Buying a car is just not what it used to be

Survey finds 36.6 per cent of purchasers forced to pay markup, ranging from $1,000 to $10,000, and 41.3 per cent required to pay for extras, such as extended warranties and protection packages

Athol Cohen knows how the retail world works. He was a small-business owner and he learned how to keep his customers happy. As a car buyer, Cohen knows how to extract a fair deal from a salesperson.

Retired now, he expects transparency and integrity negotiating to purchase a vehicle.

When it came time to replace his 2017 Hyundai Tucson SUV this summer, Cohen recognized that car-buying had changed; a textbook case of an imbalance of supply and demand had knocked it askew.

A continuing shortage of new vehicles prompted some dealerships to add “market adjustment” fees or coerce shoppers to buy “mandatory” optional packages to fatten dealers’ profit margins.

Those buyers who protest are shown the door or threatened with a Soviet-style waiting list.

“I knew what I wanted and I did my homework,” Cohen says, recalling his trip to a dealer north of the city after visiting four GTA dealers. “I asked two questions: ‘What is the expected delivery date on my desired vehicle, a 2024 Hyundai Tucson Ultimate Hybrid,’ and ‘What is the total price?’ ”

The sales rep explained that delivery would take place between September and December, and quoted Hyundai Canada’s MSRP (manufacturer’s suggested retail price) of $51,026 for the 2023 model, including taxes and fees. He wrote the sum on a printed copy of the web brochure. Cohen paid the $500-deposit and planned to pay the balance of the purchase price in cash.

In July, the sales rep sent an email indicating Cohen would receive a 2024 Tucson along with a new model-year price increase, which he accepted. In September, the rep provided the final price of $53,112 — $890 more than Cohen had calculated using the manufacturer’s website.

“When I dug into the increases, it was for two items: $389 for theftprotection etching and decals, and a road-safety package, at $399,” Cohen recounts. “From my point of view, this is a total waste of my money, and, from the dealer’s point of view, it is a non-negotiable mandatory option buyers of new vehicles must take.”

Cohen disputed the charges, which provoked a response from the general sales manager: “If you are willing to ‘join the waiting list’ as indicated on the national website for a custom-ordered Tucson model, we will be happy to order it your way and leave out any products you choose … ,” he wrote.

It meant foregoing the Tucson Hybrid that was arriving in November and ordering another one with an “undefined” delivery date.

Unfazed, Cohen negotiated a solution in the F & I (finance and insurance) office, that dreaded sweatbox dealers take buyers to pitch them “value added” options, in order to extract more profit on the sale.

“I’m all for value added, but these items have no value,” Cohen argues. “I wanted an extended warranty in place of the $890 in unnecessary protection items.”

The F & I office was happy to absorb the cost of the items Cohen didn’t want, with the addition of an eight-year extended warranty from Hyundai discounted to $2,700 to match an aftermarket warranty he had found.

Experts confirm the experience of buying a car is more complicated these days. “The elements have carried over from the pre-pandemic days — the showroom, salespeople, finance office and ordering — but there’s a lot more potential for things to go wrong now,” says Shari Prymak, senior consultant with Car Help Canada, a consumer-oriented car-buying service.

“The microchip shortage has largely ended, but, when it comes to high-demand vehicles, such as hybrids, they are unattainable on the lot. What you will find in inventories are pickup trucks and expensive luxury models. But there’s virtually no incentives or rebates, and the cost of borrowing is very high.”

Prymak says dealers boost their prices over MSRP using “tied selling,” which makes the purchase of one product (a car or truck) conditional upon buying others, such as protection packages and rustproofing, a tactic he calls unethical.

Car Help Canada conducted a national survey of people who bought cars recently and it revealed that 36.6 per cent of purchasers were forced to pay a markup, ranging from $1,000 to $10,000, over the MSRP. Additionally, 41.3 per cent of car-buyers were required to pay for extra products, such as extended warranties and protection packages.

In one example, a Toronto dealer’s bill of sale lists a protection package priced at $3,399, a “top-up” warranty at $899 and an administration fee of $599, adding $5,533 (including tax) in unnecessary costs to the price of a $28,000-economy-car. That’s on top of the usual freight, predelivery inspection, fees and taxes.

It’s no wonder the average transaction price of a new vehicle in Canada reached $52,900 for the first time ever. The figure is supplied by DesRosiers Automotive Consultants. It represents a $10,000 increase in the average price over the last four years, says Andrew King, managing partner at DesRosiers, who blames the chip shortage, broader inflationary pressure and a shift in buyers’ preferences in favour of pricey trucks and electric vehicles.

Beyond escalating prices, there’s still the matter of delivery wait times.

In the past, most light vehicles in North America were “build-tostock” (BTS), where dealers buy vehicles in advance to hold in inventory. Then Tesla found success with a “build-to-order” (BTO) approach, in which consumers place their order and wait.

“Out of necessity, this approach became widespread in the last couple of years among all manufacturers due to the shortages,” King says. “The future path is uncertain. It seems fairly certain, however, that the new normal may be different than pre-pandemic times.”

Prymak has some advice for autobuyers navigating showrooms today: “Don’t sign a sales contract without the final price clearly stated! If the dealership attempts to add more charges and fees as the delivery date draws closer, that’s unprofessional conduct.”

He recently attended a regulatory conference that included provincial dealer regulators and representatives from the Ontario ministry that oversees OMVIC, the Ontario Motor Vehicle Industry Council.

“Everyone was well aware of these issues, but my impression was that there was no real sense of urgency to address them,” says Prymak, although he does note that the Ontario government is updating the Consumer Protection Act.

“We are advocating for a ban on ‘tied selling’ to prevent dealers from forcing consumers to pay for unnecessary add-ons. We’re also advocating for a cooling-off period, so that buyers can cancel their agreements within a few days, if they discover any concerns,” he says.

For its part, OMVIC, the industryrun “watchdog” that regulates its dealers, acknowledges a marked increase in consumer complaints. These totalled more than 39,000 in 2022, compared to 33,000 the year before. And the figure promises to be higher when 2023 is tallied.

Despite its regulatory role, OMVIC cannot force a dealer to honour a contract, including the purchase price set out in a bill of sale, under the current legislation.

“However, as part of OMVIC’s formal complaints-handling process, mediation is offered to facilitate the negotiation of a mutually agreeable resolution between a car-buyer and a dealer,” says Jeff Donnelly, OMVIC’s chief consumer-protection officer.

Under the Consumer Protection Act, if a dealer increases the price after a contract is signed, the carbuyer has the option to cancel the contract without incurring penalties and can request a refund of their deposit, Donnelly explains.

As for Cohen, he says he’s happy with his new car. “But I’m not happy about the $890 in extra charges and the dishonesty the dealer displayed.”