Monday, April 13, 2015

The Technical Service Bulletin (TSB) aka The Secret Warranty

Last Friday, the New York Times ran an article entitled “GM Deems Steering Issue Unworthy of Recall’. In the article is a quote from one of many GM owners who wrote the NHTSA on this problem: “I was driving through a construction zone when my steering wheel locked up,” the owner of a 2013 Buick Verano wrote the National Highway Traffic Safety Administration in December. The owner is one of more than 50 who cited a similar problem to the agency. Clearly, this is a serious and frightening issue; so why isn’t GM issuing a recall?

Last July, G.M. sent dealers a technical service (TSB) bulletin that told them how to fix the problem, but only if an owner complained to a dealer. This practice in not unique to General Motors; all manufacturers employ TSB’s. They are sometimes referred to as “secret warranties” because the manufacturers don’t notify the owners of the cars that are affected and they even forbid the dealers to advise the customer. 

The reason that auto manufacturers don’t tell their customers and won’t allow car dealers to tell them either is clearly to keep down their expense of repairing these vehicles. They are afraid if they go public with the manufacturing defect too many customers will come in to have the repair made. And the reason manufacturers advise their dealers not to tell the customer unless the customer complains is that they simply don’t trust their dealers to be honest about fixing cars that need repair. 

There are voluminous numbers of TSB’s sent out, around 20 monthly depending on the manufacturer. It’s close to impossible for a car dealer’s service personnel to keep up with most of them. In other words, when you drive your car into a car dealer’s service drive, there’s a good chance that the service advisor/salesman has no idea that there is a Technical Service Bulletin issued on your vehicle. If he happened to know that there was one issued, he is forbidden by the manufacturer to tell you about it unless you complain! 

The NY Times article was written because the writer felt that this GM problem of a steering wheel sticking should have been considered a safety defect. A safety defect, by law, must be addressed by a recall of all affected vehicles. I can’t understand how GM or any auto manufacturer would not consider a problem with a steering wheel sticking not to be a safety issue. GM argued that all the driver had to do was to apply additional force to “unstick” the steering wheel. This may be true, but how would some people react to a steering wheel that was stuck in one position? A young, inexperienced driver, an elderly driver, or a very nervous, excitable driver may overreact by yanking the steering wheel too hard or freezing. 

I think the point to be made is that the decision on whether a defect is a safety issue or not should not be made by the auto manufacturer; it should be made by the National Highway Traffic Safety Administration, NHTSA. Every Technical Service Bulletin, TSB, should be shared with NHTSA and they should make this determination and order the manufacturer to recall all defective vehicles on safety issues. 

Many recalls began with the TSB. Rather than seriously analyzing the defect, the manufacturers issue the TSB which NHTSA and most owners of that particular car never learn of. In fact, due to the high volume of TSB’s most dealers are unaware of them too. The manufacturers wait until they have a large number of complaints from customers and until they can count a number of injuries and/or deaths before they issue a recall. The NHTSA began looking into this issue with GM 5 years ago and recently concluded its investigation after reviewing 3,465 complaints from owners including allegations of 107 crashes resulting in 40 injuries. One can only speculate on why the NHTSA would not order a recall at this point of crashes and injuries. There is dissention in the NHTSA over this decision and, I’m guessing, a recall will be issued soon largely due to this NY Times news report. 

What can you do to protect yourself until this issue is rectified? First, ask your car dealer to see if there are any TSB’s issued on the specific year-make-model car you drive. He will look in his computer for this. Secondly, I also recommend that you go on the Internet and Google the question. You can input your VIN and the year-make-model and ask are there any Technical Repair Bulletins TSB’s? If there is one or more TSB’s on your car, you should demand that that the car be repaired as indicated by the TSB. There is the possibility that the defect is not detectable at this time and mileage of your car and also the possibility that it will not manifest itself at all. My recommendation is that if there is any question about whether the defect exists, insist on having the repair made. The cost is covered by the manufacturer as long as the vehicle is still covered under the factory warranty (in terms of time and mileage). However, many manufacturers will offer assistance with TSB repairs to owners if their vehicles are out of warranty, so make sure you ask!

