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Monday, March 26, 2012

An Eagle Scout Gone Bad: Rationalizations of a Car Salesman

The following are comments posted by a car salesman last week on one of my blog articles. The post came from "Anonymous", but he identifies himself as “an Eagle Scout with morals and ethics intact”. He refers to himself as “Johnny”, which may or may not be his real name.

His letter is interesting because Johnny’s comments perfectly capture the rationalization of car dealers and salespeople about why it’s OK to take advantage of their customers. It’s OK because deceiving a customer is necessary to make a profit and profit is a good thing. I guess, the greater the deception and the larger the profit, the more good it provides. Johnny is intelligent and articulate (although his spelling and grammar leaves a little to be desired) and he truly seems to believe what he’s saying.  

If I sent Johnny’s letter to every car dealer in the United States, a majority of them would not only agree with him but applaud him for saying it. Many auto manufacturers also follow Johnny’s brand of faulty logic and refuse to influence their dealers against deceptive tactics like dealer fees and addendum labels, which I call “phony Maroney’s”. Manufacturers know that for a dealer to sell the maximum number of cars, he must sell some at exorbitant profits to those “suckers” who can be taken advantage of…suckers like young first time buyers, the very elderly, the uneducated, and the language impaired. Large profits from these victims allow dealers to sell more cars near or below his actual cost, increasing his normal volume in order to hit factory objectives which pay large bonuses to the dealer.  

At first I thought I would answer all of this car salesman’s rationalizations and point out his lapses in logic. On further thought, I thought it best to leave it completely unedited, with no retorts, challenges, corrections etc. and let you be the judge.  

The following comments are unedited:
PART ONE-Hi. I've been in car sales for 3 years now and at first (I am an eagle scout with morals and ethics strongly intact), I felt guilty when I would make full profit on a consumer. Sometimes that would pay me 1,000.00 in my pocket to help support my family of four. Which supports the economy to btw... Then my mgr asked me how long will that thousand dollars last me, a week? I said yes maybe two if I plan accordingly. How long do you think your client will use his new car, helping him get to work to make money to feed his family? Three maybe four years before they trade it in... Let me ask you these questions earl, and EVERYONE else: since when is profit a dirty word? And who wins in the long run in a car purchase transaction? Why can every other business in the UNITED STATES OF AMERICA Mark up their products 2 or 3 times the cost making houge profits (300%) while car dealerships make maybe 1-3% of a profit margin? I understand a car or a house is a big ticket item so they can be negotiated (so said somebody one day), but one day I would like to haggle for the price of a t-bone at Publix, or gasoline or underwear or shoes or suits or GROCERIES or the cell phone bill or the electric bill. Seems as if everything for sale that you and use to Live goes up in price doesn't it? Um, wouldn't it be nice to see the invoice price of oil and bargain for gas? I think I made my point.

PART TWO-I work 60 hours a week selling a quality product, New or preowned, and I get paid by commission only. Most new car shoppers research the invoice price, market price, kbb price, blah blah blah. I understand that price is important as I am on a budget just like you... but what about the person that spent 2.5 hours presenting, explaining, and demonstrating the vehicles' features and how they will benefit YOU? Do you not see the VALUE in that salesperson's time? Isn't he/shemance allowed to make a decent wage for working hard for YOU? Nope and nope. Why? "Because car salespeople are scumbags and are trying to screw over every hardworking person. How can they live with themselves and make a profit? How dare THEY?" Dealer fees are profit, but it's very little in the grand scheme of things. The state of Florida makes more on cars than the dealership does about 80% of the time.


PART THREE-Since the internet changed the car business years ago to help the consumer get a fair deal (a couple hundred bucks over invoice), dealer fees came out to help keep dealerships open by making a DECENT profit and provide a service to the community helping people find what they want to go be mobile to have FREEDOM TO DO WHAT THEY WANT TO DO. nice huh? Again, profit is not a dirty word. We are providing a service and there is nothing wrong with getting paid for working.
I'll end this diatribe with an interesting fact: we say "Buyers are liars." It's kinda funny that 90% of people who are pointing a FINGER at car salespeople calling us scumbags are the ones who lie and treat us with disrespect and disregard us as human beings. My granddad told me a long time ago, "johnny, if you point your finger at someone remember that there are three of your own pointing back at you."


FINAL PART-I hope the day comes that the dealer fee goes away and EVERYONE pays MSRP. or EVERYTHING can be bargained for. Including gasoline. Unfortunately neither will happen so I can only hope that everyone I meet will end up liking me, my service, my product, and the VALUE of the car I am helping someone purchase, and that value exceeds the PRICE for which they will pay. Good Luck to you all, Godspeed, and try to treat us car guys with a little dignity. Come in well armed with.your pricing sheets and if we work hard enough, decide what percentage of profit we should make if we help you find the right car for your needs and if you received a world class experience. Think of it as a tip. Like a server in a restaurant, which I used to be... Carrabbas btw. Yum! A good server can make 20-29% of total sales in a tip for an hour worth of work. And good car salesman can work up to four hours helping people find a car, and not make a dime when the customer walks out because we didn't lower our price by 130.00. Wtf? Think about that. We put our pants on one leg at a time like you. And we go to work to put up with your bull. So just be cool.


