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Monday, December 05, 2016

Car Dealer Victim Profiles

I receive a lot of emails, calls, and letters every week from victims of car dealers who were taken advantage of in buying, leasing, and servicing their cars. They mostly call to ask what they can do to get all or some of their money back. These “victims” fall into different categories:
  1. The elderly, often widows.
  2. The very young, usually buying their first car. 
  3. Those who don’t speak or understand English well, not born in this country. 
  4. The uneducated.
  5. People with bad credit. 
  6. Everybody else
1. The elderly, especially widows, are the most victimized. The reasons for this are that Florida, especially South Florida, is a “retirement” state. Baby boomers and pre-baby boomers make up a disproportionately large percentage of Florida’s population. Not only that, but life expectancies have soared in recent years…81 for a woman and 76 for a man. Men usually predecease their wives. Women’s role in the American culture is a great deal different than in the 1930’s and 1940’s. More often than not, the husband was not only the breadwinner, but the decision maker in the household. Widows of that era are often buying or leasing their first car today. Men and women in their seventies, eighties, and nineties (Yes, I have a lot of customers in their nineties) aren’t as sharp as they once were. I’m 76 and I’ll be the first to admit this. In my opinion, men and women of my age, and older, are more trusting. We can’t forget the terrible disease, Alzheimer’s. Unless a court declares a person incompetent, a person with dementia can legally buy a car in Florida, and it happens all too often. This is one of the most despicable acts that some car dealers commit.

2.  What chance does a teenager or kid in his twenties have when negotiating with a car salesman and his manager to buy a car? Usually it’s the parents who call me to tell me how their son or daughter was taken advantage of. I don’t tell them this, but what I’m thinking is “Why didn’t they accompany them to the car dealership to advise them?”

3.  South Florida is not only a retirement area, but it’s a haven for immigrants from Cuba, Haiti, and South and Central America. Many of these are first generation Americans who have a difficult time with English or can’t speak, read, or write English at all. These people are easy prey for unscrupulous car dealers. Can you imagine how difficult it would be for you to get a fair price on a car you were buying in a foreign country where you did not speak or understand the language?

4.  Let’s face it; there are too many Americans who never had the benefit of a proper education. We have too many high school dropouts and too many high school graduates who still can’t read or write as well as they must to function in our society. Lack of a good education is one of America’s most serious problems and we’re seeing other countries like China, Japan, Germany and India pass us by in educating their children. It’s almost criminal how the educated are exploited by car dealers’ advertising and sales tactics. How many car dealers’ TV advertisements have you seen that you laugh at, knowing that they are totally untrue, “bait and switch” to lure you into the dealership. You wonder who would believe that kind of nonsense. The reason that car dealers keep running those ads is because they work.

5.  There are always people with bad, marginal or no credit who have to buy a car. In Florida, without an effective mass transit system, a car is virtually a necessity to get to your job or find a job, not to mention the doctor, school, or the pharmacy. People with bad credit are at the mercy of the car dealer. The main thing on these peoples’ minds is NOT how good a price or a car can I buy or how low an interest rate, but can they be financed? Knowing this, car dealers will charge whatever price and interest rate the lender will let them get away with. People with bad credit almost always pay dealers a higher profit than those with good credit.

6.  Who should be held responsible for car dealers ripping off customers? For categories one through five, the answer is our regulators and our lawmakers. But for the last category, “Everybody else”, it’s themselves. Of course, it goes without saying that the car dealers who do this are responsible too. But who doesn’t know that most car dealers do business this way? Who doesn’t know that car dealers perennially rank LAST on the annual Gallup “Honesty and Ethics in Professions” poll? I recently received an email from a woman who fell in none of the first 5 categories above. She was terribly victimized by a very unethical car dealer from whom she bought two used cars on the same night. Her email asked me for advice on what she should do. Of course the “horse was out of the barn” and this makes things more difficult. This woman did not ask for or receive a CarFax report on either used car. Nor did she take either car to her mechanic for approval. She clearly didn’t investigate the dealer for reputation. She didn’t check any sources like Consumer Reports for recommended used cars. She did not shop and compare prices for similar cars and the list of “did not’s” goes on. If you don’t do your due diligence when you buy a car you are equally culpable with the car dealer who took advantage of you.

