign the contract to buy your car. If you see any amounts in there that you did not authorize, ask about them. If you do not believe their explanation or simply do not want the add-on, tell them to take it off the contract. If they won’t, take your business to a more reputable dealership. Remember, you have ultimate control over the transaction: if you don’t like the numbers or the service, you can simply refuse to sign the contract.Share This