One more thing. Where does a business get the money to pay its employees? From their profits of course. Dealer fees are.profit but it does eventually get distributed to pay the detailers, the lot porters, the office ladies, the receptionist, the mechanics, the parts dept, the electric bill, the gas we put in your car when you purchase it, the overhead, etc. Just another business trying to keep people employed to help spend money to keep our dragging economy from crumbling. Blame the oil companies and Starbucks. 6.00 for a cup of .30 coffee? Who are the ripoff artists now

Johnny, if you read, this, please call me and let’s discuss your beliefs about how cars are sold. My personal cell phone number is 561 358-1474. I promise to listen to everything you say with an open mind.  I would like you to visit my dealership in North Palm Beach and see how we do business. I would like you to talk to some of my salespeople and ask them how we sell cars and how we feel about our customers. My dealership is the largest volume, and most successful one in Palm Beach County and one of the largest in Florida and the USA. I promise to keep your identity confidential. I don’t have to know your real name or the car dealership you work for. I’ll even buy you lunch. If you like the way we do business, I might even offer you a job. What have you got to lose? By the way, respect and admire that you attained the rank of Eagle Scout. I was a Boy Scout, but never made it past the rank of Star.  

Monday, March 19, 2012

What is the “True” Cost of that New Car?


It is almost impossible for you to determine the true cost of a new car. This might sound crazy, but many dealers don’t know the true cost of their cars. The manufacturers and distributors invoice their dealers for an amount when they ship them a car that is almost always several hundreds of dollars more than the true cost. It’s fair to say that in virtually every case the “invoice” for a new car is much higher than the true cost. By true cost, I am referring to cost as defined by GAAP, generally accepted accounting principals.

You probably have heard about “holdback”. That is an amount of money added into the invoice of a car ranging from 1% to 3% of the MSRP which is returned to the dealer after he has paid the invoice. Some manufacturers include the cost of regional advertising in the invoice which offsets the dealer’s advertising costs. Another fairly common charge included in invoices is “floor plan assistance”. This goes to offset the dealer’s cost of financing the new cars in his inventory. Another is “PDI” or pre-delivery expense which reimbursed the dealer for preparing the car for delivery to you. I could name several more, depending on the manufacturer or distributor. Some of these monies that are returned to the dealer are not shown as profit on his financial statement and some are. Technically a dealer could say that the cost he showed you reflected all of the profit (by definition of his financial statement), but the fact would remain that more money would come to back to him after he sold you the car. To me, that’s called profit.

Besides holdbacks and reimbursements for expenses, you must contend with customer and dealer incentives when trying to figure out the cost of that new car. You will probably be aware of the customer incentives, but not the dealer incentives. Most dealers prefer and lobby the manufacturers for dealer rather than customer incentives just for that reason. Also, performance incentives are paid to dealers for selling a certain number of cars during a given time frame. These usually expire at the end of a month and are one reason why it really is smart to buy a new car on the last day of the month.

Last but not least, remember the “dealer fee”, “dealer prep fee”, “doc fee”, “dealer inspection fee”, etc. which is added to the price you were quoted by the salesman.. It is printed on the buyer’s order and is lumped into the real fees such as Florida sales tax and tag and registration fees. Most dealers in Florida (it is illegal in many states) charge this fee which ranges from $500 to $1,000. If you are making your buying decision on your perceived cost of the car, even if you were right, here is up to $1,000 more in profit to the dealer.

Hopefully you can now understand why it is virtually impossible to precisely know the cost of the new car you are contemplating buying. Most often the salesman and sales manager is not completely versed on the cost either. Checking the cost on a good Internet site like www.kbb.com or www.edmunds.com is about the best you can do. Consumer Reports is another good source. One reason that Internet sites don’t always have the right invoice price is that different distributors for cars invoice their dealers at different prices.

Do not make a decision to buy a car because the dealer has agreed to sell it to you for “X dollars above his cost/invoice”. This statement is virtually meaningless. As I have advised you in an earlier column, you can only be assured of getting the best price by shopping several dealers for the exact same car and getting an “out the door” price plus tax and tag only. 

Monday, March 12, 2012

Are Car Buyers as Culpable as Decepetive Car Dealers?

Almost all of my columns and radio shows are aimed at car dealers who take advantage of their customers through unfair and deceptive advertising and sales practices. In my columns and my radio show I offer advice to car owners and car buyers on how to avoid being taken advantage of. I’m very far from being unique in that respect. There are many others who do the same thing and there’s a “mountain” of consumer information available online as well as in books and magazines. Furthermore, there are lots of government and private agencies who are there for the consumers’ protection including the Department of Motor Vehicles, the State Attorney General, the County Office of Consumer Affairs, the Better Business Bureau, the Department of Agriculture and Consumer Services, and the Department of Financial Services. But these sources of information and regulators cannot help the car buyers if they don’t avail themselves of them.
If a person leaves his car running with the keys in it, isn’t he just as responsible for having it stolen as the thief? Most women know better than to leave their purse out on the front seat when they park their car at the mall. How about those people who forget to lock their doors when they leave home? Or how about those that go on vacation and don’t stop their newspaper delivery, don’t leave on some lights, and don’t ask the local police and/or neighbor to keep an eye on their house? It’s not uncommon to see women and men wearing very expensive jewelry in public places.

