With front-end profits continuing to shrink on new vehicles, dealers have sought creative ways to increase their margins and add value for customers. Whether it is called a supplemental price sticker, addendum sticker, price addendum, or the like, many of you dealers know that this area historically has been volatile and one that requires great caution. Now, in the face of this current pandemic, the dealership landscape is ever-changing, and perhaps the most volatile in recent history. Because of this, we have received numerous calls on the Hotline about supplemental price stickers, ranging from proper procedures for filling them out to determining what should be disclosed on them. Accordingly, this article revisits the topic of supplemental price stickers.
The Law
Unbeknownst to many, there is no law in California requiring dealers use supplemental price stickers. A dealer can offer a vehicle for sale at any price it chooses, so long as the vehicle is not sold above the advertised price. With that said, many dealers do decide to use supplemental price stickers, and for good reason. A sticker, when used properly, can be useful to give customers more information to assist their purchase decision and provides another level of defense against accusations of assumptive sales practices because the sticker itemizes the dealer-added qualities to the vehicle.
If you affix supplemental price stickers to new vehicles and your asking price exceeds the manufacturer’s suggested retail price (MSRP), these stickers must meet all the following requirements of Vehicle Code section 11713.1(q):
- The sticker, in the largest print size used on the sticker (other than the name of the dealership), must disclose that the price listed is the dealer’s asking price and not the MSRP.
- The sticker must also clearly and conspicuously disclose the MSRP.
- Any dealer added items must be separately itemized on the sticker along with the price of each of the items. When itemizing dealer-added items, I wanted to emphasize that each item needs to be separately itemized. Dealers should resist the temptation to combine multiple pre-installed items on one line and list them as a “Value Pak” or the like.
- When the dealer’s asking price exceeds the sum of the MSRP plus the price of the dealer-added items, the difference must be marked specifically on the sticker as “added mark-up.” This wording is mandatory because the actual language in the law uses “shall” to describe the obligation. Therefore, creative labeling, such as “market adjustment,” is impermissible.
Dealers should not be deceptive with the design of their supplemental price stickers to make them look like they are part of the Monroney Label, as the sticker is from the dealer and not the manufacturer. Many forms providers, such as Reynolds & Reynolds, will have example supplemental price sticker templates.
Best Practices When Using Supplemental Price Stickers
Hard-adds that are to be installed after the contract is executed and other optional products (like service contracts) purchased through negotiations in F&I must be separately itemized on the retail installment sale contract and should not be on the supplemental sticker. However, pre-installed items (i.e., items that are installed and fully operational prior to sale) are not required to be itemized on the retail installment sale contract because they are technically part of the vehicle itself. With that said, we recommend using supplemental price stickers to itemize the pre-installed items, and we recommend the following best practices when using supplemental stickers:
- Any item listed on a supplemental price sticker should be installed and fully operational on the vehicle as that vehicle sits on the lot (or showroom). Accordingly, we recommend against listing products, such as etch or Lojack, on the supplemental price sticker. Even though dealers tend to pre-load these products on vehicles, their real value only comes when they are registered and/or activated. As such, all non-activated products really should be sold in finance and not listed on the sticker, and the products should be appropriately disclosed on the correct lines of the retail installment sale contract and the Pre-Contract Disclosure. Most dealers over the years have had at least one experience with hybrid soft/hard-add products, and I know that these products can be a bit tricky to classify. If you are confused about how to treat one of these products, we highly recommend consulting competent dealer counsel for an opinion.
- Ensure that each dealer-added item is individually and correctly itemized on a properly completed, compliant supplemental price sticker.
- Supplemental stickers should not be used to sell hard-adds at unreasonably marked-up or inflated prices. The items should be listed at the dealer’s regular asking price. A good rule of thumb is that the price of the hard-add listed on the supplemental sticker should be the same as if the item were purchased through the service drive or parts department.
- The supplemental price sticker must be posted on the vehicle. Although this is rather self-explanatory, you would be surprised at how many times this step is missed.
- When a customer is negotiating price, such negotiations should include any item on the sticker as part of the purchase price. The item must not be added again after agreeing upon the price. Remember, no double-dipping!
- Charges for services such as a pre-delivery inspection, where the dealer is going to be reimbursed by a third party (such as the manufacturer), should not be listed on the supplemental price sticker.
- A signed/initialed copy of the supplemental price sticker should be retained in the deal jacket.
- Any advertisement for the vehicle should include the dealer-added products with a description that the vehicle has these products.
Advertising Issues
Recall, MSRP alone is not considered an advertised price. However, since a supplemental price sticker likely will be considered an advertisement, you should treat the dealer’s asking price on a supplemental price sticker as an advertised price for the vehicle. Accordingly, the dealer’s asking price on the sticker should be the same as the price of the vehicle advertised on, for example, the dealer’s website. The dealer’s asking price listed on the sticker should be inclusive of all costs to the customer at the time of delivery, except for governmental fees and taxes, any finance charges, any dealer document processing charge, any electronic filing charge, and any emission testing charge. In this connection, the cash price of the vehicle listed on line 1.A.1. of the LAW-553-CA Retail Installment Sale Contract should always be equal to or less than the dealer’s asking price on the sticker.
Used Vehicles
The law governing supplemental price stickers infers that it applies to new vehicles because the law specifically references MSRP. Accordingly, if a dealer decides to use a supplemental price sticker on a used vehicle, care should be taken to make sure such use cannot be construed as the dealer misrepresenting the vehicle as new. Dealers should ensure that such a sticker makes no reference to MSRP and should consult with competent counsel prior to use on used vehicles.
Questions?
We know that these times are hard, and everyone everywhere has been affected by this global pandemic. We are all in this together, and this too shall pass. Hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or [email protected]. We are here to answer any questions you may have.