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Monday, November 24, 2014

Should I Trade In My Old Car or Sell It Myself?

When you trade your old car in on your next car, the dealer will try to retail your car or sell it at auction for more than he allowed you in trade. If he successfully retails your car, he will make about $2,000. If he wholesales it at the auction, the profit will be less. You should know that this is what the dealer wants to do. Sometimes it doesn’t work out that way and he will actually lose money on your car at the auction. Or, he may be unable to retail your car and then most certainly lose money when he is forced to wholesale it.

Obviously it is more difficulty for an individual to make a profit by selling her own trade-in than it is for the dealer. That is one of the main consideration you must consider before deciding to sell your old car yourself. Most people run an ad in the local paper and/or online to advertise their trade. If you do this, you need to know what to ask for your car and I recommend consulting www.kbb.com. This is Kelly Blue Book’s Web site and will tell you about what your car is worth wholesale and retail. Another way to determine this is to ask dealers for your make of your car what they will buy it for. This will establish the wholesale value. CarMax is a good company to consult if there is one near you. Once you establish the wholesale, you should consider a markup of less than what car dealers are asking. When deciding how much profit you want to make, remember that you are losing the sales tax reduction that you earn when you trade your car in. On a $20,000 trade, that amounts to $1,200. If you can make a $2,100 above wholesale, you are ahead of the game by $1,000. This takes a lot of work and you will be dealing with a lot of “tire-kickers” and people who cannot afford to buy your car. I very strongly advise you not to extend credit. Require full payment in cash. Set a time limit on how long you will try to sell your car. Remember that your used car is depreciating every week and your cost of advertising will climb. I wouldn’t suggest you hang on to your old car for more than a month.

Ebay is a good alternative to advertising your car in the newspaper. A lot of car dealers use Ebay to retail used cars and it is very effective. There are schools on how to retail merchandise on Ebay and Ebay has tutorials. There are also a lot of books at any bookstore on this subject. There are companies who will do all of the work for you and you only pay them a fee if they are successful in selling your car. If the dealer you are buying your new car from sells cars on Ebay (most do), you can ask him if he will post yours Ebay along with his cars for a fee.

If you fail in your attempt to retail your old car, remember to be careful to maximize the amount you get from your dealer as trade-in. Often times dealers will attempt to trade a car in for below wholesale. Be sure you have a firm handle on the true wholesale value of your trade. You can get bids from other dealerships to purchase your car for cash and you can check with www.kbb.com. If you are buying a car from a dealer franchised to sell a different make than your trade-in, be wary. This dealer will likely be unable to offer you as much as a dealer who is franchised to sell the make of your trade. People looking to buy a used Toyota are more likely to visit a Toyota dealership than a Chevrolet dealership. That is why it’s important to get bids from other dealerships before accepting the trade-in offered by the dealer you’re buying your new car from.

Monday, November 17, 2014

Don’t Be “Spotted”

When you bought your last new or used vehicle, did the salesman encourage (or even insist) that you drive your vehicle home that same day? The chances are very good that he did because Florida dealers and those in most other states have a firm policy of doing this. I’ll estimate that 90% to 95% of all cars sold in Florida are “spotted” which is the slang expression dealers have for this policy. A few states, like New York, make it illegal to deliver a newly purchased car until the tag, title, and registration process have been finalized which delays the delivery for a few days. As much as you may be tempted, these are 5 reasons you should not sign the papers and drive the newly purchased vehicle home the same day you decide to buy it. Some car buyers are under the impression that there’s a 72 hour “cooling off period” mandated by law that allows you to return purchases, but this is not true when you buy a car at the dealership. It applies only if you purchase the product in your home.

(1) If you’re financing the car through the dealer, there’s a chance that your financing has not been approved based on the same terms, interest rate, and down payment you agreed to. If you bought the car on a weekend or after 5pm, most banks and credit unions are closed. Even if you bought it earlier during a weekday, it can take a day or more for a bank to do a thorough credit investigation and approval. If your credit is later turned down or the down payment, interest rate, or terms modified, you will be faced with the embarrassing necessity of returning the car and resigning a contract that will result in you paying more money than you had agreed to. 

(2) Most cars, surprisingly, are purchased on impulse with emotion overcoming logic. The 2nd largest expenditure the average person makes in their life is for their car. This decision should be made with logic, not emotion. Logic dictates that one should spend several weeks studying the pros and cons of the many different vehicles available. The Internet offers a wealth of information. Should you lease or buy? Should you buy a late model used car or a new one? Which dealer offers the lowest price? Which dealer offers the highest price for your trade-in? Which bank or credit union offers the lowest interest rates and terms and down payment acceptable to you? You should never buy a vehicle without an extensive test drive.

