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Eliminating Dealer Service Fees

June 2008, F&I and Showroom - Cover Story

by Chad Simon - Also by this author

Earl Stewart has spent 33 years serving as the owner and general manager of a Toyota dealership in North Palm Beach, Fla. He's also the man lobbying the Florida state legislature to eliminate what has been a profit staple at many dealerships across the country — dealer fees.

Some have called Stewart's plight self-serving, accusing him of trying to gain favor with consumers. Stewart doesn't disagree, but his main purpose is to even the playing field. Since he stopped charging fees five years ago, his Earl Stewart Toyota dealership went from the No. 3 volume Toyota dealership in Palm Beach County to No. 1.

"From a selfish standpoint, if I advertise a car for $25,000 and another dealer advertises the same car for $24,500, but he's got a $1,000 dealer fee, he can make more money on the car than I can and I'm advertising a higher price," he said. "It's not a level playing field. So all I can do is advertise that I don't charge a dealer fee and that's what I do."

During his testimony before the Florida Senate Commerce Committee, Stewart said dealer fees were unjust because dealers hide the fees among a batch of legitimate state, local and federal fees. Most of the time, he added, customers think the fees are required by law.

The problem is that dealer fees can go by at least 22 different names, so there's no standardization and no limit as to how much a dealer can charge. Regulations vary by state and some cap the amount dealerships are allowed to charge.

The Florida Automobile Dealers Association (FADA) contends that laws governing how dealer fees are advertised already exist. "The concern this one dealer presented was that all dealers wanted to advertise on a perfectly even playing field. It was the opinion of this one dealer that because dealers charge a fee, it gives them something that in some ways disguises the true price of the car," said Ted Smith, president of FADA. "We have to ask ourselves, do we have a law that keeps the consumer aware of the price of the car. If we do, maybe what the dealer is saying is ... that it's a case of enforcement problems."

The Florida Deceptive and Unfair Trade Practices Act states that dealer service fees must be included in the vehicle's advertised price, but there are several different interpretations of what that means. It's why Florida Senator Alex Diaz de la Portilla is drafting a bill that provides a framework for governing dealer fees.

Defining Dealer Fees a Challenge

Most auto dealers in the United States charge customers a dealer service fee for tasks such as documentation preparation, but the practice has come under scrutiny in recent years by some who claim it is a means of price gouging when the fees are not properly disclosed to the consumer.

Current Florida law states that dealers may not pass on any costs reimbursed by the manufacturer. They must be specific fees a dealer would incur as part of delivering the vehicle. At the recent Florida Senate hearing, the Commerce Committee determined that dealer fees were one component in the entire negotiated sales process.

The FADA's position is that use or nonuse of a fee is a dealer's choice. It argues that dealers are already required to list and explain all fees on the buyer's order, whether they are for F&I document preparation, vehicle inspections, or cleaning and adjusting the purchased vehicle.

"Whether or not a dealer charges a service fee and how it is advertised is a pricing decision in its purest form. We don’t believe any legislature in the country should get in the middle of telling dealers or any other retailer what they can charge for a profit," said the FADA’s Smith. "Since 2004, there have been nine complaints about dealer service fees, which is not an alarming number in a $50 million industry in this state."

Comment

  1. 1. Lewis Lyons [ August 16, 2013 @ 08:32AM ]

    I came to a price for a car then he told me about the dealers fee. This raised the price up another $495.00 I said no.

  2. 2. Robert [ October 31, 2013 @ 09:29AM ]

    There are only 9 complaints because people don't want to waste their time shopping at a dealer where they know they are gonna get taken. A lot of folks with crappy credit just suck it up. I was just about to finance a car from New Smyrna Chevrolet, then they told me about a $799.00 dealer fee. Hello, my payment is 175 per month, that means I'm making 4 1/2 payments on a 42 month loan just to pay their dealer fees, no way
    Florida Senate Listen up....I spent all of my professional life in the automotive industry. There is no reason other than greed and profiteering for these fees. What ever happened Giving a customer a fair price on trade allowance, running the car through the service department and adding that to the total price? Actually that is done but then here comes the dealer fee...
    I'd sooner pay the 400-1000 that is charged to ship a vehicle here just to starve out the dealers in Florida who charge a marked up dealer fee.

  3. 3. W. Nickles [ October 17, 2014 @ 01:55PM ]

    These "Document/Dealer/Prep" or whatever name they call them fees clearly are intended to mislead the buyer into thinking the "Price of the car" is X when in fact that is not the case because of these greed fees, especially in Florida. The SAME document fee in NY is capped at $75, a reasonable fee to process and record all purchase data. Florida commonly charges $699 for exactly the same process - $600 clear profit! And the salesperson does not see one penny of that fee. Florida leadership needs to enact a fair automobile purchase policy that forces dealers to disclose their "invoice" for the vehicle, list all repairs done and costs related to these repairs, a reasonable documentation/prep/processing fee (under $150) and their profit formula, either a fixed amount or a sliding % based on vehicle market value. BUT we all know that would never fly with the often deceptive, bait and switch snake -oil- sales, that often times drive (no pun) the used car market.

  4. 4. J Craig [ February 05, 2015 @ 06:24AM ]

    top of dealer fees yhe owner of the francise gets a hold-back payment from the factory that the salesman doesn't see

  5. 5. Daniel Morgan [ April 23, 2015 @ 08:19AM ]

    From a cost accounting perspective, the price at which a product is sold includes ALL costs plus profit. A car dealer has a variety of different costs of which the actual cost of preparing documents is relatively small. Particularly in this age of computers. A curious person would ask a dealer why it only charges extra for documentation?