Monday, April 06, 2015

Tell Your Car Dealer to be Nice!

About twenty-six years ago a car dealer in Dallas, Texas wrote a book entitled Customers for Life. His name is Carl Sewell and the book describes in detail why treating your customers with care, courtesy, respect and dignity is the surest way to success in the retail automobile business. Carl Sewell was ahead of his time then and he’s “still” ahead of his time. When I first read this book many years ago, I wished that I had written it myself. I learned a lot from Customers for Life and it had a major impact on my business and my life.

If you would like a free copy of this book, just go to my Web site, www.EarlStewartToyota.com, click on the link under the picture of the book where it says “complimentary copy click here”. Some of the chapters in the book are “The customer will tell you how to provide good service, if the customer asks, the answer is always yes, there’s no such thing as after hours, under-promise and over-deliver, and you can’t give good service if you sell a lousy product. When you read this book, you should have a pretty good idea of how you should expect to be treated by your car dealer, or any retail business establishment.

Remember that Carl Sewell is not just a “nice guy”, but also a very shrewd businessman. He learned that by treating customer so nicely and fairly that he actually exceeded their expectations, these customer continued to buy from him “for the rest of their lives”; Hence the title, Customers for Life. Back in 1990 he calculated that the average customer for life bought $517,000 in cars and service from him over their lifetime. Adjusted for inflation, that would amount to closer to $1,000,000 today. Furthermore these customers referred their friends, neighbors, and relatives. Also, Carl Sewell did not have to spend any advertising money to persuade them to buy from him. It is no wonder that he is one of the largest volume and most profitable car dealers in the USA.

Carl also believes in treating his employees with the same courtesy, care, and respect that he treats his customers. Have you ever been embarrassed in a retail business when a boss chewed out a subordinate in front of you? Chapter 13 is entitled “Who’s more important? Your customer or your employee? A: Both. When you enter a car dealership where the employees are more like team mates and genuinely care for each other and their supervisors you can practically feel it in the air. You feel more comfortable and trusting and more confident that, if they treat each other like this, you will be treated similarly. This is a direct quote from Customers for Life. “It’s very rare to see a manager who treats his customers one way and his employees another. And it’s awfully hard for employees to treat customers well if the boss treats them badly.”

After you read Customers for Life, why not loan it to your car dealer? Remember that this is not a “do-gooder” kind of a book. The message is that a businessman can be more successful and profitable by employing the recommendations of this book. Loaning your car dealer this book would be doing him a favor. Most car dealers should have heard of Carl Sewell. He is one of the most successful car dealers in the county and his book is considered by manufacturers and dealers to be the “bible” for customer satisfaction. If they haven’t heard about Carl Sewell, feel free to use me as a reference. Reading Customers for Life had a major positive impact on my success and the reputation I enjoy as a car dealer.

Monday, March 30, 2015

Buy a Car with Your Brain... Not Your Heart

You may have heard the old joke…What do you call a doctor that graduates LAST in his class in medical school? Answer: A Doctor! I think this very funny, but tragically it’s fairly common for people to choose their physicians based on their personality, bedside manner, TV advertisement, or recommendation of a friend. Doctors are just like auto manufacturers in that there are better ones and worse ones. A doctor who graduates last, or close to last, in his medical school class probably won’t be as good a doctor as one that graduates at the top or near the top. If you have a serious, even life-threatening condition don’t you want the best qualified doctor? 

I know I’m going to get a lot of Jeep owners (and Jeep dealers) angry at me, but this is too good an example not to mention. The Jeep has been one of the most popular and bestselling vehicles in America ever since WWII. Willys produced the first Jeep (from the military GP meaning general purpose vehicle) in 1945. Willys sold it to Kaiser in 1953. American Motors bought Jeep in 1970 and Chrysler bought them in 1987. The Jeep is one of the most unique vehicles on the road and it has a mystique and charisma that has kept it popular for 70 years! Today’s Jeep looks pretty much like the ones driven on the battlefields in WWII. 

