Quick summary: F&I (Finance and Insurance) departments generate significant dealership profit through add-on products. ASIC investigations documented establishment fees reaching $9,000 on loans. Extended warranties carry documented markups of 100-200% over cost. GAP insurance charged at $1,000-1,200 by dealers costs $300-600 from direct insurers. This analysis examines documented dealer profit structures using only verifiable Australian data.
The Numbers From One Transaction F&I costs compound when buyers don't scrutinise line items. Here's what documented Australian pricing reveals:
Extended warranties: Industry sources document markups of 100-200% over wholesale cost (RealCarTips, automotive industry data)Establishment fees: ASIC found fees as high as $9,000 on a $49,000 loan (ASIC March 2025). Average bank/credit union fees: $280-350 (Canstar 2025)GAP insurance: Dealers charge $1,000-1,200. Direct from insurers: documented at significantly lower costs by Savings.com.au Paint protection: Dealers charge $1,500-2,000. Professional ceramic coating in Australia: $700-1,200 (Australian detailing businesses 2024-2025)Additional products: ASIC's Moneysmart warns "dealership add-on insurance products are not good value for money"The markup exists in every F&I product. The question is magnitude.
How F&I Departments Generate Profit You've negotiated the vehicle price. Finance approval came through. The dealer presents the paperwork.
The finance office generates dealership profit. Vehicle margins have compressed to 2-3% on new cars. F&I departments maintain margins exceeding 50% on add-on products.
The products aren't inherently problematic. Paying three times fair value is.
Extended Warranty Markups Automotive industry sources document warranty markups of 100-200% over wholesale cost.
Dealers receive significant commission per warranty sale. This creates structural incentive to maximise pricing. Fair profit margins sit at $200-500 above cost.
Observable pattern: Extended warranty markups of 100-200% represent standard F&I practice.
What Establishment Fees Cover ASIC banned flex commissions in November 2018. Dealers adapted.
They now profit through establishment fees.
ASIC's 2025 investigation found establishment fees as high as $9,000 on a $49,000 loan. Standard bank fees average $282 for new car loans and $324 for used car loans according to Canstar's 2025 analysis of their database of Australian lenders.
Context matters. Canstar's database includes primarily banks and credit unions offering straightforward loan products. These lenders charge lower establishment fees because their service scope is limited to loan processing and documentation. Specific examples from major Australian lenders: NAB charges $350, Great Southern Bank charges $225, RAC Finance charges $499.
The question isn't whether these fees exist. Banks, brokers, and procurement services all charge them. The question is what the fee funds and what you receive in return.
Banks charge $280-350 on average for new car loans (Canstar analyses their database of Australian lenders, averaging across standard loan products). These fees cover loan processing, credit assessment, and documentation. The bank doesn't research vehicles, negotiate with dealers, compare finance options, or scrutinise F&I products. You handle that work yourself over 30-80 hours.
Dealers charge $1,500-2,500. That fee covers their loan paperwork processing after you've completed your own research and negotiation. The dealer profits from presenting one lender option without competitive pressure on rates or F&I products. You still invested dozens of hours.
Procurement services that handle complete sourcing don't typically charge separate service fees. Like brokers, they're paid through dealer or lender commissions when transactions settle. Their establishment fee covers all operational infrastructure: staff managing dealer networks, technology systems for competitive sourcing, office overheads, lender relationships, and the complete procurement labour.
This matters when comparing fees. A dealer's $1,500 establishment fee covers paperwork processing after you've done 40 hours of work. A procurement service's $2,000-3,500 establishment fee covers that paperwork plus the 40 hours of competitive sourcing labour you didn't have to do. You're not paying an establishment fee AND a service fee. The establishment fee IS the fee. It funds the complete service.
Calculate your hourly professional rate. Multiply by hours saved. Add F&I markup eliminated. Compare against fee differential. A $280 bank fee plus 40 hours of your time plus unchecked F&I markups produces different total cost than a higher service fee eliminating both the time investment and the markup exposure.
The distinction matters. A dealer charges $2,500 to process paperwork after you've spent 40 hours researching. A procurement service charges $2,500 as their establishment fee, which covers all the sourcing work, competitive pressure, F&I review, plus the paperwork. Same fee. Different scope. Different outcome.
Standard dealership approach: you invest 30-80 hours researching and negotiating. The dealer presents one lender option. Establishment fees of $1,500-2,500 cover their paperwork processing. F&I products receive no competitive scrutiny. You still invested the time. You still face information asymmetry on add-on pricing.
Alternative models exist where representation handles the complete procurement process. Specification gets locked. Multiple dealers compete under sealed conditions. Finance options receive independent comparison. F&I products face line-by-line review. Your time investment drops to near zero. Information asymmetry disappears.
These services charge higher establishment fees because the fee funds complete procurement, not just paperwork. The calculation: does eliminating 40 hours of your time whilst applying competitive pressure to all F&I products justify a higher establishment fee versus handling everything yourself with a lower bank fee?
