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Monday, August 27, 2012

BEWARE OF DIRECT MAIL CAR ADVERTISING


Of course, you should be careful of all advertising…newspaper, TV, and radio, but direct mail can be especially deceptive. The reason this is so is because direct mail usually “flies beneath the radar” of the regulators. There are so many ads in violation of rules and laws that the regulators are overwhelmed. They focus on the most visible ads, often the ones that they see themselves in the newspaper or on TV. Direct mail represents a very small percent of total advertising. One reason for this is that it is considered by many advertising agencies to be too expensive and relatively ineffective. I believe that the only way to make direct mail effective for many advertisers is to use deception.

I have a couple of direct mail pieces on my desk and will cite some examples of this deception.  “We’ll will buy back your present vehicle for up to $5,000 over current Kelly Blue Book Value on trade towards he purchase of a Brand New Toyota or Pre-Owned model.***” The asterisk is for the very fine print disclosure on the back of the letter which reads: On select models. Discounts and rebates will vary from model to model. Of course, with the two words “up to” in front of the $5,000, no disclosure is really necessary. Buying back your present vehicle for $1 over current Kelly Blue Book Value is technically “up to”$5,000.

Attached to the letter is a something that looks like a check made payable to the recipient for $8,207. Here we go again with the “up to”. “You can apply this registered voucher for a discount ‘up to’ $8,207 off MSRP on a new Toyota.” Of course there is another asterisk which states “on select models”.

But there’s more! “Just for attending this event, you will receive 5 “golden” $1 coins as a gift, and you may have won $100, $250, $50, or possibly even $4,500 cash!” We, of course, have another asterisk which says that your odds of winning anything are 1 in 25,000. I often wonder who responds to these ads, not understanding the difference between a “golden coin” and a gold coin. Or, who really think they have a reasonable chance to win anything.

It’s not over yet! “Every application for credit will be immediately submitted and processed for approval and on-the-spot delivery REGARDLESS OF PAST CREDIT HISTORY”. Of course, the operating key word here is “submitted”. There is no guarantee of “approval”. They will simply “submit” you application to the bank and if you have bad credit, the back will reject your application.

“During this weekend event, any new Toyota or used vehicle could be purchase with ZERO cash down!” The key word here is “could” instead of “can”. Of course, there is the old asterisk, which, if you can find and then read the fine print, it says with approved credit. You have to a very high Beacon score to buy a new or used car with zero down payment. Less than 1% of car buyers would have this high a Beacon score. There is also a phrase which says “CASH DOWN IS NOT SUGGESTED”. This dealer might not suggest it but I can almost guarantee the bank will not only suggest it but demand it.

“Due to overwhelming response and customer request, I would like to again offer you a personal invitation to receive 80% of base original MSRP for the car you are currently driving.” This promise doesn’t even have an asterisk. Of course the base MSRP excludes accessories. Sometimes an offer is so ridiculous that you wonder who would ever believe it. Ask yourself how any car dealer could promise to pay 80% of the new base MSRP on a used car that they have never seen. They don’t know how many miles are on the car, whether it has been wrecked, or even if the car will still run.

Direct mail claims like those above, unfortunately do work. People actually come in and buy cars. Unfortunately these ads prey on those who are uneducated, have difficulty reading English, or are simply gullible.  My advice is to ignore all car dealers’ direct mail solicitations. I’m not saying that 100% are phonies, but 99% are and the odds are so overwhelming, you’re better safe than sorry. 

www.earlstewarttoyota.com

Monday, August 20, 2012

Phony Dealer Window Stickers Circumvent the intent of Federal Law


Chances are you never bought a new car without a Monroney Label. You may not even recognize the name “Monroney”, and think of the label that appears on all new cars as simply the “sticker or the “window sticker”. Only if you bought a car before 1958 would you not have had this federally mandated window sticker attached to your new car. Senator Mike Monroney was the driving force behind this Federal law, Chapter 28, Sections 1231-1233, and Title 15 of the United States Code. This law requires that all car manufacturers affix a manufacturer’s suggested retail price, MSRP, on every new car and truck they sell in the form of a window sticker.  This MSRP is the same for all cars of the same make, model, year, and accessories. This Federally mandated window sticker can only be removed by the buyer of the car and failure to adhere to this law is punishable by up a $10,000 fine and one year in jail per offense.