As you know, Chrysler has struggled for survival for a long time. It was their lucky day in 1987 when they closed the deal to buy Jeep from American Motors! It’s a financial fact that Chrysler would be out of business today if it weren’t for their Jeep sales and profits. Chrysler sold over one million Jeeps last year which was double the volume of 2008. They are rapidly expanding production around the world to meet the huge demand. 

Now comes the part that’s going to have lots of Jeep owners and dealers mad at me. The Jeep is just about the worst car sold in America. In fact, the only car worse than the Jeep is the Fiat also made by Chrysler. The big difference is that Chrysler has a hard time selling Fiats but they can’t keep up with the demand for Jeeps. I base my opinion on Consumer Reports which has perennially ranked the Jeep the worst, or next to worst, make car sold in America. The current issue, April 2015, ranks Jeep 27th out of the 28 makes of vehicles sold in the United States. Fiat is last, #28. Consumer Reports measures their list of “Best and Worst Vehicles” based on extensive road testing (more than 50 per make) and predicted reliability. Evaluations also include government and insurance-industry crash tests. The vehicles ranked at the bottom of this list have high maintenance costs, high frequency of repairs, bad performance, low quality, and are relatively unsafe.

I have total confidence in Consumer Reports because they are totally impartial. They are a non-profit company that derives all revenue from donations. They do not accept advertising from any company, unlike companies like JD Power, Motor Trend, Road and Track, Edmunds.com. Kelly Blue Book, and others. Consumer Reports will not even accept as a gift, the cars they test from the manufacturers but buy them for full price from the dealers. 

My message in this article is simply not to be like so many who make serious decisions with their emotions and not their minds. You wouldn’t argue that you should be very careful and objective before choosing a surgeon to perform a heart transplant on you or a loved one. Why do so many people make the 2nd largest purchase of their lives because they “like the looks” of a vehicle?

Monday, March 23, 2015

Advantages and Disadvantages to Leasing a Car

I’ve written many articles on leasing, most of them cautionary. Car dealers and manufacturers prefer to lease you a car because, on the average, they make a lot more money when they lease you a car as opposed to selling it. Before I get to the “advantages” of leasing, here are some of the disadvantages. 

When you lease a car the leasing company, often owned by the manufacturer, owns the car, not you. This means that you must return the leased car at the end of the lease to the car dealer you leased it from. This gives the manufacturer and dealer a chance to lease or sell you another car. You will begin to be contacted by the car dealer and leasing company several months before the expiration of your lease making you “special offers” if you lease or buy another car from them.

Leasing is a far more complicated transaction than buying a car. Some people believe, or are lead to believe by the salesman, that leasing is the same as renting; if you don’t need the lease anymore, decide you don’t like the car, or are ready to lease or buy another car all you have to do is bring it back to the dealer. That is not true. When you sign a lease contract you’re obligated for the total number of months of the lease…be it 36, 48, or 60. If you’re lease payment is $400 per month, you owe the leasing company $24,000 even if you keep that car for only one month. 

There are several things hidden in the fine print of a lease contract that are rarely fully disclosed to the lessee. In addition to the monthly payment and down payment you make on a lease, there is fee charged by the lessor (and sometimes a portion is returned to the dealer) commonly called an “acquisition fee”. This is simply profit to the lessor (and sometimes dealer). A typical lease acquisition fee is about $900. When you turn in the lease there’s another fee commonly called the “disposal or disposition fee”, usually around $350. 

Another hidden cost of your lease is the charge for driving over the allowed annual mileage. The amount of mileage allowed varies from as little as 7,500 to about 15,000. The charge for driving over this varies from as little as $.15 to as much as $.50 per mile. Imagine not knowing that you signed a 60 month lease contract allowing only 10,000 miles per year and charging $.50 per mile for each mile above that. If you’re an average driver, you drove 15,000 miles per year and in 5 years you put 30,000 more miles on your lease car than was allowed. You owe the leasing company $15,000!

The leasing company insists that you take good care of their car. They will allow you to inflict only “normal” wear and tear and they define what they mean by “normal” in the lease fine print. The definition is more subjective than specific. It’s not unusual for leases to get a bill in the mail a few weeks after they return their lease car for several hundred dollars. 

