Monday, December 12, 2016

How Much Is That Auto in the Window?

The title to this article and the illustration above was taken from an article in the Wall Street Journal. Please don’t accuse me of plagiarizing because I’m giving credit to the Wall Street Journal and the reporter, Charles Passy who wrote the article. You can read the article by clicking on www.HowMuchIsThatAutoInTheWindow.com 
The Wall Street Journal reporter interviewed the article. I sent him copies of invoices, buyer’s orders, dealer addendum labels, and names of people I knew around the US who were experts on unfair and deceptive advertising by car dealers. It was important to me because having what I’ve fought against for so many years written about by a national publication adds credibility. Not only does the Wall Street Journal have the largest circulation of any newspaper in America, but it’s also arguably the most respected daily publication. 
One might ask, why don’t local newspapers write stories about car dealers’ unfair and deceptive sales and advertising? The answer, like so many, is “follow the money”. Every local newspaper has an auto advertising section with most of, if not all of the dealers in that market. Newspapers seem to be the advertising choice of many dealers, although TV and online have definitely cut into their revenue in large metro markets. TV ads are so expensive that most dealers have no choice but to use the newspaper and online. Car dealers are the single largest source of ad revenue in many newspaper markets. 
Now I know that journalistic ethics require a separation between the news, editorial, and advertising departments. But that’s the way it used to be. Today local newspapers and even some national ones are struggling for survival. Ethics go out the window when it comes to survival. Would you steal food for your child if you believed you had no other recourse?
Another reason that I’m encouraged by this Wall Street Journal article is that every auto manufacturing executive reads this newspaper every day, especially articles about automobiles. Also, most car dealers also read the Wall Street Journal. Reading a negative report about deceptive car dealer sales practices in a highly respected national newspaper has got to get their attention. Many manufacturers and most car dealers seem to be in denial about how they endeavor to trick their customers with misleading, false ads and sales practices.
I have to believe the auto industry will awaken one day and realize that almost all other retailers in the 21st century have left car dealers in the dust. Most car dealers are still employing the “get ‘em in the door any way you can and make as big a profit as you can get away with” shabby tactics that were common practice fifty years ago. Most manufacturers and some dealers are beginning to realize that car dealers are held in the lowest esteem of any other retailer. Car sales and service complaints top the list and car dealers rank dead last or close to it in the annual Gallup poll, HONESTY AND ETHICS IN PROFESSIONS, along with Congressmen, lobbyists, and lawyers. 
I tell manufacturers and my fellow dealers that if we don’t regulate ourselves, you can bet the government will step in and do it for us. Federal Trade Commission is conducting hearings all around America asking for input about unfair and deceptive trade practices by car dealers. If the government steps in like they did with our nation’s banks, car dealers and manufacturers can expect to be up to their eyeballs in expensive regulations, red tape, and bureaucracy.

Monday, December 05, 2016

Car Dealer Victim Profiles

I receive a lot of emails, calls, and letters every week from victims of car dealers who were taken advantage of in buying, leasing, and servicing their cars. They mostly call to ask what they can do to get all or some of their money back. These “victims” fall into different categories:
  1. The elderly, often widows.
  2. The very young, usually buying their first car. 
  3. Those who don’t speak or understand English well, not born in this country. 
  4. The uneducated.
  5. People with bad credit. 
  6. Everybody else
1. The elderly, especially widows, are the most victimized. The reasons for this are that Florida, especially South Florida, is a “retirement” state. Baby boomers and pre-baby boomers make up a disproportionately large percentage of Florida’s population. Not only that, but life expectancies have soared in recent years…81 for a woman and 76 for a man. Men usually predecease their wives. Women’s role in the American culture is a great deal different than in the 1930’s and 1940’s. More often than not, the husband was not only the breadwinner, but the decision maker in the household. Widows of that era are often buying or leasing their first car today. Men and women in their seventies, eighties, and nineties (Yes, I have a lot of customers in their nineties) aren’t as sharp as they once were. I’m 76 and I’ll be the first to admit this. In my opinion, men and women of my age, and older, are more trusting. We can’t forget the terrible disease, Alzheimer’s. Unless a court declares a person incompetent, a person with dementia can legally buy a car in Florida, and it happens all too often. This is one of the most despicable acts that some car dealers commit.

