Dealers may try to slip a service contract into the price of the car to get more money out of you
Are you in the market for a new car? If so, pay attention to the final paperwork to make sure that you're not getting more than you wanted.
It appears that car dealers are being more crafty in an attempt to increase their sales and bottom line. Have you heard a pitch for not paying any maintenance for so many years or however many miles, or perhaps even a lifetime warranty?
This might be a sneaky service contract thrown into the price of the car that can cost you thousands more than you would have paid out of pocket to address issues as they arise. A $1500 service contract, for example, can end up costing you nearly $2300 over the first four years of the lease or finance.
Only a fraction of a dealer's bottom line comes from the sale of cars. Most of the money that the dealer makes comes from service contracts and other repairs performed inside the service department.
The markup on parts, for example, can be significant. We found in a review recently of car parts in the Raleigh area that car dealers are marking up parts 100% or even higher. A fuel pump for a mid 2000s GM vehicle, for example, runs for about $600 MSRP. The cost to the dealer in our specific example: $89. Add that $511 profit on top of the money they are charging you to perform the work and you can see how lucrative dealer service and parts can be.
As you can see, there is a lot of motivation for a dealership to sell you its service and to keep you coming back for seemingly free services. Even if you are coming in for 'free' service, which is service you prepaid in your loan or lease agreement, you'll likely be subject to high pressure sales tactics to sell you worthless add-ons and fluid flushes. Often, the dealership personnel get a kickback of these sales.
On average during the first five years of ownership, a vehicle typically needs only oil and filter changes. There is really no reason for you to sign a contract for additional service protection beyond the manufacturer warranty for the first few years of ownership.
Even if you do decline this extended coverage or maintenance contracts, though, check your finance paperwork before you sign. Unscrupulous dealership personnel will often slip the service contract onto the paperwork at the last minute, which is often a time when you're willing to just sign anything to get out of that place.