How many professional animal handlers have been mauled and even killed because they didn’t take the proper precautions with wild animals. I hate to say this, but there has always been, and there will probably always be, an element of society that will take advantage of others. It’s just the “nature of the beast”…like the tiger mauling his trainer or the scorpion stinging the frog that carrying him across the river on his back in the parable.  We live in a very imperfect world and there are animals and humans whose nature it is to harm us or take advantage of us.
When I say that buyers are as culpable and deceptive as car dealers, I don’t mean all buyers who are taken advantage of. Just as there will always be those in our society whose nature it is to harm others, there will always be those in our society who will be victimized. These include the very young, the very old, the uneducated, the mentally challenged, and the language impaired.  Society must protect those who cannot fend for themselves. We must do a lot better job than we are now doing on this element of our society, but that’s for another column. This column is directed at those who do have all of the faculties needed to make an intelligent and safe decision to buy or service their car, but choose not to for expediency sake or maybe because their emotions overcame their rationality.

No car buyer who isn’t part of the “chronic victims group” that I’ve described is likely to be taken advantage of by any car dealer if he does his homework before he buys or services a car. Readers of this column and listeners to my radio show have read and heard it all before. Don’t go car shopping alone, always get three price quotes, never buy a car on the first day you begin shopping, your Internet price is the lowest, etc.
Those who are taken advantage of because they didn’t avail themselves of all of the protective sources and advice often complain loudly, to me and to their friends. But they don’t complain to the regulators very often. You’ve probably heard me rail at the regulators for not doing their job. The Attorney General and other agencies claim to be understaffed and spread too thin. Their excuse is true to some extent, but “the squeaky wheel gets the oil”. When I was asked to address the state senate commerce committee in Tallahassee about the evils of the dealer fee, the Attorney General testified with me and said they didn’t receive that many complaints about the dealer fee! If a person is taken advantage of, there is an “embarrassment factor’ involved in not notifying the regulatory agencies.  But that’s a feeble excuse. If more people would complain about unscrupulous car dealers to the regulators, the wheel would squeak loudly and action would be taken to fix it. You might not be made whole for the loss you just incurred, but you would lessen your chance of this happening to someone else, or you again, in the future.

Those of us who are able must exercise our free will and take accountability and responsibility for all of our actions including educating ourselves in the car buying and servicing procedures and reporting to the regulators those car dealers who don’t play by the rules.

Monday, March 05, 2012

Predatory Car Dealers Prey On South Florida Boomers


This is the third time I've run this article which originally ran five years ago. I ran it again last year, but it’s so important that I’m repeating it for the third time. The original title was “Car Dealers Exploiting the Elderly”. I’m doing for several reasons. First and foremost is that this problem is deadly serious and getting worse. The number of calls I get from elderly victims is increasing exponentially. There are many new readers to my blog and my Hometown News column who have not read either of my first two articles. And finally, the Associated Press recently issued a release, “Scams on elderly lucrative, rarely reported”.

The AP news release begins “Boomers beware: Scams, frauds and other financial exploitations schemes targeting older Americans are a growing multibillion-dollar industry enriching the schemers, anguishing the victims and vexing law enforcement officials who find these crimes among the hardest to investigate and prosecute.” The article goes on to explain that only a fraction of the abuse gets reported, often because victims are too befuddled or embarrassed.  Just last week I was helping female victim in her eighties, a widow who was all alone, having recently lost her son too. She told me that she was too embarrassed to tell any of her friends or the authorities. She asked me not to use her name in my column or on my radio show. I get calls from elderly victims of car dealers weekly and I’m sure that it’s “the tip of the iceberg”. How many more are afraid to call me, just as they are too embarrassed to tell their friends or the authorities.

Last year MetLife estimated the annual loss by victims of elderly abuse at $2.9 Billion. There is no more fertile feeding ground for predators on the elderly than South Florida. A car purchase is the second largest purchase a person makes and what more lucrative target and reward is there than an elderly widow buying a $30,000 new car, perhaps for the first time in her life.

Not a week passes without at least two or three elderly people contacting me about being victimized by a South Florida car dealership. These are usually pre Baby Boomers in their seventies, eighties and nineties. I’m happy to say that I have a high rate of success if I’m contacted soon after the purchase, within a few days. The first thing I do is contact the dealership’s owner. With publically owned dealerships like AutoNation (Maroone), Penske Automotive, and Sonic, and Group One I have to contact the real General Manager. I emphasize “real” because sales managers will often try to foist themselves off as the General Manager, but they are only in charge of the car sales departments and are really “general sales managers”. In the rare occasions I strike out, I have no alternative but to contact the Florida Department of Motor Vehicle, DMV which is the best governmental agency to keep a car dealer on the straight and narrow.

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 just click on www.TheUpsideOfAging.com  or 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.