Are Credit Card Surcharges Right for Car Dealerships?

Inflation is hurting everyone. According to a recent Gallup poll, more than 40% of Americans named inflation as the top financial concern for their family. This is up considerably from the 2010s, when only 15% of consumers had inflation on their minds.

Businesses, too, are suffering. At a dealership, parts cost more; labor prices have increased. Moreover, due to how pricey new vehicles have become, people are hanging on to their old cars for as long as possible.

And as margins tighten there’s always the opportunity for additional revenue streams. Passing on the credit card surcharges dealers pay across the dealership, especially in Parts and Service, to customers is one such area gaining speed in the industry. There are pros and cons to doing so, even if it’s as easy as clicking a button in your digital payment software.

Credit Card Surcharge Fees at Dealerships: What Are They?

It costs a merchant money to accept credit card payments. Card networks, financial institutions and payment gateways all get a cut, which is capped at 3% per transaction for most dealers.

A credit card surcharge is just what it sounds like: Whenever a customer pays for something with a credit card, they’ll be charged a fee — usually a percentage of the transaction price — to cover this merchant’s cost.

There are rules to it. For instance, businesses are required to disclose the surcharge at the point of sale, the point of entry, and on every receipt. Should a customer return their purchase, the surcharge must also be refunded. Surcharges can’t be applied to purchases made with a PIN-enabled debit card or prepaid card either.

Pros and Cons: Protect Margins or Customers

The upside of passing on surcharges is obvious: The consumer pays the fee so the dealership saves money. And these fees aren’t exactly nominal. In 2022, U.S. businesses paid more than $160 billion in credit card processing fees.

The downside is that it puts yet another expense on consumers, who are already concerned about spending. And if they’re in the Service department, they may already be digesting a repair cost they weren’t expecting and certainly aren’t enthusiastic about. They’ve taken that hit and when they get to the cashier they’re greeted by the surcharge disclaimer.

Because of that experience, this change in payment policy may negatively impact your dealership’s NPS (a Net Promoter Score is how likely someone will recommend your dealership), which speaks to shopper loyalty and referrals. If customers are unhappy with your practices, it’s likely that they won’t come back or tell their friends and family to patronize your business, including the Service department — a vital part of any dealership.

So before you do anything, consider the lay of the land. Is this practice commonplace in your area? Or will customers be able to avoid fees by going to a competitor? Do you want to take the likely hit to your overall reputation and customer experience?

If you proceed, you’ll need to follow all applicable state and federal laws. And it might benefit your business to provide your Sales and Finance teams, and especially your cashier, with talking points to address any customer questions or concerns, including encouraging shoppers to use alternative payment options that won’t incur fees.

Surcharge With Ease

If your dealership has weighed the pros and cons and decided to move forward with surcharges, they’re easy to implement with CDK SimplePay.

Embedded into the CDK Solution, SimplePay has the ability to surcharge credit card payments in a fully compliant manner based on continually updated guidelines and regulations, many of which are state specific. SimplePay covers all aspects of the surcharging process from notification, signage at dealerships, disclosure on receipts, and all related calculations to the surcharge amount. This allows the dealership to focus on their core business while offsetting some or potentially all of the cost associated with credit card acceptance.