How car dealerships have capitalized on crisis through bait-and-switch pricing

How car dealerships have capitalized on crisis through bait-and-switch pricing

Few customer experiences can evoke as much anxiety, uncertainty, and frustration as walking into a car dealership. As a consumer, you may find the perfect car online at an advertised price within your budget, only to drive to the dealership to be met with an arsenal of psychological and emotional manipulation tactics — all with the express purpose of driving up the final purchase price without your full knowledge, understanding, or consent.

This all-too-common car dealership experience is the result of a strategy called bait-and-switch pricing — and sadly, it’s the reality for 71% of used car buyers in the U.S. In total, bait-and-switch pricing amounts to a $11.8 billion problem annually in the U.S. This is how it happens: Dealers advertise a lower price to “bait” the consumer to go into the dealership. Once they’re at the dealership, the price is then “switched” to a higher out-the-door purchase price, through a range of manipulative tactics.

It’s important to be clear, however, about what and who are causing the problem of bait-and-switch pricing. While the stereotype of the shady used car salesman is well-known, the real issue lies with the dealer business model, rather than individual rogue salespeople.

During the COVID-19 pandemic, car shortages drove up prices and dealer profits substantially — and dealerships now have a significant incentive to maintain those profits. With used cars still in short supply from the pandemic, and with the recent onset of auto tariffs, dealers have the clear upper hand with consumers who have more limited options and who are rushing to buy before prices increase even more. As a result, CoPilot has found that bait-and-switch pricing has become an even more prevalent issue for car shoppers in recent months.

Over the past year, CoPilot has spoken with car shoppers around the country and analyzed used car transactions across the U.S. This data, for the first time ever, quantifies how much consumers were charged in hidden fees on their used car purchases and brings actionable insights and data to this problem. And we’re only just getting started pulling back the curtain on the scope of the problem of bait-and-switch pricing, which dealers are the worst offenders, and how much it’s costing consumers. The ultimate goal? End bait-and-switch pricing, for once and for all.

What Bait-and-Switch Pricing Looks Like at The Dealer

Bait-and-switch pricing is defined as car dealers deploying one or several of the following tactics.

• Illegitimate fees: Illegitimate fees are charges that dealers add to the bottom line price designed to increase dealer profitability on the car.
• Excessive fees: Excessive fees are standard fees for legitimate services or accessories. However, they represent an example of bait-and-switch pricing because the amount that dealers are charging the customer for them is excessive and above the typical average.
• Charges for add-on equipment and service packages: These happen when dealers charge extra for additional equipment or services that were not requested by the customer, nor included in the advertised price of the car. Examples of add-on dealer accessories include LoJack, VIN etching, window tint, and exterior/interior protection, while common add-on service packages include oil changes, tire, extended warranties, and vehicle maintenance.

It is important to note, however, that dealers do charge legitimate fees — reasonable charges for additional equipment or services provided during the sale process. Some research on common fees and their average cost in your state should reveal whether a fee on your out-the-door price is legitimate.

 

By The Numbers: Key Takeaways

Hidden fees, part of a broader pattern of bait-and-switch pricing, are defined as excessive or illegitimate charges that are added onto the final purchase price of a used car, without being clearly communicated to the customer.

 

1. License Fee: $292.64

• The amount in license fees that dealers are allowed to charge is capped by the state and should not exceed a certain amount. This number is the average amount by which license fees exceeded the state limit in the used car purchases analyzed by CoPilot.

2. Plate Fee: $275.99

• Similarly, plate fees are regulated on a state-by-state basis and cannot exceed a certain amount.

3. Transportation fee: $212.33

• Transportation fees refer to the cost of shipping the car from another location, like another dealership. These fees can often be marked up or contain illegitimate add-ons.

4. Title fee: $205.92

• In some states, title fees — the cost of transferring ownership from the buyer to the seller, including processing documents — are capped at a certain amount. Even in the absence of statewide regulation, these fees can be considered excessive if the dealer charges extra for processing documents beyond the title transfer.

5. Doc fee: $204.32

• In some states, doc fees are regulated and capped at a certain amount. Some states, like Florida, that don’t have statewide regulation tend to see excessively high doc fees.

 

1. Title fee: $205.92

2. Doc fee: average $204.32

3. Registration: average $258.55

• This represents the average amount that dealer registration fees exceeded the amount charged by the state’s DMV.

