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Thursday, May 27, 2010

SHOP YOUR FINANCING AND TRADE-IN WHEN BUYING A CAR

If you have read my earlier columns you know how important it is to get several competitive prices from different car dealers on the car you are buying. Equally important is to get at least 3 prices/bids on your financing and the true value of your trade-in.

The absolute worst thing you can do is to tell the dealer “all I care about is keeping my payments under “$X per month” and not know what the interest rate, terms, or products are included in the payments. Part of the profit a dealer makes on his cars is called “F&I income” and averages from $500 to as much as $2,000 per car sold. You can do your homework and buy your car at a very good price, but by not shopping your financing you can pay the dealer thousands of dollars in finance profits.

Credit unions are often the best source of funds for buying a car. Because they get special tax breaks from the government not available to banks, they usually have the lowest finance rates. Even if you don’t belong to a credit union, there are several you can join for a nominal fee. You should also get a financing quote from the bank you do business with. Also, give the dealer that you are buying from an opportunity to beat the rates you were quoted. Sometimes he can.

When you are taking delivery of your car, you will be asked to consider buying products like extended warranties, maintenance plans, road hazard insurance, GAP insurance, roadside assistance, credit life insurance, etc. My suggestion is that you do not make a snap decision on these products at the last minute. You should get complete information on each product and determine if it has value for you. You may already have coverage for some insurance products in policies you already own. With extended warranties and maintenance be sure you understand what is covered and what is not covered and what the deductibles are.

You should get at least 3 bids on the value of your trade-in. You can get some pretty good guidance from Kelly Bluebook, www.kbb.com and www.edmunds.com. Make an appointment to drive your trade-in to show the used car manager at a dealer who is franchised to sell the make you own. A Chevrolet dealer will likely pay you more for a Chevrolet trade-in than a Ford dealer would. That’s because people generally will shop for a used Chevy from a Chevrolet dealer. Get one or two more bids from other dealers in the same make. If you are near a CarMax store, you should take your car there too. They regularly buy cars like this for their inventory. The price you will be quoted is referred to as the ACV which stands for “actual cash value”. This is the wholesale value of your trade in.

Don’t confuse the ACV with the trade-in allowance that the dealer you are buying from gives you. The trade-in allowance includes part of the markup on the vehicle you are purchasing. You have probably read ads saying “MIMIMUM $4,000 ALLOWANCE ON ALL TRADES”. It’s not hard to offer thousands more on a trade-in than its ACV (true wholesale value) when you mark up the new car several thousand dollars more. Be sure that you explain that want to compare the ACV of your trade-in. Tell them you want the markup on the price of the car you are buying discounted, not added on to the ACV of your trade. Remember, however, that if you sell your trade-in to another party, you lose the advantage of deducing the trade-in from the price your sales tax in calculated on. At 6%, you would pay an extra $600 in sales tax for a trade-in with a $10,000 ACV.

With competitive bids on the car you are buying, the interest rate on your financing, and your trade-in ACV you are sure to minimize the total cost of that new or used car.

Monday, May 24, 2010

YOUR CAR’S COLLISION INSURANCE - DO YOU KNOW YOUR RIGHTS?

If you don’t read one other sentence of this article, please read this one: YOU HAVE THE RIGHT TO HAVE YOUR DAMAGED CAR REPAIRED BY THE BODY SHOP OF YOUR CHOICE.

You’ve probably read, seen, and heard a lot about insurance companies over the past 3 years. They ranked right up their with our nation’s big banks in dragging our country into the biggest recession since the Great Depression. AIG who was bailed out by our tax dollars is the largest insurance company in the world and were considered “too big to fail”.

Insurance is a great business if you happen to own an insurance company. Just ask Warren Buffet, the richest man in America and one of the richest in the world. You might think of Buffet as owning lots of different kinds of companies besides insurance and he does. But he will be the first to tell you that he got (and gets) most of the money to buy all of these other companies like Coca Cola, Wells Fargo, NetJets, American Express, Proctor and Gamble, etc. from tax deferred dollars that he raked in from his insurance companies like General Re, GEICO, Travelers, and United States Liability Group.

I laughed at a joke that David Letterman made about Oprah Winfrey….he said “Oprah got ALL the money!” and she is the richest self-made woman in America. Not as funny, but a truer statement, would be “the insurance companies got all the money!” Here’s why. One of the biggest reasons is that they don’t have to pay income tax like you and me or most all other companies in America. Now, to be fair, they do eventually pay income tax, but not until they’ve had a chance to double their money on our insurance premiums by investing them. How did they get this unfair advantage over you and me? Can you say LOBBYISTS? Our nation’s insurance companies own our politicians. When AIG says “jump”, most of our Congressmen say how high? Those few that don’t play ball don’t get reelected because their opponent is getting huge political contributions from the insurance companies.

