You made it through the new car negotiation process with your sanity intact. You’re happy with the deal, you’ve shaken the sales person’s hand, and you think you know the bottom line on what your new vehicle will cost. Now you’re sitting in the finance manager’s office, and you notice a $500 documentation fee. It’s pre-printed on the contract, so it looks very official. Most people don’t question it, but if you decide to do so, the finance manager will likely say something like, “That’s a standard fee. Everyone has to pay it.”
Don’t you believe it!
As car buyers get more savvy about negotiating good deals, and with new car invoice prices readily available on the internet, car dealers look for more ways to wring more money out of each sale. One way to do this is to add ambiguous fees that are nothing but pure profit to the dealership.
Documentation fees or dealer fees are the most common example of worthless add-ons. Dealerships print them on their contracts to trick buyers into thinking they’re a standard, non-negotiable part of the deal. Some states cap the amount that can be charged. For example, in Minnesota a doc fee can’t be more than $50. Other states have higher limits, like $250 in Ohio, or no limit at all. In states without a cap, you might be charged $500 or more.
Dealers might try to justify these fees by claiming they’re for the cost of preparing the paperwork for your car purchase, but that’s akin to a grocery store charging you $50 for a “grocery cost tallying, bagging, and receipt printing” fee. Those overhead costs are already worked into the price of the items you buy.
If you question it further, you’ll probably be told that the dealer is legally required to charge this fee. Technically that’s true, because if a dealership charges that fee to one customer, it has to charge it to all customers. In reality the dealer is perfectly free to deduct that amount from the price of your car.
For example, if your bottom line negotiated price is $25,000 and the doc fee is $500, the dealer has to leave the $500 charge on the contract. However, he can simply change the price to $24,500, effectively erasing the fee in your bottom line price.
Avoid conflicts by negotiating a firm, bottom line price for your car, and let the dealer worry about how to make it work out on the paperwork.
Dealer prep fees are another way for car dealers to pad their pockets. Manufacturers reimburse their dealers for the cost of getting new cars ready for the buyer. There’s no reason for any preparation costs to be passed along to you. Refuse outright to pay any such charges.
One last dealer trick is to add a line item to the car’s cost that’s listed as ADM. Those initials stand for “additional dealer mark-up,” and that describes this fee very literally. The dealer is adding a charge for no reason other than to make more profit. In most cases, you should refuse to pay this extra money. Better yet, buy your car from another dealership that doesn’t pull such a dirty trick. However, you might have no choice but to pay an additional fee if the car you want is a hot model in high demand. In that case, dealerships can ask whatever they choose and sell the car to anyone who’s willing to pay the inflated price.