Monday, November 26, 2012
We give our mystery shoppers code names to protect their real identities because most car dealerships listen to my weekly radio show. This shopper’s code name is “Agent K”. Agent K told the sales person who greeted her that she was responding to the advertisement for a new Kia Soul for only $179 per month. The salesman led her over and showed her the advertised car and as they walked over to the car he said “the advertising for this car is not all true”. Interestingly, a comment like this from car salespeople is not unusual. The sales people don’t write the advertisements and are not responsible for the sales tactics of the dealership they work for. Many are apologetic and do not like to have to explain unfair and deceptive advertisements to their customers. They are the ones that have to face angry customers when they find out that the advertisements aren’t true. Jobs are hard to come by these days and I can almost understand why someone might compromise their ethics to put food on their family’s table.
The salesman explained that the advertised car was a stick shift. He also explained that she would have to make a cash down payment of $4,000 and make monthly payments for the next six years and three months. Furthermore, she would have to have a credit Beacon score of at least 750 to qualify for the 2.79% interest rate they used to calculate the low payment.
The salesman asked Agent K if she would like to take a demonstration ride in the new Kia Soul but she responded “no” because she had already test driven one at another dealer. She didn’t tell him the real reason she wouldn’t test drive it was because she didn’t know how to drive a stick shift. Of course, this is the exact reason that car dealers advertise cars that don’t have automatic transmissions because 99% of car buyers don’t want to buy a stick shift and most have never driven one.
Another thing that the car salesman did not tell Agent K was that there was only one car available at the advertised price. This was not clearly disclosed in the advertisements but indicated only in the very fine print by a “stock number”. The stock number for this bait and switch car was 130940 which is probably the last six digits of the VIN. The only way I was able to view this number was by looking on the Internet ad, printing it out, and then using a magnifying glass to read it. It is literally impossible to read the fine print on the TV advertisements and impossible to hear the disclosure on the radio advertisements. The fine print on TV appears only for a second or two as a blur on the bottom of the screen and the radio audio disclosure is deliberately obfuscated by speeding up the sound track and lowering the volume.
The reason that car dealers use a stock number in the fine print is so that they can abide by the Florida law that requires that the dealer fee be included in all “advertised” prices. This anemic law resulted from the powerful lobbying of the Florida Automobile Dealers Association, FADA. This means that a salesman can quote you a price on new car in person, on the phone or via email without disclosing that there is an extra charge (without limit!) that he can legally add after you have agreed to buy the car. A car dealer must only tell the truth about the full price of his cars when he advertises that specific car.
The Kia dealer in West Palm Beach has three dealer fees totaling $971.45. He doesn’t name any of them “dealer fee”. Florida law allows dealers to name this extra, hidden profit anything they choose. This just makes it easier for the car dealers to hide this hidden profit from their customers. The Kia dealer decided to name one of his dealer fees “delivery fee” and it is $699.95. He probably chose this to make the customer believe that this was for inspecting, washing, and adjusting the new car. What most customers don’t know is that these costs are actually paid for by the manufacturer. His second dealer fee he chose to name “document and handling fee” and in the fine print on his buyer’s order says it’s “preparation, processing and handling of the documents required in registration, filing and licensing of the vehicle” and this extra profit to him is $218.55. This West Palm Beach Kia dealer does have expenses for processing and handling documents. He also has expenses for his monthly utility bills, sales commissions, and lease payments for his building, not to mention his deceptive advertising. But businesses are supposed to include all of their expenses in the prices of the products they sell. They are not supposed to tell you the price and then make you pay their expenses on top of that price. The third dealer fee this Kia dealer chose to name Electronic Filing/Private Tag Agency Fee which amounts to $64.95. He does pay a company to process his tag work but he doesn’t pay them $64.95. It’s $10 or $15 and then he marks it up and adds this to his profits.
You’ll notice that all of the dealer fee names have something in common. They all end in “fee”. This is by design because the word fee has an official sounding sound about it. This is to lead you to believe that all of these fees are federal, state, or local taxes or fees. One way to detect real fees from additional profit to the dealer is by whether or not the dealer charges you sales tax on that amount. He is required by law to pay Florida sales tax on the full, true selling price of the vehicle which must include his all of his profit and expenses except for tax and tag.
Just as an aside, I’ll also mention that this dealer marks up the manufacturer’s suggested retail price, MSRP, sticker on all of his cars by $2,999. He places this addendum label next to the official Monroney sticker and calls the extra markup “Regional Market Value Adjustment”. This is actually reduction from a few months ago when his “Regional Market Value Adjustment” was $6,999! Dealers do this so that they can offer inflated discounts and trade-in allowances. This practice is clearly in violation of spirit and intent of the federal law mandating that a Monroney label be placed on every new car to afford buyers a common basis for comparing prices.
