Drive-away pricing vs on-road costs | what to look out for

So, what are the costs and how do dealers scrimp and save to offer drive-away deals?
Stephen Corby
Contributing Journalist
CarsGuide

22 Jul 2015 • 8 min read

"Drive away, no more to pay"? Well, you'd kind of hope so, wouldn't you? Once you've driven the car out of the dealership you don't really expect to pay for anything more than fuel and funding the lives of traffic-light windscreen washers. 

But then, so many advertising phrases make little sense - "I bought a Jeep (in an upbeat tone), "I can't believe it's not butter (why not, that's what it's called?) or "Building better kids, one punch at a time" (from a martial arts-school ad) - but slogans like "drive-away pricing" and "no on-road costs" are right up there in the pantheon.

They both sound simple enough, and covering "on-roads" is a time-honoured method of getting you into a car dealership to make a purchase, but what do they really mean, and are they just enticing carrots, with a stick to beat you with hidden behind them?

Unfortunately, it's one of those cases where you could be looking at a real bargain, but there are a few twists and turns that can tilt the scales in favour of the dealer. 

In some cases, dealers can limit their costs to offer an attractive deal at a fraction of the price. In every case, however, their goal is to find ways to create larger margins and have the room to make a good profit, even after negotiation.

So, what are the costs and how do dealers scrimp and save to offer drive-away deals?

Compulsory Third-Party Insurance

This is one of the things drive-away deals throw in, and perhaps the biggest and most important, because everyone has to pay it to register their car, and it can easily cost you more than $700 per year.

Dealers can obtain insurance at low prices, however, so they're possibly not being quite as generous as they suggest.

This is especially true for dealer demonstrators, which are registered to the business from new, getting rates as low as $300 for third-party insurance. Still, it's money that doesn't have to come out of your pocket, so it's a win.

Stamp Duty

Stamp duty varies between states and territories, with graduated schemes adding hundreds and even thousands of dollars on top of your purchase price, depending on the price, state of purchase and environmental friendliness of the vehicle.

For instance, in the ACT, stamp duty for cars is calculated on the basis of green credentials, as measured by the government's Green Vehicle Guide. Using fuel- consumption and exhaust-emissions data, the Green Vehicle Guide rates new cars on the basis of efficiency and environmental impact. 

The ACT takes this data, yanks out a single figure – the carbon dioxide emissions per kilometre – and gives new cars a letter that corresponds to how much C02 they spit out. For vehicles that emit less than 130 grams of C02 per kilometre, the ACT charges no stamp duty, regardless of the cost of the vehicle. For cars that produce more, it can really hurt the hip pocket.

Dealerships and manufacturers can't change the cost of stamp duty, or avoid it, so when they offer to cover stamp duty as a part of a drive-away pricing promotion, they're taking into account the differences in how much the stamp duty is, as well as how it's calculated. As it can run to thousands of dollars on more expensive cars, especially high-performance models with larger engines, expect drive-away pricing to be a relative rarity at the top end of the market.

Luxury Car Tax

Speaking of the top end, a key part of drive-away pricing is the industry's bug-bear, Luxury Car Tax. LCT has been with us for 15 years, ever since its introduction alongside the GST. Australia's Luxury Car Tax scheme is often described as arcane and murderously expensive, and car companies are always keen to point out that, strangely, there is no luxury tax on yachts, jewellery or works of art.

LCT hits buyers with a 33 per cent charge on every dollar of a car's price over $63,184, which is one of the reasons why high-end cars are notoriously more expensive in Australia. For 'fuel-efficient vehicles', with an average fuel consumption of less than seven litres per 100 kilometres, the threshold jumps to $75,375.
There's no way around this tax, for dealer or buyer, and if someone offers to pay for it, rip their arm off.

Dealer Delivery Charges

Now, this is where the fun, and the fudging, starts. While insurance, stamp duty and tax are all pretty familiar terms, the "dealer delivery" charge is a little more nebulous, and is often referred to as a car wash and some floor mats, for a few grand.

Basically, it all comes down to margin. Dealers, like all business people, operate on a margin to make their money, so they need to have a slice in each car they sell. 

Because mass-market cars are priced as competitively as possible, dealer margins on new vehicles are significantly smaller than used-car ones. 

This is where dealer delivery comes in. It's a fee that ostensibly covers the costs of taking a car from the assembly line to the dealership, cleaning it up and preparing it to be delivered to you, the customer.

Remarkably, on new vehicles this seemingly simple process can cost anywhere from $1500 to more than $8000, depending on whether you're buying a Ford or a Ferrari.

While it's easy to feel bemusement or even apoplectic rage at the idea of such costs, remember that it's not actually a delivery charge at all; it's a euphemism for introducing a margin into new cars.

That margin allows the dealer to haggle with you, and make you feel like you're getting a bargain. Essentially, it provides them with wriggle room. If you can get the dealer delivery costs thrown in to your purchasing price, you're doing well.

Are drive-away and on-road costs promotions worth it?

Manufacturers will offer drive-away pricing with varying regularity. For some, especially at the cheaper end of the market, it's a sure-fire method for getting large numbers of cars out the showroom doors.

For most manufacturers, though, it'll come along when they're desperate to shift last year's stock or outdated models, so weigh the benefits of the newer car you're missing out on against the overall saving.

Recently, certain similar but different phrases have started to pop up."Drive-away pricing" means everything is included in the purchase price of the car; you pick your colour and options, pay up and that's the end of it. However, 'free on-road costs' can mean that dealers only pay the registration, CTP and stamp duty. This means big expenses such as dealer delivery and even the Luxury Car Tax can be up to the buyer to pay.

Even rego shouldn't be taken for granted, as a recent CarsGuide.com.au investigation discovered, with dealers in some states only legally required to provide three or six months, rather than 12.

As with any big purchase, it always pays to read the fine print, and then read it again, but if you know what you're paying for and why, it'll help you drive a better bargain.

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