Friday, September 28, 2007

Senate Investigates Florida Car Dealer Fees

I just learned last week that Florida State Senator, Ken Pruitt, has called for an investigation of the propriety of fees charge by dealers to car buyers that are not federal, state, or local fees. If you are interested in viewing the information posted on the official state Web site on this subject, click on http://www.flsenate.gov/Publications/2008/Senate/reports/Workprogram/pdf/workprogram.pdf and then click on “Commerce” on the left side of the page. I salute Ken Pruitt for this effort. Senator Pruitt, as you probably know, is the President of the Florida Senate, a very powerful position. You should feel very pleased that our State government has taken the first step toward making the dealer fee illegal in Florida as it is in several other states.

If you are a reader of my weekly column in the Hometown News, a reader of my Blog, http://www.earlstewartoncars.com/, or a listener to my weekly radio show [9 AM every Saturday on Seaview AM 960], you already know all about dealer fees. If not, dealer fees are profit for the car dealer disguised as an official fee. The disguise consists of naming this profit documentary fee, doc fee, dealer prep fee, pre-delivery fee, dealer fee, etc. Some dealers use a combination. These fees vary from as little as $500 to nearly $1,000. In fact, there is no legal limit on the amount of these fees. Theoretically a dealer could charge you $10,000 or more!

I discuss this in a recent television ad you can view at http://www.youtube.com/watch?v=JeIuFEMgWJs

Florida law currently has some regulation on dealer fees. The amount of the fee must be printed on the buyer’s order, next to the real fees, like sales tax and licenses. Next to the dealer fee must be printed “These charges represent costs and profit to dealer”. This statement is misleading because it says costs and profits. Obviously, when the dealer charges you money to cover some of his expenses, you are increasing his profits. The statement should be, “These charges represent profit for the dealer” period. You know how many pieces of paper are involved in buying a car…lots and lots. A car buyer cannot possibly read every document he signs [unless he is a retired lawyer with nothing but time on his hands]. In my experience, most buyers are not even aware that they paid a dealer fee. It is buried in the morass of legitimate local, state, and federal fees.

Another element of Florida law is that the dealer fee must be included in the price of a specific advertised car. This law is simply being ignored by many car dealers. If you doubt this, just pick up a copy of any local Florida news paper and read the fine print in the car ads. In my local paper, The Palm Beach Post, about half the ads do not include the dealer fee in the price. But, even if it is included, it’s still a “gotcha”. That’s because dealers will advertise just one, or maybe two, cars at that price. That number that you see next to the picture of the car is the stock number of one particular vehicle. You have two chances of buying that particular car…slim and none. In the first place there’s only one or two of these cars and in the second place the salesman is typically paid no commission for selling this car. How can you believe him when he says, “That car has been sold”? If you don’t believe him what is there you can do about it? The salesman will tell you that he can show you one exactly like it. The only problem now is that the dealer can legally add the dealer fee to the advertised price you are expecting because it was not the advertised car. Of course, that’s the whole idea behind the ad.

Another Florida law associated with dealer fees is that the dealer must charge every customer the dealer fee if he charges just one customer. This is a really stupid law that probably was well intended when it was passed. It’s stupid because it provides the dealer with an excuse when the occasional astute car buyer spots the fact that the dealer fee is really only more profit for the dealer and not an official fee. The salesman tells the objecting customer, “I’m sorry but Florida law prohibits us from removing the dealer fee from our invoice”. This is only technically true because the salesman can always decrease the price of the car by the amount of the dealer fee which is perfectly legal. This almost never happens because salesmen are not paid on the profit the dealer realizes from the dealer fee. They typically earn 25% of the profit on the car. If the salesman reduces the price of the car by the amount of the dealer fee, 25% of that amount comes out of his pocket.

Now, I have a confession to make. I know of only one other dealer in South Florida that doesn’t charge a dealer fee…Sawgrass Ford. Since I stopped charging a dealer fee several years ago my business has soared. I’m making less on each car but I’m selling a lot more cars. I have a huge competitive advantage over virtually every car dealer in Florida. My confession is this. I truly have mixed emotions [Like seeing your mother-in-law drive your new Lexus Ls 460 over a cliff] about Ken Pruitt and his Senate Committee succeeding in making dealer fees illegal. On the one hand, I know it’s the right thing to do because the dealer fee is a deceptive sales practice. On the other hand, banning the dealer fee removes a great competitive advantage.

