Pricing questions from a soon-to-be owner
12-10-2013, 01:46 PM
#1
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Pricing questions from a soon-to-be owner
Greetings all,
I signed up for the forum about a month ago and have been in contact with one of your members, keithl, regarding the A6 since his previous car is the same as the one I'll be coming out of. His help has been invaluable and he has been very patient with my verbose writing style and endless questions.
I visited my local dealer again today (I test drove about 3 weeks or so ago) to talk pricing. With information I gleaned from this forum, they did not balk at leasing me the car at invoice and are happy to order the car for me. I was interested in AudiCare mainly for the 1% increase in residual value that comes along with it. However, I was told that it was NOT available for $410 as I'd read pretty much everywhere, because the pricing was regulated (either federally or by the State of Florida, I forget which) to full price, i.e. $820, as it was considered an insurance product.
The salesman also notified me that there was a "DAG fee" that Audi passes along to the dealer for advertising. He showed me an invoice on an in-stock vehicle and the DAG charge was just under $300 against a car with a $50,000 MSRP. (A quick search reveals that the DAG fee is (or was) pegged to 0.5% of the car's MSRP, so perhaps I'm incorrectly remembering the MSRP of the vehicle he showed me.) There was also prep & inspection charge of $195 listed, which he again insisted was passed onto the dealer right on the invoice from Audi.
This salesman has been very friendly, but under the auspices of "trust but verify" my questions are thus:
1. Can any Florida members confirm that what I was told about AudiCare pricing is true? I've read countless stories of people getting 50% off the cost, though I can't say if they were in Florida or not. If capitalized along with the car at the time of lease signing, the $820 price would residualize at 52% which makes if effectively less than $410. However, I was under the impression that it was available for a straight $410, regardless of it being a cash deal, finance, or lease.
2. Is the DAG fee legitimate and is it still 0.5% of the car's MSRP?
3. Is the prep & inspection fee legitimate?
I suspect that the fees are legit, but I want to make sure. The AudiCare issue is really what's irking me the most.
Thanks to anyone who can offer insight. I hope to join your ranks as an owner soon!
I signed up for the forum about a month ago and have been in contact with one of your members, keithl, regarding the A6 since his previous car is the same as the one I'll be coming out of. His help has been invaluable and he has been very patient with my verbose writing style and endless questions.
I visited my local dealer again today (I test drove about 3 weeks or so ago) to talk pricing. With information I gleaned from this forum, they did not balk at leasing me the car at invoice and are happy to order the car for me. I was interested in AudiCare mainly for the 1% increase in residual value that comes along with it. However, I was told that it was NOT available for $410 as I'd read pretty much everywhere, because the pricing was regulated (either federally or by the State of Florida, I forget which) to full price, i.e. $820, as it was considered an insurance product.
The salesman also notified me that there was a "DAG fee" that Audi passes along to the dealer for advertising. He showed me an invoice on an in-stock vehicle and the DAG charge was just under $300 against a car with a $50,000 MSRP. (A quick search reveals that the DAG fee is (or was) pegged to 0.5% of the car's MSRP, so perhaps I'm incorrectly remembering the MSRP of the vehicle he showed me.) There was also prep & inspection charge of $195 listed, which he again insisted was passed onto the dealer right on the invoice from Audi.
This salesman has been very friendly, but under the auspices of "trust but verify" my questions are thus:
1. Can any Florida members confirm that what I was told about AudiCare pricing is true? I've read countless stories of people getting 50% off the cost, though I can't say if they were in Florida or not. If capitalized along with the car at the time of lease signing, the $820 price would residualize at 52% which makes if effectively less than $410. However, I was under the impression that it was available for a straight $410, regardless of it being a cash deal, finance, or lease.
2. Is the DAG fee legitimate and is it still 0.5% of the car's MSRP?
3. Is the prep & inspection fee legitimate?
I suspect that the fees are legit, but I want to make sure. The AudiCare issue is really what's irking me the most.
Thanks to anyone who can offer insight. I hope to join your ranks as an owner soon!
12-10-2013, 02:53 PM
#2
The DAG and Prep fees are true, I dealt with them too, I think they were about the same. I think this is why dealers are OK with invoice since between doc, DAG and prep fees they wind up making $1000 over invoice. Can't help you with FL issues, but that sounds odd that the state would regulate pricing on a service agreement since it is essentially pre-paid maintence.
12-10-2013, 03:27 PM
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I'm doing a little bit more searching and finding that what he said is probably true. It looks like Florida considers prepaid maintenance and extended warranties to be insurance products and they're regulated as such. Unfortunately, part of that appears to disallow price variations.
Now that I'm reading more about it, I seem to recall an issue that started a few years ago where FL residents could no longer buy discounted HondaCare policies from dealers out of the state because for this very reason.
Somewhat of a bummer, but it's residualized at the newly-heightened 52% so you're really only paying about $410'ish for it anyway over the course of the lease, including the money factor. Would have been better to have only paid ~$205 for it, but not a big deal in the grand scheme I suppose.
