Wednesday, October 30, 2013

Dealer Installed Options and Adminstrative Fees - the latest gag.

New 2013 Nissan Frontier SV $26,750**

**Disclaimer: Prices plus tax, tag, dealer installed options and fees including $55 private tag agency fee and $599.00 pre-delivery service fee
Buying a brand-new car is never a good idea.   Things like "Internet Pricing" and pricing services like Kelly Blue Book (KBB), Edmunds, and TrueCar, would seem at first to level the playing field for the consumer.   People like to think they can outwit a dealer this way, but dealers are constantly coming up with new "gags" to pad and obscure the price of a car.
The latest "gag" the Auto dealers are using to hide the cost of a car, is to add on "Dealer Installed Options" to confuse you about pricing and to pad the price of the car.
For example, the car shown above is advertised for $26,750.  This sounds pretty cheap, until you realize that you can use any online price service, such as TRUECAR to drive down the price considerably - to about $23,147, which of course is a lot better.
So you call the dealer and he says, "Come on down!" and you think, reasonably, that the price of the vehicle is $23,147.  This includes the list price minus any incentives, rebates, markdowns, etc., plus the cost of shipping.
Of course, there are the normal "hidden costs" of buying a car, such as sales tax, and titling fees, which come to $1700 in my State.   So $23,147 is now $24,847.   OK, still a cheap car under $25,000.
But the dealer adds in a "$599 administrative fee" - some call it "document prep" or "vehicle preparation" - basically profit to cover their overhead of washing the car for the nice photos and to pay for secretarial help.   Some websites suggest you should not pay this fee, or at least negotiate it down:
And as you might guess, "Friendly Al" at the dealer didn't mention this $599 fee, which appears in fine print on the Internet Ad, until he is asked point-blank about it.    Salesmen can't lie, outright.  But they can lie by omission.   And if you don't ask, they won't tell you about the $599 fee or what is considered a "Dealer Installed Option".
Of course, if you do something stupid like trade-in your old car, they will just adjust the price of that accordingly, or pad the financing price.  The simpler you can keep any financial transaction, the easier it is to figure out the real price involved.
But what about dealer installed options?   The local Nissan dealer adds their "Safety Package" for a whopping $1685.   What is in this package?
Well they tint the windows.  This sounds expensive until you realize that on this model, the rear windows are already tinted, and that a tint job in Florida is less than $100 - maybe $50 if done in bulk.
They add a few options - the step rails shown above ($184) and wheel locks ($44) and rubber floor mats ($115).   The car comes with standard floor mats, for free.  They also add a pinstripe, which is maybe $50 and that's being generous.
So this comes to about $500.  How do they pad the price of the car by over $1000?
Well they add "One year free roadside assistance" - which is essentially worthless, particularly if you already have AAA.   And they throw in "free oil changes for a year" which means two oil changes with Dino oil - a $39.95 value each, at Jiffy Lube.
So where does the rest go?   Well, no doubt they add in "labor" to "install" the side rails and other items and pad out the price accordingly.
The point is, you don't know in advance, unless you ASK, what "options" are installed on the car, even if you have an "Internet Pricing Deal!"   And not surprisingly, they get really vague on the phone about what these options are.   If you can even get them to say, they usually just give you the flat fee for "the safety package" (how this makes the car safer is anyone's guess).
And you had better be astute, as they will try to tell you than some things that were installed at the factory were "Dealer Installed Options".    Floor mats, bedliners, trailer hitch, and cargo extender, for example, are all factory options on this truck, but that doesn't stop the dealer from trying to add one or more to the list of "Dealer Installed Options".
So you take your stupid Internet Pricing Certificate (such as from TrueCar) to the dealer and they snicker at you, because most of that "discount" has been wiped out by "Dealer Installed Accessories".  You think you are being clever and smart by clipping coupons, but once again, "the man" has beat you to the punch.
And at that point, the vaunted ease of "No haggle Internet Pricing" is shot.   Because you will spend hours - as many as four or five, trying to argue down these penny-ante items which collectively, add up to over $1000 to the sticker price of the car.  (The dealer will argue that since they have already been added to the car, they cannot be removed - except for an additional fee.)
And a lot of people do this - spending hours at a dealer, being worn down, until they finally throw in the towel and say "to heck with it, I just want to get out of here!"
So you see what has happened here.   The dealers have found a neat end-run on the "no haggle" pricing.   They quote you a price on the Internet, and when you get in the door, they show you another price quote, with "dealer installed options" added on.  Dealer installed options that are often gimcracks and garbage and not worth much - but are wildly overpriced.

How do you avoid this?
   Well, buying used is one way.   You can't lose at their game, if you refuse to play the game.  The same truck shown above, in a different color, with 10,000 miles on the odometer, is for sale an hour away for $21,400 from a private owner.  In fact, two such trucks could be easily found on Autotrader.  Yes, that is a savings of about $5000 when all is said and done.  And the private owner has added the side rails and a tonneau cover ($500 value) as well.
A used car seller isn't going to play this bait-and-switch game with you, telling one price on the phone, and then jacking the price when you arrive.
It also illustrates how much a car depreciates in the first year of ownership.   Here, a $26,000 truck drops $5000 in value - about 20% in just 10,000 miles.   Those first 10,000 miles cost 50 cents a mile to drive!
The other advantage of buying used, is that when you sell the used vehicle, you lose a lot less in depreciation.   Let's say two people buy these trucks, and one pays $26,000 at a dealer and the other pays $21,000 secondhand.  Each keep their cars about 5 years and put 75,000 miles on them.   At that point they are used cars, one with 75,000 miles on it, and the other with 85,000 miles on it - the difference in resale is negligable.  They are both worth about $12,000 at that point.
The new car buyer takes a hit of $14,000 in depreciation or 18 cents a mile.  The used car buyer pays only about $9000 or about 12 cents a mile - a 50% decrease in cost-per-mile.   Of course both buyers do far better than the fellow who bought the truck new and sold it in the first year - he got hammered with the most depreciation.   That's why a late model used vehicle is the best bargain - it has taken the biggest hit in terms of depreciation.

FOOTNOTE:   Deceptions like this are perfectly legal, since the "disclaimer" mentions that other items may increase the price.   Dealers also do very despicable things that are also legal.  For example, they sell a car on credit to a buyer and slap temp tags on it.   Two days later they inform the buyer than the interest rate on the loan is higher than expected.   The buyer cannot "take the car back" as it is no longer new.  Or, if used, the dealer will claim the "trade-in" was sold at auction already.  This is perfectly legal, and one reason you should NEVER take possession of a car, until it is paid for.

The point is, car dealers have 1000 sleazy and yet legal tricks to fool you into spending far more money than you intended, on a new car.   The only way to win at this game is to not play.