The World's Priciest Car Wash!
The Death of the Car Dealer article last month evoked much comment, including that of ‘Jerry’ who bitterly complained about the ‘farcical dealer delivery charges’, in Australia. This is the item on the invoice usually labeled “Pre-Delivery Charges”.
Cynics call this just an ‘expensive car wash’, so let’s look at what it means and how much we are asked to pay.
Dealer delivery is a real cost and imposition on the new car dealer, as there is work to be done and money to pay out after the car arrives at the dealers, but before you collect your shiny new car.
Work and costs involved include:-
1. Freight charges from the manufacturer or importer to the dealer.
2. Time taken to register the vehicle
3. Affixing the number plates
4. Completing the paperwork.
5. Inspecting the vehicle for faults and imperfections,and doing a full mechanical check.
6. Downloading software and programming electronic equipment.
7. Car wash and detail.
8. Filling it with fuel..
So how much do you think this would cost the dealer?
Let’s see if we can make a fair estimate.
Delivery to the dealer is possibly as much as $500, an hour or two getting the car registered and doing the paperwork, a couple of hours in the workshop, then the body shop and car wash bay for another couple of hours, and that’s about it.
Dealers like to talk about holding costs, showroom expenses, fitting extras, costs of arranging finance and the like, but then we reckon these are covered by the profit margin and commission given to the dealer from the suppliers.
So let’s be generous and say that a reasonable cost recovery (with a bit of profit) could be up to $2000.
However, most new car dealers around the world will incur similar costs, but their charges to the purchaser amount to far less. In the USA the customer is imposed a pre delivery charge of about $750 to $950. It’s slightly less in the UK, and stays around this mark throughout Europe. But it’s a very different matter in Australia…
We made a few phone calls asking the delivery charges from separate dealers in different states for exactly the same car, with exactly the same specifications.
You don’t need to second guess us, as you can expect a wide variation, but even we were surprised to get quotes varying from a very acceptable $1995 to a serious request to pay and extra $5000! And this dealer was not alone in asking for more than 150 percent more than some of his counterparts, as one also quoted $4995.
Is this a disgraceful rip off from the unsuspecting purchaser, especially when some salesmen claim that this is ‘non negotiable’. So is this just another case of buyer beware?
Well, yes and no.
Clearly the car dealer has to make a profit to stay in business, but an exorbitant profit is certainly not justified. Yet it’s a free market, so virtually anything goes, huh? Yes, and that goes back to negotiating the final deal. It really doesn’t matter where the dealer makes his profit. It’s the bottom line that really counts.
Let us explain:
Suppose you want to trade your trusty family car for a brand new four wheel drive.
The recommended retail price (excluding dealer delivery and statutory costs, as they say) of the new vehicle is $40,000, but, by the time you’ve paid the dealer delivery fee and on-road costs, dealer A quotes $47000, including pre-delivery charges of $3450. But dealer B only charges $2250 for pre-delivery (so the total cost is only $45,800).
So you’d go to Dealer B, wouldn’t you?
Of course you would – unless…..suppose dealer A wants to pay you $10,000 for your trade in, but dealer B reckons the best he can give you is $6,000.
Now what? Well, to hand in your old car for the new one from dealer B will cost you $39,800 (dealer quote of $45,800 less $6,000 trade in).
Dealer A, however, quoted you $47,000 for your new car, but will give you $10,000 for your trade in. That means you’ll pay less, $37,000 versus $39,800, so dealer A should get your business.
The moral of the story is that it is the changeover price that matters. Clearly Private Fleet is well aware of all these dealer tricks, so it’s second nature to us. But it’s a minefield for the private buyer that is unnecessary and unwarranted, and makes what should be a pleasurable and exciting task, frustrating confusing and, all too often, unrewarding.
In fact, it is clearly such an issue to the buyer that regulatory authorities have tried to impose drive-away pricing throughout Australia. But that has its own problems as there are substantial variations in state taxes throughout Australia that make a uniform ‘National Price’ impossible.
‘Drive away- no more to pay’ is another example which can erase the pre-delivery rort, and this is where the manufacturer imposes a final drive away price for a particular car in each state. But, sadly, this only applies to selected cars on the dealer lot. As we said, at Private Fleet we are very aware of these cost impositions, but that really doesn’t matter to us, as it’s always the final cost that matters, no matter how it’s arrived at. But for the unwary it can be an extra under-the-table revenue maker that just shouldn’t happen.