The lease transaction is more complicated than a purchase transaction. The monthly payment is calculated from an interest rate that is camouflaged as a “lease factor” and the predicted value of your car at the end of the lease known as the residual value. These variables are applied to the “capitalized cost” usually abbreviated cap cost. The capitalized cost is close to what the price of the car would have been if you bought it. Many people don’t understand this and sign lease contracts for cars with capitalized cost at MSRP and higher…something they would never do if they bought the car. 

If you trade in your old car when you lease, this is supposed to reduce the capitalized cost of the lease, just as it would if you purchased the car. It happens all too often that the car dealer will not allow the full value of your trade-in in reducing the capitalize cost or even not allow anything! I’ve talked to many victims of this practice who paid the car dealer profits of up to $20,000. 

If I haven’t totally frightened you away from leasing a car, there are some advantages. The first is that, if your car is involved in a collision, you don’t have to worry about its diminished value when you turn it back in. If you owned the car and had a serious collision that required extensive repairs, you would suffer diminished value of several thousands of dollars when you traded in or sold your car. You must be sure that you have your car properly repaired by a good body shop. If you don’t, the leasing company will come after you for money to make the repair right. 

Another advantage is exercising your option to buy your car at its residual value at the end of the lease and the right to “walk away” with no obligation if the residual is higher than the actual market value. This option exists in all lease contracts for closed end leases. Almost all retail leases today are closed in, but there are some dealers leasing cars which are “open ended” that make you responsible for the residual value being less than the leasing company can wholesale the car for. NEVER sign an open ended lease. 

There is one more advantage to leasing and that is that manufacturers/leasing companes will often “sweeten the pot” toward the end of your lease to keep you leasing from them. You will begin to receive offers about 6 months before your lease terminates which can include waiving some of the remaining lease payments, waiving the lease termination fee, and special lease payments on the new model. 

The bottom line is that, if you are a sophisticated buyer/lessor that does their homework, leasing can be the best option for you. You must read the fine print of the lease contract and understand it. You must realize that you are obligated for costs of any wear and tear on your car above “normal”. You should know the amount you must pay for your “acquisition fee” and “disposition fee”. You must be sure that the capitalized cost equals the price you would consider fair if you were to buy the car. You must know that the full and fair value of your trade-in was applied to reduce the capitalized cost. You should verify that the allowed annual mileage falls within the number of miles you will put on the car.

Monday, March 16, 2015

Holdback or Holdup?

Back in 1968 when I first went into the retail car business with my father, I can remember asking him, “What is holdback?” I was learning the business and had been studying the invoices on new Pontiacs that General Motors sent us when they shipped a new car that we had ordered. We had to pay the invoice immediately when it was issued, sometimes even before the car arrived at our dealership. Actually, in most cases, it was our bank or GMAC who paid GM and we borrowed the money from them to pay for the car. 

My father’s answer to my question about holdback was that it was an increase in the amount of the invoice that we paid General Motors which was not really part of the price of the car. It was just an extra amount added to the real price of the car and included in the invoice. At that time it was 2% of the MSRP [suggested retail], so if a new Pontiac Bonneville had an MSRP of $10,000 and a true cost of $9,000, the factory invoice would be $9,200. I asked my father, “When do we get the $200 back?” He said, “At the end of the year”. I asked him if they paid us interest on our money and I can remember him laughing loudly and saying no.

Of course my next question was why they do that. He told me that the reason they gave him was to be help dealers sell their cars for more money so that they didn’t go broke. He said that because they didn’t get their holdback money for such a long period of time, they began to think of their invoice as being the actual cost of the car. General Motors felt that many dealers were such poor businessmen that they might sell their cars so cheaply that they would go out of business. Now, because GM was kind enough to hold back hundreds of thousands of dollars of the dealers’ money [and pay them no interest on it] but return the money to them once a year, they could help the dealers make a bigger profit and maintain adequate working capital.

At that time I thought this was the biggest bunch of boloney I had ever heard and I was sure that this was a scheme by the manufacturers to keep a free float of millions of dollars of their dealers’ money under the guise of helping the dealers. I asked my father why the dealers didn’t strongly object to this and he said that most dealers actually “liked” the idea of holdback. When I heard that, I thought that maybe GM and the manufacturers were right about the dealers not being smart enough to sell their cars for a reasonable profit.