Think about this for a minute. Did you know that when you mail your premium check to State Farm, All State, or GEICO that they don’t pay a nickel in taxes until years afterward? But you paid income tax on the money that you earned to pay the premium in the same year you earned it. These insurance companies can invest your premium dollars which are tax free to them and earn interest, dividends, and capital gains which are also not taxable for years. That’s simply not fair but “that’s the way it is” as Walter Cronkite used to say. I used to love watching Walter’s documentary, “The 20th Century” sponsored by the “Prudential Insurance Company”.

You would think that our auto insurance companies would have enough money without taking advantage of their insureds, wouldn’t you? Well if this is true why do they:

(1) Drastically underpay body shops that repair their insureds’ cars? In South Florida the average labor rate charged by dealerships’ service departments which does mechanical repair on your car is about $100 per hour. Dealer body shops are paid less than half of that. Now you might not be concerned that a car dealer’s body shop is being underpaid, but you should be concerned that the body repair technician that works on your car is being underpaid. The skill and training level of a body repair tech is at least equal to that of a mechanical repair tech. Why should the body repair tech be paid half as much? Because insurance companies control the payment of 95%+ of all collision repairs, they dictate which body shop gets to repair your car. If the body shop says they can’t do a safe quality repair for the price offered by the insurance company, the insurance company gives the repair to the body shop that will “play ball”.
(2) Often insist on the use of used and non-factory parts. Insurance companies don’t like to call the parts that are bought from junk yards to repair your car “used”. They prefer the euphemism, “recycled”, just like car dealers prefer to call used cars “pre-owned”. In many cases, the car’s manufacturer recommends or requires that new factory built parts be used to repair their cars. This doesn’t prevent many insurance companies from insisting that cheap used or Chinese made parts be substituted for new parts made by the car’s manufacturer. The insurance companies keep precise records on the body shops that they will recommend as to the percent of used or non factory parts they use. If one of their approved shops falls short of their average, they drop them and do not recommend any of their insureds to that body shop.
(3) Mislead their insureds into not filing a claim by underestimating the total damage. In 90%+ of collision repairs there is hidden damage. This unseen damage is only revealed when your car is disassembled after the repair process has begun. Often this hidden damage represents thousand of dollars in repairs. Many people carry large deductibles today to soften the cost of higher insurance premiums. If you have a $1,000 deductible and the insurance company’s estimate repair is around $1,000 you might think it’s not worth it to file a claim. We all know that filing a claim will cause your premiums to go up when you renew your insurance. Some people decide to pay for the repair out of their own pocket. If the car is drivable, many decide not to have the repair done at all.

OK, you’ve been warned, but if you’re a Florida resident you’re very lucky. You can choose the body shop that does your collision repair. Your insurance company will pressure you by telling you that they can’t guarantee the work if it’s not performed by their cut-rate body shop. If this is of concern, simply ask the body shop you choose to match the insurance company’s guarantee. Most do anyway. I also highly recommend that you choose a body shop operated by a dealer for the make of car you drive. They have better trained technicians and they have direct access to new factory parts. Also, be sure to check out the body shop with the BBB and the County Office of Consumer Affairs. If your insurance company gives you a hard time, just call 800 342-2762, the Florida Office of Insurance Regulation toll free line for consumer complaints. They will “explain the law” to your insurance company.