4. License fee: average $292.64

5. Electronic filing fee: average $220.57

Illegitimate Fees Analysis

The illegitimate fees below fall into a few categories. They can include charges for added features that were pre-installed on the vehicle, but are not included in the final purchase price to the consumer. They can also refer to extra features that the dealer added to the car during the purchase process, without asking the consumer.

The common thread here is that while these fees describe actual add-ons or services, what makes them illegitimate is that they were added to the final purchase price of the car without the consumer’s knowledge or consent.

 

1. Etching, wheels and lock: $1,795.00

• This includes the VIN etching, the wheel locks, and recovery system to protect against theft.

2. Reconditioning: $1,581.83

• On paper, this fee covers the dealership’s costs to get the vehicle ready to sell (including inspecting, repair, and detail).

3. Exterior paint protection: $1,366.17

• This fee refers to a brand name for a series of products designed to protect the exterior and interior of the vehicle against environmental damage (exterior) and spills/stains (interior).

4. Anti-theft/lo-jack: $1,227.25

• This refers to a theft protection or deterrent system.

5. Door edge: $1,067.71

• This refers to a product designed to protect the edges of vehicle doors from nicks, chips, and scratches that can occur from contact with other objects, like walls and other cars, or even when opening the door too forcefully.

 

1. Exterior paint protection: $1,238.23

2. Reconditioning: $1,366.17

3. Dealer accessories: $1,581.83

4. Warranty: $1,593.97

• An add-on package for extended warranties, service plans, or other dealer-specific benefits—these services are totally discretionary to the consumer, and they should be able to push back on the fee if they are not interested in these services.

5. Anti-theft: $1,227.25

Brand Type Breakdown

Domestic Brands, e.g., Ford, GM, Chevrolet

71% of purchases had hidden fees

• The total amount of hidden fees was $885.19
• Illegitimate fees, average amount: $855.13
• Excessive fees, average amount: $30.07 

Foreign Brands, e.g., Honda, Toyota, Kia
64% of purchases had hidden fees

• The total amount of hidden fees was $851.97
• Illegitimate fees, average amount: $729.41
• Excessive fees, average amount: $134.92 

Luxury Brands - i.e., Mercedes-Benz, Audi, Lincoln

39% of purchases had hidden fees

• The total amount of hidden fees was $425.99
• illegitimate fees - average amount: $361.25
• excessive fees - average amount: $64.74

The Why: Record Dealer Profits Lead to Deceptive Business Practices

New car prices skyrocketed during the COVID-19 pandemic, due to a range of factors, including supply chain constraints and the semiconductor shortage causing new car inventory to plummet. At the same time, consumer demand for cars heightened. This created a perfect storm of supply-and-demand issues in the car market, one that still impacts car shoppers today when they step onto the dealer lot.

The price increases in the new car market then trickled into the used car market, causing these prices to soar as well.

• Currently, new car prices are now $49,667, up 29% since the start of the pandemic.
• Used car prices are now $26,715, up 18% since March 2020. This created an incredibly profitable environment for car dealers during 2021 and 2022 in particular.

New car supply started to rebound in mid-2023, as automakers were finally able to produce more cars. However, car prices have yet to come down significantly from their peaks. New car prices, for instance, fell by just 1% in 2024. Meanwhile, dealers, who became accustomed to record profits during the COVID years, are unwilling to give those up.

Today, more than ever, the dealer business model is incentivized to engage in nontransparent and at times deceptive pricing practices, resulting in hundreds and sometimes thousands of dollars extra added onto car purchases each year.

Empowering the Consumer and Ending Bait-and-Switch Pricing

Unfortunately — with the overturn of the Federal Trade Commission’s Combatting Auto Retail Scams Rule in 2024, which had mandated that dealers transparently communicate vehicle pricing and limited add-ons and hidden fees — there is no regulatory solution to this problem. Without strong consumer protections in the car buying process, it’s now incumbent on car shoppers to be able to identify hidden fees and push back on the dealer when they try to add these onto a purchase.

To that end, there are a few steps that consumers can take to be prepared when they encounter bait-and-switch pricing at the car dealership:

• While it may seem like an obvious step, contact the dealer in advance and get the out-the-door price in writing. This holds them accountable to a number and diminishes the dealer’s ability to use bait-and-switch pricing.
• Identify any fees that look higher than average or seem unnecessary. Follow up with the dealer if there are any fees you need more clarification on and try to negotiate any fees down that you feel uncomfortable about.
• Research average fees for your state. This will help you easily identify if what the dealer is charging you is in line with what other dealers are charging.

This story was produced by CoPilot and reviewed and distributed by Stacker.