10 comments:

  1. If car dealers stop charging a dealer fee than the price of cars will no longer be negotiated. If all dealers stop charging shop supplies than all dealers will stop allowing the customer to negotiate so much. This means the customer no longer will be able to negotiate a deal. This will also mean that customers will still need to buy and car and have to pay what the dealership says. If they leave and go somewhere else they will be faced with the same thing. Dealers charging a dealer fee are more likly to negotiate a better deal because they know they have the profit from the fee. They can give deeper discounts to make the deal. When that goes away the customer will be the loser. This will force dealerships to adopt a no negotiation format and the customer will lose. The best price is the one you ask for and if you can't aks anymore than in the customers mind the dealership wins and that is not good. The customer must always be right. I think you are leading the customer down the path of no return. Once dealers not longer have to be competitive the customer loses. What a shame.

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  2. defender of EarlOctober 10, 2007 8:32 AM

    "my name is earl", that is the stupidest thing I have ever read. You are a moron and you clearly work for a car dealer. Let me ask you this: If a car has an MSRP of $20,000, and I tell you it's really $21,000 because I added a dealer fee or an addendum. Then I lower the price by negotiating away the dealer fee down to $20,000. Did I discount the car? You ridiculous comment seems to say that you believe thee was a discount. You said adding a dealer fee allows the dealer to offer a "deeper discount". That is called mental masturbation. You see, you are so enmeshed and irretrievably intertwined with all the smoke and mirrors that you actually believe your own bullshit. That is a shame.

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  3. Earl,

    Listen you can say what you want and you can bash all you want but the bottom line is this: customers want to pay a price, they walk in knowing what that price is. They could care less how you get to it as long as you do. I agree that if you add a ADM for extra money for no reason is dishonest, however a dealer fee is not dishonest. If a customer wants to buy a car for $18,000.00 they could care less what is on the sticker they want to pay $18,000.00. As a competitive dealership you are going to try to sell it for that or as close as you can get. On the other hand if you sell a car for $18,000.00 you can't because you cut into your operating profit. You have to make a profit to stay in business. So you can go out of your way to try and prove your prices are better buy I have already prove, by the prices on your website, that you have to charge more money for cars and service to cover the cost of running your business. You not acknowledging it is mental masturbation. You obviously will continue to be brain washed and at the end of the day beaten. This dealership will once again beat the pants off of you and do it honestly and effectivly. I am proud to say that we have one of the higher customer retention numbers in our region and growing. I am proud to say that I have one of the lowest labor rates, much lower than yours by the way, and still do better than you. My basic service prices are much cheaper than yours and I charge a shop supply charge. You can squeel and complain all you want but at the end of the day you make as much per car as we do without your dealer fee and your average dollars per RO are higher than mine. Again this proves that you cover the loss of no dealer fee and shop supply charge in the price of your cars and service. Oh by the way, Thanks for trying.

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  4. You're damn right I work for Earl!October 10, 2007 1:34 PM

    "my name is earl"

    all I can say is thank you. Thank you for demonstrating to the readers the logic and the thought processes of a car dealer/car salesman who is so wrapped up in a life of deception that they can even detect their own BS. Any discussion of how you can benefit the customer by manipulating and negotiating with your "fees" is smoke-and-mirrors. Snake-oil. It doesn't need to be complicated. Establish a sale price you and your customer can live with then sell the car. It's that easy. I feel bad you. You are forced to operate in an environment where you can't be real.

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  5. The Senate will never pass a law that does not allow a dealer to charge dealer fees. This would be illegal. No one can stop free enterprise. Customers have choices. If they choose to do business with a dealer that charges dealer fees than so be it. If they don't they can go somewhere else. They could even go to Earl Stewart Toyota were you can not negotiate the price and get screwed. Earl Stewar Toyota has been in the area for years and years. He has to have the red phone because he does not believe that his employees have the ability to take care of customers yet he keeps them employed.