Do you think that these charges should be controlled, contained and specified by the maker, or should it be a free market?
Have you paid the pre delivery as a ‘non-negotiable charge’? Have your say below.
Level 2, 9 Help Street
Glenn Miller says:
Dealer point of view
Enjoy your reports: keep them coming. Two other expenses we occure in invoicing charges: an Advertising levy and the First service that is a “no charge” inspection”. That aside; the “Dealer Tricks” annoy most dealers, quite aside from the buying public as is it fair to say that a Dealer has to work very hard to earn a customers trust. The other point is of course that we nominate a specific person to deal with Private Fleet referred business as we need to ensure that our “chosen one” needs to be completely intune with expectations and meet all KPI’s that are imposed upon us. So guys: If you are utilising a Novated Lease through Private Fleet always ask for the New Car Manager and he will ensure that your experience meets your expectations.
Regards, Glenn
August 24th, 2012 at 5:30 pm
geoff ryan says:
I reckon you all missed the point the car importer /manufacturer when setting the price he lists as recommended retail and the price he charges his selected dealers already includes delivery/predelivery etc .The dealers are rorting us with their lies to scam a few extra bucks out of their customner.Prehaps your story should have been titled should we care what the delivery charge is ?
also what if we didn’t have a trade?
August 24th, 2012 at 5:31 pm
Jerry says:
Why can’t we just buy direct from the Manufacturer/Distributor and forget the dealer completely?
With modern web technology and logistics services you should be able to order the car online and have a transport company drop it in youjr driveway. The rest as they say is up to you.
Market opportunity for Private Fleet? Act as a portal to the manufacturers and collect the payment with known up-front fees.
It wouldn’t hurt the manufacturer and would probably be financially better for them as they no longer have to pay per-vehicle hidden subsidies to the dealers.
As for trade-ins it’s always been my policy to never do that. It leaves the customer in the unpleasant situation of knowing they are being ripped off but not quite sure in what way.
August 24th, 2012 at 5:49 pm
restless enterprises pty ltd says:
yes i do think they should be controlled
i though they were when drive away no more to pay was introduced
and was just the profit margin that varied the price
August 24th, 2012 at 7:47 pm
Vic says:
I have read with interest the last 2 blogs about the ‘Death of The Car Dealer’ and now this one. As a person who has been involved in the auto industry in Australia for over 25 years I can argue for both sides of the story.
Having run a few dealerships, albeit some years ago, and now consulting within the industry, I would make a few comments to those outside of the industry.
There are over 1500 Franchised Car Dealers in Australia, most of which are run by very smart and shrewd businessmen in a very competitive market. Forget the fact that we pay more than most countries in the World for our new cars (another story), these guys are not the ones making a fortune against their risk and investment.
The benchmark for a dealer’s bottom line against turnover is a measly 2%. Yes, some today in the more successful franchises, like Mazda, are doing better than that but a great deal of them with struggling franchises, like Ford, are not reaching this milestone.
Very few franchises and dealers make money in their new car departments. The average available margin to them on a new car is around a measley 10% and they have to give most of this away to get your business. Manufacturers also impose ‘drive away’ campaigns on them. leaving very little margin left at the advertised price, leaving the dealer to hope that he can sell finance or some accessories to give him at least some opportunity to make profit.
Hence the reason why we see ridiculous ‘Dealer Delivery’ fees, in an attempt to get some margin back into the sale. Ridiculous is what they have become. Every dealer has an internal cost for delivery, well under what is charged and anything above that is additional margin. However, once again, they generally have to give most of this away to get your business, leaving slim pickings in the New Car department.
As a consequence, the dealer tries his hardest to make some profit in Used Cars, Parts, Service and Finance Insurance and Aftermarket sales, all this in an attempt to make the 2% target and beyond.
Dealers are constantly forced to improve their facilities, spending millions on new showrooms and facilities to keep the Manufacturer happy and keep his franchise. These showrooms are generally situated in prime real estate areas, so you have to ask yourself why would they bother to put up with this pressure and the pressure of employing dozens, or indeed hundreds, of people just to make 2%.