At this point, I will shamelessly plug my book, Confessions of a Recovering Car Dealer. I say “shamelessly” because 100% of the proceeds from my book go to charity, www.BigDogRanchRescue.com. You can buy this book at www.Amazon.com. It will tell you everything you need to know about how not to be ripped off by a car dealer. Or, you can read my blog articles at www.EarlOnCars.com.

Monday, November 28, 2016

Don't Fall for Nitrogen

I’ve been writing articles on why nitrogen in your tires is a waste of money for several years, but It has had very little effect on the number of car dealers that are selling it to their customers. The “Nitrogen Lobby” must be very powerful because we still have no federal or state legislation to curtail this. Selling nitrogen generation equipment and tanks of nitrogen to car dealers is very lucrative and, even more lucrative is the money car dealers make selling nitrogen to their customers. One large volume car dealer charges $398 for nitrogen in the tires of every vehicle he sells. The cost of nitrogen is about “25 cents” per application. If you feel you absolutely must have nitrogen in your tires, Costco will give it to you “free” which is exactly what nitrogen in your tires is worth. 

I don’t recommend that you even accept free nitrogen for this reason. It’s widely accepted and recommended that you should have your tire pressure checked in your tires at least monthly. We do this free for our customers and automatically do it at every service visit. When you are sold or even given nitrogen, it comes with a sales pitch that nitrogen will remain in your tires for a much longer time than air which is not true. Click on this link to Consumer Reports article,www.NitrogenInTiresWastesYourMoney.comIf you believe the sales pitch, you’re less likely to check your tires inflation every 30 days. You may have a slow leak in one tire from a nail or screw, uneven wear from misalignment, or even a defective tire. Being “over confident” because you paid money for nitrogen may cause these problems to go undetected. Consumer Reports estimates that 1 lb of nitrogen will escape from your tires every 3 months vs. 1 month for air. Remember that air is 78% nitrogen. I’ll bet the salesman that sells you nitrogen “forgot” to tell you that.
Be prepared for a great sales pitch on nitrogen. You’ll be told that NASCAR uses nitrogen in the tires of their race cars, NASA used nitrogen in the tires of their space shuttle, and that airlines uses nitrogen in airplane tires. All of this is true, but so what? A race car going 200 mph for hours and hours around an oval track subjects its tires to extremely high temperatures. 100% nitrogen gas does expand less under extreme heat condition than 78% nitrogen gas (air). The space shuttle tires go from zero atmospheric pressure in outer space to regular pressure at sea level. Airliners also have extreme pressure variations from 30,000 feet to the ground.
To be perfectly fair, I must say that some car dealers that are selling nitrogen have “drunk the Kool Ade” from the nitrogen generation equipment industry. Some car dealers actually believe that nitrogen is good for your tires. But those who do know must know how much they’re marking up that 25 centsworth of nitrogen they’re selling you! The argument for nitrogen can be persuasive. In fact, when the concept was first introduced, before the Consumer Reports study, I actually considered adding nitrogen to my customers’ tires. But, in an abundance of caution, I decided to test the claims about nitrogen myself. Over a six month period I used pure nitrogen in 50% of my rental car fleet and regular air (78% nitrogen) in the other half. Guess what! There was no measurable difference between the pure nitrogen and air filled tires in the fuel economy, tire wear, or inflation pressure after 6 months. We did check the tires every 30 days for slow leaks from road hazards, uneven wear from misalignment or other reasons, and we rotated and balanced the tires every 5,000 miles.
Finally, I’ll tell you why I was so careful to be sure there was no advantage to nitrogen. My dealership has a “fee tire program”. Everybody who buys a Toyota from me, new or used, receives free tires (maximum of $700 per set) for as long as they own their car. The one requirement is that they bring their car back to me for the factory recommended service and we replace only tires from normal wear, not road hazards, underinflating or misalignment. I give away over $100,000 worth of tires every month, well over a million dollars per year. BELIEVE ME, if I thought I could get longer wear from a tire for “25 cents” worth of nitrogen, I would! I look at the tires on my customers’ cars as “belonging to me” because I incur the cost of replacing them when they wear out.

