“On The Road Fees”: What does it really mean?

What are these fees!?

 

There are a variety of fees associated with the purchase and ownership of a vehicle. One such cost is "on-the-road fees". What does this mean, and should you be paying for this? Find out here as we explain. But remember, if you are planning on selling your car, why not try our Instant Offer tool here before you start your search for new or used models on Autotrader here.

 

Is this just another way for dealerships to grab some extra cash from unsuspecting car buyers?

 

Past headlines announced that dealerships had to pay back money for so-called “on-the-road charges” (OTR fees) which were added to the financed prices of cars sold through their dealerships. But, while it's always nice to see consumers getting a little something back from (perceived as) unscrupulous dealers, there's a little more to this story than these headlines let on.

Related: Is it worth buying a repossessed car?

 

 

So what did these dealerships do wrong?

 

Let's first clarify a few things. It was not the manufacturers who were actually in the wrong here, but their (privately owned) dealerships. In fact, it is commonplace throughout the motor industry. And lastly, this debacle is not about the fees themselves, but rather about the fact that these fees aren't allowed in terms of the National Credit Regulator's rules. So don't get all upset at automakers, as just about all dealerships, both franchise and private, add these fees to their purchase agreements.

 

If it's all above board, what's the big story about, then?

 

In terms of the National Credit Regulator's (NCR) rules, some of the items covered by OTR fees (including licensing and registration, number plates, fuelling, and other preparation of financed cars) may not be included in a finance agreement. And, because these OTR fee components aren't clearly stipulated in the purchase agreement, means that the OTR fees as a whole become illegal. That's what the NCR is barking mad about, and now that they've smelled blood, you can expect to see a vast number of other dealers becoming subject to the same ruling in the very near future.

 

But what are these OTR fees about?

 

According to the dealerships we interviewed in compiling this report, typical OTR fees involve the following items:

• Pre-delivery inspection/safety check
• Certificate of Roadworthiness
• Delivery fuel
• Initial fuel
• HPI Clearance
• Administration
• FSB Fees
• Cleaning or Valet costs

 

 

Let's look at every item on this list:

 

• Pre-delivery inspection/safety check

This is enforced by the franchise agreements between the dealership owners and manufacturers: every car they sell has to be inspected to ensure that it conforms to basic roadworthiness criteria. In the case of Certified Pre-Owned cars, it goes even deeper, because those cars have to be inspected by the relevant agents and certified to conform to their manufacturer's specifications. This becomes quite a big expense if a car is sold through an outside dealership, especially if the car in question is still under warranty or if its maintenance- or service plan is still active.

As an example: if a BMW dealership wants to sell a fairly new, pre-owned Volvo from their floor, they have to send the car to a Volvo agent to be inspected, or else the remainder of the warranty and maintenance plan cannot be transferred to the new owner. This can amount to quite a substantial cost because the Volvo dealership doesn't work for free, and the labour charges for this inspection alone could amount to R1 000 or more. This applies across all brands: if you want to maintain the warranty, you're going to have to pay to keep it active.

• Certificate of Roadworthiness (COR)

Any time a car's ownership changes, that change has to be accompanied by a COR. This is distinct from the pre-delivery inspection and is performed by an outside testing station. This applies to privately-sold cars as well, except that the responsibility for obtaining a COR can rest with either the seller or the buyer. However, in the case of dealership sales, they're forced to take care of the registration of the vehicle – mainly to ensure that the vehicle is removed from their system, and to safeguard themselves against fines for traffic infringements and the like. Fortunately, the vehicle will by then have passed its other inspections (and will thus be in good condition), so it generally takes only one attempt to obtain the COR. However, that COR still costs money, and some testing stations can easily charge upwards of R300 to issue it.

• Delivery fuel

That's the fuel you find inside the tank when you drive away in your newly-purchased vehicle – you didn't think the dealership would give you that much precious dinosaur juice for free, did you? A general rule of thumb says that you will have between R300 and R500 worth of fuel in your new steed. There's an added expense, right there...

