ADM serves Car Dealers, Automotive Marketing Pros and Internet Sales Managers
It's the flash of new-car red in a showroom window that catches your eye. Or perhaps a low-mileage 1969 Mustang with a Boss 302 sitting under fluorescent lights.
You do your research, compare prices and check book values before returning in earnest. You meet with the salesperson, negotiate a price and shake on a deal. Then you head to the finance manager's office to sign a contract.
But fees you may not be aware of could increase your final cost significantly.
Car dealers across America are tacking hundreds of dollars onto each sale for fees that buyers often know little or nothing about.
The so-called documentary and administrative fees are supposed to cover costs associated with processing paperwork and registering the car. A Call 12 for Action investigation has found the fees vary widely from state to state, with some as low as $56 and others as high as $1,000.
Arizona is among the 10 states with the highest fees in the nation, with an average of $398, according to TrueCar.com, a Web-based resource for car buyers.
In Arizona, the fees are not capped and differ from dealer to dealer. State laws also don't mandate when fees have to be disclosed to buyers; in many cases, buyers aren't told until after they have agreed to purchase a car and are ready to sign a contract.
Some consumer advocates say the fees do not reflect actual costs but have become a profit center for car dealers that offer to sell cars at or below invoice and then add fees just before the contract is signed.
"In states like Arizona, it has turned into an additional source of revenue," TrueCar Vice President Jesse Toprak said. "Dealers hope you don't notice (the fee)."
Dealers say the fee is not hidden and that finance specialists disclose it to every customer before they sign the paperwork. They say the fee is based on a formula that calculates administrative and office-supply costs, including salaries, printing, postage, paper and ink.
"I know (finance staff) goes over all of the charges," said Kimberly McPherson, business manager at Right Honda in Scottsdale. "I wouldn't say the salesperson says specifically what the fee is. It is listed on the form."
Right Honda customer Mary Platner said she had no idea that $449 in additional fees had been added to the "bottom-line" price of a CR-V she bought last month. It wasn't until she and her husband were about to sign the sales contract that she noticed a line item called "documentary and administrative fee."
That's when she put the brakes on the purchase, she said. "After we questioned the finance person, he told us that this was standard practice and was added on to all their cars," the 63-year-old retired Scottsdale special-education teacher said. "I was just so mad."
In Arizona, statutes allow vehicle dealers to charge consumers "reasonable" documentary and administrative fees for the services provided.
Platner contacted the Arizona Attorney General's Office about her situation and got a response from legal assistant Mila Makal. "We understand that fees tacked on at the end of the sales process can inflate your 'out the door' price," Makal said in an e-mail to Platner. "While this is not unique to the auto industry ... it can create some confusion and angst for many car buyers."
In the e-mail, Makal said the fee is not arbitrary. He said it is "carefully calculated" based on all of the services involved in processing documents related to the closing of the sale and the registration of the vehicle.
"Fee includes cost of runners, couriers, office managers, finance managers, sales managers, sales person, title clerks and other related personnel, costs of equipment, supplies, postage, duplication expenses, work space, etc., directly related to applicable services," he said.
Makal also pointed out in the e-mail that once dealers set a fee, they cannot change it for individual customers without risking lawsuits.
"If a dealer waives or lowers (the) fee for one customer, that dealer may then have to refund the difference to all customers that they ever sold a car to, which could literally cost them millions of dollars," he said.
The Attorney General's Office, which regulates consumer issues, last addressed the fee in 1995 when it issued its Arizona Auto Advertising Guidelines. The guidelines, which are not laws, state that dealers should "disclose the existence and amount of the fee in a clear and conspicuous manner in any advertising which gives prices."
Under the guidelines, dealers are advised to disclose the fee to each customer before preparing any contract for the sale or lease of a motor vehicle.
The Attorney General's Office advises consumers to check the fees charged by various dealers before they buy a car and to use the fee as a negotiating point in the transaction. The fee won't change, but dealers can agree to lower the price of the car or provide other incentives.
"If you know that our state's doc fees are high, then you will definitely want to keep those fees in mind when you are negotiating your final sales price," Makal said in the e-mail.