Monday, November 21, 2016

Red Flags to Watch for When Buying a Car

The “Big Sale Event”

If you look online or in today’s newspaper, you will find that most car dealers in your area are having a sale of some kind. It may be because of a current holiday, “too large an inventory” of cars, to “reduce their taxes”, “the manager is out of town”, or some other nefarious lure. Advertising 101 says that you should give the prospective buyer a “motive to act”. Unfortunately, it doesn’t matter whether the motive is real or not. The fact is that most car dealers do not sell their cars for less during “sales events” than they do at any other time. I point this out so that you don’t rush your buying decision. If you don’t buy a car during the tight time constraints of a phony sales event, you can negotiate just as good a price the next day. The exceptions to this are legitimate rebates offered by the manufacturer. These often expire at the end of the month which is one reason why the “last day of the month” really can be the best time to buy a car”.

“The price I’m giving you is only good for today”

If a salesman or sales manager tells you that, it is probably only a tactic to push you into buying the car. The only exception would be the expiration of a factory rebate. Once again, this is simply a tactic to push you into buying before you have a chance to do your comparative price shopping.

“Take the car home tonight and see how you like it”


Driving the car you are considering buying home can be a good thing. It will give you a lot better idea about how the car performs, etc. However, there are two reasons the car salesman offers this. One is that you must leave the vehicle you might be trading in with the car dealer. This means that you cannot shop the trade-in price with other dealers. The second reason is the psychological impact of parking that new car in your driveway where your family and neighbors can see it. The slang expression for this is “the puppy dog”. If you were to take home a little puppy from the pet store, you and your children would fall in love with her and could not return her the next day.

“You must give me a deposit before I can give you a price”


This has to be one of the most insulting ways that some car salesmen have of intimidating a prospective buyer. It’s amazing how many people actually succumb to this which allows the salesman an element of control…. you can’t leave until they give you your money back. If confronted with this ultimatum, simply walk away.

“Are you ready to buy a car today”?

Often times, if you say no to this question, the salesman will tell you to come back when you are ready to buy. He will tell you to shop around and come back with your best price so that he can beat it. The salesman is afraid that, if he does give you his best price, you will go somewhere else and that salesman will beat it. Of course, that is the whole idea of competition and that is exactly what you want to do. If the salesman is afraid to give you a price because his competitor will beat it, it must not be the best price!

“Make me an offer and I will take it to my manager for approval”

This is a very common tactic which you have probably already encountered. It is not unethical. It is simply part of negotiating. I point this out so that you are fully aware that this is part of the negotiating game. Be aware, that no matter what price you offer, the manager will ask you for more money. Even if you offered a high price that would be a very large profit for the dealer, the manager would ask you for more money. The psychology behind this is that if you suddenly accepted the offer, you may frighten the customer by thinking he had offered too much (which he would have). When you negotiate, you must be well versed on what is a good price for that car. Start out below the best price you think you can buy it for. If you cannot negotiate a price close to your best price, get up and leave. Continue this process with another car dealer.

The “really big” discount”
The other day a friend showed me direct mail advertising piece from a new car dealer with a coupon good for $2,000 discount on any car in his inventory. This is very common for newspaper and TV ads too. Federal law requires new cars to have a price sticker on the window named the Monroney label. A discount from this suggested retail price gives you a fair basis for comparison. Unfortunately, most car dealers today, increase the suggested retail price substantially with the use of an addendum to the Monroney sticker often referred to as a “Market Adjustment Addendum”. This “adjustment” can be several thousands of dollars. Be sure you know what the asking price is for the car when you have been offered a “big discount”.

