Monday, July 22, 2019

Top Ten Car Ad Scams

I could write a “Top 50 Auto Ad Scams” because the ingenuity for deception in “getting car buyers in the door” is virtually limitless. However, I chose to concentrate on the ten most popular with South Florida dealers. Just beware that there are many more schemes than these I list.

(1) Discount from Dealer List. Anytime you read or see a car advertised with a large discount, determine whether that discount is from the MSRP [manufacturer’s suggested retail price] or the dealer’s retail price. An all too common practice is for a dealer to mark up his cars thousands of dollars over the MSRP and call it “dealer list” so that he can show huge discounts that aren’t real.

(2) Prices exclude “impossible” rebates. Manufacturers often offer cash rebates to customers who qualify for special reasons. Some of these are being on active duty in the U.S. military. This rebate can be as much as $1,500. If you graduated from an accredited 4 year university within the past 6 months you can qualify for $500 to $1000 from some manufacturers. There is a customer “loyalty” rebate which affords you $1,000 or more if you own the same make car that you are buying. There’s a similar rebate for lease customers. There’s even a “Farm Bureau” rebate which qualifies you for $500 if you’re a farmer. Dealers are combining all of these rebates and deducting them from advertised prices of their cars. Of course, what are the odds that any customer would simultaneously qualify for all these rebates? The average reader of these ads qualifies for none of the rebates.

(3) Lease payments based on large down payments. Virtually every lease payment advertisement requires a large down payment which is concealed in the fine print. Most people lease because they want to lay out as little cash as possible. If they had $4,000 cash to spend, they would probably opt for a purchase. Those that fall for this trick often end up leasing the car at the full retail. Leasing companies will allow dealers to lease cars for “only” up to 110% of capitalized cost. When you make a down payment, this reduces the net capitalized cost which allows the dealer to sell your contract to the leasing company.

(4) Lowest Price Guarantee. This guarantee is worthless. If you read the fine print, you will note that it says that “the dealer reserves the right to buy the car from the other car dealer [his competitor] at the same price his competitor quoted you”. No car dealer is going to accommodate his competition so that they can steal away his customer. Of course, the other fact that makes this guarantee worthless is that it requires that you prove the lower price by presenting a buyers’ order from the other dealer signed by a manager. Very few car dealers will give a signed copy of the vehicle buyers’ order to a customer unless they drive the car home or make a substantial, nonrefundable deposit.

(5) Only one car available at ad price. When you are reading or listening to an advertisement, you will often see a strange number next to the advertised car. If you are watching the ad on TV or listening on radio, the number will be unreadable or undecipherable as is the fine print. An example is STK #T91832. This is the stock number of the car and means it is the only car of that model and accessories you can buy at the advertised price. They don’t say “only one car available at this price” because you would realize that the chances of that car being there [or sold to you if it is there] are very slim. Don’t be misled if the ad also says, “many more identical models available at this price”. Florida law requires that dealers include the dealer fee in their advertised price. But if that specific stock number car is unavailable, they can add their hidden dealer fees to the price of an identical car. This scam is why I continue to lobby Tallahassee to require that all profits to the dealers be included in all prices whether advertised, verbal, or on the Internet.

(6) Advertised price is “plus dealer installed accessories”. All this means is that the price you see is notthe price you get. Dealers love to add their accessories to their cars because they can set any price they want and drastically increase their profit margins. A dealer charging you $299 for pin stripes and floor mats would have a real cost of about $100, allowing him a 300% margin.

(7) Lease payment based on unrealistically low mileage allowance. All leasing companies limit the number of miles you can put on their car without paying a penalty. This is because the higher the mileage, the lower the resale value and the leasing company must sell their car at the end of the lease. The average American drives her car 15,000 miles per year. It’s very common to see mileage limits of 10,000 and even 7,500 miles per year with penalties of 25 cents per mile. For an average driver in a four-year lease, that would be a penalty of $7500! The dealers don’t get this money, the leasing company does, but the dealers do this so that they can advertise an unrealistically low lease payment.