Add-On Product Pricing GAP insurance pricing in Australia splits clearly. Dealerships charge $400-1,000 as one-off fees. Direct from insurers costs $300-600 over typical 3-5 year loan terms. Savings.com.au documents this differential.
Paint protection, rust protection, fabric protection: markups range from $500 to $1,500.
Moneysmart, ASIC's consumer website, states: "car dealerships try to sell you add-on car insurance including loan protection, gap cover, and tyre and rim protection. These products are not good value for money."
Add-ons cost dealers little. They sell for hundreds or thousands.
Regulatory position: ASIC explicitly warns against dealership add-on insurance products.
Breaking Down One Purchase A buyer negotiates a $68,000 vehicle purchase. Front-end pricing went well. The dealer matched competitive rates.
The finance manager presents a protection package. Each product sounds reasonable in isolation.
Extended warranty example: Industry documents 100-200% markups. A warranty sold for $6,000 costs the dealer $2,000-3,000 wholesale. Fair profit margin: $200-500 above cost (Edmunds). Markup on typical dealership sale: $3,000-4,000.
Establishment fee comparison: ASIC documented fees reaching $9,000. Bank average: $280-350 (Canstar 2025). Credit union range: $225-499. Dealer typical charge: $1,500-2,500. Premium procurement services: $2,000-3,500.
Paint protection: Dealer charge $1,500-2,000. Professional ceramic coating cost: $700-1,200 (Australian market 2024-2025). Markup: $500-1,000.
GAP insurance: Dealer charge $1,000-1,200. Documented direct insurer cost significantly lower (Savings.com.au 2025). Markup: $400-800.
Additional protection packages: Fabric protection, rust protection, other add-ons typically carry $300-600 in markup over aftermarket alternatives.
Without documented wholesale costs for every product, precise total calculations aren't possible. What's defensible: each F&I product carries significant markup above competitive alternatives.
The buyer signs. Not through lack of intelligence. Time pressure, decision fatigue after front-end negotiation, and asymmetric information about fair pricing drive this outcome.
System design: Finance offices operate when buyers face compressed time and peak decision fatigue.
What Changes With Proper Scrutiny When proper scrutiny applies, the mechanics shift.
Line-by-line breakdowns happen before signing. Stock availability gets verified independently. Competitive pressure applies to all components.
Extended warranty: Negotiated to fair margin of $200-500 above wholesale cost (Edmunds guideline). Typical outcome when properly scrutinised.
Establishment fee comparison: Banks charge $250-500 for loan processing only. Dealers charge $1,500-2,500 for paperwork after you complete procurement yourself. Services providing complete procurement charge $2,000-3,500 as their establishment fee, which covers all operational costs: staff, systems, competitive sourcing, F&I scrutiny. This isn't an establishment fee plus a service fee. The establishment fee IS the all-inclusive fee for complete service.
Paint protection: Declined or sourced independently at $700-1,200 for professional ceramic coating.
GAP insurance: Sourced directly from insurer at documented lower cost (Savings.com.au).
Additional packages: Declined when markup exceeds value.
Total F&I costs with proper scrutiny sit substantially lower than standard dealership presentation. Exact savings depend on specific products and negotiated margins.
Documented outcome: Proper scrutiny eliminates majority of F&I markup whilst saving 30-80 hours of buyer time.
Why Dealerships Structure F&I This Way New car sales drive volume. They generate customers for high-margin departments.
Dealerships maintain F&I profit by ensuring service contracts and GAP offerings appear in most deals. These two products show highest penetration rates.
This isn't malicious. It's structural incentive.
The system rewards volume and margin extraction. Your time pressure and information gap aren't bugs.
Market observation: Dealer profit structure depends on maintaining high F&I penetration.
The Complete Cost Without Scrutiny F&I costs extend beyond the line items you see.
Time Investment Keeps Growing Buyers spend weeks on research, reviews, comparisons, dealership visits, and negotiation.
Cox Automotive's 2022 research found the process took 14 hours 39 minutes, up from 12 hours 27 minutes in 2021. That's an 18% increase in one year.
Those figures measure active shopping time only.
Consumers spend an average of six months researching. They engage in over 900 digital transactions between initial research and final purchase.
The 14 hours represents concentrated shopping only. When accounting for months of research and dealership visits, total investment reaches 30-40 hours for straightforward purchases. Complex purchases exceed 80 hours.
Documented trend: Car buying time increased 18% in 2022 and continues rising.
Additional Friction Ongoing dealer contact after they have your details. Uncertainty about whether you secured competitive pricing.
Time-poor professionals absorb these costs because learning dealer mechanics feels more expensive than signing.
The calculation breaks when you recognise the actual cost.
Common pattern: Buyers focus on vehicle price and ignore time investment plus F&I markup.
How Different Channels Work The Australian car finance market operates through several channels:
Direct bank: Establishment fees $100-500. Canstar 2025 average: $280-350. You handle research, dealer negotiation, F&I evaluation.
Dealership finance: Establishment fees $1,500-2,500. Dealers receive lender commissions and profit from F&I products. You still conduct research and negotiation.
