Doc Fee Information
What are Dealer Doc Fees?
Posted by Jim Overbey - Toyota of Kingsport Internet Manager on April 12, 2011
Here at Toyota of Kingsport we are strictly a NO DOC FEE DEALERSHIP. This is something I have always loved about our dealership...we truly want to treat our customers right EVERY time and adding on fees at the end of what should be a fun and exciting purchasing experience just doesn't add up. We are grateful for our customer's loyalty and we believe that when we advertise a price, our customers should be able to buy at that price....nothing more.
And even though I am proud of the fact that we are a fee free dealership, I never really understood what these fees really were and why other dealerships charged them. I decided to do some research and below is the best article I found explaining how really bogus doc fees are.
If you are in the market to buy a new or used vehicle, I hope you will let us earn your business! We are a family run dealership that has an excellent 33+ year reputation, an amazing selection of vehicles, and a pride in the service we offer. Finding a car should be nothing but an exhilarating purchasing experience.
Why do car dealers charge Doc fees?
By David Maillie
If you have bought a new or used car or truck in the past 10 years then you have most likely paid a Doc fee. This is an addendum or additional fee assessed by the car dealer supposedly for paperwork, filing and other various items that have to go with your car purchase. When asked about the so called Doc Fee, most car salespeople and managers will either try and evade the question or state that it covers clerical costs. So what exactly is the Doc or processing fee and why do car dealers charge it?Well, first of all, after doing a little research, the Doc or processing fee was actually started as a way of increasing net profit minus commissions for the car dealership. Its purpose was to add additional profit that the dealer did not have to pay hefty commissions to its sales staff on. The original Doc fee (or processing fee as it is sometimes referred to) was designed to be small so most customers and staff would swallow it without ever questioning it. Most Doc fees originated in the $29 to $59 range and wouldn't mean much of a difference to customers or sales staff, but it meant a whole lot to the dealer’s bottom line. Just take an average $40 (average for the early 90’s and definitely not average now) and multiply it by the number of new and used cars the average car dealer sells (according to Used Car News and Manheim Auction – two huge names in auto sales this is around 400 and hasn't changed much in the past 10 to 15 years). That would result in a quick pure profit of $16,000.Now, jump forward about 10 to 15 years to today and you will see the average Doc fee is now $399 (that’s an increase of 1000% in around 10 years) and some car dealers charge upwards of $799 or more. So, if you do the math on this and multiply the same 400 cars by $399 you get $159,600 per month or $1,915,200 per year. That’s almost $2,000,000 per year in non commissionable profit! Now, here’s the real kicker on Doc Fees – they are all pure profit and completely bogus! That’s right, your local car dealer and probably the GM (General Manager usually gets a cut for keeping all the other staff out of the loop on this) now make almost $2,000,000 per year off their customers and sales staff. Now, you ask, how do they make this off the sales staff? Easy, when final prices are negotiated and agreed to the sales price can be cut, but the Doc or processing fee will not be. What that means is that in most sales where price is an issue (which is just about every one except in very rare circumstances) the sales staffs' commissionable profit will get cut to make room for the ever important Doc Fee. So, what was originally designed to add a little extra profit has now become a major profit source for the car dealer. Now, let's take the math a little further, the average car dealer owns 7 car dealerships.
Now, your dealer will probably tell you that they need Doc Fees to process your paperwork, pay for the finance manager and clerical staff, detail your car, etc… Well, if you read the small print on the window sticker on new cars right under the listed MSRP (Manufacturers Suggested Retail Price) it clearly states that this and any other "costs" the car dealer tells you is already included in the new car sales price (and in the invoice price too). The clerical and other stuff is an actual cost of doing business just like any other industry. Could you imagine if Wal-Mart added just $20 to every purchase for cost of clerical, cleanliness (well Wal-Mart could probably use a hand in this anyway at some locations), billing, etc… No one would do business there.
And why would you...