(8) Lifetime Warranty. A lot of dealers are advertising these “lifetime warranties” on every car they sell. This is a very limited warranty which applies only to the car’s powertrain. The term powertrain has different definitions as to which parts of the car it consists of. It typically means only those parts of the engine, transmission, drive shaft, and rear axle that are lubricated. These parts virtually never fail if you change your oil as prescribed by the manufacturer or by the issuer of the warranty policy. If you fail to change your oil as prescribed, the warranty is null and void. It’s a win-win for the car dealer. You must come in to have your car serviced regularly so that he can make more profit and, if you do comply with this, there will never be a claim. Dealers do pay outside warranty companies for these warranties, but the cost to the dealer is minuscule, around $25. The low price the dealer pays the warranty issuer is further proof that the warranty is worthless.

(9) Purchase payments include “balloon payment”. How would you like to buy a new BMW 328i for just $339 per month only to discover that your last payment was $12,983! Oh, and you also had to make an upfront down payment of $2,500. ALWAYS READ THE FINE PRINT!

(10) Internet Quotes Exclude “Dealer Fees”. The average “dealer fee” in South Florida is over $1,000. At least half of car buyers are using the Internet to buy cars today. Almost 90% used the Internet for information about buying their car before going to the dealership. Virtually every car dealer in Florida charges multiple, hidden dealer fee and they all exclude those from the price you are quoted on the Internet. I spoke to a woman just the other day who drove all the way from Lakeland to West Palm Beach to pick up the new Infinity that she had purchased on the Internet. When she got to the dealer, he added an additional about $1,000 in hidden dealer fees.

Monday, July 15, 2019

Deaths from Dangerous Recalls Are the fault of our Legislators

Clearly auto manufacturers are partly to blame for the millions of vehicles on our highways with unfixed, dangerous recalls, like Takata airbags that explode in the driver’s face like a hand grenade. But the auto makers didn’t build cars with dangerous problems on purpose; it was a mistake.

Our lawmakers could get virtually all these cars repaired very quickly just by passing a law to make it ILLEGAL TO SELL A VEHICLE WITH A DANGEROUS RECALL. Their lack of action on this issue is not a mistake; it’s premeditated to enhance their chances of reelection.

You may be thinking that the auto makers are doing all they can because they issue recall notices to drivers and will fix their cars free when the owner brings it to one of their dealers. One wonders how many recalls would be issued if they weren’t required to do so by the National Highway Traffic Safety Association, NHTSA.

The reason that recalls don’t solve the problem is that only 1 out of 4 recalled cars is ever fixed. That’s because most drivers of recalled vehicles are unaware that their vehicles have been recalled and many procrastinate or just don’t care enough to have it fixed. Also, there are hundreds of thousands of recalled cars for which there’s no fix available.

Older recalled cars are often the most dangerous, especially those recalled for defective Takata airbags that become more dangerous over time. A driver of a 2010 used Honda could easily be the second, third or even fourth owner. The chances of that owner receiving a recall notice in the mail are slim. When the car was purchased new, there was no recall. When the car was subsequently sold by used car dealers, there was almost certainly no disclosure made to the buyer. Most states don’t require the disclosure. When and if a disclosure is made, it’s usually buried in the fine print. Yes, this information is available to buyers online via CarFax, NHTSA, and the manufacturers, but the reality is that very, very few used car buyers avail themselves of this.

I’ve mystery shopped dozens and dozens of car dealerships in South Florida over the last three years and virtually everyone is selling cars with dangerous recalls and no disclosure. Many car salesmen lie about the recall, saying there is no recall, or the recall was fixed. Many tell the buyer that all she must do is take it the new car dealer and have it fixed when he knows there is no fix available. You can read these mystery shopping reports at http://www.mysteryshoppingreports.com/.

The auto manufacturers and car dealers are fully aware of all the above, but if they voluntarily refused to sell a recalled car to a customer it would have a significant negative economic impact. The auto manufacturers and many of the car dealerships (AutoNation, CarMax, Penske, Sonic) are publicly owned companies. A public company has a fiduciary responsibility to their stockholders to make a profit by every legal means. Mike Jackson, then CEO of AutoNation, made the right and moral decision not to retail used cars with defective recalls to its customers. After a year of declining used car profits and outcries from stockholders, he reluctantly began retailing these dangerous cars.

