Monday, February 10, 2014

Dealer Installed “Options”, Not Optional

I’ve written many articles about the infamous “Dealer Fee”. There’s another very common trick that most dealers use that is equally prevalent, deceptive and called “dealer installed options”.

Dealer installed options are products that have very low cost and value that have huge markups. Typically they are preinstalled on all of the dealer’s cars in inventory, with the exception of a few “ad cars”. These ad cars are ordered in small quantities, stripped of factory accessories and often without even an automatic transmission. They are typically ordered in the least desirable color and trim. The advertised car also either pays no commission to the salesman or a very small one. Typically only one car is available and when you ask to see it, the salesman will tell you that it’s been sold.

The advertisement will sometimes say, “Many cars are available at similar prices” or words to the effect that there is more than one, but they are all priced higher than the one car advertised. The dealers will put a stock number in the fine print. This is the stock number of the advertised car and is the dealer’s defense for having only one car (which was just sold) at that low price. Even if you are able to read the fine print, seeing something like “#6339A” is not something that would give anyone a clue that this means there’s only one car available at this price.

I recently sent a mystery shopper in to investigate an advertisement by a South Florida dealer who was advertising a new 2014 Toyota Corolla for $14,988. The shopper was told by the salesman that this offer was for only one Corolla and it was a stick shift. When she asked to see the car, the salesman said the car was “unavailable”. Then the salesman explained that all of their other Corollas had an additional charge of $897. This was for “dealer installed options” consisting of pin stripes ($199), floor mats $299), and nitrogen in the tires ($399). The dealer’s approximate cost for these items is about $100, about a 900% markup! There was also a charge of $24.99 for an “electronic filing fee” and $75 for a “Tag Agency Fee”. These sound like state fees but they are not, only costs from subletting to outside private companies being passed along to the car buyer for more profit to the dealer. The bottom line is that the car advertised for $14,988 really cost $15,985, almost a thousand dollars more!

What I’ve described above is the rule, not the exception, with most South Florida car dealers. The only way to avoid this sort of thing is to insist on a bottom line price. The only charge you should pay in addition to an advertised or quoted price is state sales tax and fees for the license tag and registration. You can check with the Florida Department of Motor Vehicles to confirm what a tag and registration costs. Costs the dealer may claim he incurs for obtaining these like “electronic filing fee” and “tag agency fee” are bogus charges which simply reimburse the dealer for his normal operating expenses. When you pay a dealer for his expenses, you are paying him a higher price and profit on the car. The law requires that this be disclosed as a dealer fee and included in all advertised prices.

As far as “dealer installed options” go, the safest bet is just don’t buy them. Make it clear from the beginning that you insist that all options or accessories be factory installed. If a dealer won’t agree to this, don’t buy a car from him. If there is an option the factory doesn’t offer that you want to buy, be extra careful to compare prices on that option with others who offer the same thing. The only reason dealers install options on cars is because they can mark them up exorbitantly as in the “900%” example above. Also, remember that dealer-installed options are not warranted by the manufacturer of the car and their quality is not as high.

By getting at least three out-the-door prices on the exact same year, make, model car you want with identical MSRP’s you are assured of getting a good price. Don’t be fooled by “dealer list” which many dealers quote you to make you think it’s the manufacturer’s suggested retail price, MSRP. Also, do the same thing with getting the best price on your trade-in and the best rate on your financing. Shop your trade-in just like you want to sell it without buying another car. Be sure you check interest rates with your bank or credit union and another bank just be sure.

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