(3) The dealer may be insisting that you take delivery immediately because he knows that this is the best way to force your emotion to overcome your logic. When you take your new vehicle home and show it off to your friends, family, and neighbors, you’re far more likely not to change your mind. Because you’ve left your trade-in with the dealer, you’re not going to be checking prices with other dealers. Taking you out of the market by keeping your trade in has a slang term among dealers…you’ve been “de-horsed”. Taking that new car home the same day also has a slang term…you’ve been “puppy-dogged”. Have you ever gone puppy shopping with your family and brought home a warm, cute, and cuddly puppy? What are the chances you’ll return her the next day because the price was too high?

(4) A legally binding contract must have “offer and acceptance.” Taking your car home completely binds the acceptance of the contract, if you signed one, and makes it far less likely that you will be able to get out of the deal you made. 

(5) Unscrupulous car dealers will spot deliver cars knowing that the lender will not approve the low interest rate, low down payment, and longer terms that you have agreed to. They’re relying on the fact that you’ll fall in love with your “new puppy” and that you’ll brag to your family, friends, and neighbors how about the low price, low interest rate, etc. that you negotiated. When you get that call from the finance manager at the dealership a few days after delivery that you must come back to “take care of a little more paperwork”, you won’t hesitate. When you get there, you find out that you have to come up with a lot higher down payment, a much higher interest rate, and tell you that you have to buy an extended warranty because “the bank requires it”. Your monthly payment goes way up and so does the dealer’s profit. The dealers have a slang expression for this too…it’s called the “yo-yo delivery”. 

If you find yourself in the position of being told to return your purchase because the bank requires a higher interest, higher down payment, or shorter terms be sure that you understand that you have no obligation to sign a new contract and keep the vehicle. Your contract is null and void. There’s even an argument to be made by you and your lawyer that the first contract is valid and that you can keep the car at the original terms agreed upon. You may have signed a paper, typically referred to as a “Recession Agreement”, which purports to require you to return the car if the bank refuses to honor the contract as written. There are financial penalties if you don’t. This was common practice with all Florida car dealers for many years but court decisions, case law, has made this a very questionable practice. I hope that this never happens to you but if it does and you decide you want to keep the car under the terms of the original finance contract, I recommend you hire a lawyer.

Monday, November 10, 2014

The Dealer Fee Deception Grows...

Recently, I sent a mystery shopper into a Kia dealership in West Palm Beach. Her assignment was to respond to TV, radio, and Internet advertisements to buy a new Kia Soul for $179 per month or “less than $6 per day”.

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 recently reelected Attorney General, reads this article. I think I know 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.

Monday, November 03, 2014

Understanding Your New Car Warranty

When you buy your new car your salesman will tell you that it has a “bumper to bumper” warranty. The most common coverage is for 3 years or 36,000 miles whichever should first occur. “Bumper to bumper” warranty sounds like it means that everything is covered. Unfortunately this is not the case. For example, your tires are not covered at all by the car manufacturer but under a separate warranty by the tire manufacturer.

It can be tedious, but the only way to completely understand your warranty is to actually read it. All warranties now are required to use the word “limited” unless there are absolutely zero exclusions and this, to the best of my knowledge, is never the case.

Some of the most common items that are mistakenly believed to be included in warranties are tires, rental car coverage, maintenance, and faded or damaged paint from various kinds of air contaminants.

I don’t know why all car manufacturers choose to exclude tires from their “bumper to bumper” warranties. After all, they choose the tire manufacturer just like they choose the manufacturer of other components on your car which they don’t manufacture themselves like the sound systems. The owner of a car has an established relationship with the service department of the dealership because she is bringing her car back every 5,000 miles or so for factory recommended maintenance. In most cases, she doesn’t even know who the tire dealer is. It would be far more customer friendly for the manufacturer to allow her dealer to handle warranty claims on tires. My suggestion is to ask your dealer’s service advisor or service manager to “broker” the warranty claim on your tires on your behalf. The dealership is more likely to have an established relation ship with a tire store and they can be your advocate.

New car warranties virtually never provide for a free rental car unless the vehicle must be tied up overnight for repairs. All too often, car salesman will promise you a “free loaner” anytime your car is in for service. Verify this with the service department before you rely upon it. There are extended service contracts which you can buy in addition to your new car warranty which will provide rental car coverage.

A new car warranty covers only “repairs” not maintenance items. A very common request is that a front end alignment be performed under warranty. Your alignment should have been checked before your car was delivered. If your car goes out of alignment after delivery, it is usually considered owner’s maintenance. Brakes are another item often misunderstood as being covered under warranty. Brake wear is almost always a maintenance item. Only a mechanical defect in your brakes is covered under warranty.