Tag Archives: dealer add-ons
So you've learned how to negotiate a new car and think that guarantees you a good deal. Well think again! Did you know a majority of a car dealer's profit comes from fees and add-ons in the Finance Office?
Dealerships want you to think the hard part is over and that it's time to let your guard down. But as you're getting ready to sign for your new car, the Finance Manager will smoothly convince you that you need expensive add-ons and accessories.
What are Dealer Installed Options?
A dealer installed option is any accessory that a car dealer installs on a vehicle after they receive it from the manufacturer. Examples include items such as floor mats, cargo covers, roof racks, and VIN etching. The prices of these items are not listed on the car’s MSRP sticker, but instead a dealer will typically add a second “addendum” window sticker.
Dealers add these items because they have high profit margins and most people don’t try to negotiate them!
Average Car Dealer Profit for Add-on's (Infographic)
The image below shows how much the Finance Department really makes off everything they sell you. Note: these high numbers aren't even the total price you pay, they only represent dealer profit!
But not to worry, you don't really need most of these items. Here's a breakdown of what these items really cost the dealer and what you can do to save yourself money. When in doubt, google a specific option and see if it’s recommended or available outside the dealership at a lower price.
Common Dealer Add-ons & Accessories
|Item||Cost to Dealer||Retail Price||Dealer Profit||Suggested Action|
|Fabric protection (scotch guarding)||$5||$300||$295||Not necessary. If you want it, buy Scotch Gard for 9 bucks and apply yourself.|
|Paint protection||$10||$325||$315||Not necessary. If you want it, buy sealant or wax for 15 bucks and apply it yourself.|
|Undercoating||$200||$700||$500||Don't get it, most new cars come with warranties against rust and corrosion.|
|Rustproofing||$50||$800||$750||Don't get it, most new cars come with warranties against rust and corrosion.|
|Car alarm||$300||$800||$500||Consider it, but it will be marked up significantly at the dealership. Go to an independent dealer and save money.|
|VIN etching||$75||$200||$125||Not necessary. If you want it, buy a window etching kit and do it yourself for 20 bucks.|
|Lojack||$325||$800||$475||Consider it, but get prices from an independent installer first.|
|Extended warranty||$800||$1,800||$1,000||Not necessary, but can come in handy. Don't buy at the dealership without shopping around first.|
|Gap insurance||$200||$500||$300||Not necessary, but get competitive quotes outside the dealership if you are going to buy it.|
|Financing||$0||n/a||a lot!||Dealers typically add 2-2.5% in APR to loans they provide. Find your own financing before heading to dealer. Ask if they can beat it.|
|Rear-seat entertainment system||$500 to $1,000||$1,500 to $2,000||$1,000||You can find better deals at an independent shop.|
|Key protection||$0||$240||$240||Consider it if you are prone to losing your keys.|
|Nitrogen-filled tires||$35||$170||$135||You can find some gas stations that offer nitrogen for $5 to $7|
|Credit insurance||$0||$.50 for every $100 borrowed||A lot||Not necessary, the odds of your dying or become disabled are not high enough to justify the costs.|
|Roof rack + accessories||$50 to $500||$100 to over $1,000||$50 to over $1,000||You may find better deals online or at your local car shop.|
|Dent protection||$0||$200||$200||You can buy a dent repair kit for under $20.|
|Tire and wheel protection||$500 to $2,500||$1,000 to $,5000||$500 to $2,500||Shop around. You may find a better deal online or at a local independent shop.|
|Window tinting||$25 to $100||$100 to $400||$75 to $325||Shop around. You may find a better deal at an independent shop.|
Negotiating Dealer Add-Ons
Many of the add-ons you will be offered are unnecessary or can be purchased outside the dealership at a significantly lower price. There are two main tips for negotiating add-ons:
- You probably don’t need it, so don’t buy it.
If an item is not factory installed as part of an options package the dealer may be able to remove it from the deal. Consider whether you really need it, or if can you buy it elsewhere. In the majority of cases, if the item is optional then say NO.