I hope Pam Bondi, Florida’s Attorney General, reads this article. I wonder how she would feel if a relative or friend of hers were victimized by this dealer or one of the other Florida car dealers, most of whom use the dealer fee and the “phony Monroney” to overcharge their customers. Maybe she would join me in mystery shopping some car dealers to learn how Florida car buyers are being victimized and then do something about it. I’d love to have Ms. Bondi call my radio show sometime to discuss this. She can stream the show live any Saturday morning between 9 and 10 AM by clicking www.SeaviewRadio.com. I’ll gladly accept her call and put it ahead of my other callers so that she doesn’t have to wait.
Posted by Earl Stewart at 10:37 AM
Monday, November 19, 2012
I started in the retail car business in 1968, about 44 years ago, and I have seen a lot of changes in the way we dealers sell cars and the expectations of our customers. My remarks in this column are made sincerely and with a positive intent toward you and your customers. I am not trying to tell you how to run your business; I am suggesting a change that will reward both you and your customers.
Virtually every car dealer in Florida adds a charge to the price of the cars he sells, variously referred to as a “dealer fee”, “documentary fee”, “dealer prep fee”, etc. This extra charge is printed on your buyer’s orders and is programmed into your computers. This “fee” is capped in many states like California which limits it to $80, but in Florida, a dealer can charge any amount he wants…$5,000 or more if thought he could get away with it! You charge this fee to every customer and it ranges from a few hundred dollars to over $2,000. Florida law requires that you disclose in writing on the buyer’s order that this charge represents profit to the dealer. Florida law also requires that you include this fee in all advertised prices. You don’t always do this and you get around the law by limiting the number of advertised vehicles (as few as one). Recently you’ve begun marking up the fee you pay outside companies to do you tag and registration paperwork, electronic filing fee, and passing this along to your customer. Some dealers mark this $12 cost up as high as $500. Some dealers are also double charging for freight which the manufacturers always include in the price of the car.
The argument that I hear from most car dealers, when I raise this issue, is that the dealer fee is fully disclosed to the buyer on his buyer’s order. But, most car buyers are totally unaware that they are paying this. Who reads all of the voluminous paperwork associated with buying a car? The few who notice it assume it is an “official” fee like state sales tax or license and registration fee. Those few astute buyers who do question the fee are told that, by law, the dealership must charge this fee on every car, which is untrue. These astute buyers are also told that all other car dealers charge similar fees. This is almost true, but, as you know, my dealership does not.
The reason you charge this fee is simply to increase the cost of the car and your profit in such a manner that it is not noticed by your customer. This is just plain wrong. Dealers will admit this to me in private conversations and some will admit that they have considered eliminating the fee as I have, but are afraid of the drastic effect to their bottom line. By being able to count on an extra $999.95 in profit that the customer is not aware of or believes is an “official fee”, you can actually quote a price below cost and end up making a profit. Or, if the price you quote the customer does pay you a nice profit, you can increase that profit by several hundred dollars.
This “extra, unseen” profit is even better for you because you don’t pay your salesmen a commission on it. That’s being unfair to your employees as well as your customers. Because theoretically there is some liability exposure for removing the dealer fee for only sophisticated customers, you could just reduce the price by the amount of the dealer fee. Your salesmen often won’t permit this because he will lose his commission (typically 25%) on the decrease in his commissionable gross profit.
If you don’t know me, I should tell you that I don’t profess to be some “holier than thou” car dealer who was always perfect. Although, I never did anything illegal, when I look at some of my advertising and sales tactics 20+ years ago and more, I am not always proud. But, I have evolved as my customers have evolved. My customers’ expectations, level of education, and sophistication are much higher today. Your customers are no different. As I began treating my customers, and employees, better I discovered that they began treating me better. Yes, I used to charge a dealer fee ($495), and when I stopped charging it many years ago, it was scary. But I did it because I could no longer, in good conscience, mislead my customers. Just because everybody else was doing the same thing did not make it right.
Now here is the good news. My profit per car did drop by about the amount of the dealer fee when I stopped charging it. But, when my customers realized that I was now giving them a fair shake and quoting the complete out-the-door price with no “surprises” the word spread. My volume began to rise rapidly. Sure, I was making a few hundred dollars less per car, but I was selling a lot more cars! I was, and am, selling a lot of your former customers. My bottom line is far better than it was when I was charging a dealer fee. You can do the same!
Why am I writing this letter? I’m not going to tell you that I think of myself as the new Marshall that has come to “clean up Dodge”. In fact, I am well aware that this letter is to some extent self-serving. Lots of people will read this letter and come to the conclusion that they should buy a car from me, not you. And, I’m also aware that most dealers who read this will either get angry and ignore it or not have the courage to follow my lead. But maybe you will be the exception. If you have any interest in following my lead, call me anytime. I don’t have a secretary and I don’t screen any of my phone calls. I would love to chat with you about this.