2.  What chance does a teenager or kid in his twenties have when negotiating with a car salesman and his manager to buy a car? Usually it’s the parents who call me to tell me how their son or daughter was taken advantage of. I don’t tell them this, but what I’m thinking is “Why didn’t they accompany them to the car dealership to advise them?”

3.  South Florida is not only a retirement area, but it’s a haven for immigrants from Cuba, Haiti, and South and Central America. Many of these are first generation Americans who have a difficult time with English or can’t speak, read, or write English at all. These people are easy prey for unscrupulous car dealers. Can you imagine how difficult it would be for you to get a fair price on a car you were buying in a foreign country where you did not speak or understand the language?

4.  Let’s face it; there are too many Americans who never had the benefit of a proper education. We have too many high school dropouts and too many high school graduates who still can’t read or write as well as they must to function in our society. Lack of a good education is one of America’s most serious problems and we’re seeing other countries like China, Japan, Germany and India pass us by in educating their children. It’s almost criminal how the educated are exploited by car dealers’ advertising and sales tactics. How many car dealers’ TV advertisements have you seen that you laugh at, knowing that they are totally untrue, “bait and switch” to lure you into the dealership. You wonder who would believe that kind of nonsense. The reason that car dealers keep running those ads is because they work.

5.  There are always people with bad, marginal or no credit who have to buy a car. In Florida, without an effective mass transit system, a car is virtually a necessity to get to your job or find a job, not to mention the doctor, school, or the pharmacy. People with bad credit are at the mercy of the car dealer. The main thing on these peoples’ minds is NOT how good a price or a car can I buy or how low an interest rate, but can they be financed? Knowing this, car dealers will charge whatever price and interest rate the lender will let them get away with. People with bad credit almost always pay dealers a higher profit than those with good credit.

6.  Who should be held responsible for car dealers ripping off customers? For categories one through five, the answer is our regulators and our lawmakers. But for the last category, “Everybody else”, it’s themselves. Of course, it goes without saying that the car dealers who do this are responsible too. But who doesn’t know that most car dealers do business this way? Who doesn’t know that car dealers perennially rank LAST on the annual Gallup “Honesty and Ethics in Professions” poll? I recently received an email from a woman who fell in none of the first 5 categories above. She was terribly victimized by a very unethical car dealer from whom she bought two used cars on the same night. Her email asked me for advice on what she should do. Of course the “horse was out of the barn” and this makes things more difficult. This woman did not ask for or receive a CarFax report on either used car. Nor did she take either car to her mechanic for approval. She clearly didn’t investigate the dealer for reputation. She didn’t check any sources like Consumer Reports for recommended used cars. She did not shop and compare prices for similar cars and the list of “did not’s” goes on. If you don’t do your due diligence when you buy a car you are equally culpable with the car dealer who took advantage of you.

At this point, I will shamelessly plug my book, Confessions of a Recovering Car Dealer. I say “shamelessly” because 100% of the proceeds from my book go to charity, www.BigDogRanchRescue.com. You can buy this book at www.Amazon.com. It will tell you everything you need to know about how not to be ripped off by a car dealer. Or, you can read my blog articles at www.EarlOnCars.com.

Monday, November 28, 2016

Don't Fall for Nitrogen

I’ve been writing articles on why nitrogen in your tires is a waste of money for several years, but It has had very little effect on the number of car dealers that are selling it to their customers. The “Nitrogen Lobby” must be very powerful because we still have no federal or state legislation to curtail this. Selling nitrogen generation equipment and tanks of nitrogen to car dealers is very lucrative and, even more lucrative is the money car dealers make selling nitrogen to their customers. One large volume car dealer charges $398 for nitrogen in the tires of every vehicle he sells. The cost of nitrogen is about “25 cents” per application. If you feel you absolutely must have nitrogen in your tires, Costco will give it to you “free” which is exactly what nitrogen in your tires is worth. 