Monday, May 17, 2010

BUY OR LEASE YOUR NEW CAR AT THE RIGHT TIME OF THE YEAR

The total cost of a new car consists of many factors including initial purchase price, maintenance and repairs, and insurance. One of the most often overlooked and biggest costs of owing a car is depreciation. Some makes and models of cars depreciate more than others. By choosing the right make and model you can minimize depreciation. You can also minimize depreciation by properly maintaining your car, protecting it from the elements, and selecting the best color. One important factor in depreciation that is most often overlooked is the time of year that you buy or lease your car.You should always buy your new car as soon as possible after that year model is introduced. Some would disagree, arguing that you can buy a car for less at the end of the model year. Even if this were so (and I don’t agree with this), the savings would not offset the increased cost of depreciation that you inherit by buying a new car that is a year old. If you follow the advice I have given in my previous columns on the smartest way to buy a new car, you can usually buy a new car for close to the same price at the beginning of the model year as at the end.There was a time when virtually all makes of cars were introduced in the last quarter of the calendar year preceding the model year. If you bought a new model in September, you could be assured that you got it at the right time to minimize your depreciation. Nowadays, new models are introduced at almost any time and the introductions are nearly unpredictable. It’s not unheard of for a manufacturer to actually skip a model year entirely, selling last year’s model for another year. Or, sometimes a manufacturer will introduce a new model as much as two years before the calendar date of that model year. You should be sure you know exactly when that model year you are contemplating buying was introduced. You don’t want to buy a model year that was introduced 6 or 8 months agoIf you are leasing your car, you should also try to lease it as soon as possible after that year model is introduced. Also, when deciding on the length of the lease, your lease should end when the new model that you will lease or buy next is introduced. You don’t have to lease a car for a full one, two, three, or four years. You can lease a car for 39 months, for example, which may assist you in having your lease terminate at just the right time to buy or lease your next car.Be sure you know how many more years the make and model you select will remain before it is replaced by a major model change. The life cycle of a particular model varies between manufacturers from as short as 3 years to as long as 6 or 7 years. Your car will retain its value considerably more if it is still within its current product cycle when you trade it in. You need to be especially wary when a specific model is discontinued entirely. Research this carefully and time your purchase or lease as early in the product cycle as possible.If you are buying a brand new model at the beginning of its product cycle, be sure that you are buying from a manufacturer that has a very good reputation for quality. You can get a pretty good idea of the quality of the new model by researching the reliability of the previous year model. It is true that a brand new model can experience some bugs during the early months of its first year. If you are nervous about this, it might pay to wait for 3 or 4 months after a brand new model is introduced to see if problems in the form of recall campaigns or otherwise do occur.

Monday, May 10, 2010

Ed “P.T. Barnum” Whitacre, GM Chairman and CEO

Have you heard the rumor that General Motors is changing their slogan from “Mark of Excellence” to “There’s a sucker born every minute”?

Two weeks ago, I wrote a column about Ed Whitacre, the CEO and chairman of General Motors and his saturation TV commercials about how GM had repaid us taxpayers all of the money we loaned GM. If you missed that column, you can read it on my blog, www.EarlStewartOnCars. The bottom line is that Ed was “speaking with forked tongue” and GM did not do what he said. Taxpayers have not received one dime back from the TARP money our Congress voted to give GM. His whole claim was a “smoke and mirrors” effort to mislead the American taxpayer in an attempt to hype the value of GM stock when their IPO comes to market soon.

Following further along the lines of the famous huckster, PT Barnum, last week Ed fired his marketing manager who had been hired only a few months ago. Ed replaced her with the marketing manager from Hyundai. He chose this guy because of the way he had increased Hyundai’s sales during the recession. That seems like a good reason, but there’s more. He specifically chose the Hyundai marketing manager because of his advertising campaign claiming that Hyundai would allow a customer to stop making her car payments and return the car if she lost her job. I exposed this scam on my radio show. There are so many conditions in the fine print of this offer that virtually nobody can qualify. It’s “get ‘em in the door”, bait and switch advertising. Is this the kind of advertising we will be seeing from General Motors from now on?

Actually Ed “P.T. Barnum” Whitacre has already started with his bait and switch adverting. General Motors was exposed in last Monday’s (May 10, 2010) Wall Street Journal of being guilty of paying Consumers Digest to give their cars “Best Buy” ratings. Please don’t confuse Consumer’s Digest with Consumer Reports, an honest, accurate and non-profit organization. Of course, Consumers Digest is intended to be confused with Consumer Reports which has earned the trust of millions of car-buyers. Consumer’s Digest charges car manufacturers $35,000 for the first “Best Buy” rating and $25,000 for each subsequent one. General Motors paid for fifteen of their models to be rated a Consumers Digest “Best Buy”. That totals $350,000 to fool you and me into believing that GM makes good cars. Oh, I forgot to mention that Consumers Digest has no subscribers and sells no advertising! I guess we know how they make their money, don’t we?

I wrote an article for Hometown News about 3 years ago entitled “Consumer Reports is your best friend in choosing a car”. You can read that article on my blog by clicking on www.EarlStewartOnCars.com. In that article I warned car buyers not to be fooled by other publications that were “on the take” to give high quality ratings to car manufacturers. Consumer Reports is a non-profit and will not accept any payment from any product manufacturer. In fact, when they test a car, they buy the car from the manufacturer and will not even accept a car on loan. Furthermore, they do not allow any manufacturer to use their name in any advertising about the test results.