The only way to get these dangerous vehicles off the road, fixed and safely back on the road is for our federal and state legislators to make it illegal to sell a vehicle with a defective recall. This is almost laughably simple and obvious. It’s also sadly simple and obvious that the only reason they don’t is because they will lose the financial support for reelection from the auto makers and auto dealers.

Monday, July 08, 2019

Should I Pay Cash for My Next Car or Finance It?

Most people don’t have any choice except to finance their cars. However, if you are reading this column, the chances are you’re in that fortunate higher demographic income group and can afford to pay cash for your next car. People who read newspaper columns and blogs tend to be more intelligent and affluent. But, just because you can, is it the right move?

Many people think they can get a better deal on a car if they pay cash. This was true 50 years ago before dealers discovered the new profit center referred to as the Finance and Insurance Department aka “Business Office”. Today this is not true. In fact, paying cash may even make the actual vehicle cost you more! The reason for this is that car dealers make money when they handle the financing with the bank or with the manufacturer’s lenders like Honda Finance, Chrysler Credit or normal banks like Wells Fargo or Capitol One. A dealer typically averages about $4,000 on every car he handles the financing on. Therefore, if the dealer’s minimum acceptable profit on the car’s markup was $1,000, he may sell it to someone who he could make $4,000 finance profit on for less than someone who he knew was a cash buyer. Dealers will sometimes sell a car for zero profit or even lose money on the car because they can make a good profit on the financing.

If you plan on paying cash for your next car, my recommendation is DO NOT TELL THE CAR DEALER THIS. Tell the car dealer that that you are considering financing with him. This will help you get a lower price because the dealer still has hope that he can make money when he finances our car. The average profit a car dealer makes financing cars is much larger than he makes marking up the selling price. AutoNation, the world’s largest retailer of new vehicles, made the decision about one year ago to increase their new vehicle prices because they were losing money in their new car departments. They were always very profitable in their finance and insurance departments…averaging over $2,000 per vehicle on every car sold. In fact, they’ve focused more on increasing profits in the finance department even more with “branded products” …AutoNation GAP insurance, Auto Nation Maintenance Plan, AutoNation Extended Warranty, etc.

My second recommendation is check interest rates and terms with your own bank or credit union before you talk to the car dealer’s finance people. The finance manager (aka business manager) is on commission and paid a generous percentage of the profit he makes by marking up the bank’s interest rates and selling you extra “products” like extended warranties, GAP insurance, and car maintenance.

One argument in favor of financing a car is being able to keep your money invested, and earning a greater return than your interest cost of financing. There has never been a never time in our history that this is true. The bad news is that interest rates are not only at historical lows for borrowing but also for CD’s and interest income. With very good credit, you can finance a new car today for between 3% and 4%, but you can’t find a short federally insured CD for that amount. However, you can find secure equity and bond investments that will earn considerably more than your cost of interest on financing a car.

There is one very important intangible reason why some people should pay cash for their car. That intangible is called “peace of mind”. My older brother, Doug, grew up during the Great Depression. When he built his new house, he paid cash for it. I couldn’t believe this and was severely critical of him. It was entirely illogical for him to pay cash when he could get a very low interest rate and home mortgage interest is tax deductible. His investments earned him far more than the interest rate on his mortgage would cost. After a while I finally realized why Doug was right and I was wrong. He paid cash for his home because it made him feel better. Growing up in the thirties, like many of my customers did, made an indelible impression on his emotions. Owning his home with no debt made him feel happy and secure and what could be more important than that?

Monday, July 01, 2019

Should You Exercise Your Option to Buy Your Leased Car?

One of the advantages of leasing is your option to buy the car at the end of your lease at the “residual” price. The residual is what the leasing company “guessed” your car would be worth at the end of your lease. They guessed because nobody has a crystal ball that tells them exactly what a used car will be worth 3 or 4 years in the future. If they guessed low, you have an opportunity. If they guessed high, you have no obligation; it’s the leasing company’s problem and they must sell the car and take a loss.