It took me a few more years in the business before I understood what was really going on with holdback. It was a “no brainer” as to why the manufacturers liked it but at last I understood its attraction to us dealers. Because we had to pay an extra amount over the true price of the car and not see that money for up to a year, we began to think of the invoice as the true price, even though it was actually inflated by hundreds of dollars. Because all manufacturers added holdback to all dealers invoices, the net effect was to raise the price of all cars to all buyers by the amount of this holdback. I know this is a dirty word, but it is price fixing on the grandest of scales. This might have been something that Henry Ford, Alfred Sloan, and Walter Chrysler concocted while playing golf at Bloomfield Hills Country Club outside of Detroit.

Another neat thing about holdback for us dealers is being able to tell our customers that we are only charging them “X dollars” over invoice. Or, we can tell them that we will sell them this car at invoice with no profit to us at all! [There’s a sucker born every minute] Dealers often have “invoice sales” with copies of the invoice pasted on the car windows. Who doesn’t believe that an invoice is the cost of the car? The truth is in the semantic skullduggery …”Mr. Customer, I solemnly swear to you that this the exact price that I paid the factory for this car. In fact, here’s a copy of the invoice.” That’s what the dealer “paid” the factory all right, but it’s not what the he paid the factory after he got his holdback check in the mail.

You might be thinking, so we’re talking about $200 more or less on a $10,000 car. Who cares? Don’t forget, that was over 40 years ago. Holdbacks have expanded considerably and now instead of several hundred dollars we’re talking several thousand. Also, dealers no longer have to wait a year to get their hold back money back. Now they get it back monthly. Manufacturers even changed the names of these monies they hold back. These are innocuous names so that, if you see them on the invoice, you will have no suspicion…names like floorplan assistance, advertising, PDI, Administrative or DAP. Of course there are also cash rebates to dealers that don’t even show on the invoice. I estimate the average car invoice today includes $3,000 to $4,000 in hidden holdbacks to the dealer. Holdbacks are also applied to factory or distributor accessories like “protection packages” [wax, undercoat, window etch, roadside assistance], floor mats, window tint, etc.

The bottom line is that you don’t rely on the dealer’s factory invoice to determine the price you are willing to pay for a car. And be especially suspicions when the dealer quotes you a price of “X dollars over invoice” or actually shows you the invoice. You’ve heard the old joke, “How can you tell when a politician is lying?” Answer: When his lips are moving. “How can you tell when a car dealer is lying?” Answer: When he shows you the invoice.

Monday, March 09, 2015

"Electronic Filing Fee" (aka "Dealer Fee")

After a decade of authoring newspaper columns, blog posts, and hosting radio talk shows, I like to think that I’ve contributed somewhat to Floridians’ awareness of the “Dealer Fee”. For those who still don’t know what a “dealer fee” is, it’s extra profit to car dealers that they take from you by adding an amount to the price of the car they advertise or quote you when you ask for the price. The Florida legislature has addressed this issue by making a law that car dealers must include their “dealer fee” in the price of the cars they advertise. There is no limit on the amount a car dealer can charge for dealer fee and there is no regulation on what the dealer can name his dealer fee. Most other states do have limits and do require that that the dealer fee be identified by name. 

Some of the other names for the Dealer Fee are Doc Fee, Documentary Fee, Notary and Closing Fee, Administrative Fee, Handling Fee, Dealer Prep Fee, Dealer Pre-Delivery Fee, and Dealer Services Fee. Oftentimes dealers use more than one dealer fee. I’ve seen three dealer fees by different names on the same buyer’s order. The dealer in this illustration has two, “Dealer Services and “Electronic Filing Fee.” These two dealer fees total $1,597.99. Bear in mind that this is additional price mark-up, profit to the dealer in addition to the price you were quoted. 