- Negotiate the whole car deal, not individual items
Follow the advice on my website and get car prices from several dealers. Make sure each dealer gives you a total price that includes all options and add-ons. You should be able to find similarly equipped vehicles and then you can ask dealers to give you their best overall price (including add-ons) to win your business.
Are These Dealer Accessories Worth It?
Is fabric protection worth it?
If you have a family then you will want to consider fabric protection for your vehicle. Of course, you can simply buy the Scotch Guard cans and do it yourself. A can of Scotch Guard will cost about $9 and you should be able to complete the job yourself in about an hour. This is one add-on that you should definitely skip at the dealership.
Is paint protection worth it?
Paint protection is actually a good idea if you have a luxury vehicle or a vehicle with a really nice exterior. The thing is, you can probably find an independent shop that can offer you a better rate. Also, you want to make sure that your paint protection film is done by a professional that won’t leave any peeling film or exposed areas.
Another thing to consider, there are a number of paint protection films to choose from. You may want to consider a matte or a gloss finish. An independent shop will give you more options.
Is undercoating worth it?
This is one dealer add-on that will almost certainly waste your money. You see, most new cars are designed to handle the wear and tear that comes with years of road use. Also, your vehicle should have any rust or corrosion covered by its warranty.
Is rustproofing worth it?
Skip this dealer add-on. Just about all new vehicles are well protected against rusting. Even if you live in an area that gets lots of snow, your vehicle should go at least five years before showing any signs of rust.
Are door edge protectors worth it?
Door edge protectors are a great idea if you go shopping often or if you park your vehicle in a public garage. However, you can get yourself door edge protectors at your local auto parts store and they are easy to install.
Is a car alarm worth it?
Most dealership car alarms are going to cost you more than what you can expect at an independent shop. Also, you want to make sure that you get a car alarm that is effective. It is a good idea to shop around and see what brands of car alarms are available and what features are offered.
Is VIN etching worth it?
VIN etching is a good idea if you own a vehicle that is stolen often. Again, this is a dealer add-on that you can actually do yourself. Most auto parts stores will have a glass etching kit available for about $20. If you have an hour to spare, you can literally save yourself a few hundred bucks here.
Is LoJack worth it?
LoJack is one of the top vehicle tracking and location tools that is certainly worth the money. However, you want to make sure that the dealership is not overcharging you for the add-on. Be sure to check what it would cost to get the LoJack system from an independent dealer before making your final decision.
Is an extended warranty worth it?
If you are planning to own your vehicle for longer than its original warranty, then an extended warranty may be a smart choice. You will also want to consider the model that you are buying. Toyota and Honda models are rather reliable while German and British luxury vehicle brands are known to have expensive reliability issues after their original warranties have expired.
Is gap insurance worth it?
Gap insurance covers the difference between what your vehicle is worth and the total damage cost from an accident. If you are planning to make long term payments on the vehicle, the Gap insurance may be a good idea.
To make sure that you are getting the best rates, compare the dealership’s gap insurance policy with other insurance providers.
Is dealer financing worth it?
You should try to have your financing in place before you walk into the dealership. You don’t want to negotiate your financing after you have gone through the prices of negotiating the price for the vehicle.
Be sure to check your bank’s auto financing rates. You may be able to get a better overall deal from them versus the dealership.
Is a rear-seat entertainment system worth it?
If you have kids then a rear-seat entertainment system may well be worth the money. However, there are a number of rear-seat entertainment packages out there and you should compare models. While the dealership may have a nice aftermarket model available, you don’t want to be limited to just one option.
Is key protection worth it?
Key protection is like “insurance” for your vehicle keys. Essentially, it covers the cost of replacing your keys if they are lost or damaged. Some car insurance providers may already offer this policy.
These days, keys can run you into the hundreds of dollars when it comes to replacement costs. Therefore, it may be a good idea to get the key protection from the dealership. While you may be able to get your key from a third party, you may be better off getting your key from the dealership with a new model. Most third-party key makers may not have all the features found on new model car keys.