The best protection from all of the above is to find a car dealer that you can trust. Ask your friends about their experiences with dealers and call the Better Business Bureau and the County Office of Consumer Affairs. All things being equal choose the dealership that has been in business a long time and an owner or general manager who will make himself accessible to you and all of his customers.

Monday, November 14, 2016

Open Letter to Florida Car Dealers

SUBJECT: ELIMINATE THE DEALER FEE

Dear fellow Florida car dealer,

I started in the retail auto business in 1968, about almost 49 years ago, and I have seen a lot of changes in the way we dealers sell cars and the expectations of our customers. My remarks in this column are made sincerely and with a positive intent toward you and your customers. I am not trying to tell you how to run your business; I am suggesting a change that will reward both you and your customers.

Virtually every car dealer in Florida adds a charge to the price of the cars he sells, variously referred to as a “dealer fee”, “documentary fee”, “dealer prep fee”, electronic filing fee, tag agency fee, etc. This extra charge is printed on your buyer’s orders and programmed into your computers. It has been regulated in most states including California. You charge this fee to every customer and it ranges from a few hundred dollars to several thousand. You often charge several dealer fees by different names. Florida law requires that you disclose in writing on the buyer’s order that 
THIS CHARGE REPRESENTS PROFIT TO THE DEALER. Florida law also requires that you include this fee in all advertised prices. You don’t always do this and you get around the law by limiting the number of advertised vehicles (as few as one).

The argument that I hear from most car dealers when I raise this issue is that the dealer fee is fully disclosed to the buyer on his buyer’s order. But, most car buyers are totally unaware that they are paying this. Who reads all of the voluminous paperwork associated with buying a car? The few who notice it assume it is an “official” fee like state sales tax or license and registration fee. Those few astute buyers who do question the fee are told that your dealership must charge this fee on very car. This simply not true. These astute buyers are also told that all other car dealers charge similar fees. This is almost true, but, as you know, my dealership does not.

The reason you charge this fee is simply to increase the price of the car and your profit in such a manner that it is not noticed by your customer. This is just plain wrong. Dealers will admit this to me in private conversations and some will admit that they have considered eliminating the fee as I have, but are afraid of the drastic effect to their bottom line. By being able to count on an extra $899 in profit that the customer is not aware of or believes is an “official fee”, you can actually quote a price below cost and end up making a profit. Or, if the price you quote the customer does pay you a nice profit, you can increase that by several hundred dollars.

This “extra, unseen” profit is even better for you because you don’t pay your salesmen a commission on it. That’s being unfair to your employees as well as your customers. When the rare, astute buyer objects to the dealer fee, the law permits you to decrease the quoted price of the car by the amount of the dealer fee. This would have the same net effect of removing it. The salesman won’t permit this because he will lose his commission (typically 25%) on the decrease in his commissionable gross profit.

If you don’t know me, I should tell you that I don’t profess to be some “holier than thou” car dealer who was always perfect. Although, I never did anything illegal, when I look at some of my advertising and sales tactics 20+ years ago and more, I am not always proud. But, I have evolved as my customers have evolved. My customers’ expectations, level of education, and sophistication are much higher today. Your customers are no different. As I began treating my customers, and employees, better I discovered that they began treating me better. Yes, I used to charge a dealer fee ($495), and when I stopped charging it many years ago, it was scary. But I did it because I could no longer, in good conscious, mislead my customers. Just because everybody else was doing the same thing did not make it right.

Now here is the good news. My profit per car did drop by about the amount of the dealer fee when I stopped charging it. But, when my customers realized that I was now giving them a fair shake and quoting the complete out-the-door price with no “surprises” the word spread. My volume began to rise rapidly. Sure, I was making a few hundred dollars less per car, but I was selling a lot more cars! I was, and am, selling a lot of your former customers. My bottom line is far better than it was when I was charging a dealer fee. You can do the same!

