2 Products Car Dealerships Offer That You Should Consider Buying
Written by
Nicholas Morine
Edited by
Katie Wudel
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When purchasing a new car, the array of additional products and services offered by dealerships can be daunting. However, there are a few extras that might be worth considering, despite the skepticism surrounding dealership add-ons.
Extended Warranties: A Wise Investment?
Frank Gogol of finance blog Stilt recommended considering extended warranties: “The relatively small cost of an extended warranty can generate huge savings in the future if you have car trouble.” It’s important to assess the existing warranty’s coverage and duration against the extended option to determine if the additional coverage is necessary for your situation.
The Security of GAP Insurance
GAP insurance is another product Gogol recommended considering. As he explained, “GAP insurance covers the difference if your car’s value is less than what you owe.” This can be particularly beneficial if you’re financing a significant portion of your vehicle’s cost, offering protection in the event of an accident or theft.
Criticism from Consumer Advocates
Shifting to a critical perspective, writer Christopher Smith, writing for the Clark Howard finance blog, warned against the majority of extras sold in dealership finance and insurance departments. Smith quoted his employer’s comments recently made to a viewer of the Clark Howard podcast: “You are being taken for a ride… The sale of the vehicles normally are not profitable; they make money on all those add-ons.”
Smith further explained that dealerships often make more profit from these add-ons (including others not mentioned above such as prepaid maintenance, credit insurance, tire and wheel protection, anti-theft, key replacement, roadside assistance protection and paint and fabric protection) than from the vehicle sale itself, emphasizing the need for consumers to be discerning.
The Profit-Making Structure of Dealerships
Smith shed light on the profit-making structure of dealerships, stating: “A dealership’s F&I department — Finance & Insurance — is a major profit center. In fact, in many cases, the F&I department makes up more than half of a dealership’s profits. According to Automotive News, F&I profit per vehicle reached $1,957 as of October 2022. That figure represented an increase of more than 42% in less than four years.”
Navigating Dealership Offers
While extended warranties and GAP insurance can offer real value, Smith’s insights serve as a reminder to approach other dealership extras with skepticism. He advised, “You can keep smiling and saying no thank you,” to unnecessary add-ons, highlighting the importance of staying vigilant and informed.
The Bottom Line When Dealing With Car Dealerships
In conclusion, while some dealership extras like extended warranties and GAP insurance can be worthwhile, it’s essential to critically assess each offer. As Smith wrote:
“There are times you may want one of the products that F&I sells. In those cases, just remember it’s OK to take your time and negotiate. You may not realize it, but most of the time, you can negotiate with F&I over those products just as you can over the price of the vehicle.”
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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