Beware of "Add-Ons"
What are "add-ons"? They are the part of the process where the dealership adds on items for you and profit
for themselves. They can take the form of dealer add-ons, aftermarket add-ons, or finance department add-ons, and
any or all can cost you big money if you are not careful.
- Dealer preparation:
You see this less and less, but there are still dealers that tack on a "dealer preparation" (or dealer
prep, or get ready) charge on a new car. Don't pay it. The factory pays the dealer to prepare the car for delivery.
If you pay it, the dealer grabs it twice, once from the factory and once from you.
- ADM/ADP/Market Adjustment:
These were real popular in past years. ADM stands for Additional Dealer Markup, ADP means Additional Dealer Profit
(at least they are sort of up front about it!) and Market Adjustment means "the car is hot and you are going
to pay a big premium for it." There are 2 reasons for slapping these extra charges on a car:
1) To make it appear
that you are getting a bigger discount or a higher trade allowance or
2) To grab more
profit on a hot-selling car.
If you are interested in a very popular model that is in short supply, you are going to have to face the music.
You may not have to pay the extra fees that appear on these cars, but you aren't going to get the car at $100 over
invoice, either. Either wait until the supply of such a car builds up (or until its popularity wanes) or pay the
tariff. Its the old supply and demand story--short supply + big demand = high price.
If you find these type of "add-on" stickers on cars that are in good supply, the dealer is just trying
to play a numbers game. Ignore them. You need to be dealing from invoice, anyhow, not from MSRP, so they really
shouldn't even factor into your price discussion.
- The goodies: Some
people just love to dress their cars up with accessories such as hood bras, door edge guards, vent shades, bumper
guards, etc., etc., etc. Dealers love to see these people coming. Many of them negotiate a great deal on the purchase
of the car, maintain the great deal when it comes to the financing, and then breathe a sigh of relief, relax, and
get pounded in the accessory department. Honestly, most of these accessories are of cheap quality, add nothing
to the resale value of the car (or if they are really cheap looking, actually detract from the resale value) and
cost a fortune. If you absolutely must have this stuff on your car, buy it from a reputable source, install them
yourself, and save a bundle.
In addition to the finance department, many dealers have added "After
Market Departments" in recent years. It is the job of the Aftermarket manager to sell you "protection
packages" for your car. Examples of these are:
- Rustproofing. An
undercoating and "rust prevention" process. Virtually all new vehicles come with a "rust through"
warranty from the factory. Dealer added rustproofing may actually void the factory warranty.
- Paint sealant.
The claim will be that this will prevent you from having to wax your car. Some paint sealants are reasonably decent
products. Many are glorified wax jobs. All are expensive relative to what you will get.
- Fabric sealant.
Designed to protect interior fabric. You can do this yourself with a store bought fabric protector and save big
- Alarm systems
- Tracking systems that track your vehicle if it is stolen
These items are often sold in packages--"the
total value of the full protection package is $1297. Since you are purchasing it today, we have reduced the price
to only $795!" What a deal! In general, these items are low in cost to the dealer, high in price to the consumer,
and a big profit item. You can probably get better quality (and definitely get a better price) on your own, if
you really feel that these are items you must have.
Finance Department add-ons
In addition to the profit that the dealer makes when you
finance through them, the Business Manager (also known as the F&I--Finance and Insurance--Manager) will attempt
to sell you additional items, usually related to the loan package. NONE
OF THESE ITEMS ARE REQUIRED. No matter what you
are told, the only insurance that is required when you finance a car is full coverage (liability and collision)
automobile insurance. Hopefully you have made arrangements for financing in advance, so that you can compare any
finance plan that the dealer offers you. See the pages on financing
a car for more information.
- Life Insurance.
This will pay off the loan if you die. The insurance the dealership will sell you will be decreasing term insurance
and it will be expensive compared to similar policies sold outside the dealership. (The difference in price? The
profit you pay the dealership).
- Accident and Health Insurance.
This will cover the amount of your payment should you become sick or disabled. A similar policy for an amount equal
to your payment from your own insurance agent will likely be cheaper.
- Warranties. This is a big profit item for most dealerships. Doubling the cost when the warranty is
offered to you is common. Get a quote from Warranty Direct
to eliminate the middleman (the dealership) and its profit.
- Car Insurance. Sometimes the finance department will try to arrange car insurance for you. You are much
better off if you compare plans on your own. NetQuote can give you free auto insurance comparisons
from some of the largest insurers in the country. Also, see the section devoted to automobile insurance.
For more information on saving money in the long term, see the section
devoted to vehicle ownership.