Automatic add-ons add up

How the discretion of dealers can lead to overpriced, inconsistent and discriminatory

This pioneering National Consumer Law Center’s analysis of large national data sets opens the door to the fees that auto dealers pay for car add-on products and the fees they charge consumers. The pricing of these optional products involves substantial price increases to consumers and arbitrary and discriminatory pricing. executive Summary.

Additional products sold by car dealers, such as service contracts, guaranteed asset protection (GAP) insurance, and car window etching, account for a large portion of dealers’ profits. They also significantly increase the cost of car buyers. Although many people question the value of these products to consumers, the pricing of these products has received little attention, mainly because of opaque pricing. Even regulators lack information about the fees car buyers pay for these products. The dealer decides what to charge each consumer, and usually only dealers, financial companies, and third-party suppliers of add-ons know what other consumers are paying. The National Consumer Law Center’s analysis of large national data sets reveals for the first time the fees that dealers pay for car add-on products and the fees they charge consumers.

Main findings

The selling price of additional products is much higher than the dealer’s cost. Compared with other similar products, distributors mark more additional products. Their percentage of marking additional products is much higher than their percentage of marking cars. A dealer sells more than 1,000 window etching products. The dealer cost for each product is US$16, and the fee charged to consumers is US$189, with an increase of US$173 or 1,081%. Among the guaranteed asset protection (GAP) insurance products, 38 dealers have an average price increase of more than 300%, and 38 dealers have an average price increase of more than 300% for service contracts.

Distributors have inconsistent pricing of add-on products. Individual dealers charge certain consumers for the same product many times higher than other consumers when the dealer’s cost is the same. These abuses themselves caused enough damage and brought a series of other consequences to consumers. Expensive add-on components increase the price of the car, making it unaffordable for some consumers.

They also increased the loan-to-value (LTV) ratio of the car because they increased the amount of consumer financing without actually increasing the value of the car. These higher LTVs will lead to more negative equity, which will hurt consumers and other participants in the car sales and financial markets, because consumers who owe more than the value of their existing cars will find it difficult to trade and buy new cars. High LTV is also associated with a higher default rate, again harming consumers and the industry as a whole.

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