Car shoppers can face thousands of dollars in opaque fees, but the industry is working to adapt
The Federal Trade Commission issued a warning to more than 200 auto dealerships: stop advertising cars online with dubious discounts or thousands of dollars in hidden fees.
Not all dealers got the message.
Opaque pricing remains pervasive in the industry, according to firms that help consumers negotiate with car dealers.
Across 500 car sales it aided from December through April, the Chicago-based shopper service CoPilot found that 59% of those sales included discretionary fees not advertised in the online price.
“The price you see online most of the time is not actually the price you’re expected to pay to take that car home,” said Michaela Baker, CoPilot’s co-founder and head of product management.
The study focused on used cars. But the tactics are common in new-car sales as well, Baker said, including after the FTC’s warning.
CarEdge, another car-buying aide, analyzed price quotes from more than 10,000 new and used dealers. It found meaningful differences between the advertised price and the actual, itemized quotes for nearly 40% of dealers.
That is only among the dealers that provide itemized prices in writing. Most don’t, said Zach Shefska, CarEdge’s chief executive.
“There is still endemic price misinformation on the internet,” he said.
Take the case of a lightly used Dodge Charger that caught the eye of one CoPilot customer in late April. A Pennsylvania dealer advertised the car for $35,490.
But in a string of 21 emails over three days, the car shopper learned that the price was actually $40,025, plus a $490 documentation fee, according to a transcript provided by CoPilot. The dealer, Quakertown Mitsubishi in Quakertown, Pa., did offer a $2,000 discount if the buyer financed through the dealership.
The sales manager at the dealership explained that the online price is based on “eligible discounts” that, as detailed in a disclaimer on the site, not everyone qualifies for. When the shopper pushed for the advertised price, the dealer wouldn’t budge.
“This is a corporate advertising decision and at the prices I provided we are priced competitively with similar vehicles on the market,” the dealership’s sales manager told the buyer.
Neither the sales manager nor the dealership responded to requests for comment.
A spokeswoman for the National Automobile Dealers Association said that anecdotal reports from various dealers indicate that compliance with the new FTC rules is increasing, but that car-price advertising can depend on several factors.
“The FTC’s stated expectation across multiple industries—that consumers see an advertised price that includes all costs associated with a product—is a reasonable one,” the spokeswoman said. “In some cases, dealers cannot achieve compliance through changes to their own advertising alone as other entities such as vehicle manufacturers, web providers, and third-party vehicle listing sites routinely participate in dealer ads.”
She added that the NADA is working closely with the FTC to educate dealers, manufacturers, and other groups about the agency’s compliance rules.
Christopher Mufarrige, director of the consumer protection bureau at the FTC, also said many dealers have taken steps to become more transparent.
“I have been encouraged by the reaction. That said, you’ve always got your bad apples out there,” Mufarrige said.
The agency is preparing to enforce its warnings after allowing the industry an “adjustment period” in which it plans to publish answers to common questions, he said.
When it put dealers on notice in March, the agency described a number of tactics that it considers deceptive.
One major disruption: the expectation that advertised car prices include all mandatory fees other than sales taxes and registration fees, said Adam Crowell, chief legal and strategy officer at KPA, a firm that helps automotive dealers with compliance.
The FTC’s warnings about hidden fees were more than just a finger-wag.
The agency in April announced a settlement showing the potential costs for dealers: Lindsay Automotive Group, a Maryland dealer of Chevrolet, Ford and Chrysler vehicles, agreed to pay up to $75 million in restitution to consumers and a $3.1 million penalty for advertising false prices and stuffing transactions with unwanted add-ons.
“It did freak out a lot of dealers,” said Scott Painter, chief executive of car-buying site TrueCar. “These fines are not insignificant.”
Lindsay Automotive Group didn’t respond to a request for comment.
By far the most common dealer charge—not always advertised in the price—is the documentation, or “doc” fee, which dealers assess for completing sale paperwork.
The fee is so ensconced that many states have implemented a cap on it. Some dealers charge a separate, usually lesser fee for filing paperwork electronically.
There are dozens of charges that dealers may present as mandatory. These include antitheft devices, paint protection coatings, etching the vehicle’s identification number into the windows or other parts and accessories such as door-edge guards and floor mats.
For used cars, dealers sometimes charge “reconditioning” fees even though sprucing up the vehicle is a necessary part of selling it, Baker said.
Last month, one CoPilot user obtained a price quote for a certified preowned Subaru Outback advertised for $41,064. The breakdown revealed that the dealer, Landers McLarty Subaru of Huntsville, Ala., also charged a $899 documentation fee, a $550 certification and an additional $3,250 for a “CPO Wrap” that expands the vehicle’s warranty coverage.
The dealership didn’t respond to requests for comment.
For many car dealers, the goal is to get shoppers in the store, where they might be more likely to accept fees and add-ons after having already invested time.
“You find the car that you really wanted to buy, the online price is attractive, you show up to the dealership, and all of a sudden it’s $4,000 or $5,000 more because it was preloaded with whatever the dealer decided to put on,” said Joe Belmonte, general manager of Infiniti of Clarendon Hills, near Chicago. “They tell the customer, it’s not optional, you have to buy it; it’s already on the car.”
(Belmonte said that his store’s add-ons, such as dent protection, are strictly optional, though he does mandate a documentation fee and an electronic filing fee.)
The FTC’s mandate that advertised prices include all fees has been tricky to implement, however, because many car shoppers start on marketplace sites such as Cars.com, CarGurus and Autotrader and search for the lowest prices.
Dealers that include fees are at a disadvantage to those that hope to reel in customers and tack on costs later, Belmonte said. The sites said they are taking steps to avoid promoting listings with falsely advertised prices. Kelley Blue Book and Autotrader, for example, temporarily removed badges declaring certain cars “Good Price” or “Great Price.”
On TrueCar, most dealers have chosen to bake more costs into their advertised prices instead of doing away with fees and add-ons, Painter said.
“Prices are a little higher, but everybody’s prices are a little higher,” he said. “Dealers are dealers. They’re still going to make their money; it’s just a matter of how they get there.”