On top of that the manufacturers attempt to force the dealer to take more and more stock, whether it is sold or not, increasing pressure on stock levels and, consequently, costs.
In an attempt to cut costs, over the last ten years Dealers have made it less and less attractive for people to take on a career in car sales. Did you know that most car sales people work most weekends, usually at lease 11 days without a break and get paid the minimum award wage for their efforts (around $36K)? Yes, they do get commission, but often only, say $100 per car sold, because there is no margin left for any more. You do the maths. Why would you sell cars for a job? As a result the experience within a car dealership has got worse and worse because the professional career salespeople have mostly left the industry to earn better money elsewhere.
Sadly, it has become a self fulfilling prophesy. I am not saying that there are no more good professional car salespeople left any more, many of them maybe reading this are friends of mine and do make and have made a good living, progressing through the ranks, but the general level of showroom sales staff has gone down the toilet.
The customer himself has become more and more informed via the Internet and he or she generally knows much more about the car and its competitors than the salesperson on the showroom floor. Professional brokers, of which Private Fleet are one of the first and the largest, have made the buying maze easier for the customer.
As a result of all of the above, I and many more believe that this current system is not sustainable and something has to give. It is too expensive to have ‘Taj Mahal look alike’ car dealerships awash with stock in prime real estate areas, all hoping to reach their sometimes impossible sales targets and to make a profit.
Subaru’s ‘toe in the water’ with the BRZ online only sale, Fiat’s experiments with ‘shops’ in the UK and Porsche’s similar experiment in Europe are a sign of things to come. Jerry’s idea above is not pie in the sky. I have no doubt that you will be able to order and pay for your car from an iPad in the near future and dealers will become test drive, delivery and service centres. Maybe not next next week, but I think the change is inevitable and is what we, the consumer want.
Dell and Nespresso’s model works well, why wouldn’t it work for cars?
August 25th, 2012 at 4:46 pm
Neil S says:
Dealer charges were abolished in NZ many years ago. the prices didn’t rise exorbitantly, and the customer’s new what they were paying up front. Yes these charges are a rort
August 25th, 2012 at 5:36 pm
Mark says:
Why not just refuse to listen to all the sales rubish and demand an on road price only. then you can compare apples. Maybe then you can introduce the issue of trade in values with some knowledge on your side.
August 26th, 2012 at 4:04 pm
David says:
Why does the purchaser have to pay for inspecting the vehicle for faults and getting it ready for delivery etc? Isn’t that the manufacturers responsibility for quality control. What would happen if you went to Mc donalds and they charged you an extra $1 to inspect your food for quality.
August 26th, 2012 at 8:21 pm
David says:
I picked up a brand new Mazda from a dealer a few years back and so much for the pre delivery checking of the car to ensure everything is operating correctly-I drove out of their lot and found the indicators didnt work!
August 27th, 2012 at 9:00 am
Tony says:
So the next time you buy a TV; washing machine or any other item of some value; you should also be asking what the deliver delivery charges are. I would be more than happy to pick the car up from the yard and get a professional mechanic to check it over. It going to cost less than the $4k they want to charge for it. My figures for a deealer deliver is:
1. Freight charges from the manufacturer or importer to the dealer. $275 Port Melbourne to Dandenong
2. Time taken to register the vehicle – 30 mins – $25
3. Affixing the number plates – 30 mins $25
4. Completing the paperwork. – 1 hour – $50
5. Inspecting the vehicle for faults and imperfections,and doing a full mechanical check. Full service and 72 point cvheck – $349
6. Downloading software and programming electronic equipment. 2 hours – $100
7. Car wash and detail. – Hand car wash – $50
8. Filling it with fuel.. – – $120
Total $1044 with rounding $1200.
August 27th, 2012 at 11:03 am
Phill W says:
Check again,
My new Prado came with only $30 worth of fuel and no floor mats. The old full tank on receipt is a past memory, but then again, they would just bill you anyway even if they filled it up. Also, couldn’t agree more with David, what, the dealer checks the quality of the manufacturer…I know which wrench monkeys I would trust and they aint at the dealership.
August 27th, 2012 at 12:52 pm