I don’t recommend that you even accept free nitrogen for this reason. It’s widely accepted and recommended that you should have your tire pressure checked in your tires at least monthly. We do this free for our customers and automatically do it at every service visit. When you are sold or even given nitrogen, it comes with a sales pitch that nitrogen will remain in your tires for a much longer time than air which is not true. Click on this link to Consumer Reports article,www.NitrogenInTiresWastesYourMoney.comIf you believe the sales pitch, you’re less likely to check your tires inflation every 30 days. You may have a slow leak in one tire from a nail or screw, uneven wear from misalignment, or even a defective tire. Being “over confident” because you paid money for nitrogen may cause these problems to go undetected. Consumer Reports estimates that 1 lb of nitrogen will escape from your tires every 3 months vs. 1 month for air. Remember that air is 78% nitrogen. I’ll bet the salesman that sells you nitrogen “forgot” to tell you that.
Be prepared for a great sales pitch on nitrogen. You’ll be told that NASCAR uses nitrogen in the tires of their race cars, NASA used nitrogen in the tires of their space shuttle, and that airlines uses nitrogen in airplane tires. All of this is true, but so what? A race car going 200 mph for hours and hours around an oval track subjects its tires to extremely high temperatures. 100% nitrogen gas does expand less under extreme heat condition than 78% nitrogen gas (air). The space shuttle tires go from zero atmospheric pressure in outer space to regular pressure at sea level. Airliners also have extreme pressure variations from 30,000 feet to the ground.
To be perfectly fair, I must say that some car dealers that are selling nitrogen have “drunk the Kool Ade” from the nitrogen generation equipment industry. Some car dealers actually believe that nitrogen is good for your tires. But those who do know must know how much they’re marking up that 25 centsworth of nitrogen they’re selling you! The argument for nitrogen can be persuasive. In fact, when the concept was first introduced, before the Consumer Reports study, I actually considered adding nitrogen to my customers’ tires. But, in an abundance of caution, I decided to test the claims about nitrogen myself. Over a six month period I used pure nitrogen in 50% of my rental car fleet and regular air (78% nitrogen) in the other half. Guess what! There was no measurable difference between the pure nitrogen and air filled tires in the fuel economy, tire wear, or inflation pressure after 6 months. We did check the tires every 30 days for slow leaks from road hazards, uneven wear from misalignment or other reasons, and we rotated and balanced the tires every 5,000 miles.
Finally, I’ll tell you why I was so careful to be sure there was no advantage to nitrogen. My dealership has a “fee tire program”. Everybody who buys a Toyota from me, new or used, receives free tires (maximum of $700 per set) for as long as they own their car. The one requirement is that they bring their car back to me for the factory recommended service and we replace only tires from normal wear, not road hazards, underinflating or misalignment. I give away over $100,000 worth of tires every month, well over a million dollars per year. BELIEVE ME, if I thought I could get longer wear from a tire for “25 cents” worth of nitrogen, I would! I look at the tires on my customers’ cars as “belonging to me” because I incur the cost of replacing them when they wear out.

Monday, November 21, 2016

Red Flags to Watch for When Buying a Car

The “Big Sale Event”

If you look online or in today’s newspaper, you will find that most car dealers in your area are having a sale of some kind. It may be because of a current holiday, “too large an inventory” of cars, to “reduce their taxes”, “the manager is out of town”, or some other nefarious lure. Advertising 101 says that you should give the prospective buyer a “motive to act”. Unfortunately, it doesn’t matter whether the motive is real or not. The fact is that most car dealers do not sell their cars for less during “sales events” than they do at any other time. I point this out so that you don’t rush your buying decision. If you don’t buy a car during the tight time constraints of a phony sales event, you can negotiate just as good a price the next day. The exceptions to this are legitimate rebates offered by the manufacturer. These often expire at the end of the month which is one reason why the “last day of the month” really can be the best time to buy a car”.

