Created on Friday, 03 December 2010
A reader sent me an email recently, accusing dealers of trying to deceive the public about administration fees. He regards this practice as inherently unfair and sees no value in the fees whatsoever.
He points out that the wording in advertisements seems to imply that the fees are mandatory. On the contrary, the Ontario Motor Vehicle Industry Council (OMVIC) regulations for all new and used car dealers in Ontario require dealers to specify whether any dealer-advertised price includes all fees and, if not, to clearly state what is not included (often HST).
Note: Advertisements by auto manufacturers do not fall under OMVIC regulations and may make no mention of fees unless a registrant (dealer) is referenced in the ad.
OMVIC also requires registered dealers (all franchised car dealers in Ontario are registrants) to clearly specify any amount charged as an administration fee as a separate bolded line item on a Bill of Sale.
The retail auto sector in Ontario is the most heavily regulated in Canada. Most of our business activities (including advertising) are overseen by OMVIC.
Many dealers do include an administration fee on all vehicle transactions. It's a real cost that is passed onto the car buyer and it's meant to cover the cost of processing vehicle orders and preparing new and used vehicles for delivery — purchased or leased.
The admin fee includes licensing, processing a loan or lease with financial institutions, arranging insurance documentation, conducting vehicle lien searches and vehicle history reports, registration fees for extended warranties, activation of satellite radio, Bluetooth and other technologies, and so-on.
Often, dealers are required to advance funds for outstanding fines and license infractions on behalf of the purchaser or leasee, prior to provincial registration. Unfortunately, there are administrative costs to all these tasks.
On lease termination transactions, where the finance source is directing the sale to the driver or a third party, the dealer is the facilitator (not the end buyer, nor the seller) and is responsible for: preparing the bill of sale; inspecting, storing and completing vehicle condition reports; arranging and ensuring the proper Safety Standards Certificate; Drive Clean emission testing; collecting and remitting to the finance source (not only the agreed purchase price, but any outstanding vehicle payments); excess km charges and reconditioning fees as well as satisfying all MVDA and OMVIC requirements.
The majority of car buyers that I've worked with over the years acknowledge that dealerships invest time and resources to prepare a vehicle for delivery. They understand the necessity of a modest fee for those services.
This reader suggests, however, that dealers act unscrupulously by pretending that the fee is mandatory. Dealers do not make any such claims, and to suggest otherwise is wrong.
Today, many retailers and professionals charge an administration fee for products and services. For example, doctors and lawyers charge fees for items like prescription renewals or property searches. Ticket agencies charge a processing fee for concerts. Bank fees/charges are an everyday fact of life.
Home utility bills contain fees, over and above the energy or water consumed. When purchasing a major appliance, delivery and setup fees are the norm. If you buy something on the Internet, you will likely pay a processing fee, in addition to the actual cost of delivery.
There are fees associated with dining out as well. Large groups patronizing certain restaurants generate an automatic gratuity (call it an admin fee) on the total bill.
People accept these "additional" fees because they are reasonable in light of the product or service that's provided. It's all about perceived value.
Administration fees in our industry are not a hidden markup and, for the most part, are more transparent to purchasers than they are accustomed to from other retailers.