Are nitrogen-filled tires worth it?
The Get Nitrogen Institute claims that filling tires with nitrogen provides better tire-pressure retention, improved fuel economy, cooler running temperatures, wheel rot prevention, and maintenance cost/convenience. However, many other experts have found the difference between nitrogen tires and tires with regular air is not significant.
Now this is an easy “pass” from the dealership. This is an add-on that can cost you well over $100 while you can get nitrogen at one of your local gas stations. The cost of filling up your tires with nitrogen should cost no more than $10 and can be done in minutes.
Is credit insurance worth it?
Credit insurance takes care of your vehicle payments in case of death, disability or other life changing events. However, you really don’t need it. The odds of a major life event in the next five years are small compared to how much you are going to pay. Insurance companies are no dummies. They will scare you into these policies that have a rare chance of paying out. Pass on this one.
Are a roof rack and accessories worth it?
If you like to travel and take extra gear with you, then a roof rack is valuable. But the dealership will mark up both the rack itself and accessories like an attachment for bikes. You may be able to find better rates on these things from an independent shop. However, the dealership may have the accessories that are best fit for your vehicle. Be sure to compare before making your financial decision.
Is dent protection worth it?
These days, you have a number of options when it comes to repairing dents on your vehicle. Auto part shops offer dent repair kits for small dents. If you have larger dents, you can surely find an independent shop that can take care of it for a better price than the dealership. You can pass on this one.
Is a tire and wheel package worth it?
The plans offered vary greatly, but essentially they claim to replace or repair your rim if you hit a curb or hole. Like many extra warranties, customers find that their issues are rarely covered.
This is a tricky one. Many dealerships have excellent tire and wheel packages. Sure you can find better deals at an independent shop. However, you don’t want to overlook what the dealership is offering you. If you are purchasing a sports car or an off-road vehicle, then the dealership tire and wheel package is worth serious consideration.
Is window tinting worth it?
Window tinting is a must-have if you live in a hot area such as Southern Florida or the southwest. However, there should be a number of independent installers available who can do the job for less than the dealer. Just be sure that you are dealing with a quality installer.
Are splash guards worth it?
Splash guards are a good idea if you live in an area that gets lots of precipitation or if you intend to off-road the vehicle. You can usually find really good deals on splash guards at an auto parts store or independent shop. You don’t need the dealer for this accessory.
Are wheel locks worth it?
Wheel locks can cost upwards of $200 from a dealer. The wheel lock is installed in your car’s lug nuts and requires a special key for removal. They are designed to deter theft of customized wheels, rims, and spare tires.
Wheel locks are going to be overpriced at the dealership. You can go to your local auto parts store and get them for a fraction of the price. Also, you can install wheel locks in minutes.
Dealer holdback is a percentage of the price of a new car, typically 2-3% of MSRP, that is returned to a dealer from the manufacturer after a car is sold. It's important to know that holdback is typically not up for negotiation and not all manufacturers even provide it to dealers.
Holdback is money used to help dealers pay for finance charges they have accrued while keeping unsold cars on their lot. This is a "refund" of money to the dealer for what they originally paid to buy the car from the manufacturer.
How Does Dealer Holdback Work?
Although you'd assume that car dealers make a small fortune every time they sell a new car, that’s not always the case. In fact, there are a lot of costs associated with selling you that car, and that can leave the dealer with little to no profit at the end of the day.
Typically, car dealers will finance their inventory through something called a Floor Plan. When they order a car from the factory, the finance company covers the invoice price, and the dealer pays a certain amount of interest for every day that the vehicle remains in inventory. Once the car sells, the dealer pays off the loan, and the car gets replaced.
As you would expect, the dealer can make more money by selling the vehicle faster (since he’s not paying as much interest). To do this, many dealers will hold one of those “invoice” sales, where a car will seemingly be sold for the dealer’s cost. But there’s a little more to it than that.
To bolster the dealer’s bottom line, manufacturers instituted something called “dealer holdback”. This is a percentage of a vehicle’s price that gets returned to the dealer several times a year (usually quarterly). When determining the invoice price, the dealer holdback is generally included in the price.
