As of late 2024, a significant trend is reshaping the payment processing landscape: the shift of processing fees from merchants to consumers. In the automotive sales industry, where dealerships handle high-value transactions daily, this change carries profound implications for profitability. Traditionally, dealers have absorbed credit card processing fees—typically 1.5% to 3% per transaction—as a cost of doing business. However, with rising costs and tighter margins, many are now passing these fees onto customers through surcharges or convenience fees. This shift, while controversial, offers dealerships a chance to protect their bottom line, but it also introduces new challenges and risks. Understanding its impact on profits is crucial for dealers navigating this evolving terrain.
The Traditional Model: Fees as a Dealer Burden
Historically, payment processing fees have been a silent profit-killer for dealerships. For a $30,000 vehicle sale paid via credit card, a 2.5% fee translates to $750—money that comes straight out of the dealer’s margin. On smaller transactions, like a $500 service bill, the fee might be $12.50. Across hundreds or thousands of transactions annually, these costs accumulate into a substantial hit. In 2024, with interchange fees (set by card networks like Visa and Mastercard) averaging around 2% and additional processor markups pushing the total higher, dealerships often faced six-figure expenses just to accept card payments. For a mid-sized dealership processing $10 million in card sales yearly, that’s $200,000 or more vanishing from profits.
This burden was especially acute in automotive sales, where slim margins—sometimes as low as 2-5% on new cars—left little room to absorb extras. Dealers compensated by baking these costs into vehicle prices or leaning on cash discounts, but as cash usage dwindled (down to under 15% of U.S. transactions by 2024), and digital payments soared, the pressure mounted. The traditional model forced dealers to either eat the fees or risk pricing themselves out of a competitive market—a lose-lose scenario.
The New Trend: Passing Fees to Consumers
Enter the trend of charging consumers directly for processing fees. Enabled by legal victories in the U.S. (like the 2013 merchant lawsuit against card networks) and supported by state laws (where surcharging is permitted), dealerships can now add a fee—say, 2.5%—to card transactions, shifting the cost to the buyer. For that $30,000 car, the customer pays an extra $750; for the $500 service bill, an additional $12.50. The dealer, in turn, keeps the full sale amount, preserving their margin intact.
This shift can dramatically boost profitability. If a dealership processes $5 million in card payments annually and passes on a 2.5% fee, they reclaim $125,000 that would’ve been lost under the old model. For larger operations, the savings scale even higher. In an industry where every dollar counts—especially amid supply chain disruptions and fluctuating demand—this is a lifeline. Service departments, which often see higher card usage for smaller, frequent transactions, benefit too, turning a cost center into a profit protector.
The Profit Trade-Offs: Risks and Rewards
But the move isn’t without trade-offs. While profits rise on paper, customer perception is a wild card. A 2024 consumer survey found that 60% of buyers dislike surcharges, with 25% saying they’d take their business elsewhere if hit with one. For a dealership, adding $750 to a car sale might sour the deal, especially if a competitor absorbs the fee or offers a lower out-the-door price. In a market where online platforms like CarMax tout transparency, a visible surcharge could erode trust, driving buyers to rivals or cash-heavy alternatives.
Competition amplifies this risk. If one dealership surcharges and another doesn’t, the latter might win price-sensitive customers, even if their base price is higher. For example, a $30,000 car with no fee beats a $30,750 total (including a $750 surcharge) in the buyer’s mind, even if the second dealer’s margin is slimmer. Dealers must weigh this loss of sales volume against the per-transaction profit gain—a delicate balancing act.
Compliance adds another layer. Surcharging is legal in most U.S. states, but rules vary: it must be disclosed clearly (e.g., on receipts and signage), capped at the merchant’s actual cost (typically 4%), and avoided in states like Connecticut where it’s banned. Missteps can trigger fines or lawsuits, eating into the very profits dealers aim to protect. Posts on X in early 2025 highlight merchants lamenting the “bottom-line hurt” of fees, with some noting surcharges as a necessary evil in high-cost sectors like automotive sales—yet the sentiment underscores the tension between profit and perception.
Strategic Implications for Dealers
For dealerships, this trend demands a strategic rethink. Passing fees to consumers can shore up profits, especially on big-ticket sales, but it requires finesse. Transparent communication—explaining the fee as a way to keep prices competitive—can soften the blow. Pairing surcharges with value-adds, like free maintenance or loyalty perks, might offset buyer pushback. Alternatively, dealers could adopt a hybrid approach: absorb fees on vehicle sales to clinch the deal, but surcharge service and parts transactions where customers are less price-sensitive.
Data backs the potential upside. A 2024 study of merchants using flat-fee processing (a related trend) showed a 10-15% profit boost when fees were controlled or passed on. Applied to dealerships, this suggests surcharging could lift margins significantly, provided sales volume holds steady. With contactless and digital payments now dominating—over 60% of in-person transactions in 2024—dealers who adapt their payment strategy stand to gain the most.
The Bottom Line
The shift of processing fees to consumers is a double-edged sword for dealerships. It promises fatter profits by reclaiming hundreds or thousands per sale, but it risks customer backlash and competitive disadvantage if mishandled. In 2025, with economic uncertainty lingering and buyers scrutinizing every dollar, dealers must navigate this trend with care—balancing short-term gains against long-term loyalty. The winners will be those who master the art of transparency, flexibility, and value, turning a cost headache into a profit lever.
Ready to rethink your payment strategy? Contact Automotive Intelligence today for expert guidance on surcharging, compliance, and profit optimization tailored to your dealership.
