WENDY KNOWLER | Beware the new car ‘gift’ you pay for

“What irks me most is the inclusion of the cost of the ‘gift’, allegedly from the dealer, in the exorbitant on-the-road (OTR) fees. 

“If I was buying a car, no, I do not want a dealer-branded pen or clothing costing R3,000 or a bottle of French Champagne costing R1,000 — which I end up paying myself in that OTR fee.”

You’d expect me to say such things — I’ve been bashing the on-the-road, “delivery”, or whatever else dealerships call the extra fee they add to their deals, for many years — but while I agree with the sentiments, those are the words of the former CEO of a vehicle finance company. 

He’s the second motor financier exec to share his feelings with me on this subject, on condition of anonymity.

“Some customers may want these car handover things, but most would not if they were advised of the actual cost — to them,” he said. “Especially where the customer thinks they are getting something ‘free’.”

He was responding to the recent news that the National Credit Regulator (NCR) has run out of road in its fight to outlaw the car finance banks’ practice of “padding” car loans with “on-the-road” fees, which cover the cost of pre-delivery checks, car valets, those handover gifts that feature in those “look at my new car” pics on social media, and much more.

A Pretoria high court judgment handed down last month has endorsed the adding of “on-the-road” fees to car finance deals, ending five years of legal uncertainty over the contentious issue.

The NCR had since 2017 been arguing that the National Credit Act does not make provision for an on-the-road fee, admin fee or handling fee to be added to credit agreements.

It’s common practice for motor dealerships to bloat the principal vehicle debt with such fees, with the justification that the add-on amounts are the cost of “preparing” vehicles for sale.

This despite the act’s section 102 allowing only a limited list of vehicle-related extras to be added to a credit agreement, the NCR argued: a tank of fuel, number plates and licence and registration fees.

The NCR chose to go after the financial services divisions of the three German brands — BMW, VW and Mercedes-Benz — as test cases, via the National Consumer Tribunal, which curiously came to conflicting conclusions in those cases.

I’ve always felt that it’s the dealerships who should be made to stop adding those fees as “extras” and include them in the retail price of the vehicles they sell, which would be a far more transparent, consumer-friendly way to operate. But that’s unlikely to happen any time soon, so I was rooting for the NCR to win. 

It was not to be: acting judge Patrick Malungana said it was the motor dealerships that imposed the costs in question, not the financiers. “The financiers finance the principal debt which has been predetermined by the dealer,” he said. “The financiers have correctly argued that the NCA does not contain any prohibition on what amounts may be financed by the credit provider at the request of the consumer.”

But one of the three judges in the matter, judge Graham Moshoana, disagreed. For dealerships to add fees for a valet service, knowing that the financier was going to add interest to that amount over the term of the contract — 72 months, for example — was “the mischief that the legislature seeks to curb by introducing a closed list in section 102 of the NCA”, he said. 

“If the interpretation preferred by the finance houses is accepted, then on-the-road fees may be sneaked into a credit agreement even where the consumer did not agree to them.”

I’m glad he used the word “sneaked” because in most cases, in my experience at least, the fee is added to the offer to purchase without any discussion with the customer, and no breakdown of how the fee was arrived at. Not unless a savvy customer demands it.

“Some dealers try their luck as they still get away with extraordinary fees with some of the banks, which turn a blind eye,” the former CEO told me.

“I have no issue with dealers charging reasonable amounts for actual goods and services provided.

“But in my career, I have seen amounts in excess of R100,000 which have been approved by customers for a tank of fuel and vehicle registration.

“This is merely an extra gross margin/profit opportunity for the dealer.”

Yes, I also thought he’d added an extra zero to that figure in error, but he assured me he hadn’t. So that can happen with high-end vehicles. The former CEO says a regulation should be promulgated, capping the amount capable of being charged as extra fees.

“Of course, dealers will then adjust their margins to accommodate whatever they have lost. But at least consumers will have a fighting chance against being ripped off and still be able to negotiate the car margin, rather than the dealer adding often-ridiculous fees, as they currently do,” he said.

He related how he recently helped his nephew buy a car. “When it came to the ‘on-the-road’ fees, I phoned the dealer principal, told him that the fees were nonsense, and they were removed.

“Yes, I know that I have the experience, but many consumers do not.”

When buying a car, especially on finance, don’t just look at the monthly instalment figure. Interrogate every line of the offer to purchase

Another former vehicle finance house boss told me a couple of years ago the scale of “on-the-road” fees were eclipsed by all the other ways in which dealerships bloated the car contracts. Too-low trade-in prices, and overcharging for extras such as tow bars and window tinting, tracking contracts and more.

My investigations back that up.

So here’s the advice: when buying a car, especially on finance, don’t just look at the monthly instalment figure. Interrogate every line of the offer to purchase. See if you can get a lower interest rate than the in-house finance person has sourced; check the cost of those add-ons and whether you need them. 

If it’s a used car, don’t accept paying for extras which were ordered and paid for by the original owner. 

A debt counsellor of repute tells me she has a case in which a dealership charged a client extra for a feature — park distance control — which was standard in the car.

Bottom line: buying a car is not for sissies. Get that offer to purchase and take advantage of the five business days you’re legally allowed to mull it over. You’d be amazed how much “fat” you can cut from the deal before you sign and get “on-the-road” with your new wheels.

• GET IN TOUCH: You can contact Wendy Knowler for advice with your consumer issues via e-mail: consumer@knowler.co.za or on Twitter: @wendyknowler.

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