“The price I’m giving you is only good for today”

If a salesman or sales manager tells you that, it is probably only a tactic to push you into buying the car. The only exception would be the expiration of a factory rebate. Once again, this is simply a tactic to push you into buying before you have a chance to do your comparative price shopping.

“Take the car home tonight and see how you like it”


Driving the car you are considering buying home can be a good thing. It will give you a lot better idea about how the car performs, etc. However, there are two reasons the car salesman offers this. One is that you must leave the vehicle you might be trading in with the car dealer. This means that you cannot shop the trade-in price with other dealers. The second reason is the psychological impact of parking that new car in your driveway where your family and neighbors can see it. The slang expression for this is “the puppy dog”. If you were to take home a little puppy from the pet store, you and your children would fall in love with her and could not return her the next day.

“You must give me a deposit before I can give you a price”


This has to be one of the most insulting ways that some car salesmen have of intimidating a prospective buyer. It’s amazing how many people actually succumb to this which allows the salesman an element of control…. you can’t leave until they give you your money back. If confronted with this ultimatum, simply walk away.

“Are you ready to buy a car today”?

Often times, if you say no to this question, the salesman will tell you to come back when you are ready to buy. He will tell you to shop around and come back with your best price so that he can beat it. The salesman is afraid that, if he does give you his best price, you will go somewhere else and that salesman will beat it. Of course, that is the whole idea of competition and that is exactly what you want to do. If the salesman is afraid to give you a price because his competitor will beat it, it must not be the best price!

“Make me an offer and I will take it to my manager for approval”

This is a very common tactic which you have probably already encountered. It is not unethical. It is simply part of negotiating. I point this out so that you are fully aware that this is part of the negotiating game. Be aware, that no matter what price you offer, the manager will ask you for more money. Even if you offered a high price that would be a very large profit for the dealer, the manager would ask you for more money. The psychology behind this is that if you suddenly accepted the offer, you may frighten the customer by thinking he had offered too much (which he would have). When you negotiate, you must be well versed on what is a good price for that car. Start out below the best price you think you can buy it for. If you cannot negotiate a price close to your best price, get up and leave. Continue this process with another car dealer.

The “really big” discount”
The other day a friend showed me direct mail advertising piece from a new car dealer with a coupon good for $2,000 discount on any car in his inventory. This is very common for newspaper and TV ads too. Federal law requires new cars to have a price sticker on the window named the Monroney label. A discount from this suggested retail price gives you a fair basis for comparison. Unfortunately, most car dealers today, increase the suggested retail price substantially with the use of an addendum to the Monroney sticker often referred to as a “Market Adjustment Addendum”. This “adjustment” can be several thousands of dollars. Be sure you know what the asking price is for the car when you have been offered a “big discount”.

The best protection from all of the above is to find a car dealer that you can trust. Ask your friends about their experiences with dealers and call the Better Business Bureau and the County Office of Consumer Affairs. All things being equal choose the dealership that has been in business a long time and an owner or general manager who will make himself accessible to you and all of his customers.

Monday, November 14, 2016

Open Letter to Florida Car Dealers

SUBJECT: ELIMINATE THE DEALER FEE

Dear fellow Florida car dealer,

I started in the retail auto business in 1968, about almost 49 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”, electronic filing fee, tag agency fee, etc. This extra charge is printed on your buyer’s orders and programmed into your computers. It has been regulated in most states including California. You charge this fee to every customer and it ranges from a few hundred dollars to several thousand. You often charge several dealer fees by different names. 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).

