Before you blindly shell out your hard-earned cash, make sure you know what you're paying for
The excitement of buying a brand-new car or truck is often blunted by the barrage of fees a buyer faces when closing the deal. Four hundred for this, $40 for that; sometimes it seems dealers make more on frustrating fees than they do on the sale of the vehicle.
However, some fees are definitely avoidable, while others are not. Here is a guide to help separate the forest from the trees when it comes to fees applied to the purchase or lease of most new vehicles — and the ones to be on the lookout for.
Unavoidable
Freight and PDI: This is the cost of shipping the vehicle from the assembly plant to the dealer, plus the cost of having the car prepped for delivery to the buyer. Often, the two are combined. It’s a contentious fee and has little attachment to where the vehicle actually gets built; A Toyota RAV4built in Cambridge, Ontario, will still cost $1,730 in freight and PDI even if you live in Woodstock. Automakers say the price is amortized over the cost of shipping all vehicles all across Canada, but there is no escaping this fee – which ranges from $1,000 to as much as $2,000.
Air conditioning tax: About $150 million per year is collected by the federal government from air-conditioning tax, money that goes into general revenue rather than any fund to combat climate change. The $100 charge on every new car was added in 1976 when air conditioners were a luxury item, not standard equipment as they are today. Even though it is more fuel efficient to drive with the AC on than have the all windows open in a modern car, the tax remains. Levied at the manufacturer, the tax on every new car is paid by the automaker and passed on to buyers.
Environment handling fee: Not all provinces include this, but Ontario has another mandatory fee that masquerades as protecting the environment. There are two portions – one for tires, another for filters and often they’re combined. The Ontario Tire Stewardship program, which is run by industry, currently charges $4.25 per tire and includes the spare, so the fee is $21.25. The Ontario government is moving to eliminate the program, so this fee should eventually disappear.
OMVIC transaction fee: In Ontario, the Ontario Motor Vehicle Industry Council (OMVIC) requires dealers remit $10 on the sale or lease of every new vehicle except those to other registered dealers. The fee is used to fund OMVIC’s mandate of maintaining “a fair, safe and informed marketplace.” B.C. has a similar organization called the Vehicle Sales Authority — but it does not charge a levy, although Alberta’s Motor Vehicle Industry council does. OMVIC recently raised its fee from $5.
Licencing and registration: If the dealer is putting the vehicle in your name, plus acquiring new plates for your new car, expect to pay the government fees that go with these registration documents plus a markup. Registration and licencing can easily cost $100.
Taxes: Like old age, there is no escaping sales tax. In every province but Alberta, you’ll pay provincial sales tax on top of the five per cent federal GST. Don’t forget you’ll also pay tax on whatever down payment you make on a leased or financed vehicle, plus tax on the PPSA (see below).
Negotiable
Administration fee: Touted by most dealerships as a way to cover their many overhead costs, the “admin fee” ranges from $300 to $600. Few other fees generate so much distaste; buyers hate this fee for good reason – it’s often not disclosed until the last minute, usually on the bill of sale. Many provinces have rules that require the disclosure of this extra charge, but it’s often handled poorly or very late in the purchase window when excitement for the new car is high and you agree to it only to “get this over with.”
Some dealers will drop the admin fee in negotiation, while others may steadfastly refuse and some may not charge this fee at all. Certain dealers also place on the contract a $500 admin fee triggered if you buy out your lease after four years — again, be wary of this fee before you sign because it will be on your purchase contract and you’ll be stuck with it.
PPSA – for leased and financed vehicles: The Personal Property Security Act (PPSA) regulates the taking and enforcement of a security such as a car loan. If you borrow money to purchase a car or lease one, the lender (the automaker’s finance arm) files a lien on the vehicle so if you default on the loan payments, the car can be taken back. PPSA fees to register or discharge the loan are then collected through the dealer but passed along to the buyer and can amount to about $60. Each province has its own PPSA rules and regulations; some dealers will include this cost in their “admin fee” or not charge it all. Others may say it’s mandatory and show it as a separate fee.
Security deposit: Automakers will sometimes drop this fee as an incentive to finance or lease. Sometimes if you bump up the interest rate on your lease, which will only raise the monthly payments by a small amount, the leasing company will waive the fee. Buyers might even forget to collect this fee when they return a leased vehicle, so it’s good practice to avoid it.
All-weather mats and full tanks of gas: A full tank of gas should always be included in the sale of your car, and buyers should always ask to have it included. Most dealers do not charge for this, but some try to claim it on the bill of sale. If you see this, refuse to pay it. All-weather mats (the rubber ones) can usually be thrown in for free because the dealer’s cost for these is low, but regular fabric floor mats should always be part of the sale — they’re part of the car’s equipment.
Avoidable
Advertising charge: Seen less and less today, this stubborn little fee in the neighbourhood of $200-$300 was sometimes listed as unavoidable, dressed up as a way to cover the costs of regional advertising and promotions at the dealer level. Contest the fee if it shows up on your bill.
Extended warranty: It is completely your choice whether to opt for a warranty beyond the one already included with your new vehicle. For cars with less than a stellar reputation for quality, an extended warranty might be a good idea – especially if you plan on keeping the car a long time. But keep in mind the cost you pay for this warranty is completely negotiable; a $2,000 extended warranty for four years can sometimes be negotiated to almost half that. It’s also better to buy this warranty through the dealer rather than an aftermarket seller that might not be around in five years.
Prep fee: If this shows up on your bill, ask for it to be removed unless it’s part of the PDI mentioned above. Anything beyond the Freight and PDI costs for vehicle preparation should not be paid by the buyer.
Insurance: You’ll need insurance on your shiny new wheels before exiting the lot, but extra insurance such as life or disability (if you get injured or die and can’t pay the loan) should be avoided at the dealer level. Same goes for “gap” insurance, which covers the difference between what you owe on your car and what it’s worth on the market if something happens to it. You’ll probably already have life or disability insurance from your employer, and if not, can buy it cheaper elsewhere. Same for gap insurance, which is often included in regular auto policies; if not, it can be added for much less than what you’ll pay at the dealer.
Anti-theft, rustproofing, VIN etching, wheel locks, paint sealant, fabric protection, etc: All of these products are “up sells” for the business and can almost always be done more cheaply by yourself or at a shop that specializes in the service. Paint sealant is just a fancy word for wax, and fabric protection is little more than Scotchgard that can be had for less than $10 a can. Your car almost certainly comes with an alarm, too, so there’s little need for “anti-theft” protection. VIN etching won’t get your car back if it’s stolen and shipped overseas, either — that’s what insurance is for.