The best thing about making this decision is that you’re holding the best hand in the card game between you, the leasing company, and the dealer. That’s because you know your car better than they do. You’ve probably been driving it for close to three years, you know how well you’ve maintained it, how worn the tires are, whether it’s been wrecked and repaired, and how many dings, dents, or upholstery stains there are. You know if it was garaged, how carefully you drove it and the exact mileage. You also know, better than anybody, how well it runs. All these things determine the value of your car.

Unless you buy a new car, you can’t have as much confidence in any other used car that you buy as your own used leased car. The only assurance that you have when you buy somebody else’s used car is their word, or the dealer’s word, about how it was driven and maintained. A CarFax report offers good information, but it’s not 100% reliable. That means if you did take very good care of your leased car, drove it carefully, kept it in a garage, waxed and washed it faithfully, maintained it carefully and didn’t put too many miles on it, it’s worth more to you than anybody else. That’s because you’re the only one who knows that. And you can never be sure about that for any other used car you might buy.

Given that you like your leased car and want to keep it, the next step is determining the current wholesale market value for your car. Car dealers call this the “ACV”, for actual cash value. Check the Internet for information on the value of your car. The best check on the wholesale value is to drive your car to 3 or 4 car dealerships that are franchised for your make. If you drive a Ford, visit as many Ford dealerships as you can and tell them you want to sell your car. You aren’t misleading them because it’s a lease car. You could exercise your option to buy it from the leasing company and then resell it to the dealer, if the dealer’s offer was higher. If you live near a CarMax store, the largest retailer of used cars anywhere, they buy a lot of used cars “over the curb” and their prices are often competitive. Be sure you get a quote from them. Two other sources for an accurate wholesale market value of your car are www.Carvana.com and www.WeBuyAnyCar.com. You can get an online estimate from each of these companies and they will also give you a firm cash offer when they see your car.

Now that you’re armed with the actual market value for your car, you can compare it with the residual value in your lease contract, the price you have an option to buy it for. You might get lucky and be able to sell your car to a dealer, www.WeBuyAnyCar.com, CarMax, or www.Carvana.com for more than your option price. If so, you can flip the car for a fast profit. It’s not unheard of to make $1,000 or more by doing this. If you want to keep your leased car, you should be sure that your option price is less than, or very close to the true wholesale market value. If not, you’re better off to give the leased car back to the leasing company and buy similar used car at a lower price. Car dealers, of course, mark up the wholesale value of their used cars by anywhere from $1,000 to $4,000+, so even if your option price is $1,000 or so above actual wholesale, it can still be good buy. Remember, you know that used car better than anybody and if you buy another used car, you don’t.

Monday, June 24, 2019

Don’t be TRAPPED into Leasing For the Rest of Your Life

I’ve written several articles on which is the better choice, leasing or buying your next car. As a rule of thumb, I recommend buying because it’s less complicated and offers fewer opportunities for car dealers to deceive you. I also issue a special warning to seniors who, because of health issues, may not be able to drive at some point during their lease contract. They, or their *estates, are still obligated to make the remainder of the payments.

However, there is another negative on leasing which I was remiss in not mentioning in prior articles, and this applies to all age groups. When you buy a car, you’re building equity ownership in the car you’re driving; leasing is just like renting and you build zero equity. If you buy a new vehicle and finance it for 36 months, you can build equity from 50% of the original cost to has much as 70%. The average new vehicle today costs about $40,000, leaving you with an asset worth from $20,000 to $28,000!

Why is this important? According to USA Today, 40% of U.S. adults don’t have enough savings to cover a mere $400 emergency! The median amount of the average American’s savings account is only $4,830. When you buy a home or a car, you’re forced to save. More and more Americans are renting their apartment or homes and leasing their vehicles.

