W ORCESTER $1.25
October 16, 2006 • Volume 17 Number 18
The Business Newspaper for Central Massachusetts / Metrowest
Auto dealer fees: cost recovery or padded profits? B Y K E N N E T H J . S T. O N G E
shrewd car buyer may be able to talk a few hundred dollars or more off the price of a vehicle, but when it comes to the paperwork, that’s unlikely. “Documentation fees” - charged by dealers to process the registration and other paperwork on a car purchase - have increasingly drawn the ire of consumer groups, lawyers and politicians in certain pockets of the country. Their complaint? The fees have become an extra profit center for car dealers that allows them to pad the final price of a vehicle. Dealers, however, counter that the fees are a cost-recovery mechanism, that allows them to recoup the increased expense of record retention, registration processing, and ensuring they meet the legal responsibilities to the lenders they arrange financing for that all paperwork is completed thoroughly. Worcester-area fees vary widely between dealerships. Harr Toyota in Worcester charges $594.50 for the service; its sister Ford dealership next door charges $294. Sunnyside Ford in Holden has no documentation fee. Most Worcester-area dealers
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F E AT U R E
Recent moves to rein in doc fees Legislation to set caps and disclosure rules pending Class action lawsuits over doc fees pending Cap on doc fees recently raised ($100 in MI, WA, MD, $55 in CA and $250 in OH)
Look below the line on doc fees continued from cover fetch between $250 to $350. And in recent months — amid a slumping car market nationwide — dealerships here and elsewhere have upped those fees. No Bay State law or regulation sets caps on documentation fees, but moves are underway in several other states to impose ceilings on the fees through state legislatures or courts. California recently raised its cap on documentation fees from $45 to $55. Ohio recently upped its cap on paperwork fees from $100 to $250. Michigan, Washington and Maryland have recently raised caps on documentation fees to $100, and similar legislative moves are pending in Alaska and New Jersey. The Connecticut supreme court last month was asked to declare a $300 documentation fee as too large a profit margin, and allow a class action suit against dealers to move forward. Similar classaction suits are also pending in Arkansas and Florida. None of the three states have mandated caps. Although documentation fees in Massachusetts have yet to be tackled by the legislature or in state courts, it seems only a matter of time before somebody raises the issue. 18
Worcester Business Journal • October 16, 2006
Buyer beware Dealers typically figure documentation fees as below the line costs, meaning they appear below the sub-total and are generally non-negotiable, like a tax, title or registration fee. In many dealerships, documentation fees are the only cost item pre-printed on a purchase and sale agreement. Remar Sutton, a long-time consumer advocate and national spokesperson for Digital Federal Credit Union’s Streetwise consumer education program, says dealers do so to imply that the charges are required, when in fact they are not. “It’s just another place to make a profit,” he say. And those profits can be big, Sutton estimates. The cost of processing a registration is probably no more than $10 to $20 - meaning hundreds of dollars in dealer profit on each vehicle sold. That, of course, does not take into account any profit or loss made on the sale of the car, however. “It’s a fabulous way to increase profits,” says Bernard Brown, a Kansas City lawyer who specializes in suing car dealerships for fraud. “You can agree to sell a car for $15,000, but then add $450 in fees on the form and say ‘oh well, that’s standard.’” David Williams, executive vice president of the Massachusetts State Automobile Dealer’s Association, has another name for it: Cost-recovery. Dealers, he says, have been forced in recent years to shoulder additional costs for paperwork to cover long-term record storage, processing fees and other overhead. Car documentation fees are analogous to mortgage closing costs, and a reasonable piece for the transaction, he says. But neither Sutton nor Williams say regulating the costs would be beneficial to dealers or consumers. Both say that the notion of buyer beware should follow consumers into a dealership. Sutton says consumer education is the best way to offset fees. Williams says that full and fair disclosure of all items on a purchase and sale are the best solution. Both say it’s on the consumer to determine whether he or she is getting a fair deal. Beth Stone, spokeswoman for Attorney General Tom Reilly agrees with that sentiment, and says that that car-buyers should pay special attention to the fees before purchasing a vehicle. Service for fee varies Just as the fees vary between dealers, so do the services it covers. At some dealerships, documentation fees include the $29 mandated inspection sticker. Others charge for the sticker over and above the documentation fees. Some dealers also use the fee to pay for promotional items that go with new car sales, such as keychains, hats, or a full tank of gas. www.wbjournal.com
F E AT U R E PHOTO/JEFF LOUGHLIN
At almost all dealers, the fee covers the cost of processing a new title and registration for a car. But that cost is minimal, says Marc Lamoureux, vice president of Lamoureux Ford in East Brookfield. Most dealerships are part of the RMV’s DRIVE program, which allows dealers to register and put plates on the car at the dealership. Before the program, launched in the late 1990s, dealers would pay runners to take registry forms to insurance agents to be counterstamped, and then to the RMV for processing,
fee. “We never thought that we should charge to process paperwork.” But most of his customers hardly notice, he says. In past years, Sunnyside had advertised the fact that it charged no fee. Now, Harrington says, he assumes that customers have parsed through several other dealerships and have a good idea of the final price before they buy. “We just try to give a good price and not tack on any extras,” he says.
At Lamoureux Ford in East Brookfield, the $149 documentation fee pays for an inspection sticker, processing the title and registration, a tank of gas, promotional trinkets, and a tin of cookies mailed to the customers after the sale, says Vice President Marc Lamoureux.
Kenneth J. St. Onge can be reached at kstonge@wbjournal.com
No one has challenged documentation fees in Massachusetts, but it seems only a matter of time before somebody does
While the RMV does charge a small fee for the transaction, the overall cost is probably cheaper under the DRIVE program than before, he says. “It’s a way to earn back a little profit,” Lamoureux says. His dealership charges a fee of $149 - below average for the area - that includes an inspection sticker, a tank of gas and some promotional items. He also sends a tin of cookies to every car buyer, paid for with the proceeds from the fees. Lamoureux raised the price a little over a year ago from $89. “They should re-label the fee and call it additional dealer markup,” says Daniel Harrington, owner of Sunnyside Ford in Holden, one of the few area dealers that charges no documentation PHOTO/COURTESY
Documentation fees are a way for car dealers to squeeze excess profits from buyers, says Remar Sutton, national spokesman for Digital Federal Credit Union’s Streetwise program. www.wbjournal.com
October 16, 2006 • Worcester Business Journal
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