Now that I'm reading more about it, I seem to recall an issue that started a few years ago where FL residents could no longer buy discounted HondaCare policies from dealers out of the state because for this very reason.
Somewhat of a bummer, but it's residualized at the newly-heightened 52% so you're really only paying about $410'ish for it anyway over the course of the lease, including the money factor. Would have been better to have only paid ~$205 for it, but not a big deal in the grand scheme I suppose.
12-10-2013, 03:36 PM
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Prep fees vary widely. Some dealers charge under $100, some charge over $500. Advertising fees are not supposed to be transferred to the customer. Those are supposed to be paid by the dealer.
12-10-2013, 06:50 PM
#5
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A few things about Audi Care (one more time with feeling). Despite what any dealer may claim, first, it's not an insurance product, it's a prepaid maintenance product - there's no insurance involved as it's not a warranty of any kind - you're simply buying scheduled maintenance in advance at a discount over what the dealer charges for each along the way. Second, I've never heard of the price of AC being "fixed" by Audi or any regulation anywhere in North America over the many years I've purchased Audis in several states. Third, the reason dealers resist discounting it, especially if the car is sold close to invoice, is it has very little markup. An AC that retails for $820 cost the dealer something near $750 or so.
As I've repeated in several other threads, if a dealer throws it in for "free" (or discounts it), it's actually a further discount off the price of the car equal to the dealer's cost or discounted difference. In other words, if one were to pass on a "free" Audi Care, one could theoretically get the same amount as the dealer's cost off the negotiated price of the car. When a dealer sells a car for invoice, discounting AC would result in a loss. (There are other manufacturer/dealer incentives but they are not tied to individual cars).
Bottom line is nothing, including Audi Care, is "free". Everything you can buy in the dealer's building has a cost and somewhere, somehow a dealer has to make a profit or they're out of business (service depts. are usually a separate profit center with their own overhead and sales). A Dealers has to pay for rent, taxes, utilities, staff, advertising and free donuts and coffee with something left over, one way or another. No different than any other type of retailer. And as we know all too well, the last few years have claimed many a hard goods retailer tombstone along the way that couldn't figure out how to make a profit.
As I've repeated in several other threads, if a dealer throws it in for "free" (or discounts it), it's actually a further discount off the price of the car equal to the dealer's cost or discounted difference. In other words, if one were to pass on a "free" Audi Care, one could theoretically get the same amount as the dealer's cost off the negotiated price of the car. When a dealer sells a car for invoice, discounting AC would result in a loss. (There are other manufacturer/dealer incentives but they are not tied to individual cars).
Bottom line is nothing, including Audi Care, is "free". Everything you can buy in the dealer's building has a cost and somewhere, somehow a dealer has to make a profit or they're out of business (service depts. are usually a separate profit center with their own overhead and sales). A Dealers has to pay for rent, taxes, utilities, staff, advertising and free donuts and coffee with something left over, one way or another. No different than any other type of retailer. And as we know all too well, the last few years have claimed many a hard goods retailer tombstone along the way that couldn't figure out how to make a profit.
12-10-2013, 06:53 PM
#6
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Mike, what you say is normally true but it's a real cost to the dealer and when a dealer is selling a car close to their invoice coat, as I wrote in my last post, they have to employ some mechanism or other to try and make a profit.
12-11-2013, 08:00 AM
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A few things about Audi Care (one more time with feeling). Despite what any dealer may claim, first, it's not an insurance product, it's a prepaid maintenance product - there's no insurance involved as it's not a warranty of any kind - you're simply buying scheduled maintenance in advance at a discount over what the dealer charges for each along the way. Second, I've never heard of the price of AC being "fixed" by Audi or any regulation anywhere in North America over the many years I've purchased Audis in several states. Third, the reason dealers resist discounting it, especially if the car is sold close to invoice, is it has very little markup. An AC that retails for $820 cost the dealer something near $750 or so.
As I've repeated in several other threads, if a dealer throws it in for "free" (or discounts it), it's actually a further discount off the price of the car equal to the dealer's cost or discounted difference. In other words, if one were to pass on a "free" Audi Care, one could theoretically get the same amount as the dealer's cost off the negotiated price of the car. When a dealer sells a car for invoice, discounting AC would result in a loss. (There are other manufacturer/dealer incentives but they are not tied to individual cars).
Bottom line is nothing, including Audi Care, is "free". Everything you can buy in the dealer's building has a cost and somewhere, somehow a dealer has to make a profit or they're out of business (service depts. are usually a separate profit center with their own overhead and sales). A Dealers has to pay for rent, taxes, utilities, staff, advertising and free donuts and coffee with something left over, one way or another. No different than any other type of retailer. And as we know all too well, the last few years have claimed many a hard goods retailer tombstone along the way that couldn't figure out how to make a profit.
As I've repeated in several other threads, if a dealer throws it in for "free" (or discounts it), it's actually a further discount off the price of the car equal to the dealer's cost or discounted difference. In other words, if one were to pass on a "free" Audi Care, one could theoretically get the same amount as the dealer's cost off the negotiated price of the car. When a dealer sells a car for invoice, discounting AC would result in a loss. (There are other manufacturer/dealer incentives but they are not tied to individual cars).