The Arizona Automobile Dealers Association, a trade group representing new-car and -truck dealers, would not discuss the fee. Association president Bobbie Sparrow did not respond to multiple interview requests.
The fact that some states cap the fees below $100 while others, such as Arizona, have no limits on how much can be charged shows that the fees do not reflect actual costs, consumer advocates say.
"Depending on the state, there is a different treatment of the fees," Toprak of TrueCar.com said. "We do not see a major difference in the time and effort it takes to register a car."
Toprak described the doc fees in some states as "the Wild West," with no laws limiting the amount that can be charged and when it has to be disclosed.
Consumer Reports says car buyers should be wary of any doc fee of more than $100.
"A modest charge of $50 or less for processing documents that establish your title and registration is warranted," the non-profit consumer watchdog says on its website. "Question anything higher than $100."
Eight states currently set a maximum limit on doc fees, according to statistics compiled by TrueCar. Of those, New York is the lowest at $75. The highest is Ohio, which caps fees at $250.
Seven other states do not have caps but restrict what can be legitimately considered as a doc fee and have specific requirements about how the fees are displayed. Of the remaining 35 states, Florida has the highest fees, ranging from $0 to $998 with an average of $610.
Arizona's fees range from $199 to $539, with an average of $398.
Doc fees appear as a separate line item, but Toprak said some dealers don't point it out to buyers.
McPherson at Right Honda said that the $449 doc fee reflected the administrative costs of the transaction. "Everything that is in there is based on costs involved," she said. "Arizona law says it has to be the same price for everybody (buying from the dealer)."
McPherson said the fee is not hidden. While it might not be raised by the salesperson on the showroom floor, it is discussed with customers before they sign contracts, she said.
She said that when customers object to the fee, the dealer tries to work with them. Sometimes dealers offer free oil changes or discounted warranties. In Platner's case, Right Honda reduced the purchase price of the vehicle by $150.
"I know she was offered some sort of consolation," McPherson said.
Toprak said the doc fee is just one of several areas "a dealer can bury profits," all of which are dealt with in the finance office as paperwork is being signed. Among the other profit centers Toprak cited were warranties, financing options, insurance, paint-protection plans and accessories.
Platner said she is concerned that in the excitement surrounding a car purchase, few people take the time to read contracts or analyze fees.
She said few people would be willing to walk away from a sale at that point, and given most financing arrangements, many customers likely just would agree to roll the fee into the financing without question.
Platner said she and her husband decided to purchase a CR-V after assurances from the salesman that he would give them the car at $500 over invoice. The sticker price of the car was about $31,900, and the sales price was $29,965.
She said they were set to sign the contract when she noticed the $449 doc fee listed in the paperwork. Although McPherson said the fee is discussed before a contract is signed, Platner said she noticed it first.
"Surprise. The fee was just embedded in the paperwork and not noted by the finance person," Platner said. "Was it legal?"
The finance employee advised that the fee was standard, Platner said. The net result was that instead of paying $500 over invoice, she would be paying closer to $1,000. That wasn't the deal, she said.
Platner said she called her son, who had purchased an Acura from a different dealer two weeks earlier, and he told her that he paid $250 in doc fees.
"It was then crystal clear that this actually was an additional profit for the dealership," she said.
Platner said she refused to pay more than $300 in fees and the dealer agreed to reduce the price of the vehicle.
The Attorney General's Office compares doc fees to other commonplace amenity fees, such as charges for parking or Wi-Fi at a hotel or additional baggage charges at an airline.
Platner disagreed. She points out that the U.S. Department of Transportation mandates that advertised airfare must include all taxes and fees.
"That effectively bans post-purchase-price increases," Platner said. "An airline traveler has more protection than a car buyer."
Platner has turned her car-buying experience into a mission of consumer protection. She said she hopes to petition legislators for a fee cap and specific disclosure requirements. She said Arizona should connect with other states that restrict the amount of doc fees and create regulations that would require dealers to inform consumers about the fee before they walk into a finance office and perhaps even list the fee on the sticker price.
"When you see yourself in a car, you don't have any time to react to (the fee)," Platner said. "You might take it hook, line and sinker."