As most of my readers and listeners to my radio show know, I continually fight unfair and deceptive and illegal advertising by car dealers. Generally, I don’t have a problem with deceptive advertising by manufacturers. In fact, up until our government became the majority owner of General Motors, their advertising was basically OK. One of the big reasons Florida car dealers get away with so much is that our Attorney General, Bill McCollum, doesn’t enforce the “Unfair and Deceptive Trade Practices Act”. Florida car dealers may advertise any way they like, even illegally, without fear of reprisal. The Attorney General of the United States is Eric Holder, an Obama appointee. I can only speculate on why he hasn’t done anything about General Motors unfair and deceptive advertising. I’ll leave the speculation up to you.

Monday, May 03, 2010

Car Dealers Exploiting the Elderly

I don’t like to run old columns, but some things bear repeating. This column originally ran in Hometown News and my blog on March 9, 2007. I’m writing this on Monday May 2 and I received a call yesterday from an 83 year old woman victimized by a car dealer. She called me because she is a regular reader of my column in Hometown News (apparently she missed this one from over 3 year ago). This is why I’m rerunning this column. He son-in-law called me after she did yesterday. I asked him to send me an email, which he did, with all of the information about how she was exploited in the purchase of her car. I promised that I would call the owner of the dealership and ask him to intervene. As is usually the case in the exploitation of the elderly, it cannot be proven that any law was broken. I believe that when an 83 year old widow pays thousands of dollars more than others pay for the same car, that’s prima facie evidence that a she was, at the very least, deceived.

I use the term “car dealer” often in my columns and I want to make it clear that I am not trying to get personal. I could use the terms “car salesman” or “car sales manager”, but the dealer is the boss and I firmly believe the placard Harry Truman had on his desk, “The buck stops here”. The guy that owns the place is responsible for the actions of his employees. Just because he doesn’t know that there are some salesmen or managers taking advantage of his customers, is no excuse.

When I became a senior citizen I truly began to see the world in a different light. I have been a car dealer for over 40 years, but I have seen my own business through the eyes of a senior citizen for only the last few. One thing that has helped this awareness has been my relative new public persona, brought on by my TV commercials. Seeing me on TV (and also reading this column) precipitates a lot of phone calls, emails, and letters from seniors in Palm Beach, Martin, and St. Lucie counties. Some of these are very complimentary. Many of them are also calls for help or advice from those who were taken advantage of when they bought their car.

I get more calls from widows than any other single category. In my dealership last Friday, I was introduced to a widow in her seventies who had come in to buy a car with her nephew. She had never bought a car before. Her husband had always handled this responsibility. He passed away 2 years ago. She was very wise to bring along her nephew to assist her in her first car purchase.

I am learning as I approach 70 that I’m not quite as sharp in some areas as I once was. My memory is not as good and I am not as fast as I used to be. This is not to say that I am not as smart as I was when I was younger. In fact, I’m a lot smarter. There was a great article in the February 16 Wall Street Journal entitled “The Upside of Aging”. It explained how recent scientific studies have proven that even though certain mental abilities like memory and reaction times regress as we age, other more important mental abilities like judgment, empathy, vocabulary, and semantic memory more than offset the negatives. Semantic memory is the recollection of facts and figures from your field of endeavor or hobby and is most robust in seniors. If you would like to read this article, send me your email address or fax number and I will send it to you.

Buying the right car at the right price is no easy task. There are a lot of variables like trade-in allowances, monthly payments, discounts, interest rates, lease or buy, finance or pay cash, and all that I just mentioned has to do only with the cost of the car. What about which is the best make and model for you? This process should take lots of time in the study and preparation but too often purchases are made in just a few hours with little or no preparation.

The reasons why the elderly are so often targeted and exploited by car dealers (and other businesses) are many and complex. For one thing, there are just a lot of elderly people living in Palm Beach, Martin, and St. Lucie Counties. When a reporter asked John Dillinger why he robbed banks, Dillinger replied, “Because that’s where the money is”. Even though most senior citizens are smarter than ever, I believe that we are perceived by many as not being so smart. We are looked upon as easy prey. Also, I think that we pre-baby boomers grew up in a more trusting, family oriented time and we sometimes trust others more than we should.

In summary, if you are a pre-baby boomer like me, take extra precautions before you enter a car dealership. Do your homework carefully. Never, never make a rush decision. Do not buy that car on the same day you come into the dealership. Go home, discuss it with friends and family, and sleep on it. And if you call me, please call me before you buy the car, not after it’s too late.