Monday, June 07, 2010

The Dealer Fee… "Just Following Orders"

For the benefit of new readers, the “dealer fee” is the dirty little secret of most Florida car dealers. It’s an extra charge ranging from about $400 to over $1,500 and averaging about $800 that the dealers surprise you with after you’ve been quoted a lower price. If you want to learn more about this rip off to the car-buyer, just Google “dealer fee” and “Earl Stewart”.

Battling the dealer fee for years, I’ve often wondered why so many car dealers, sales managers, and sales people could go along with this unfair and deceptive sales practice. I truly believe that most people (including lawyers, politicians, and car dealers) are inherently good, honest people. I have to ask myself why would an honest person quote a price that he knows is a lot lower than the real one to a customer.

Last week I was watching CNBC and there was a discussion about the “Milgram Experiment”. This psychological experiment was conducted at Yale University by Professor Stanley Milgram. What motivated him to perform the experiment was to discover why millions of good Germans followed the orders of evil Nazi’s like Adolph Eichman while conducting the Holocaust during WWII.

The experiment involved volunteers called “teachers” who questioned other people called “learners”. The teacher asked the learner to correctly match certain pairs of words. The teacher and learner could not see each other, separated by a partition. The experimenter instructed the teacher to push a button sending an electrical shock through the leaner for each incorrect answer. The initial voltage was very low and not enough to cause any discomfort. However, the experimenter told the teacher to increase the voltage with each successive wrong answer. The learner and the experimenter were in on the ruse, which was that no electricity was actually flowing. The machine was connected to an audio device which emitted recorded shouts of pain when the fake voltage reached higher levels…all the way to 450 volts.

The amazing results were that 65% of the “teachers” went all the way to 450 volts, hearing screams of pain. They did this even though they believed their actions were causing intense pain and may also cause permanent bodily damage.

Psychologists ascertained that there were two reasons for this. The first is called “the Agentic State Theory”. This is the “I was just following orders” reason as repeated often in the Nuremburg Trials. The essence of obedience consists in the fact that a person comes to view himself as the instrument for carrying out another person’s wishes, and he therefore no longer sees himself as responsible for his actions.

The second reason psychologists believe accounted for this behavior is the “Theory of Conformism”. A person who has neither ability nor expertise to make decisions, especially in a crisis, will leave decision making to the group and its hierarchy.

So there you have it. Car sales people follow the orders of their sales managers, who follow the orders of their general manager who follows the orders of the owner of the dealership. But why do the owners, the dealers, trick customers with the dealer fee? They aren’t following anybody’s orders. The car dealers fall under the “Theory of Conformism”. They feel that as long as everybody else is doing it, it must be OK for me to follow suit.

A great local example of this started last year when Ft. Pierce Nissan began charging a $799 dealer fee plus a $750 freight fee, totaling $1,549. Napleton Nissan in Riviera Beach picked up on this and matched Ft. Pierce by adding $750 freight to their current $795 dealer fee. Next, Royal Palm Nissan in Wellington followed suit. Now most Nissan dealers from Ft. Pierce to Riviera Beach add over $1,500 to the price you are quoted on a Nissan.

Now you can understand why that smiling salesman can so guiltlessly throw the lever causing 450 volts of electricity to course through your body which is about the way most car buyers feel when they realized that they’ve been deceived. The salesman was “just following orders”.

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