The reason that this law was passed in 1958 is that car dealers were resorting to deceptive advertising and sales practices to inflate the price of cars and prevent accurate price comparisons by car buyers. Car dealers were adding on extra charges, over-allowing on trade-in allowances, and offering artificial discounts. Because there was no standard price on any car, the dealer could quote any price he wanted as the retail price of the car. If a car buyer shopped at three different Ford dealers for a specific Ford model with the same accessories, he would be quoted three different retail prices. The discount he was offered was just a function of how high the dealer wanted to make the retail price. The trade in allowance could be as high as the customer wanted just by marking up the new car higher.

Well you guessed it, today in 2012, fifty-four years later, car dealers are “adding on extra charges, over-allowing on trade-in allowances, and offering artificial discounts” to deceive their customers just like they did prior to 1958. The main deceptive device that the dealers invented to accomplish this was the “addendum label or sticker”. It is also referred to occasionally as a supplemental sticker. I’ve written about this before and I used the name “phony Monroney”. I call the addendum label this because most dealers design their own stickers, addendum labels, to look identical to the federal Monroney labels. They use the same colors, logos, size, and right down to the same font size and style. This is clearly an attempt to deceive the car buyer into believing that the total price is the official manufacturer’s suggested retail price. Sadly, it doesn’t have to be a very good counterfeit because many car buyers never even look at the Monroney sticker on the car they buy.

Almost all car dealers add an addendum sticker next to the Monroney sticker. The addendum stickers usually list dealer added accessories that have very low cost to the dealer but very high markups to the car buyer. Common accessories are paint sealant or polish, fabric coat like Scotch Guard, stripes, Nitrogen in tires, and cheap theft deterrents like window etch. A package of these accessories will typically cost the dealer less than $100 but will carry a retail asking price of $995 to $2,995 or higher. In addition to dealer accessories there is commonly an additional markup to the MSRP carrying an innocuous, indecipherable label like ADM, MAA, or RMV. These letters stand for Additional Dealer Markup, Market Adjustment Addendum, and Regional Market Value. The amount varies from dealer to dealer and is simply a function of how much chutzpah the dealer has and how gullible he thinks his customers are.

Currently there’s a dealer in South Florida, West Palm Beach Kia, that marks up every one of their new cars by $6,998 over the Monroney label, the MSRP! This comes from a virtually worthless $2,500 “appearance and protection package” and a $4498 Regional Market Value”. You might ask yourself, “Who could possibly fall for advertising a big discount when the dealer first marks the cars up $7,000 over MSRP?” You will be surprised to learn that this dealer is one of the highest volume sellers of any make in Florida.  As you know, Kia is not one of the more popular selling cars, so what other than this advertising can you attribute to their success?

Deceptive advertising and sales practices work and that’s why Congress passed a law fifty-four years ago to stop exactly this practice. I don’t pretend to be an attorney, but it seems to me that what dealers are now doing is flaunting a federal law.  What Senator Mike Monroney envisioned and the law he introduced was to protect car buyers from exactly what West Palm Beach Kia is doing so successfully today. Senator Monroney wanted all car buyers to be able to compare a discount offered by one Kia dealer with other Kia dealers on the same year, model and equipped Kia. Adding a $7,000 markup to the MSRP so that larger discounts can be advertised and larger trade-in allowances can be offered is flaunting the intent of Chapter 28, Sections 1231-1233, and Title 15 of the United States Code. If it isn’t a direct violation, it absolutely is a circumvention of its purpose and intent.

www.earlstewarttoyota.com

Monday, August 13, 2012

Florida CAR DEALERS “WIN” THE TRIPLE CROWN Least Respected, Most Complaints & Highest Dealer Fees


In recent surveys, car dealers have accomplished the perfect storm of fear, distrust, and vilification by the public. The most recent Gallup poll for the “Most and Least Respected Professions” listed car sales people tied for dead last with Congressmen and Lobbyists. In a recent poll by the American Consumer’s Federation, car sales and service received more complaints than any other business. And, lastly, in a recent survey by True Car, Florida car dealers had a higher average dealer fee ($610) than any other state in the USA. 