Finance broker: Brokers compare lenders. They receive commission when loans settle. Establishment fees vary by lender. You handle vehicle research and dealer negotiation.
Procurement service: Handles complete process including specification, sealed competitive sourcing, finance comparison, F&I review. Typically paid through dealer or lender commissions. Some charge transparent fees when scope includes complete procurement.
Comparison framework: Evaluate what each delivers and at what total cost, including your time and F&I markup exposure.
Elements of Proper Process Clear specification locked before any dealer approach.
Sealed competitive bidding where dealers compete without knowing your identity.
Line-by-line finance breakdown before you commit to anything.
Fair margins on legitimate protection products.
Transparent establishment fees negotiated to competitive levels.
Declined or independently sourced add-ons carrying excessive dealer profit.
Total transparency on where every dollar goes.
This isn't about adversarial relationships. It's about structural alignment. When competition is genuine and information is clear, pricing finds proper level.
Reality check: ASIC banned interest rate markups in 2018. Dealers still profit from establishment fees, commissions, and add-on products. Check your finance agreement. Front-end price means nothing if the back-end bleeds thousands.
Outcome with scrutiny: Proper process eliminates 80-90% of F&I markup.
Common Questions About F&I Costs How do procurement services receive payment? Most procurement services operate like finance brokers. They receive commission from dealers or lenders when transactions settle. These commissions exist in the supply chain whether or not you use representation. Some services charge transparent procurement fees when scope extends beyond finance arrangement. Compare total outcome: vehicle price achieved, finance rate secured, F&I costs incurred, time invested. The channel delivering lowest total cost whilst protecting your interests represents best value.
How do dealers profit after ASIC banned interest rate markups? Dealers profit through establishment fees, lender commissions, and add-on product markups. ASIC documented establishment fees reaching $9,000 in their 2025 investigation. The 2018 ban stopped interest rate manipulation but left other profit channels intact.
Do extended warranties provide value? Extended warranties provide value when purchased at fair margin of $200-500 above cost. Dealer markups of 100-200% make them poor value at standard pricing. Source independently or negotiate to fair margin.
What's considered fair pricing for F&I products? Fair margins: extended warranties $200-500 above dealer wholesale cost. Establishment fees $250-500 for standard processing. Canstar 2025 average: $280-350. GAP insurance sourced directly costs substantially less than dealer pricing. Paint protection $700-1,200 for professional ceramic coating. Total F&I charges on standard vehicles should range $2,500-4,000 when priced fairly. Charges exceeding $6,000-8,000 suggest significant markup.
Should GAP insurance come from dealers? No. Dealerships charge $1,000-1,200. Direct from Australian insurers: Savings.com.au documents significantly lower costs. Source directly and save $400-800. ASIC's Moneysmart warns against dealership add-on insurance.
How long does car buying take? Research shows 14 hours 39 minutes of active shopping time, up 18% from 2021. Total time investment including research over approximately six months reaches 30-40 hours for straightforward purchases, sometimes exceeding 80 hours for complex purchases.
What are flex commissions and why were they banned? Flex commissions allowed dealers to mark up interest rates above the lender's base rate. Higher rates meant higher dealer commissions. ASIC banned them in November 2018 after finding 15% of customers were charged 7%+ above base rates (ASIC Report 493, 2016). Class actions resulted in $270+ million settlements across ANZ, Westpac, St George, and Macquarie Leasing (Maurice Blackburn, 2024-2025).
How do I know if I'm being overcharged on F&I products? Request line-by-line breakdown of all fees and products. Compare establishment fees across lenders. Source GAP insurance and extended warranties independently. Check if total F&I charges exceed $3,000-4,000 on standard vehicles, as this suggests excessive markup above fair margin.
What happens to my data when I visit dealerships? Dealers collect your contact details and share them across their network. This generates ongoing contact attempts. Sealed competitive bidding through representation prevents data exposure until you choose to proceed.
Key Points Dealership F&I products carry documented markups: warranties 100-200%, GAP insurance $400-800, paint protection $500-1,000 ASIC banned interest rate markups in 2018 but dealers profit through establishment fees documented up to $9,000 Proper scrutiny eliminates majority of F&I markup, saves 30-80 hours of buyer time Car buying time increased 18% to 14 hours 39 minutes active shopping, with total investment reaching 30-80 hours over six months ASIC warns consumers that dealership add-on insurance products are not good value for money Before 2018, 15% of Australian car buyers were charged interest rates 7%+ above base rate through flex commissions Fair F&I pricing: $2,500-4,000 total. Charges exceeding $6,000-8,000 suggest significant markup What This Means For Your Purchase Understanding F&I structures before entering a finance office prevents compound overpayment.
Request line-by-line breakdowns. Source GAP insurance and extended warranties independently. Compare total F&I charges against fair market pricing. Verify establishment fees align with competitive range.
Alternatively, work with procurement representation that applies competitive pressure across all components, not just vehicle price.
The information above provides defensible benchmarks for evaluating any offer. Send us the model and timeframe if you want sealed competitive sourcing and transparent breakdown before commitment.
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