 

 

• Initial fuel

That's the fuel in the tank when you first test drive the car – and it's also the fuel which takes the car off-site to have its COR and pre-delivery check performed. In fact, some franchise dealerships require that all vehicles on the showroom floor have at least a quarter tank of fuel available, in the event of a potential buyer wanting a test drive. Who wants to wait while the salesman first goes to put petrol in the car?

• HPI (Hire Purchase Inspection) and history clearance

Before a dealership can sell you a car, they have to ascertain that the vehicle in question is free of outstanding debt and that it hasn't been involved in a serious accident. Failing to do this could land both the dealership and the buyer in hot water, and end up costing the buyer a lot more than they bargained for. These expenses may vary but reach into the realm of another few hundred bucks.

 

 

• Administration

This is where the OTR cost saga gets juicy. Licensing and registration alone cost from R500 and up, depending on the vehicle – big SUVs and bakkies may even reach double that amount. If new license plates are needed, there's an extra R350+ out of the buyer's pocket, and remember that the staff or outside contractors tasked with the licensing process also don't work for free...

• FSB Fees

The Financial Services Board (FSB) regulates the actions of the dealership's finance- and insurance department (F&I) – if they want to provide in-house F&I services, they're obliged to pay a fee to the FSB, otherwise, their license to provide financial services will be revoked. FSB fees vary, but it still adds a noticeable amount to the OTR charges – the dealership sure won't want to pay it, so yet another expensive curve ball falls into the buyer's court.

• Cleaning or valet

Even brand-new cars need to be cleaned thoroughly, and pre-owned ones even more so. Some dealerships use external cleaning contractors, which again cost money.

 

It all adds up

 

Someone has to foot the bill for these behind-the-scenes expenses, and it definitely won't be the dealerships, especially when the total runs into the thousands of Rands. Bear in mind that the expenses listed above apply to used cars more than new ones, though: New cars don't need to obtain a COR, nor do they need to undergo an HPI clearance. They do however need to undergo a pre-delivery inspection (PDI), for which the new-car dealership will be invoiced by its workshop (technicians don't work for free, either).

As part of the PDI, the vehicle will be inspected according to the manufacturer's guidelines, and any software updates will be performed at the same time. Brakes, tyres and vital fluids will receive a check-up, and suspension components, trim and bodywork will be inspected for any damage sustained during transit. After all, we all want our new cars to be free of faults or blemishes.

 

 

Why list the OTR charges separately?

 

This is actually the main issue here. One would think that all these hidden costs would be factored into the advertised price of a vehicle, and it's truly baffling to realise that they're not. After all, why would the dealership expect you to pay extra to have your brand-new car inspected when you're already giving them an arm and a leg for the privilege of driving away in one of their products? Surely this should be part and parcel of buying a new car, and this cost should be included in the list price (or better still, carried by the manufacturer)? The same should really apply to pre-owned cars as well, as the dealership will generally know in advance how much the inspections, fuel, COR and HPI checks would cost.

 

What you can do

 

Insist on a detailed invoice when you purchase a car from a dealership, be it new or pre-owned. Let them show you exactly how much they charge for administration fees and how much the COR (if applicable) costs. Then, bargain as your life depends on it – remember, you're not allowed to finance these expenses with the vehicle's purchase price (if the dealership tries to do this, they're in violation of the NCR's rules), so it has to come out of your own pocket. Most importantly, be alert to any “padding” added to your vehicle's invoice: if the dealership cannot explain an expense in simple terms, insist on them scrapping those unexplained fees. This will unfortunately be the status quo until the industry changes its terms to include all these fees in the vehicle's advertised price, the way it should really be done...

 

 

We have some other car buying articles with useful info that you can check out:

• How to get the best deal when buying a car with cash
• Car finance options explained: instalment with balloon payment
• Can you buy a car on a credit card?
• What is the average cost of ownership for a budget-friendly car?
• Can I buy a car if I earn R5 000?