A few years ago with the advent of data processing technology, companies were formed that offered a new service to car dealers. These companies take the raw data from the car sale transaction and automatically register and title the car that the dealer sells. Up until this time, car dealers had been performing this task in-house and paying someone called a “title clerk” for this. The new automated service saved car dealers lots of time and money and today every car dealer now uses this service. The cost to the dealer is minimal, about $10 per car sale. These data processing companies take the data directly from the car dealers’ computers when they process the sales transaction and almost instantaneously register and title the car. I would estimate the dollar-savings in time and the clerical cost to be over $100 per car sale. My dealership sells over 400 new and used vehicles per month and this service is saving me about $40,000 monthly! 

What most businesses would do with this windfall savings in expense would be one of two things. (1) Pass the savings along to the customer to increase the sales volume and/or (2) take the $100 expense reduction to immediately increase the profit. 

Unfortunately, that’s not enough for most car dealers. Almost all car dealers in Florida took this cost savings, called it an expense, marked it up, and charged it to their customers! Only some dealers disclose this on their vehicle’ buyer’s order as Florida law requires, disclosing that this charge represents “profit to the dealer”. Florida law considers the “Electronic Filing Fee” just another dealer fee. Soon dealers realized that this windfall “cost savings” to them could be multiplied thousands of times by marking it up and charging their customers. The “beauty” of the electronic filing fee (aka e-filing fee) is that it sounds/looks like it is the charge for the dealers registering and titling your car. Remember that in the past this expense was absorbed by the dealer and the companies that automated this for only $10 per transaction represents a $100 cost savings! The example that you see in the illustration in this article marks up this dealer’s cost of the automated data service by 5,989%! 

Many car dealers do not disclose the fact that the electronic filing fee is, in fact, just another dealer fee. This is illegal but our regulators claim they are understaffed and too busy to enforce this law, or they claim that they aren’t receiving complaints on this issue. If you have paid an electronic filing fee that was not legally disclosed you can access the method to file complaints at this website, www.FloridaCarDealerComplaints.com.

Monday, March 02, 2015

Why You Almost Never Read the Truth About Car Dealers in Local Newspapers

Update: The following post was submitted to The Hometown News to run on March 6th, but was rejected for the following reasons: "We cannot be a platform for criticizing other newspapers or media outlets. We hope you understand our position in this matter.Please re-submit a column that offers car-buying advice, car maintenance or the like."

If you’re reading this article in the Hometown News (which you aren't; please refer to update), you’re very fortunate to be reading a local newspaper that has the courage and journalistic integrity to print the truth about car dealers and to recognize our rights of free speech. In contrast, The Palm Beach Post has repeatedly refused run this weekly column. In the recent past, I’ve even met privately with the publisher of the Palm Beach Post. I was told that he would love to publish my weekly column but he feared he would lose most of his local car dealer advertisers. The sad fact is that car dealers are among the largest advertisers (if not the largest) in local newspapers. As you know, with the historic rise of digital media, print newspapers are on the “endangered species list” and the loss of their largest advertisers would likely result in bankruptcy.

Last week I was approached by an advertising salesperson for the PB Post to run an advertisement. I don’t do a lot of print advertising because newspaper circulations have dropped precipitously. But she offered me a large discount and I agreed to run an ad in last Friday’s paper. The ad I submitted was a column that I’d already run in the Hometown News and my blog, www.EarlStewartOnCars.com. I figured that as long as I was paying for it they wouldn’t refuse to print my advertisement. I was wrong.

I’ve reproduced the email exchange between me and Sharon Garden, the Palm Beach Post advertising salesperson here, and below that, I’ve displayed the advertisement that they refused to print. They claimed that the denial was because the “copy submitted for the vehicle profile promoting the 2015 Toyota Camry does not meet the standard for promoting the 2015 Toyota Camry adjacent to the promoted vehicle profile vehicle.” If that’s true, then I challenge the Palm Beach Post to allow me to run that same advertisement alone without the “Toyota Camry promotion”.  Email from Palm Beach Post sales representative Sharon Garden:

“Good morning, I have been advised that the copy submitted for the vehicle profile promoting the 2015 Toyota Camry does not meet the standard for promoting the 2015 Toyota Camry adjacent to the promoted vehicle profile vehicle.