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 your dealership must charge this fee on very car. This simply not true. 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 price 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 $899 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 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. When the rare, astute buyer objects to the dealer fee, the law permits you to decrease the quoted price of the car by the amount of the dealer fee. This would have the same net effect of removing it. The salesman 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 conscious, 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 to you and learn why they should buy a car from me, not you. And, I am 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. My personal cell phone number is 561 358-1474. 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

Monday, November 07, 2016

Quick Reference Guide to Fine Print in Car Ads



If you look down at the bottom of virtually every car advertisement online, TV, or newspaper, you will see some fine print. Most often,  you literally cannot read the print because it is so small and, on TV, displayed for 1 or 2 seconds. The disclaimers you read below were taken from a South Florida newspaper. I didn’t make any of these up. Basically what these disclaimers do is to totally negate the validity of all of the prices and payments the car dealers are advertising. The prices and payments are always much higher when you factor in the almost invisible fine print.

Combining a very short lease term with a high down payment. Nothing sells cars like low monthly payments. A car dealer can make a monthly lease payment as low as he wants by decreasing the number of months of the lease and increasing the down payment. I’m looking at an ad in the newspaper right now advertising an SUV for $19,999 or just $199 per month. In the fine print it says 27-month lease and $3,000 down plus a $799 dealer fee.


"Plus dealer installed options" The price you see advertised is not the full price. This loophole allows the dealer to tack on thousands of dollars in overpriced accessories to the price that was advertised. Dealers often charge well over one thousand dollars for floor mats, paint sealant, pin stripes, nitrogen in tires, emergency road service, and flimsy plastic door edge guards.


"Advertised offer good on select in-stock vehicles only" Dealers often advertise just one car at a price below their cost. They don’t pay the salesman a commission if he sells that vehicle. The chances of that car being available for you to buy are “slim and none”. Even if the car was still there, the salesman would do everything in his power to sell you a different car that he could earn a commission on.


"Impossible Rebates to Qualify for".  “Owner Loyalty”. Manufacturers offer special cash rebates to current owners of their make of car. These rebates are not available to you if you don’t currently own that particular make of car. Other exclusionary rebates are “College Graduate rebates” and “Military rebates”. These are great for recent college graduates and service men and women, but do not apply to the majority of consumers. It is also very common to see dealers combine all three:  loyalty, college graduate and military rebates, making it virtually impossible for any consumer to take advantage of.


"Price …plus, tax, tag, and fees". The red flag word here is “fees”. The fees these dealers refer to are “dealer fees” which are synonymous for DEALER PROFIT. Most people believe they are federal or state taxes of some kind. They are  nothing more than more money for the dealer that is not disclosed in the advertised and quoted  price of the car. These “fees” go by many different names…electronic filing fee, tag agency fee, doc fee, notary fee, dealer service fee, administrative fee, etc. The only legitimate fees that can be added to the advertised price are GOVERNMENT FEES…fees paid to the state for sales tax and license registration.


"Offers expire date of publication or may be cancelled at any time without notice". This simply means that the prices, payments, etc. you have read have no validity whatsoever. The prices are not good tomorrow, but they aren’t even any good today because the dealer can cancel the offer without notice.


"Not responsible for typographical errors". This is just one more way for a dealer to explain why they can’t sell you the car for the advertised price…We don’t have to honor that price because it was a “typographical error”.


"Vehicle Art for illustrations only". This means that that car you are looking at with the really great looking wheels might not have those wheels on the one you buy. Or, maybe it doesn’t even have those alloy wheels you see in the picture.


"Minimum Trade Based on Dealer List Price". The DEALER list price is not the same thing as the MANUFACTURER’S suggested price. Dealers add markups to the Monroney label also known as MSRP or manufacturer’s suggested retail price. They label this markup (often on a sticker designed to imitate the official federal Monroney label). Dealer markups of $3,000 and much more are common on such “counterfeit Monroney” labels. The dealer can mark up the price on the Monroney label by $10,000 enabling him to allow you an extra $10,000 for your trade in and still sell you the car for no discount from sticker price.


“$4,000 Trade Equity Required” This is another deceptive way to advertise a super low car payment. How many of us have $4,000 in equity in our trades? Certainly not the majority of consumers!

