Managing operational costs is more critical than ever in today's competitive automotive industry. One often-overlooked opportunity for dealerships lies in surcharging—a payment strategy that allows businesses to offset credit card fees and processing costs by passing them on to customers. Automotive dealerships can significantly enhance profitability by implementing a compliant surcharging program. This approach is a game changer that benefits both single-location and multi-location dealerships, providing a scalable solution for financial success. There are some risks of customer dissatisfaction that should be considered, but, with proper implementation, these can be minimized.
What Is Surcharging and Why Does It Matter for Dealerships?
Understanding Surcharging
Surcharging is the practice of adding a small fee to credit card payments to cover the cost of interchange and processing fees. Surcharging is not just a financial strategy but an operational one that seamlessly fits into 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.
Financial Impact of Surcharging
The cost 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.
Key Benefits of Surcharging for Automotive Dealerships
Reducing Operating Costs
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 and maintain profitability by transferring this cost to customers through surcharges.
With lower operating costs, dealerships can improve profit margins and potentially save thousands of dollars annually. The savings generated through surcharging can be reinvested into dealership operations, such as upgrading technology, enhancing marketing efforts, or providing employee training.
Ensuring Compliance and Transparency in Surcharging
Adhering to Regulatory Requirements
Compliance is critical for dealerships when implementing a surcharge program. Connecticut, Maine, Massachusetts, and Oklahoma 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:
- Ensuring the surcharge program is legal in their state.
- Not charging surcharges on purchases made with debit cards.
- Capping surcharges at the actual cost of processing (maximum 3%).
- Displaying compliant signage and messaging at the building's entrance, on payment terminals, online platforms, and receipts.
- Including the surcharge amount in any refund transactions.
Transparency to Maintain Customer Trust
Transparency and clear communication are critical to a successful surcharge program. Dealerships must communicate surcharging policies to customers by following rules and best practices set by the card brands:
- 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.
Partnering with a Trusted Provider
A reliable payment provider helps auto dealerships implement a compliant surcharge program. The right provider offers solutions and services to educate staff and customers about surcharge rules and the best practices to follow.
Surcharging solutions should scale seamlessly with dealership expansion and transaction costs. Integration with Dealer Management Systems (DMS) ensures consistency and efficiency across multiple locations.
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. This strategy is applied to avoid losing the sale or turning customers away from future purchases.
How to Implement Surcharging Successfully
Setting a Surcharge Strategy
A balanced surcharge strategy aligns with auto dealerships' business goals and customer expectations. Dealerships can:
- Apply surcharges selectively across departments (sales, service, parts) or payment channels (in-person, online, invoices).
- Set flexible surcharge rates e.g. 1.5%, 2.25%, or 3%.
Staff Training and Customer Education
Effective surcharging requires well-trained staff and informed customers. Dealership employees should:
- Understand surcharging policies and compliance requirements.
- Clearly communicate the dealership’s surcharge policy to customers, emphasizing fairness and transparency.
Customer Impact: 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.
Monitoring customer feedback is essential. Consider how your customers react to the surcharge. Suppose you notice a decline in sales or see negative comments in reviews and social media sites. In that case, you may need to reassess how you communicate the surcharge or consider whether it’s the right choice for your business.
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.
How PayJunction Can Help
PayJunction provides tailored surcharging solutions designed to offset most credit card processing fees for automotive dealerships, offering:
- 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.
- 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.
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?
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