The Friday Vehicle Profile special feature is comprised of the top half page telling the story about the featured vehicle. The bottom portion of the Vehicle Profile special feature is the half page ad space promoting the sale of the featured vehicle. A dealer can put additional vehicles in the ad promoting the sale of vehicles. The copy below does not meet the ad format of this Vehicle Profile special feature. 

If you would like to send me an edited version of instructions for creating an advertisement that reflects the nature of the article, I would be happy to assist you.

The online portion of the vehicle profile is still in production this morning. I will send you a copy for your review as soon as it is out on proof.

Thank you for the opportunity to serve you.

Regards,

Sharon”
 Advertisement:


Open Letter to Florida Car Dealers, Part II: Stop Your Bait and Switch Advertising!

Dear fellow car dealer, in case you missed my last letter to you on “dealer fees”, you can find it on my blog, www.earlstewartoncars.

The subject of this letter is the ads most car dealers run which are designed to motivate prospective car buyers to come into their dealerships believing that they can buy or lease a vehicle for less than they really can. These ads appear in newspapers, direct-mail, TV, radio, and the Internet. If you are one of the few car dealers who do not do this, I know you will enjoy reading this column and agree with me.

One of the most common lures is advertising the new vehicle below your cost. You spend thousands of dollars advertising monthly and consider losing a little money on one or two cars as part of your advertising budget. The problem is that you deliberately limit the number of cars you will sell at this price and you do this in a deceptive manner. One way this is done is to show a stock number next to the price of the car. This translates into there being only one car available at that price. 

Another technique is to use the phrase “other cars available at similar savings”. First of all, how do you define “similar”? Secondly, Florida law requires that you include “dealer fees” in all advertised prices, but not in cars that are sold for “similar savings”. Adding back that dealer fee can turn a “loss leader” back into a profit.

Another trick is to show huge discounts from “list” when list is defied in the fine print as including “dealer installed” options. By simply marking up whatever options you choose to install on an advertised car, you can generate as much markup as you like. 

Bait and switch is also aimed at monthly payments. By disclosing in the fine print that a very, very high credit score is required to qualify for an advertised low payment, lease or purchase, you limit the possible buyers that can qualify to a very small percentage of the population. The vast majority that cannot qualify ends up with a much higher payment and higher profit to you. 

A favorite deception is to advertise very large “minimum trade-in allowances”. I have seen trade-in “minimums” as high as $15,000. These ads are clearly aimed at prospects from the lower economic strata that are currently driving older cars and may be less sophisticated and informed buyers. A smart buyer knows that you cannot possibly allow someone $15,000 on a trade-in worth $250 unless you make back that deficit in additional markup on the car you are selling. 

Another deception aimed at the lower economic, less educated portion of our society is the “no credit, no problem” ad. Having bad credit or no credit most definitely is a problem. It might not be a problem for you but it is for the person with the bad credit and it is for the bank that will refuse to finance that person. Another version of this trick is “no credit application refused”. A sophisticated buyer knows that all you are saying is that you will allow anyone to fill out a credit application and you might even agree to submit it to a lender. But you are not telling him that her credit application will be refused if her credit is too bad or not sufficient. 

There are other examples that I could cite and there will be new ways that many dealers will come up with to lure buyers into their dealerships. As I said in my last letter, I am asking you to voluntarily stop this form of advertising before the regulators make you stop. I am not suggesting what you are doing is illegal, but I am saying that it is not right. I am also saying that it is bad business. If I can’t get your attention by asking you to treat your customers with respect and consideration, how about if I tell you that you can sell more cars and make more money if you do? You are successful in luring lots and lots of people into your dealership, but you sell only a small portion of these people cars. Those you don’t sell are probably angry at you when they learn they cannot buy the car for the price they believed. Even the ones you do sell may be angry because they had to pay you more money than they wanted. Unhappy customers don’t come back and they tell their friends. You have to spend more and more on advertising because your repeat and referral business is so bad. This is not good for your bottom line and your manufacturer is probably “on your back” because your customer satisfaction rating is so low. If you would like to discuss this with me, please call or email me. My numbers and addresses are below. 

Sincerely,


Earl Stewart,

561 844-3461
Email: earl@estoyota.com