Why am I writing this letter? I’m not going to tell you that I think of myself as the new Marshall that has come to “clean up Dodge”. In fact, I am well aware that this letter is to some extent self-serving. Lots of people will read this letter to you and learn why they should buy a car from me, not you. And, I am also aware that most dealers who read this will either get angry and ignore it or not have the courage to follow my lead. But maybe you will be the exception. If you have any interest in following my lead, call me anytime. My personal cell phone number is 561 358-1474. I don’t have a secretary and I don’t screen any of my phone calls. I would love to chat with you about this.

Sincerely, 

Earl Stewart

Monday, November 07, 2016

Quick Reference Guide to Fine Print in Car Ads



If you look down at the bottom of virtually every car advertisement online, TV, or newspaper, you will see some fine print. Most often,  you literally cannot read the print because it is so small and, on TV, displayed for 1 or 2 seconds. The disclaimers you read below were taken from a South Florida newspaper. I didn’t make any of these up. Basically what these disclaimers do is to totally negate the validity of all of the prices and payments the car dealers are advertising. The prices and payments are always much higher when you factor in the almost invisible fine print.

Combining a very short lease term with a high down payment. Nothing sells cars like low monthly payments. A car dealer can make a monthly lease payment as low as he wants by decreasing the number of months of the lease and increasing the down payment. I’m looking at an ad in the newspaper right now advertising an SUV for $19,999 or just $199 per month. In the fine print it says 27-month lease and $3,000 down plus a $799 dealer fee.


"Plus dealer installed options" The price you see advertised is not the full price. This loophole allows the dealer to tack on thousands of dollars in overpriced accessories to the price that was advertised. Dealers often charge well over one thousand dollars for floor mats, paint sealant, pin stripes, nitrogen in tires, emergency road service, and flimsy plastic door edge guards.


"Advertised offer good on select in-stock vehicles only" Dealers often advertise just one car at a price below their cost. They don’t pay the salesman a commission if he sells that vehicle. The chances of that car being available for you to buy are “slim and none”. Even if the car was still there, the salesman would do everything in his power to sell you a different car that he could earn a commission on.


"Impossible Rebates to Qualify for".  “Owner Loyalty”. Manufacturers offer special cash rebates to current owners of their make of car. These rebates are not available to you if you don’t currently own that particular make of car. Other exclusionary rebates are “College Graduate rebates” and “Military rebates”. These are great for recent college graduates and service men and women, but do not apply to the majority of consumers. It is also very common to see dealers combine all three:  loyalty, college graduate and military rebates, making it virtually impossible for any consumer to take advantage of.


"Price …plus, tax, tag, and fees". The red flag word here is “fees”. The fees these dealers refer to are “dealer fees” which are synonymous for DEALER PROFIT. Most people believe they are federal or state taxes of some kind. They are  nothing more than more money for the dealer that is not disclosed in the advertised and quoted  price of the car. These “fees” go by many different names…electronic filing fee, tag agency fee, doc fee, notary fee, dealer service fee, administrative fee, etc. The only legitimate fees that can be added to the advertised price are GOVERNMENT FEES…fees paid to the state for sales tax and license registration.


"Offers expire date of publication or may be cancelled at any time without notice". This simply means that the prices, payments, etc. you have read have no validity whatsoever. The prices are not good tomorrow, but they aren’t even any good today because the dealer can cancel the offer without notice.


"Not responsible for typographical errors". This is just one more way for a dealer to explain why they can’t sell you the car for the advertised price…We don’t have to honor that price because it was a “typographical error”.


"Vehicle Art for illustrations only". This means that that car you are looking at with the really great looking wheels might not have those wheels on the one you buy. Or, maybe it doesn’t even have those alloy wheels you see in the picture.


"Minimum Trade Based on Dealer List Price". The DEALER list price is not the same thing as the MANUFACTURER’S suggested price. Dealers add markups to the Monroney label also known as MSRP or manufacturer’s suggested retail price. They label this markup (often on a sticker designed to imitate the official federal Monroney label). Dealer markups of $3,000 and much more are common on such “counterfeit Monroney” labels. The dealer can mark up the price on the Monroney label by $10,000 enabling him to allow you an extra $10,000 for your trade in and still sell you the car for no discount from sticker price.