Sincerely, Earl Stewart
Posted by Earl Stewart at 12:05 PM
Monday, November 12, 2012
As most of you know, I’m a consumer advocate for those who own or lease automobiles. I write a blog, www.EarlStewartOnCars.com, a weekly newspaper column in Hometown News, host a weekly live talk show on Seaview Radio, and I just wrote a book, Confessions of a Recovering Car Dealer. I also speak regularly before groups at libraries, civic clubs, condo associations, and other organizations.
I’ve been doing this for many years and one of my greatest frustrations is that there is segment of society that I’m unable to reach. I was watching 60 Minutes on TV last night and there was segment on U.S. companies being unable to fill job openings for lack of qualified applicants. It wasn’t about not having enough scientists, engineers, or other college educated applicants with specialized skills; it was about not having applicants who could complete a grammatically correct sentence on a resume, show up for work on time, or comprehend basic instructions on how to perform an entry level job.
My frustration, as a person who advises others on how to buy or lease a car and service their cars without being taken advantage of, is that there is a segment of society that I’m unable to reach. I know this because people call me daily about how they were taken advantage of by car dealers. I just had a call from a man who wanted to know if I could match an offer from one of my competitors who said they would allow him the original MSRP on his four year old car as a trade-in on a new car. Fortunately I was able to explain that this “too good to be true” offer was, in fact, not true before the man was tricked into buying a car. I also know this because I know of many car dealers who blatantly deceive and take advantage of their customers and are financially successful.
Further fueling my frustration is that car buyers today have immensely more information at their fingertips to make an intelligent decision in buying, leasing, or servicing their cars. I consider Google to be an “annex to my brain”. Writing this column, I’ll use Google and other Internet sources many times. My wife, Nancy, and I don’t buy anything without first clicking on www.ConsumerReports.org. When we do buy, more often than not we buy from www.Amazon.com because we can determine the lowest price and choose the vendor with the best reviews. If was buying a car, I would go to www.TrueCar.com and I would also check out www.Edmunds.com and www.KBB.com. These are only a few of the sources of information available to us that was not 20 years ago.
I’m not telling you something you don’t know when I say the USA is falling behind the rest of the world in education. Many countries in Asia and Europe are educating their children and young adults better than we. I’m not going to go into a lot of depth and detail on this because you hear about it every day. The rest of the world’s children attend school 12 months out of the year, vs. only 9 for ours. Many of our teachers are inferior to those in other countries. The subjects taught in our classrooms are not those that best prepare students for life or the workforce. We graduate a large number who don’t have the fundamental skills of reading, writing, or speaking correctly. One of the biggest problems I see with our educational system is that we turn out a high percentage of students without work or moral ethics. Of course, the parents play a big role in all of this but often the parents were also the product of our inferior educational system.
My Toyota dealership is extremely successful and is one of the largest volume car dealerships for car and service sales in the USA. We are growing rapidly and dominate our market. Earl Stewart Toyota is located in Lake Park, FL, which is a very small town with a population under 9,000. In fact, because very few people have heard of Lake Park, we advertise that we are in North Palm Beach when we are actually on the border between the two towns. We sell and service so many more cars than all the other dealers in our market by selling and servicing customers that drive for many miles, south from Ft. Lauderdale and north to Ft. Pierce and beyond.
We are able sell and service so many cars to those who live so far away because we have established the Earl Stewart brand as being the car dealership that will give you a fair price and treat you with courtesy, respect and integrity. We don’t guarantee the lowest prices as so many car dealers claim because we can’t. We tell our prospective customers that we give them what we believe it’s the best price, but we encourage them to shop and compare it with the competition.
Now, the fascinating result of our success is that we have captured virtually all of the educated, intelligent, sophisticated car buyers in our market. People who buy and service their cars from us cannot be fooled by the “too good to be true” offers from our competition. In fact, their intelligence is insulted when dealers bait them into their stores with a low price and then add a “$999.95 dealer fee”; or when they mark up the MSRP price by $7,000 so that they can pretend to be giving a large discount on the advertised car. Smart people run, don’t walk, away when they are told that the discounted price is good only if you’re on “active duty in the military and graduated from college within the past six months”. We hear these horror stories daily from our sophisticated and educated customers who found sanctuary with us.
But, as successful as my dealership is, I can’t forget about those poor souls who fall prey to the deceptive advertising and sales practices designed to take advantage of the uneducated, unsophisticated, very young, very old, and English language impaired. I wrestle with this every day, thinking of how I can reach this group of consumer-victims. My blog, newspaper columns, radio shows and even my book will not be read by most of these people. You, who are reading this article, now, are enlightened consumers and in that sense I’m preaching to the choir.
I welcome any suggestions on how I can reach those who are being taken advantage of daily. I want to believe that, in the long run, the size of this group of car buying victims will shrink to the point where those car dealers that now successfully exploit these defenseless buyers have to stop their unfair and deceptive sales practices and advertising to attract buyers like you.
Posted by Earl Stewart at 10:31 AM