You would think that there would be some local attention paid to this by the media and the regulators. The national media reports these stories and the local media will sometimes report the national story but never do they relate it to local car dealers. National regulators like the Federal Trade Commission are highly critical of dealers unfair and deceptive trade practices. The FTC has formed an “Auto Dealer Task Force” and are holding meeting all around the USA for input from consumers and consumer advocates about ways car dealers are preying on their customers. But have you heard about any serious effort by the Florida Attorney General’s Office or any other state or local regulators to stop car dealers’ blatant deceptive and illegal advertising and sales practices?
The TV and radio stations and the newspapers depend on car dealer advertising for economic survival. Each type of media, TV, radio, and print compete with each other for car dealers’ business. If a newspaper writes an unfavorable article about a local car dealer, he simply pulls his advertising from that newspaper and moves it to TV and/or radio. If a broadcast TV channel exposes a local car dealer, he moves his ads to another TV channel or medium. Money talks.

The Attorney General is an elected office and all of the other state regulators are either elected politicians or appointed by politicians. Florida politicians fear the powerful car dealer lobbies in Tallahassee. The most powerful lobby is the Florida Automobile Dealers Association, FADA, and there are other lobbying car dealer associations in Tampa, South Florida, and Jacksonville. A long time ago I was a director for the FADA and for the South Florida Auto Dealers Association, SFADA.  In fact, I even served on the executive committee of the FADA. This is when I became aware of how much money and influence we car dealers had through our associations. Car dealer associations contribute huge sums of money to candidates of both parties. They don’t care which side of the aisle he’s on or what political philosophy a candidate has; they care only if that candidate will “play ball” when it comes to not voting for regulating car dealers.

The power of the car dealer lobby was fully understood by me four years ago when I attempted to get a bill through the Florida legislature to outlaw the dealer fee. I flew to Tallahassee and testified before the state senate commerce committee. The FADA testified at that same hearing defending the dealer fee. The bill never even got out of the committee much less get a house sponsor. When I returned home and spoke “off the record” with some local state legislators, I was told why I didn’t “have a snowball’s chance” of getting the dealer fee made illegal in Florida. The legislators I spoke to agreed with me that the dealer fee was a bad thing for the consumer but they also said it would be politically impossible for them to publically take that position. Offending the powerful car dealer lobbyists would jeopardize their reelection. An analogous situation is playing out now with respect to gun control. The national news recently reported several terrible incidents of mass killing by deranged killers who legally obtained their guns. You would think that some politicians would have rushed to introduce more gun control regulation or better enforcement of the current regulation.  Have you noticed that democrats, republicans, and independents have done or said nothing? The reason is the National Rifle Association, NRA, the most powerful lobbying association anywhere. 
I wish I had an answer to this dilemma. Our political system leaves a lot to be desired but it’s still the best on the planet. It hasn’t really changed that much over the years. Politicians’ #1 and #2 priorities have always been to get elected and reelected. Our founding fathers foresaw this problem and that’s why they provided for freedom of the press in the First Amendment. The news media is often referred to as the “Fourth Estate”, meaning the fourth branch of our government next to the Executive, Legislative, and Judicial. The news media’s job is to keep the other three branches, especially the legislative, honest. Our founding fathers might not have foreseen what impact the greatest recession in our history might have on the news media. Survival is a primal instinct and it can trump ideals like courage and integrity. If a journalist loses his job today, he might have a very hard time finding another. The watchdogs that our founding fathers created to keep our politicians honest are too afraid to growl for fear the VP of advertising might not like it.

www.earlstewarttoyota.com

Monday, August 06, 2012

BUYING TIRES: “CAVEAT EMPTOR”


In case you’re a little rusty on your Latin, “Caveat Emptor” means “Let the Buyer Beware”.  This is something to keep in mind when you buy anything, but the danger of being ripped off when you buy new tires ranks right up there with buying and servicing your car.

Retailing tires is very important to, not only tire companies like Goodyear, Firestone, and Michelin, but independent retailers like Pep Boys and Tire Kingdom. In recent years car dealers have become very interested in selling tires too. The reason is that car customers too often don’t return for service and service is generally more profitable to car dealers than selling cars. Independent service departments and tire manufacturers’ retail service and tire outlets are taking away car dealers’ service business. Tires are something that you have to buy regularly for your car. Wherever you go to buy one or more new tires, the tire seller will take that opportunity to sell you additional services and products…you can bet your life on it.