“$4,000 Trade Equity Required” This is another deceptive way to advertise a super low car payment. How many of us have $4,000 in equity in our trades? Certainly not the majority of consumers!

My advice to you is to ignore all car dealers’ newspaper advertising. Most car ads are designed to “get you in the door” so that they can sell you some other car than the one advertised so that they can make more money. If you must respond to a dealer’s advertisement, be sure you break out your magnifying glass and carefully read the fine print.

My advice
to you is to ignore all car dealers’ newspaper advertising. Most car ads are designed to “get you in the door” so that they can sell you some other car than the one advertised so that they can make more money. If you must respond to a dealer’s advertisement, be sure you break out your magnifying glass and carefully read the fine print. My advice to you is to ignore all car dealers’ newspaper advertising. Most car ads are designed to “get you in the door” so that they can sell you some other car than the one advertised so that they can make more money. If you must respond to a dealer’s advertisement, be sure you break out your magnifying glass and carefully read the fine print.

Monday, October 24, 2016

Car Dealers Have Infringed on Your Right to Sue!

Did you know that when you bought your last car that you agreed to waive your constitutional right to sue the car dealer who sold you the car and have your complaint heard in a court of law by a jury of your peers?

You probably did not, because an “arbitration clause” was hidden in the fine print of your contract that you signed. Even worse, you also are prohibited from even taking that car dealer to arbitration unless you write a “demand letter” first!

What is “arbitration” anyway?

The average person does not understand what arbitration is, much less know that they agreed to substitute this process for their right to sue when they bought their last car. Arbitration allows an individual who is employed by an arbitration company to decide who is right in a dispute, you or the car dealer. Professional arbiters can be retired judges or anyone that the arbitration company decides is qualified. Because car dealers use the arbitration company often and because car dealers determine the compensation to these companies, there is a good chance that the arbitrators are inclined to side with “the hand that feeds it”.

You can’t even file for arbitration unless you write a “demand letter” to the dealer which must contain specific information as prescribed by Florida statute 501.98. This is a summary of that law:

“Florida Statutes require that, at least 30 days before bringing any claim against a motor vehicle dealer for an unfair or deceptive trade practice, a consumer must provide the dealer with a written demand letter detailing the name, address, and telephone number of the consumer, the name and address of the dealer; a description of the facts that serve as the basis for the claim; the amount of damages; and copies of any documents in the possession of the consumer which relate to the claim. Such notice must be delivered by the United States Postal Service or by a nationally recognized carrier, return receipt requested, to the address where the subject vehicle was purchased or leased or where the subject transaction occurred, or an address at which the dealer regularly conducts business.” If you would like to read the detail of this law, you can access it online athttps://www.flsenate.gov/Laws/Statutes/2013/501.98.

If you hire a lawyer because you believe a car dealer has taken advantage of you, you’re not eligible for reimbursement of any legal fees unless you have sent the demand letter exactly as described above. This is why most lawyers are reluctant to assist you because they know that the fees they would normally be entitled to are at risk…both because of the arbitration requirement and the demand letter.


What I’ve described is just one more reason why you should be extremely careful when you buy or lease a car. In the back of our minds most of us believe that when we are doing business with a car dealer, or anybody else, if we are taken advantage of we have the right to sue to force the company to make things right. This is not true with 99% of car dealers. You should realize this and be even more careful when you purchase a car. Access my blog for articles on every facet of doing business with a car dealer. There are hundreds of articles accessible in the archives of www.EarlStewartOnCars.com. You will learn never to go car shopping alone, get all promises by the salesman in writing, spend at least two weeks researching the purchase of car, and always get at least 3 competitive bids on the car you’re buying, your trade-in, and your financin

Monday, October 17, 2016

Sales Commissions Are the Root of All Evil

The Wells Fargo Bank has been in the news constantly for the past several weeks. It all started when the Los Angeles Times exposed the scandalous practice that millions of Wells Fargo customers were being signed up for credit cards and bank accounts without their permission or knowledge. When this went public, Wells Fargo fired 5,300 low level bank tellers, but no higher level executives were let go. One high level executive took “early retirement” and was given a huge, multimillion dollar severance package. The CEO just resigned after the heat from Congress got to high…some are calling for criminal charges.

