Two words that dealers are all too familiar with these days are “chip” and “shortage.” A major consequence of the COVID pandemic is a disruption in manufacturing and global supply chains. For dealers, this means a prolonged shortage of new vehicle inventory. In hearing from dealers, what once was a rare practice has now become common-place—selling new vehicles above MSRP and using supplemental price stickers, also know as addendums. The topic of supplemental price stickers is not new, and in fact, we wrote an article at the beginning of the pandemic discussing their usage. Normally, we would not revisit a topic so soon, but because there have been so many calls on the Hotline on the topic over the months, we felt it necessary to write an article addressing some of the most frequently asked questions we have received regarding supplemental price stickers.
Can we use supplemental stickers on used vehicles?
As presented, this question does not quite make sense, and I’ll explain why. The law governing supplemental price stickers infers that it applies to new vehicles because the law specifically references MSRP. [Vehicle Code § 11713.1(q)]. And, as we all know, used vehicles do not have MSRPs. Accordingly, the supplemental price sticker version that is contemplated in the law cannot and must not be placed on a used vehicle.
With this said, I have heard of some vendors offering to help dealers create “supplemental stickers for used vehicles.” Care should be taken to make sure that these types of stickers cannot be construed as the dealer misrepresenting the vehicle as new. For example, dealers must ensure that the stickers make no reference to MSRP. To be safe, dealers should consult with competent counsel prior to using these stickers on used vehicles.
How do we itemize on the retail installment sale contract (RISC) the dealer-added items listed on the supplemental sticker?
This question is also a bit of a misnomer because the answer is: “you don’t.” Dealers should not separately itemize pre-installed items (i.e., the ones listed on the supplemental price sticker) on the RISC, as those items should already be included in the dealer’s asking price for the vehicle. When a customer is negotiating the price of the vehicle, such negotiations should include any item on the sticker as part of the purchase price. Similarly, dealers must not negotiate with the customer about prices of individual items listed on the supplemental price sticker.
Accordingly, the items listed on the supplemental sticker should already be factored into the cash price of the vehicle listed on line 1.A.1. of the LAW-553-CA Retail Installment Sale Contract. They should not be separately itemized because doing so can give the impression that the items were optional and negotiated in F&I (they were not). Doing so can also be perceived as “double dipping,” or where the price of the vehicle is negotiated down by the customer (which should already include the items on the supplemental sticker), but then the items are separately itemized on the 553 at the full price listed on the sticker, which misrepresents the true terms of the agreement between the dealer and customer.
Can we use the term market adjustment on the supplemental sticker instead of “added markup” to describe the dealer’s markup on the vehicle?
No. Unfortunately for dealers, the law provides no wiggle room for creative labeling in this regard. When the asking price on the supplemental sticker exceeds the sum of the MSRP plus the price of the dealer added items (if any), “the supplemental sticker price shall set forth that difference and describe it as ‘added mark-up’” (emphasis added). [Vehicle Code § 11713.1(q)(3)]. Despite this clear language, you would be surprised that this is perhaps the most frequent discussion piece we have with dealers about addendums.
Can we put “optional” items on our supplemental stickers?
No. 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 in the showroom). Furthermore, any item listed on the sticker should not have “optional” next to it. These items are not optional as they are now part of the vehicle, and any negotiations regarding vehicle purchase price should include these items. Remember, the supplemental sticker should not be used as an F&I menu. This means that you cannot, for example, put an optional service contract as an item listed on the supplemental price sticker (yes, we have had this issue come up recently).
What is meant by “installed and fully operational?”
Usually, after saying the phrase “installed and fully operational” to a dealer, what proceeds is a discussion only on the meaning of “fully operational.” However, I want to first emphasize the “installed” part of this phrase. Although this has usually not been a point of discussion in the past, we have heard of several instances recently where dealers are listing items on supplemental stickers that are not actually pre-loaded on the vehicles. Most of the time, this is due to simple communication problems—vehicles not arriving on time causing vendors not to install items on those vehicles before they are placed out on the lot, and all the while none of this has been communicated with the person who creates the supplemental stickers. Suffice it to say, you should never list items on a supplemental price sticker that are not already installed on the vehicle. During these times of mass inventory shortages, it would also be wise to create additional procedures/safeguards at the dealership to ensure that the person creating the stickers knows whether an item was installed on a specific vehicle before putting an addendum on that vehicle.
Regarding the “fully operational” portion of the phrase, dealers should not list items on a supplemental sticker that need to be activated and/or registered to receive the full benefit. What comes to mind here are products like etch or Lojack where even though there is a pre-loaded hard-add component, the real value only comes when they are registered and/or activated to the customer. All non-activated products should really be sold in finance and not listed on the sticker.
How do I advertise vehicles with supplemental price stickers?
This is a bit of a broad question, so let me narrow the scope a bit. When most dealers ask this question, they really mean, “how do I advertise the price of vehicles with supplemental price stickers?” A dealer should consider the asking price listed on the supplemental sticker as the dealer’s advertised price. Therefore, all advertised prices for a vehicle should be consistent with the dealer’s asking price on the supplemental sticker. Remember, if an advertisement has a price lower than the asking price on the supplemental sticker, the dealer is obligated to sell the vehicle (as it sits on the lot) at that lowest advertised price even if the dealer has pre-loaded items on that vehicle.
A word about MSRP here as well. Many dealers have asked whether they can simply put the vehicle’s MSRP on, for example, their website, even though there is a supplemental price sticker on the vehicle. In asking this, dealer cite to the fact that MSRP alone is not considered an advertised price. While that may be true in the general sense, that is probably an oversimplification in this situation because remember, if MSRP is used as a benchmark or if the dealer’s advertisement infers or implies that a new vehicle will be sold for MSRP, the MSRP becomes the dealer’s asking price. [See Speier Letter Re: SB 481 California Legislature 2001-02 Regular Session Assembly Daily Journal p. 3254]. In fact, we have had many reports of dealers receiving customer complaints regarding this practice over the past few months. Accordingly, we recommend that these advertisements have the actual asking price from the supplemental sticker on them. If for some reason, dealers are unable to abide by this recommendation, another alternative could be for dealers not to list the vehicle’s MSRP, and to insert language along the lines of “contact dealer for vehicle price.”
If you have any questions regarding this, or any other situation that may arise in your sales or service departments, hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or email@example.com.