What is the Purpose of Dealer Holdback?
The purpose of the dealer holdback is to offset the interest paid by the dealer to finance his inventory. This ‘holdback’ is usually capped at 2-3% of the vehicle’s invoice price.
Since the dealer can keep more of that money if he doesn’t have to pay 2 months' worth of interest, those $1 over/under invoice sales have become quite popular. They not only allow the dealer to move their inventory faster, but their salesperson’s commission is also capped at the invoice price of the car. Leaving more of the holdback to be counted as profit.
Holdbacks also increase dealership profit because it reduces commissions paid to salesmen. The "on paper" cost of the car is increased by holdback thereby reducing the gross profit of a sale. Since salesmen are paid commissions based on gross profit for a vehicle, a lower gross profit means a lower commission.
Read about other car financing terms in this car terms glossary.
How to Calculate Dealer Holdback
The dealer holdback percentage depends on the vehicle manufacturer. For example, the 3% dealer holdback for a Buick is calculated off total MSRP, while the Lexus 2% holdback is off base MSRP. On the other hand, the Nissan 2% holdback is off the total invoice. To calculate the dealer holdback, you must know the manufacturer of the car.
Take a Ford for example. The holdback is 3% off total MSRP. Imagine that you are looking at a Ford with an MSRP of $25,700. This MSRP includes optional features and a $700 destination fee. Based on this, the invoice price is $21,000. The dealer holdback is 3% of the total MSRP (3% of $25,000), which is $750. You must subtract the $700 destination fee when calculating, as it’s not part of the total MSRP. Even if the dealer sells the car to you for the invoice price, he will make $750 on the deal from holdback.
Is Dealer Holdback Negotiable?
Since it is basically the dealer's own money, they are often not thrilled with the idea of passing this money along to the consumer.
When negotiating the price of your new car, the dealer holdback will almost never be up for discussion. This is the dealer’s fall-back profit, and many times, it will just cover the floor plan interest and the salesman’s commission.
If there actually is a dealer holdback, the salesman won’t be able to tell you the amount. Their commission is based on the “gross profit”, so the only ones to know the amount of the holdback will be the sales manager and upper management. Since the dealer holdback is paid out by the manufacturer, just let the dealer have this money.
Dealer Holdback by Manufacturer
The holdback amount varies from manufacturer to manufacturer and may vary from what’s shown below.
Here's a few examples of car dealer holdback for popular car brands:
What is dealer holdback Honda?
Answer: 2% off base MSRP
What is dealer holdback Toyota?
Answer: 2% off base MSRP
What is dealer holdback Ford?
Answer: 3% off total MSRP
What is dealer holdback Subaru?
Answer: 2% off total MSRP
Here’s a dealer holdback chart for all manufacturers:
|Car Manufacturer||Dealer Holdback||How is Holdback Calculated|
|Acura||2%||off base MSRP|
|Buick||3%||off total MSRP|
|Cadillac||3%||off total MSRP|
|Chevrolet||3%||off total MSRP|
|Chrysler||3%||off total MSRP|
|Dodge||3%||off total MSRP|
|Fiat||3%||off total MSRP|
|Ford||3%||off total MSRP|
|GMC||3%||off total MSRP|
|Honda||2%||off base MSRP|
|Hyundai||3%||off total MSRP|
|Infiniti||1.50%||off base MSRP|
|Jeep||3%||off total MSRP|
|Kia||3%||off base MSRP|
|Lexus||2%||off base MSRP|
|Mazda||1%||off base MSRP|
|Mercedes Benz||1%||off base MSRP|
|Mercury||3%||off total MSRP|
|Mitsubishi||2%||off base MSRP|
|Nissan||2%||off total invoice|
|Ram||3%||off total MSRP|
|Smart||3%||off total MSRP|
|Subaru||2%||off total MSRP|
|Toyota||2%||off base MSRP|
|Volkswagen||2%||off base MSRP|
|Volvo||1%||off base MSRP|