The cause of this huge scandal was determined to be the pay plans of the low level employees whose job was to “sell” the credit cards and accounts that were being illegally placed in customers’ names without their knowledge. Management had set quotas on these so called “upsells” which a bank employee must meet if she wanted to keep her job. These quotas were very high (higher than most other banks). These low level employees had to make a choice between deceiving their customers or losing their jobs. This system worked very well for many years because Wells Fargo led the banking business in “upsells” by a wide margin.

Do you see where I’m going with this? The last time you bought a car the salesman that sold you that car was paid about 25% of the profit that the car dealership made. Almost every car dealership does not have a fixed price on the cars they sell. Virtually every car sold by most car dealerships has a different price and markup…even on identical year-make-models. Prices and markups depend entirely on the amount of profit the salesperson can negotiate with the buyer. These markups vary widely! The same car on the same day can be and are sold for prices and profits varying by thousands of dollars. It would not be unusual for a car to be sold for a $100 profit to one customer and a $5,000 profit to the next, on the same day! The first salesman would make only a $25 commission but he second one would make $1,250! As you would expect, the well informed, sophisticated buyer and negotiator pays much less for their cars than others.

So, we’ve established that, by design, car salesmen have an adversarial relationship with you, their customers. The customer wants to pay the lowest price for your car and they want you to pay the highest price. Now, I’ll explain why the salesman must charge you more money than you want to pay. If he does not make his profit quota, the car dealer will fire him. All car dealerships have quotas for their sales people and those sales people that fall short are fired. The turnover for car salesmen is the highest of any profession, averaging 66%! This means that two out of three sales people will be fired or quit within the year. The survivors are the those that produce the most profit for the car dealer.

Car dealers have a minimum acceptable average profit that they must make on their cars. The problem is that the sophisticated, educated buyers won’t pay this price. The “slack” must be made up for by overcharging the less informed buyers…typically the very young, very old, uneducated, and those who aren’t conversant in English. A car dealer or a car salesman might have a goal of making $2,000 average profit per car, but for every car he has to sell for a $100 profit, he must sell another for a $3,900 profit to meet his average.

What the owner and upper management of the car dealerships have created is a culture identical to what Wells Fargo created. They designed a pay plan pitting the goals of the customer against the goals of the sales people. Then they established unrealistically high quotas that necessitated the sales people do WHATEVER IT TAKES to meet those goals if they wanted to keep their jobs. One could argue that the sales people are guilty when they knowingly employ unethical and illegal sales tactics in order to make sales at higher prices than the customer would normally pay. On the other hand, let me pose this question to you. How far would you go to put food on the table for your family, make your car and mortgage payments, and provide medical care for your kids?

The upper management of Wells Fargo and the upper management of all car dealerships know, or should know, what their sales people are doing to their customers to meet their quotas. Warren Buffet is the largest stockholder of Wells Fargo Bank. He didn’t know what was going on, but he should have. This is what happens when you grow too big…you’re insulated from what’s going on “in the trenches”. Ironically, Warren Buffet just bought a chain of car dealerships whose salesmen are doing to their customers exactly what his Wells Fargo salesmen did to theirs. I admire and respect Warren Buffet very much, but I won’t excuse him for his fiduciary responsibility as an owner of a business to protect his customers.

Many owners and CEO’s of car dealerships today, like Mike Jackson (AutoNation) and Roger Penske (Penske Automotive Group) have the same problem as Warren Buffet. However, there are lots of other car dealer executives, below the owners level that are more likely guilty of, not only knowing about, but aiding and abetting these practices. They “don’t want to know” what’s really going on because this gives them “deniability”. These are the truly guilty ones and the ones that should be purged from the system.