Bottom line is nothing, including Audi Care, is "free". Everything you can buy in the dealer's building has a cost and somewhere, somehow a dealer has to make a profit or they're out of business (service depts. are usually a separate profit center with their own overhead and sales). A Dealers has to pay for rent, taxes, utilities, staff, advertising and free donuts and coffee with something left over, one way or another. No different than any other type of retailer. And as we know all too well, the last few years have claimed many a hard goods retailer tombstone along the way that couldn't figure out how to make a profit.
Actually, the dealer isn't claiming that it's an insurance product. They are saying that it is regulated by the state of Florida in the same way that insurance products are regulated. I am coming to learn that extended warranties AND prepaid maintenance plans (AudiCare obviously falls under the latter) are indeed regulated by the Florida Office of Insurance Regulation. I will post my findings here as soon as they're distilled into a reasonable form, but this government oversight stemmed from legislation introduced a few years ago that was mainly aimed at protecting our large senior citizen population from being scammed with various insurance products. I've not yet read how or why this regulation of extended warranties and prepaid maintenance is under the same umbrella, but my research to this point would indicate that it truly is. I've not searched for what other states (if any) operate the same way, but Florida is certainly in the minority in this regard if not alone completely. We must purchase any such products from a dealership within the state, and pay the full retail (i.e. a non-discounted) price.
On a side note -- you'll get no argument from me that nothing is free and that AudiCare is a profit center for the selling dealer. I'd never dispute any of that because both points are intuitively obvious. However, without having done any research into the dealer's cost of the AudiCare plan, I'd be shocked if it wasn't a good bit less than the $750 you cited (against a retail price of $820). A longtime friend of mine was a finance manager at a *gigantic* Honda dealership in the Fort Lauderdale area for several years and I can assure you the markup on factory-backed prepaid maintenance products (and indeed extended warranties) is easily on the order of 50%. Again, I'd be shocked if this wasn't the case with Audi (and just about everyone else). But I digress.
And though it varies from automaker to automaker, I can also assure you that manufacturers provide spiffs to dealers for reaching certain sales figures (or other milestones) that effectively discount their unit cost to below what we've come to know as "invoice" price - even without a built-in holdback padding this figure.
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12-11-2013, 10:09 AM
#8
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I have no idea what other brand dealers pay for their maintenance agreements but, shocking as it may be, I know for a fact that Audi Care has a very small profit built in for the dealer. It's not a "profit center" for them but a way for Audi to lock the owner into having the scheduled maintenance performed at an Audi dealer for 4 yrs/45K miles and the dealer hopes you use their service dept. (AC can be used at any Audi dealer in the country of origin). My info comes from two different Audi Service Managers I've known well for over 15 years.
As to Florida law, I'm surprised that lawmakers would fix the price of AC if they were trying to protect senior citizens. A maximum cap price I could understand but not allowing a discount? Makes no sense that that a senior is forced to pay retail with no hope of any discount.
As to dealer incentives, you are correct. Although Audi does not have a "holdback" program per vehicle like some other brands, they have incentives for other things like monthly quota attainment, customer satisfaction survey metrics, etc. Usually though, they are periodic lump sum credits a dealer applies to their P&L balance sheet and not attached to a specific car's cost. (An exception might be for closeout models when new ones arrive but even that is not a given all the time). Many dealers do have other ways to achieve a profit, i.e. prep fees, finance and lease rebates, add-ons like over-priced tint, film, extended warranty/wheel protection rebates, etc., none of which are Audi provided but use third parties. Used cars are undoubtedly the dealer's biggest profit center with service and parts depts. second in line.
As to Florida law, I'm surprised that lawmakers would fix the price of AC if they were trying to protect senior citizens. A maximum cap price I could understand but not allowing a discount? Makes no sense that that a senior is forced to pay retail with no hope of any discount.
As to dealer incentives, you are correct. Although Audi does not have a "holdback" program per vehicle like some other brands, they have incentives for other things like monthly quota attainment, customer satisfaction survey metrics, etc. Usually though, they are periodic lump sum credits a dealer applies to their P&L balance sheet and not attached to a specific car's cost. (An exception might be for closeout models when new ones arrive but even that is not a given all the time). Many dealers do have other ways to achieve a profit, i.e. prep fees, finance and lease rebates, add-ons like over-priced tint, film, extended warranty/wheel protection rebates, etc., none of which are Audi provided but use third parties. Used cars are undoubtedly the dealer's biggest profit center with service and parts depts. second in line.
12-11-2013, 11:31 AM
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Haha, I don't think the lawmakers were specifically trying to protect seniors by fixing the price of AC, but that's how it all played out. (Besides, seniors down here all drive ES350s, so AC wouldn't apply) The statues are worded... well... like statutes, and obviously don't call out AC (or any other prepaid maintenance and/or extended warranty program) by name. The end result, though, is that they are regulated by the same body that regulates insurance policies, even though they're not insurance policies. If I can stomach reading any more of it today, I'll find out why.
