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OT-Dealer administrative fee ?

Discussion in 'Uncategorized Threads' started by AveragEd, Mar 7, 2007.

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  1. AveragEd

    AveragEd Well-Known Member

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    I've heard of that around here when we had a "49 over" dealer. They sold new vehicles for $49 over their invoice price (and the buyer was given a copy of the invoice). The dealer retained the $49 and the "Holdback Amount" that most manufacturers pay the dealer after the vehicle is sold as his profit on each unit. The Holdback normally equates to 3% of the vehicle's invoice amount. Dealers that work under "cost-plus" systems often add miscellaneous fees like that in an attempt to recover some lost gross profit.

    Unfortunately for most consumers who do business at "cost-plus" dealerships, they quickly learn that you usually do get what you pay for when they need service. Dealers working on narrow profit margins cannot afford to keep a lot of parts in inventory and it has been my experience that the better techs in the area don't work there because they don't pay as much as other dealers in an attempt to keep their costs down. And don't bother asking for a loaner while you wait for the techs to diagnose the problem and then for the ordered parts to arrive via the slowest, least expensive method.

    One of the oldest Chevrolet dealerships in the country and also one of the largest is Sutliff Chevrolet in nearby Harrisburg, PA. Greg Sutliff graduated first in his class from Harvard School of Law but went into the Chevrolet business in his uncle Leo's parts department and later bought the dealership from his estate. Mr. Sutliff would never allow addendum window labels for rustproofing, paint sealant and such on his stock units and referred to them as "sucker stickers" in his advertising. He also would not sell any vehicle, no matter how hot it might be, for more than MSRP. I can recall seeing a ZR1 Corvette in his showroom with nothing on the windshield but the GM price label for $56,000 while the dealership across the Susquehanna River had a sticker adding a $15,000 "market adjustment" to the price of their ZR1!

    The bottom line is that quality dealerships do not need to add miscellaneous charges to their vehicle prices.

    Ed
     
  2. SirMissalott

    SirMissalott Active Member

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    Often the add on fees are a way to avoid paying any commissions to the salesmen on that amount as well.
     
  3. lumper

    lumper TS Member

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    What is interesting about car dealers is also the destination/freight charges and buried within the invoice is the dealership advertising charges.

    If you live in either southern California or pick your car up from the factory you pay the exact same amount for destination. They just use an average charges and slap that onto every vehicle. They also do the same for the advertising. I once looked at a vehicle and made an offer that was below the dealer invoice so they showed me the invoice. I told them that if they took off the dealer advertising charge we would be closer since I had never seen an advertisement for that dealership ... well I didnt buy the car and I have yet to see an advertisement for that dealership.

    There are so many things buried into the invoice and into the sales agreement of a vehicle that we all still pay far to much for vehicles ... but are usually willing to pay when we realize we could be rollin in style and luxury to our next shooting event.
     
  4. AveragEd

    AveragEd Well-Known Member

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    Lumper, that advertising charge is not for that dealership's own advertising expenses. That money is divided between the manufacturer to cover some of its advertising and the local advertising group to which most dealers belong. All the ads for any brand of car you see in magazines, billboards, newspapers or on TV or hear on the radio are paid for by that charge from the manufacturer to the dealer unless the ad specifically mentions just one dealership. If you look at an invoice, you'll see that amount appears on the dealer's side of the invoice but not on the retail side. Of course, dealers have to look at it as a cost of the sale and take it into consideration when pricing a vehicle.

    Ed
     
  5. CIM

    CIM TS Member

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    Being an auto dealer for over 25yrs I can tell you that most customers would just as soon you loose money as make it.It is so competive today that it is really hard to make a living at it.I was a new car dealer for years but when I saw the market changing in 1995 I decide it was time to sale.I had over 95 employees and they got paid every week regardless.When I sold it we were selling over 150 new and used a month.They hardly sale over 50 today.I knew the New Cra business was going down the tubes then and it is still in the tube just deeper.

    Charles Morrison
     
  6. AveragEd

    AveragEd Well-Known Member

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    Charles is right on the money! The manufacturers - every one of them, foreign and domestic - are passing more and more of their expenses along to their dealers. When I got into the business in 1964, we had as much as 30% of the sticker price as markup with which to work. Then the manufacturers started adding things to the invoice on the wholesale side like the advertising charge mentioned above. Next, there are the price increases that might be just a few percent on the retail side of the invoice but double that on the wholesale side, which is what the dealer pays. Today, a markup of just 10% is not uncommon yet many customers think that a dealer has a lot more markup than that.

    And for good reason. You probably cannot name one other item in that price range that carries so little potential profit. A $30,000 car might have a markup of $3,000 (and that would be a lot these days) while a diamond of the same price might put half of that selling price in the jeweler's pockets. And how about prescription drugs? The list goes on and that's why people understandably think that dealers are making a fortune on new cars.

    Lumper also mentioned destination charges on new vehicles. That is the same for all dealers primarily so the same new car doesn't cost $50 less at a dealership that is closer to the plant where the car in question was built. That results in parity among the dealerships and that's a good thing. But if you as a dealer elect to pick your units up at the plant, you still pay the same destination charge.

    We once had a truck ordered for a client to his exacting specifications fall off the carrier right in front of the dealership. It was on the head ramp (the sloped one over the truck's tractor) and somehow was not in gear and the parking brake was not set. When the driver removed the last retention chain, it coasted backward nicely as you please off the ramp and onto the street below. Making matters even worse, the buyer was on hand for the ceremonies - talk about your awkward situations!

    We notified Chevrolet and advised them that the buyer needed a replacement truck on the road in 10 days (and not on the road in the same manner as the first one). They really stepped up and had one built in four days but our beloved Teamsters wouldn't guarantee that they could haul it 1,000 miles to our dealership in that same amount of time so we could have two days to ready it for delivery even though one of their drivers was responsible for the whole mess. So we paid to have a truck go to Janesville, Wisconsin, to pick it up.

    And we were charged $525 in destination charges on our invoice for the privilege! When I spoke with GM about it, they told me that their contract with the union requires that charge be made to deter dealers, especially those located near a plant, from picking up their units at the plant and taking work from their members in the process - even if, as in our case, the same union was responsible for the dealer doing so! So whether your dealership is located across the street or across the country from a plant, your cars still get a ride on a truck and you still pay the same amount for that ride. GM did later reimburse us for the destination charges on that unit.

    It's a great business to be out of!

    Ed
     
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