The Car Dealer Prep Fee Scam
Does Everyone Pay a Prep Fee?
Within the retail car sales industry, the dealer prep fee scam is known by many different names, including “vehicle prep fee,” “excessive prep fee scam,” and “make ready fee.”
So how does a dealer prep fee become a scam? When a dealer attempts to overcharge you for this service grossly.
What is a Dealer Prep Fee?
When a new car or truck arrives at a dealership from the manufacturer, it must be made ready or prepped for sale by the dealer. Most car dealers will charge you a dealer prep fee for this service.
A dealer prep fee is a set amount charged by a car dealership to cover the cost of making a new vehicle ready (prepped) for sale when it arrives on the lot from the manufacturer.
Many dealers have a set amount straight across any car sold. Some dealers have recently started making it a percentage of the factory invoice price of the vehicle.
Dealers typically charge an excessive amount for this service. Depending on the dealer, it can be anywhere from $500 to a few thousand dollars. Realizing the profit potential, some dealers have also started charging this excessive fee on used cars.
When a dealer receives a new vehicle from the factory, they must remove the protective plastic coating covering the inside and outside of the car, check the fluids, install fuses, road test 3 to 10 miles, wash, wax, vacuum, put on the antenna, and install the license plate holders.
Manufacturers usually allot 2 to 3 hours for dealer prep to be performed at a dealership, and the manufacturer compensates most dealers for the service. However, a dealership with a good prep department can do it in under an hour.
The same is true for used cars depending on reconditioning and if any parts are needed.
When a Dealer Prep Fee Becomes a Scam
Not quite sure if everyone would agree that this is a dealer scam. A dealer prep fee is more like an “excessive fee” charged to a customer. It becomes a scam when a dealer excessively marks up the fee well over what it costs to perform the service. Some dealers add a pre-delivery or dealer prep fee on every used car they sell.
The consumer is informed that when a used automobile is acquired from an auction or brought in as a trade-in, it must be prepared for sale. Even though a dealer would spend money getting a used car ready for retail sales, these expenses were previously deducted from the car’s price when it was bought (or should have been) and are now added back onto the cost of the vehicle.
A dealer’s make-ready department must follow a specific process set by the manufacturer to prep a new vehicle when it arrives from the manufacturer. There are specific tests, inspections, and steps the manufacturer wants to ensure the dealer performs before making a car ready for sale. The best way to ensure a dealer does this correctly is to pay them for it.
If you inspect the M.S.R.P. sticker on any new car, you’ll find the manufacturer’s statement about the dealer prep fee. It’s generally located under the total suggested retail price or in fine print near the bottom of the sticker.
The manufacturer’s preparation fee statement will read something like this:
Manufacturer’s Preparation Fee Statement
Manufacturer’s Suggested Retail Price Includes Manufacturer’s Recommended Pre-Delivery Service. Does not include dealer-installed options and accessories, local taxes, or license fees.
If you pay for it as part of the car purchase, the charge is already included in the manufacturer’s new vehicle price. Why give the dealer your money once more?
Some dealers have fought to remove this statement from several manufacturers’ M.S.R.P. stickers. The information may now be listed on a separate sticker or will be listed on the dealer’s purchase agreement.
A dealer can charge any additional fees they wish. It’s not considered illegal as long as the dealer discloses the fee or any other fee to you on the purchase agreement. It’s up to you whether you will pay it or not.
Most car dealerships, including mine, will have the make-ready fee pre-printed on the purchase agreements. This gives car buyers the illusion that the fee is mandatory and must be paid if they want the car. You would be surprised how many people don’t even question a dealer prep fee and skim right past it and sign on the dotted line.
How Much Money Do They Make?
If the dealer has a $595 vehicle prep fee on every new car they sell, and they average 225 new cars a month.
They will make $133,875 in prep fees alone, which is on top of any other profit made from the sale of the cars.
225 cars sold x $595.00 dealer prep fee = $133,875.00 additional profit
What if they don’t get everyone to fall for the excessive fee?
Let’s say half of the people refused to pay the fee, and they only sold 127 new cars with the added charge. The dealer will still make an additional $75,565 for the month.
This is why car dealers attach a make-ready fee to every new car they sell; it’s all about the numbers.
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How the Fee Affects Your Monthly Payment
I want to show you how the dealer prep fee will affect your payment. If you decide to look past this excessive fee and not refuse to pay it, you’ll cost yourself some money.
The example below shows how much a $595 dealer prep charge will cost in addition to your car payment and the total cost of your automobile loan.
How much the dealer prep fee will cost you:
- $595 at 7% x 48/months = $14 per month or $672 total
- $595 at 7% x 60/months = $12 per month or $720 total
- $595 at 16% x 48/months = $14 per month or $816 total
- $595 at 16% x 60/months = $14 per month or $840 total
As you can see, the more a dealer charges, the more it will cost you, especially if you decide to finance the excessive fee over the entire life of the car loan.
Is a Dealer Prep Fee Negotiable?
The quick answer is “Yes.” Like most backend additional products, such as warranties, insurance, and interior and exterior coatings. Dealer prep fees are negotiable.
A dealer may attempt to persuade you that they are not because they add to their bottom line. The fact is, they are not.
Make sure you look at all the charges before signing the contract. When you come to the vehicle preparation fee, ask them to remove it. Tell them the manufacturer has already compensated them for prepping the vehicle for sale.
I guarantee they’ll look at you like your crazy. Yea, crazy like a fox! If they’re standing their ground, tell them you’re willing to pay a certain amount and not a penny more.
I will tell you there are some dealers out there that will not budge from their “excessive fee,” and some have a policy not to remove it from the contract. If this is the case, let’s say the dealer fee is $500. Have them leave the fee on the contract and drop the price of the vehicle by $500. This way, you win, and it’s still written on the contract.
When negotiating a dealer prep fee, it comes down to how “in demand” the vehicle is you’re looking to buy and how much you want to buy the car.
How to Avoid the Dealer Prep Fee Scam
- Avoiding the dealer prep fee is as easy as refusing to pay it. If the fee is pre-printed on the purchase agreement, have them cross it out and have the dealer initial it, or if they say they aren’t allowed to remove it, have them discount the car to match the fee amount.
- Bypass a car salesperson by shopping for a car from the comfort of your computer. Competition between dealers always gets you the best price; learn how to use the Internet to get car dealers to compete online by getting new car price quotes.
- Most dealers will not have a problem removing the fee to sell a car. They realize some people will refuse to pay it. But the majority of people look right past it. The dealer prep fee is not illegal. It’s up to you if you pay it or not.
- Don’t talk to several salespeople at the same time. Dealers may use this technique, overloading you with information, to confuse you into buying a car without making good car-buying decisions.
- Do your homework first before contacting a car dealership. Decide on the vehicle you want to buy and get quotes from the best car buying websites before making them an offer.
- Don’t visit a car dealership alone. Take a close friend or family member with you. Fast-talking salespeople are very talented in manipulating you into buying something you don’t want or, worse yet, can’t afford.
- If a dealer refuses or insists they cannot remove the fee, you will have to decide how bad you want to buy the car. Do not let them talk you into something you don’t want to do or don’t feel comfortable with. You can always go to another dealer with the price you’ve already negotiated and tell them if they honor the previous dealer’s price and drop their dealer prep fee, you will buy the car from them.