    The answer is clear. Dealers use the document fee for a variety of reasons. One is so they can advertise a lower price, keeping the doc fee in ultra small print, which should result in more visits to the dealership. Second, dealers choose the word fee to lend some degree of false legitimacy to the charge. Many unsophisticated buyers simply accept anything called fee to be mandated by the government.

    In the end, Mr. Stewart is correct. The document fee is simply a deceitful tactic dealers use to increase profit. Our elected officials permit this because of the money they receive from the dealer association.

    In the end, a smart buyer can easily outwit a dealer playing this game by simply adjusting the price offered to compensate for the document fee. Unfortunately, as with many aspects of a car sale, it is the unsophisticated buyer who is harmed by the document fee game. Just one of the many valid reasons car dealers are held in very low regard by the public.

  6. 6. anthony more [ October 01, 2015 @ 11:58AM ]

    hi
    dealer fees are a rip-off. i just bougght a lexus and was charged a dealer fee, it was masked in the first sheet that i signed.

    698 dollars a ripoff

  7. 7. JJ Stives [ October 17, 2015 @ 11:03AM ]

    I totally agree with Stewart. The only way to improve this is to walk away when you see these nebulous "fees" added to the original agreed price. Selling cars is competitive. If the dealer fights for his questionable add-ons, the buyer should walk every time.

  8. 8. Gabe [ November 24, 2015 @ 07:06AM ]

    Many states have capped fees. See this article for the list: https://www.cars.com/articles/2014/06/everything-you-ever-wanted-to-know-about-a-dealer-doc-fee/

    Many states are capped at less than $100 and almost all states with a cap are less than $200. Here in central Florida it's common to see dealer fees around $700 and over $1,000 isn't uncommon. Advertisements flash in ultra fine-print in the middle of a paragraph that the price is "plus dealer fee" on a TV ad for less than 10 seconds and that supposedly fits the current laws for disclosure. My next favorite extremely dishonest practice is the "price includes $3,000 of your trade equity or money down" clause. We have an RV dealer that's including $75,000 in your cash or trade equity in their monthly payment they advertise. It's disclosed in ultra fine print that's on the screen for four seconds so it's fair, right? They've been running the same add for years so apparently it's fine with law makers.

    I have a very simple fix that's used in some other industries. Here's how the law needs to be worded "Advertised prices must include all money required from the buyer in the same font, same font size, same color and for the same amount of time displayed in all advertisements."

    If written and actually enforced, this would virtually eliminate all of the intentionally deceptive ad practices we have in Florida in a matter of a few months. With how simply I've laid out the way to fix this, I guess the ball's in the lawmaker's courts at this time and I can't think of any reasonable reason a lawmaker wouldn't want to make a law like this to protect it's citizens from the current unfair sales practices that are so common in this state.

  9. 9. Steven Duke [ January 15, 2016 @ 01:04PM ]

    I was thinking of buying a new Tacoma at ZT Motors of Fort Walton Beach. There were three fees having to do with my license plate (349.00 + 100.00 + 69.00 = $528.00....YIKES) I am now visiting other Toyota dealerships within a hundred mile radius.

  10. 10. Jason Williams [ March 14, 2016 @ 02:52PM ]

    As an Auto Sales Professional with well over 19 years' experience, I can tell you even as a Salesperson, I do not like them. They do not pay commissions on the fee. So here I am explaining the fee and I never see a penny of it. That is unless you have a dealer that uses it to pay their Salespeople. Think about it, the customer is paying the commission to their Salesperson. It is not coming out of the profit. So dealers are implementing this fee across the United States.

  11. 11. GERRY VAUGHN [ April 08, 2016 @ 04:11PM ]

    WHAT IS THE FLA STATE STATUTE NUMBER THAT RELATES TO DERALER FEES?? I HAVE NOT BEEN ABLE TO FIND IT.

  12. 12. edmund walsak [ December 15, 2016 @ 03:43PM ]

    complaints should be addressed to Atty.Gen. Pam Bondi Talahassee and an iinquirie made as to whether the dealer lobby ( like others) have contributed to her campaign,

  13. 13. maurice pouliot [ April 09, 2017 @ 09:49AM ]

    Not only the dealer fee, they also put another paper after the RSMP price and add 300. or 400. dollars more to the car .Is that allowable ?

  14. 14. charlie [ July 05, 2017 @ 07:19AM ]

    Negotiate price before paper work is completed, Than when dealer fee appears, demand it be taken off or get up and leave. You will win out, no way are they going to lose dealer over this fee.

  15. 15. Michael B [ September 19, 2017 @ 11:18AM ]

    This dealer fee is crazy. I went into a dealer this past Monday, when we were going over the figures, there it was.....the dealer's fee....$800. Told the salesperson I've never paid, nor will ever pay the owner of the dealership a fee to purchase a vehicle from them. The way I explained it to the salesperson, was like this......Let's say I own an DD, you come in for that $2.00 cup of coffee, you give me the $2.00 for the coffee, but then I say, wait a minute there is an $5.00 owners fee as well, so now that cup of coffee will cost you $7.00. He looked at me like a deer looking into headlights, looked down at the paper work, and crossed it off immediately. I told him I would be willing to pay that fee when and if there is a law on the books stating that I must do so, whether it is a FL state law or federal law.

 

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