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  6. Dear Mr. Torre,

    Several states, including California, already have passed laws outlawing dealer fees. The law does not make it illegal for a car dealer to charge a customer whatever he wants, but the law does make it illegal to disguise dealer profit as an offical fee. Why else would a dealer name a charge of $800 something like "doc fee", "dealer prep fee", or "dealer fee", if he were not trying to hide something? If the dealer wanted to be honest with his customers, he would simply include the extra $800 profit in the PRICE OF THE CAR. This gives the customer the ability to shop and compare prices and this is exacly what the dealer DOES NOT WANT THE CUSTOMER TO DO.

    Regarding my red phone, if I did not trust my employees I would never dare have 4 red phones offering direct access to me seven days a week. I operate one of the largrest car dealerships in the world, selling 400 to 500 cars a month and servicing thousands. If my customers were being mistreated by my employees, I could never deal with all of those calls. The reason other dealers don't have red phones is because they are afraid of what they will encounter.

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  7. Earl,

    Please answer this question honestly. Do you really think that customers can not reach ANY owners or general managers in the country? Do you really think that YOU are the only honest dealer in the country and only YOUR customers can get satisfaction? Well I am here to tell you that if this is your belief you have totally lost your damn mind. I will tell you another thing. Customer don't have to call a owner or general manager to get satisfaction. In the rare instance that there are issues with customers usually the department manager, i.e. service manager, director, parts manager, sales managers, floor closers, F&I mangers, BDC managers, customer relation manager can, will and do resolve most issues to the customers satisfaction. It seems like in your store the ONLY way to get satisfaction is by calling you, which once again means you do not trust YOUR employees to handle your customers. I truely feel sorry that you have to bash and down grade other dealerships to get your point across and/or your under handed motive to sell more cars. I really feel sad that you have gotten either so rich or old you have become insane

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  8. Simon, a customer.October 12, 2007 10:24 PM

    Hey Joe, you are right about a lot of things you pointed out. It is possible (in a car dealership or any other business like a restaurant) to get any and all needs met by regular management - or any employee for that matter. You don't need the owner to be there to handle everything. In really big companies that's just not possible and we can't say that big companies by definition are poor in customer service. That said, I have to say there is something really nice and reassuring to have the kind of access Earl offers. This is just the feeling of one consumer. I've always thought that the best restaurants still have the owner working in the kitchen. That's the sense you get at Earl's place. The fact that Earl is extremely vocal about the deficiencies he sees in other car dealers - well, that's between you guys. All I know is that Earl's created a very nice environment to do business in. I prefer it to what I've experienced elsewhere.

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  9. Simon,

    I am very glad that you have had good experiences at Earl Stewart Toyota. I do believe that Earl Stewart Toyota tries to satisfy their customers in every way possible. I just try to point out to Earl that so do the other dealerships that he bashes on this blog. Most dealerships and dealership employees understand they need customers to be satisfied to continue to have a job and most employees try to make sure that every customer is satisfied and taken care of.

    I like to point out to Earl that he is not the only GOOD dealer out there that there are many, many good and honest and caring dealerships with great employees working in them, not just at his place.

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  10. simon, a customerOctober 19, 2007 6:34 PM

    I don't believe I ever read Earl attacking the individuals who work in car dealerships. He is attacking the customs, practices and culture. I agree with you that there are good, honest people at every car dealership. But that good or honest salesperson or sales manager does not have any control over the deceptive advertising practices. They don't have a say whether or not the dealership charges a bogus dealer fee. They don't have a say about the lack of a return policy. There are also dishonest and less-than-savory people working at every dealeship (yes - even at Earl Stewart Toyota); this is where Earl's hands-on approach and red phone thing comes into play.

    You make valid points, Joe. But to be honest with yourself, you have to see that there is a range of terrible to great dealerships with regard to customer satisfaction. There is not mostly good (as you imply). There is not one good and the rest bad (as you think Earl implies). There is a continuum. My experience tells me that Earl Stewart is way out there on the good end of this continuum. My experience with his local competitors tells me that they cluster towards the other end.

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