The auto manufacturers and auto dealers are focusing almost exclusively on leasing rather than selling today, for good reasons. Car dealers make substantially more money when they leaseinstead of sell, over $1,000. The likelihood of you repeating with the car dealer and the manufacturer is much higher when you lease vs. buy. Why? You must return the lease car to the car dealer, and the dealer begins soliciting your next lease about 6 months before your current lease expires. If you don’t repeat with that dealer/manufacturer, there’s a penalty called the “lease disposition fee”, about $350. There’s also the likelihood that you will be charged more for “above normal wear and tear” if you buy or lease a different brand. It’s easy for manufacturers and dealers to lure you into leasing, because almost everybody thinks in terms of monthly payments, not the purchase price. If you feel like you can fit the car into your monthly budget, you don’t care what the purchase price is.

That’s why so many people are now caught in the “lease trap”; not just the lease trap but forced to repeat with the same make of car they leased previously. They have no equity for a down payment on a purchase and are penalized if they switch to a different make of vehicle.

When you’re caught in the “lease trap”, you’re also precluded from buying a used car. Leasing companies and banks won’t lease used cars. A good, late model used car is a better value than a new one. It retains its value much more than a new care. Many people with limited savings and income should be buying used cars instead of new ones, but cannot if they were lured into the lease trap because of a low monthly payment.

If you’re fortunate enough to have a substantial savings or investment account that allows you to make the necessary down payment when you purchase a vehicle, that’s great and this article doesn’t apply to you. Unfortunately, it does apply to many people that are being lured into the LEASING TRAP.



*Legal pre-arrangements can be made to protect the lessee’s spouse from liability

Monday, June 17, 2019

Why Even “Honest” Car Dealers Lie to You

If you owned a business that employed a lot of people, including family and friends, that all depended on their earnings from that business to support themselves and their families, how important would the SURVIVAL of that business be to you? Of course, you and your family also depend entirely on the earnings from that business to provide housing, food, medical care, and education for you and your family. Arguably the strongest instinct in all living creatures, including humans, is SURVIVAL. Would you break the law, act unethically, or deceive someone if it was necessary to provide food, shelter, or medical care for you and your loved ones?

All retail businesses must advertise their products to sell them. Arguably, the most important factor in the consumer’s decision to buy is the LOWEST PRICE. Granted, quality and reliability of the product are important too, but once a buyer has decided on the best product, she begins looking for the lowest price. Most car dealerships each sell one brand of cars and a few sell several. Once the consumer chooses the brand, they begin shopping for the lowest price. A Ford, Honda, Jeep, or Toyota at one dealership is the same as those at all other dealerships. Furthermore, the car dealers all pay the manufacturers the same price for their cars. Despite what car dealers may tell you, large volume dealers don’t pay less for their cars than small volume dealers.

Consumers learn the lowest prices from car dealers advertising…online-digital, TV, radio, newspapers, email and snail mail. This is where the problem arises. If you’re in the market to buy a New 2019 Jeep Wrangler Unlimited Sahara 4X4 with an MSRP of $53,940, you’re going to check prices at all the Jeep dealerships in your market first. Usually there are at least 3 dealers for each brand in a market, but when you add shopping online a buyer can shop prices at DOZENS of dealerships. You’ll buy your Jeep from the dealer that gives you the biggest discount from MSRP, the lowest price.

All car dealers, of course, know that you will visit the dealer with the lowest price, so they must be sure their advertised price will be either lowest or close to it. They can only ensure that you won’t find a lower price by pricing their Jeep lower than they can afford to sell it, often below their true cost. This is how HIDDEN FEES, aka DEALER FEES came to exist. These hidden charges aren’t fees at all…at least not legitimate government fees; Hidden dealer fees are PROFIT TO THE DEALER which are not revealed to you in the advertising or the prices quoted to you online, by phone, or in person. A car dealer with $1,000 in hidden fees (average in South Florida) can advertise a car for $1,000 lower than he can afford to sell it for and still make a profit after he adds his hidden fees.