Tires have become “loss leaders” for car dealers, tire factory service stores, and independents. When I say loss leaders, I don’t mean that you don’t end up paying the tire seller a profit on the tire transaction. What I mean is that the advertised price would result in a loss to the seller if he really sold it at that price. This is very similar to car advertising. Car dealers go through a great deal of thought and effort to advertise a price which is perceived to be lower than they will really sell you the car and tires sellers do the same thing. You can be sure that you can never buy a tire advertised on the Internet, newspaper, or TV for the price that you see.

To demonstrate this I chose one of the largest tire sellers in the USA, Tire Kingdom. I chose them because, as the leader, they set the pace in how tires are sold and advertised. Buying tires from other sellers, including most car dealers, will be at least as risky and often more so.

I sent in a mystery shopper to two Tire Kingdom retail tire and service outlets in Palm Beach County. My shopper responded to an ad for a special sale which is blanketing TV, newspaper and the Internet. The ad says that from August 1 to August 12 you can buy one tire and get the second one free. I watched the TV ad several times and it is literally impossible to read the fine print disclosure. By going to Tire Kingdom’s website, I was able to read the fine print, but the vast majority of respondents to this sale would come from TV and be clueless to the “gotchas” in the fine print.
The first revelation to my mystery shopper was that only certain makes and types of tires were eligible. No name brands like Michelin or Goodyear were available for this sale. Interestingly there was an inconsistency on this between the two Tire Kingdom stores we shopped. In fact, there were several inconsistencies between the stores on types of tires, prices and other procedures.

To me the biggest deception was that the tire buyer was required to purchase “road hazard insurance” and a wheel alignment.  The prices on the insurance ranged between 14% and 18% of the total price of the tires and the prices of the wheel alignment ranged from $114.99 to $79.99.  The advertisement didn’t say they are advertising a package deal for tires and road hazard insurance and wheel alignments. But the fine print (indecipherable on TV) disclosed this condition. Being required to buy a four wheel alignment is wrong for two reasons. Firstly, buying a wheel alignment should be your decision and not tied to the purchase of tires. Secondly, what if your wheels don’t need an alignment? You may have had your four wheels aligned two hours ago, just now run over a nail in the road, and now have to buy a tire.

BUT WAIT THERE’S MORE! The fine print also tells you that you must pay $1 per tire for the state tire tax. This is a real tax but it should be included in the quoted prices. There’s another fee you are charged which is a “tire disposal fee” which Tire Kingdom can charge you any amount they like. It’s not specified. The truth is that Tire Kingdom actually sells many of their take-off tires to used tire dealers for a nice profit. I do the same thing in my dealership and that profit off-sets my cost of having take-off tires hauled away and disposed of. And the final “gotcha” is the infamous “shop fee” which usually is 10% of the full retail price of the service invoice with a cap of $35. Now remember that there is no legal prohibition or cap on “tire disposal or shop fees”. Tire Kingdom imposes their own caps and prices on these rip offs. Other tires sellers are left to their own chutzpah and imagination to gouge you to limit of your tolerance.

BUT WAIT THERE’S STILL MORE! In the fine print is “No carry-outs”. I’ve seen this in some restaurants, but it’s an unusual term for Tire Kingdom and other tire sellers to tell you that before you can buy their tires at their advertised price, you must pay them whatever they want to charge you for mounting and balancing those tires.

I’ll end this article with constructive suggestions of how you can avoid these sorts of unfair and deceptive advertising and sales practices. Refuse to play the tire sellers games. Demand an “out the door” price for the specific brand and style of tires you want. Make it clear that it must include all federal, state, and local taxes, all fees like shop and tire disposal, all extra services like alignment, all extra products like road hazard insurance, and all services associated with putting the tires on your car like mounting and balancing. Ideally you should do this on the telephone and make it clear that you have only one check left in your checkbook and you will be filling it out at home for the total amount due, an out-the-door price. Of course, you should do this at least three times with three different tire sellers and buy them from the one who gives you the lowest price.

www.earlstewarttoyota.com