While managing dealership operation costs is more critical than ever, an often overlooked opportunity is the exploration of dealer-specific surcharge strategies. Surcharging is a payment strategy that allows businesses to offset credit card fees and processing costs by passing them on to customers who choose to pay with a credit card. When done correctly, auto dealers can use surcharges to significantly enhance profitability, without raising prices across the board.
The compliant surcharge approach is a game changer that benefits both single-location and multi-location dealerships, providing a scalable solution for financial success. However, it is essential that dealers considering surcharging are aware of potential risks, like compliance concerns or customer complaints, and know the proper implementation techniques to minimize them.
What Is Surcharging? Understanding Surcharge Strategy for Dealership Cost Management
A surcharge is a small fee added to credit card payments to cover the cost of interchange and processing fees. Usually the fee is capped at 3% or cost of acceptance, but regulations vary from state to state with some states, like Connecticut, Massachusetts, and Maine not allowing surcharging.
In states where surcharging is legal, adding a surcharge is not just a financial strategy but an operational one that must seamlessly fit into the workflows of multiple departments. Auto dealerships can customize their surcharge programs to suit the needs of various departments (sales, service, and parts) making it a versatile tool for cost management. Passing these fees onto customers allows car dealerships to reduce operational expenses and maintain their financial health without absorbing the costs of credit card processing fees.
Credit card surcharging transfers most of the credit card transaction costs to customers, saving businesses money. The surcharge is a percent of the total purchase cost and cannot exceed the amount a merchant pays. Due to card brand parity rules, a 3% maximum surcharge rate applies to all credit cards accepted. Customers can avoid the fee by switching to cash, check, debit card, prepaid card, or ACH bank payment.
The savings from surcharging are significant, especially for businesses with high-ticket transactions like automotive dealerships. By offsetting most of the credit card interchange fees, dealerships can save tens of thousands of dollars annually. These savings scale exponentially for multi-location dealerships, allowing for reinvestment into other growth opportunities.
Essential Considerations for Automotive Dealerships
Know the Financial Impact: Surcharge Can Save 50% or more on processing
Credit card processing fees are often 2-3% of each transaction, a significant expense for dealerships handling high-value purchases. Car dealers can drastically reduce expenses, sometimes saving 50% or more on payment processing costs, while maintaining profitability by transferring the cost of credit card fees to customers through surcharging.
With lower operating costs, dealerships can improve profit margins and potentially save thousands of dollars annually per rooftop. The savings generated through surcharging can be reinvested into dealership operations, such as upgrading technology, enhancing marketing efforts, or providing employee training.
Choose the Right Tools: Connect Surcharging to your Dealer Management System
A reliable payment provider will help auto dealerships implement a compliant surcharge program that pairs well with existing dealer management software and workflows. Integration with Dealer Management Systems (DMS) reduces manual data entry while ensuring consistency and efficiency across multiple locations.
Additionally, the right provider should offer solutions to educate staff about surcharge rules as well as technology and other business tools to support surcharge compliance. Surcharging solutions should scale seamlessly with dealership growth, offering flexibility for different department needs or multi-location dealerships that operate in different states.
Providers like PayJunction offer flexible solutions that allow dealerships to set surcharge rates that are aligned with their goals. They can offset up to the actual cost of processing (maximum 3%), or decide to share in the cost of acceptance by applying a rate less than the total capped amount, say 1.5% - 2%, which lowers their costs while lessening the impact on customers.
Ensure Compliance: The Importance of Transparency in Surcharging
Adhering to Regulatory Requirements
Compliance is critical for dealerships when implementing a surcharge program. Connecticut, Maine, and Massachusetts prohibit surcharging, and there are other states, like New York and California, that impose additional disclosure requirements. Dealerships must navigate varying state restrictions as well as card brand rules, such as posting proper signage and requirements to register surcharge programs in advance. Partnering with legal counsel is essential to ensure adherence, avoid penalties, and maintain customer trust.
Car dealerships should work with their attorney and payment provider to ensure compliance with card brand rules and local laws. By working with legal experts and trusted payment providers, dealerships can ensure compliance with state regulations and card brand rules while maintaining customer trust.
Additional rules to follow include:
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Ensuring the surcharge program is legal in their state.
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Not charging surcharges on purchases made with debit cards.
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Capping surcharges at the actual cost of processing (maximum 3%).
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Displaying compliant signage and messaging at the building's entrance, on payment terminals, online platforms, and receipts.
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Including the surcharge amount in any refund transactions.
Customer Experience: How to Balancing Savings with Satisfaction
Addressing Customer Concerns
Clear and transparent customer communication reduces potential dissatisfaction. Dealerships should understand that no customer likes to pay more, but by explaining the reasons for surcharges, such as maintaining competitive pricing, dealerships can build trust and mitigate negative feedback. This is further bolstered by technology, like customer-facing terminals with built-in disclosures, that give customers the ability to see, understand, and make informed decisions around surcharges.
Maintaining a Positive Customer Experience
Consistent visibility of surcharges across terminals, receipts, credit card transactions and online portals creates a seamless and trustworthy payment experience. Transparency reinforces the dealership’s commitment to fairness and professionalism.
Transparency Maintains Customer Trust
Transparency and clear communication are critical to a successful surcharge program. Dealerships maintain trust by not only using a payment provider that responsibly handles customer data but also taking steps to maintain compliance by communicating surcharge policies to customers as outlined by card brand rules:
- Signage at the entrance and checkout points.
- Detailed receipts and invoices that include the surcharge as a separate line item.
- Online notifications during the payment process.
- Verbal notifications on phone orders.
By proactively educating customers about surcharge fees, dealerships can maintain trust and minimize customer dissatisfaction.
Implementing Surcharging Smoothly: How to Minimize Impact to Daily Dealership Operations
Set a Surcharge Strategy
A balanced surcharge strategy aligns with auto dealerships' business goals and customer expectations. Dealerships can manage operations strategically by :
- Assessing if there are ways to improve existing surcharge programs.
- Applying surcharges selectively across departments (sales, service, parts) or payment channels (in-person, online, invoices) or setting flexible surcharge rates e.g. 1.5%, 2.25%, or 3%.
- Doing regular quick checks for compliance issues by using a compliance checklist.
Focus on CSI with Staff Training and Customer Education
Effective surcharging requires well-trained staff and informed customers. Dealership employees should:
- Understand surcharging policies and compliance requirements imposed by credit card companies and state legislation.
- Clearly communicate the dealership’s surcharge policy to customers, emphasizing freedom of choice and transparency when the surcharge (or checkout fee) appears.
How PayJunction Can Help
PayJunction provides tailored surcharging solutions designed for dealership needs with:
- Flexible surcharge rates that align with your dealership’s strategy. Support resources, including compliance guides and best practices.
- Intelligent technology that only applies surcharges to credit card transactions for easy compliance management.
- Efficient refund management that returns the entire transaction amount, including the surcharge.
- No-code Payments Integration® for streamlined operations, seamlessly connecting with your Dealer Management System to centralize data for informed decision making and streamlined business processes.
By choosing PayJunction, car dealerships can unlock financial savings and enhance operational efficiency, all while delivering a transparent and customer-friendly payment experience.
Ready to drive your dealership’s success with surcharging?
