How car dealers take you for a ride on insurance premiums and other charges when you buy a new car
“A few things extra, some mandatory and many optional frills, only add up to the dealer margins and increase the on road price of new car”
In the enthusiasm of buying a new car, very few people look into the many add on charges that are included between the ex-showroom price and the on road price. This oversight can sometimes leave a big hole in your pocket. The Merriam Wesbster’s dictionary describes trade as the action of buying and selling goods and services. Any trade is transacted in universal good faith based on the product value and an agreed price. But in the sale of an automobile car there are sundry charges added up that have no transparency and is a grey territory. Since the mid-1980s, India has slowly opened up its markets through economic liberalisation. India has progressed to a free market economy today. Across all the sectors from telecom to automobile to retail, multinational companies have set up shop in India. You name any international brand across any sector, and it has a presence in your neighborhood today. All the international car brands can be seen criss-crossing our roads, even though there are no worthy roads.
We approached an exclusive car dealer of a well-known hot selling brand of cars that has sold over 5,240 cars in this segment in the month of October 2019 alone. We obtained a quotation (see image) and made an attempt to unclutter the additional charges so that it will be clear to the new car buyers what they are paying for. As a marketing strategy car salesmen pitch the One-nation, One-price phrase to impress on you.
Lets look at the add-on charges and expenses that bloat up the ex-showroom price of a car to on-road price. In spite of the so called slow down in the economy, the MNC car companies who have recently launched new vehicles in the “Utility Vehicle” segment are performing well leap frogging 70 -100% more sales compared to the same quarter last year and laughing all the way to the bank.
What is ex-showroom and on road price?
Ex Showroom Price of Car : Ex-showroom Price of Car is the price at which a car dealer sells a car to Retail Customers which includes dealer margins, transportation costs and applicable GST. Ex-showroom Price is called the basic price of the asset exclusive of any registration, insurance or loadings.
On Road Price : On Road Price is the final Price payable by the customer to the car dealer and is also known as Invoice Value of the car it includes State Registration Charges, Life Time Road Tax Payment, Mandatory Insurance and the dealer handling charges (a.k.a Logistics Charges). Also includes optional costs such as Accessories cost, additional optional warranty coverage. The discounts if any will also be shown and reduced while calculating the Net On-Road Price. On-road price refers to the price at which the buyer drives away the car.
Mandatory requirements: Life time Road Tax, and Vehicle insurance and High Security Registration Plate.
Life time Road tax and registration varies from state to state and in Karnataka it is 14% of the base price. Car dealers charge an amount much more than 14% as road tax and put it as RTO charges. See image, in the quotation road tax is marked as INR 93,087. Buyers should be aware of this and should insist on a proper receipt issued by the RTO for this payment and no excess payment should be paid for which a proper receipt is not available. In informal conversations dealers will justify this excess amount that is collected more than the receipts and euphemistically called as RTO charges for bribes paid for registration of the car at the RTO. Imagine with the number of vehicles registered at each RTO every month. The money that is raked in as bribes and now one realizes why every MLA in the ruling party wants to be a minister and that why the Transport department is a plumb portfolio.
Now the mandatory vehicle insurance is where dealers make a killing. There are two variants in vehicle insurance. One is third party and the other is own-damage. Third party insurance is mandatory, but own damage is optional. When the vehicle is purchased by loan own-damage insurance is insisted by the financer. Car dealers have a tie up with insurance companies and they get a commission of a minimum 10% on the premium. Thus they are keen on selling the policies from companies who pass on more commission to them and have all the frills and extra coverages which jack up the premium. The car dealers rarely consult you or give you this option to pick your own insurer for the vehicle. The terms and conditions are not explained and only fancy terms “such as bumper to bumper” are shared. The terms and conditions are never explicitly mentioned. See image, the cost of insurance recommended by the dealer ( is almost twice the cost of the mandatory third party (three years ) and own damage (one year) with zero depreciation for the first year as available from one of the public sector insurance companies).
Accessories and ad ons: It is unfortunate that even floor mats are not part of the standard cars that roll out of the factory and they charge for it as accessories. ( see image in this case INR2810). There is no explanation on what these accessories are. Better quality floor mats are available for the same car model online at half the cost.
Most car buyers also have this wrong idea that it is mandatory to purchase accessories only from the car dealer, otherwise the warranty will become invalid. This is completely wrong. As long as no electrical circuit is manipulated or engine tuning is tweaked the warranty remains intact. Floor mats, air freshners, and body cladding and bumpers are always accessories and are not covered under any insurance. These days there are many car accessories dealers with good quality products at half the cost from authorized car showrooms. The authorized dealers also source the accessories from the same suppliers as the other dealers.
Extended warranty: Without your consent car dealers will add this amount in the invoice. See image in this case an amount of INR 9,999. This is supposed to be the amount payable towards the warranty of the engine for the 4th and 5th year. This sends out a wrong signal, is the engine so bad that the manufacturer has no confidence that a car which is built to last around 15 years could develop some serious engine problems by the end of the 3rd year itself and that it wants the buyers to go for extended warranty.
High Security Registration Plates: The government has made it mandatory for all new vehicles in the country to be fitted with high security number plates. The fixed cost for this number plate as recommended by the government on a two wheeler is INR 67 and for a four wheeler it is INR 213. Dealers here again claim that the cost of the number plates are INR 3500 and this is hidden somewhere in the RTO charges.
Delivery charges: See image. In this case the dealer has marked up the price by another INR 12,390 and justifies it as delivery charges. This was brought to the notice of the Manager at the showroom of a reputed brand of car from where the quotation shown in image was obtained. The manager was naïve enough to justify that this margin was needed as the marked factory price of the car gives only a very small margin for the dealer. If the delivery charges is 3000-4000 rupees it is understandable as it can be the cost of fuel in the car and other incidental charges, but an amount of INR 12, 390 without any breakup is a broad day-light robbery.
FASTag charges: From December 1, 2019 all toll payments in the country will be mandatorily through FASTag only. The cost of the tag is a joining fee of INR 99.12 with a security deposit of INR 200 and a top up of INR 200 in the account, all amounting to INR 499.12, but here again the car dealer is charging INR 600. See image. Anyone can get a FASTag online and it is simple to set it up. It is only a RFID sticker to be stuck from the inside on the windshield.
The above is not an isolated case of a particular car dealer overcharging the customers. It is the case with most of the car and vehicle dealers. If you are getting a new vehicle be aware of car dealers hoodwinking you into believing what is mandatory and what is optional according to what suits them.
