My local dealer said they want $500 to program my key fob for remote start. Does this sound reasonable?

No its not! They told me $700.

How about asking the dealer for a written explanation why it costs so much?

Then you will have ammunition to complain to Volvo of North America. If they refuse, perhaps that would be even better ammunition.

Do they check all the switches and sensors that are part of the system?

What features does the system have - kill engine upon hood opening? Refuse to start if a door is unlocked? open? Will it shut down if the pedals or shift lever are moved? ETC.

I had a coworker that purchased a used 850 - I drove the car and it was pretty nice (we owned 3 850s). His wife wanted remote start - he had it done by a large aftermarket store that sold all sorts of auto accessories.

The next time he brought it to work it sounded like a diesel! He took it to a dealer and an independent shop with a good reputation - neither could find out what was wrong with the car. They told him to have the installer fix it - they could not! They gave him his money back.

He ended up giving the car to charity.

Of course it is not reasonable. You could send an email to Volvo noting your displeasure, nothing will happen even if you CC'd the dealer.

Call other dealers within 100 miles and find out what they charge, hard to do if you live in 'fly over country'.

The last time I looked, the average charge was getting close to $300 for a key/remote combination.

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Keeping it running is better than buying new