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One Part of Buying a Car is Getting More Expensive!
By JLP | October 3, 2006
In an effort to make more money, car dealers are now charging more for document fees. Yeah, fees for PAPERWORK! According to this Wall Street Journal article ($), fees for paperwork are now as high as $900 at some dealerships. This should come as no surprise for a couple of reasons:
1. States are passing laws that allow dealerships to to either begin charging or charging more for document processing.
2. Dealerships are making less money due to incentives from struggling automakers. According to the article,
Net profit on average for dealers per new vehicle was $60 last year, down from $172 in 2004, according to the National Automobile Dealers Association. “This is a way to try to make another $400 or $500 on the sale of a car,” says John Nielsen, director of the AAA Auto Repair Network, who says he has noticed the doc fees becoming more widespread in recent years.
Of course the car dealers have their own reasons for the fees:
Car dealers say they have boosted fees largely because new federal and state rules have led to more paperwork requirements over the past five years. Federal laws adding additional paperwork requirements include Gramm-Leach-Bliley Act privacy requirements that dealers create a plan for safeguarding customers’ private information and train staff to implement it. Dealers are also placing more emphasis on certain national-security requirements required by law like checking customers against federal lists of people suspected of supporting terrorist activities and documenting that the check was done.
Besides the new requirements, doc fees generally cover the time and manpower required to process documents for trade-ins, titles and registrations. In some states, the fees also include the costs of prepping a vehicle like cleaning and inspecting it.
Yeah, right…
Regardless, car buyers have a few options in their arsenal:
1. Negotiate the fees.
2. Ask for added options in return for the fees.
3. Walk away! My guess is that the dealership will change their mind if they have a customer with the guts to actually get up and walk out of the dealership.
Although my wife and I aren’t looking to buy a car right now, I am going to file this for future reference.
Topics: Budgeting, Cars | 8 Comments »
October 3rd, 2006 at 11:31 am
If that figure of $60 per vehicle net profit is true, that’s a lot lower than I would have expected.
Of course it’s tough to say how much of that is self-inflicted. Many businesses intentionally try to avoid profits by distributing as much revenue as possible.
October 3rd, 2006 at 11:33 am
Of course, it’s always easier to negotiate on the price of a used vehicle, which has much higher profit margins than new cars. And… used cars are much cheaper. Buy used whenever possible (even if it is only 1-3 yrs old).
October 3rd, 2006 at 11:38 am
samerwriter,
Yeah, I thought that number seemed really low. I’m wondering if that takes in account any type of manufacturer’s rebate or incentive.
Also, keep in mind that the $60 is from the sale, NOT the maintenance programs, which account for a huge portion of dealer profits.
October 3rd, 2006 at 12:24 pm
We just bought a new car last week. There was a small doc fee, but it was governed by a state max — $56 or some such. Although your excerpts didn’t specifically mention it, I think the distinction here also may be between paying cash or financing. There are loads of docs with financing, and dealerships are subject to more legislation when they are acting on behalf of the finance company (Truth in Lending Act, GLB), but when it comes to a regular retail transaction, it didn’t seem to have as much impact. So in addition to Option 3 – Walk Away, maybe Option 4 should be pay cash — or maybe I just got lucky with this particular dealership.
October 3rd, 2006 at 1:02 pm
I manage a Credit Union here in Texas and and I have also noticed an increase in the documentary charges/processing fees that are pre-printed on dealership’s sales agreements.
I have found that people are less likely to question something pre-printed on the sales agreement.
A member was buying a vehicle in Atlanta, Georgia and agreed to a price of a car. He then told the dealership to delete the $599 processing fee because he would complete all the title work himself and send the title to the dealership after processing the paperwork.
They said that they could not let him complete the paperwork. He told them that they needed to delete the fee if they wanted to sell the car. They sent over a revised sales agreement without the fee within a few minutes.
October 5th, 2006 at 2:54 pm
That’s certainly something to keep in mind the next time I’m looking at buying a car. Thank you for the information!
November 28th, 2006 at 2:26 am
Last month I helped my mother buy a car in Florida (I live in Washington state), and was shocked when I spotted a $599 document processing fee. When I complained I was shown how it is pre-printed on all of their sales agreements. I argued for awhile, getting nowhere, but gave in after my weary elderly mother just wanted to finish the deal. However, it seems clear that one can demand it be eliminated or reduced, and hold up the deal if they won’t.
June 16th, 2009 at 8:06 pm
You simply have to be able say 'no, thanks at that price' at least once to the dealer. This gives them a strong message that you are serious about your research.
You should also bring a piece of paper to the dealership and make sure you do all the math of the finance calculations yourself. The point is not that they will do the math wrong. The point is you will see exactly how the deal is structured. Do not be afraid to take the time to do this or look like a fool for mapping out your car deal in the dealership.
My dad swears by this process, http://tinyurl.com/nxutm2