HAVE YOU EVER BOUGHT A CAR FOR THE ACTUAL ADVERTISED PRICE? Most people will say “no” and those that say “yes” probably were tricked into believing the hidden fees that were added were legitimate government fees like sales tax and license plate. Dealers can “name” a hidden fee anything they like. They typically choose names that sound “official” like tag agency fee, electronic filing fee, doc fee, notary fee, doc stamps, administrative fee, dealer handling fee, and dealer prep fee. Often, buyers never see the fees because they aren’t added until you’ve signed the dealer “worksheet” which you thought was a purchase agreement. It’s not a legal document and this disclaimer is in the fine print. Dealer do this, so they don’t have to disclose all of their hidden fees. These are printed out on the real buyer’s order in the Finance Office, along with reams of other paper and fine print that nobody has the time to read.

Who’s to blame for this sad state of affairs? The answer is our legislators and regulators, both federal and state. The political contributions by auto manufacturers, car dealers, and their associations dwarf that of the gun manufactures and NRA and rival those of Big Insurance. If the auto manufacturers and dealers don’t want a politician elected, he just must find another line of work.

About the only thing you can do to get the best price on a car is to outsmart the car dealer, and I have tool that you can download that will help you. It was invented by Nancy Stewart, my wife and co-host of my consumer advocacy radio show, “Earl on Cars”. Download this form at www.OutTheDoorPriceAffidavit.com. It is a legal affidavit that you insist your car dealer sign before you sign to buy any new or used vehicle. The car dealer is swearing that the price he advertised or quoted is the true out-the-door price plus government fees only. If the car dealer won’t sign it, buy your car from the dealer that will.

Monday, June 10, 2019

Seniors… Think Twice Before Leasing

Leasing a new vehicle is very different from renting. When you sign a 36-month or 48-month lease, you obligate yourself for 36 or 48 monthly payments, even if you can no longer drive. You’re also responsible for maintaining insurance on the leased vehicle, even if it’s not being driven. You may become incapacitated or your driver’s license can be revoked. If you die, your estate is obligated for the remaining payments.

It’s possible to have your lease assigned to another person, but this must be approved by the leasing company. There are companies that, for a fee, specialize in finding people to assume lease payments, but these people must have the approval of the leasing company.

You may have noticed that most new car advertising is for leasing, not buying. This is becausecar dealers average a much higher profit from a leased car than a purchased car. Also, the car dealer has a much better chance of keeping you as a customer if you lease. You must return the car to the dealer at the end of the lease. The car dealer and leasing company (usually the manufacturer) have monthly contact with you, because your making lease payments. Leasing companies penalize you with a “lease disposition fee” if you opt not to buy or lease another car of that make.

For all the above reasons, the car dealers and manufacturers will encourage you to lease rather than buy. Be forewarned that unscrupulous salesmen will give you bad advice to persuade you to change your mind about buying and leasing instead. They earn much higher commissions on leases, and they’re more likely to lease or sell you another car. The expression used by car salesmen when they attempt to do this is called the “Lease Flip”. The sales manager will instruct his salesman who is having difficulty making a big profit on a car purchase to “Flip her to a lease”. The salesman will try to focus your attention on the lower monthly payment of a lease and not mention the fact that you are building no equity when you lease like you do when you purchase. He won’t mention the higher cost of insurance, excess mileage charge, lease inception fee, lease disposition fee, or the charge at the end of the lease for excessive wear and tear. Some sales people will imply, or say, that you can return a lease early without any penalty. Too often your trade-in is undervalued or not valued at all on the lease contract. Lease contracts are very complicated compared to purchase contracts. There’s lots of fine print and variables that affect the total cost. The main numbers you have be aware of are the lease factor (interest rate), residual value (estimated value at the end of the lease) and the capitalized cost. The capitalized cost should reflect the fair credit for your trade-in and should represent the discounted price if you were buying the car.

With all that said, a lease can be just as good a value as a purchase, but leases are far more complicated. This gives the car dealer, manufacturer, and car salesman more of an upper hand. There’s an old joke that goes like this…” If you sit down at a poker table, look at all the other players, and can’t figure out who the sucker is…it’s probably you. Always be extra careful when you’re playing somebody else’s game.