My advice to you is to ignore all car dealers’ newspaper advertising. Most car ads are designed to “get you in the door” so that they can sell you some other car than the one advertised so that they can make more money. If you must respond to a dealer’s advertisement, be sure you break out your magnifying glass and carefully read the fine print.

My advice
to you is to ignore all car dealers’ newspaper advertising. Most car ads are designed to “get you in the door” so that they can sell you some other car than the one advertised so that they can make more money. If you must respond to a dealer’s advertisement, be sure you break out your magnifying glass and carefully read the fine print. My advice to you is to ignore all car dealers’ newspaper advertising. Most car ads are designed to “get you in the door” so that they can sell you some other car than the one advertised so that they can make more money. If you must respond to a dealer’s advertisement, be sure you break out your magnifying glass and carefully read the fine print.

Monday, October 24, 2016

Car Dealers Have Infringed on Your Right to Sue!

Did you know that when you bought your last car that you agreed to waive your constitutional right to sue the car dealer who sold you the car and have your complaint heard in a court of law by a jury of your peers?

You probably did not, because an “arbitration clause” was hidden in the fine print of your contract that you signed. Even worse, you also are prohibited from even taking that car dealer to arbitration unless you write a “demand letter” first!

What is “arbitration” anyway?

The average person does not understand what arbitration is, much less know that they agreed to substitute this process for their right to sue when they bought their last car. Arbitration allows an individual who is employed by an arbitration company to decide who is right in a dispute, you or the car dealer. Professional arbiters can be retired judges or anyone that the arbitration company decides is qualified. Because car dealers use the arbitration company often and because car dealers determine the compensation to these companies, there is a good chance that the arbitrators are inclined to side with “the hand that feeds it”.

You can’t even file for arbitration unless you write a “demand letter” to the dealer which must contain specific information as prescribed by Florida statute 501.98. This is a summary of that law:

“Florida Statutes require that, at least 30 days before bringing any claim against a motor vehicle dealer for an unfair or deceptive trade practice, a consumer must provide the dealer with a written demand letter detailing the name, address, and telephone number of the consumer, the name and address of the dealer; a description of the facts that serve as the basis for the claim; the amount of damages; and copies of any documents in the possession of the consumer which relate to the claim. Such notice must be delivered by the United States Postal Service or by a nationally recognized carrier, return receipt requested, to the address where the subject vehicle was purchased or leased or where the subject transaction occurred, or an address at which the dealer regularly conducts business.” If you would like to read the detail of this law, you can access it online athttps://www.flsenate.gov/Laws/Statutes/2013/501.98.

If you hire a lawyer because you believe a car dealer has taken advantage of you, you’re not eligible for reimbursement of any legal fees unless you have sent the demand letter exactly as described above. This is why most lawyers are reluctant to assist you because they know that the fees they would normally be entitled to are at risk…both because of the arbitration requirement and the demand letter.


What I’ve described is just one more reason why you should be extremely careful when you buy or lease a car. In the back of our minds most of us believe that when we are doing business with a car dealer, or anybody else, if we are taken advantage of we have the right to sue to force the company to make things right. This is not true with 99% of car dealers. You should realize this and be even more careful when you purchase a car. Access my blog for articles on every facet of doing business with a car dealer. There are hundreds of articles accessible in the archives of www.EarlStewartOnCars.com. You will learn never to go car shopping alone, get all promises by the salesman in writing, spend at least two weeks researching the purchase of car, and always get at least 3 competitive bids on the car you’re buying, your trade-in, and your financin

Monday, October 17, 2016

Sales Commissions Are the Root of All Evil

The Wells Fargo Bank has been in the news constantly for the past several weeks. It all started when the Los Angeles Times exposed the scandalous practice that millions of Wells Fargo customers were being signed up for credit cards and bank accounts without their permission or knowledge. When this went public, Wells Fargo fired 5,300 low level bank tellers, but no higher level executives were let go. One high level executive took “early retirement” and was given a huge, multimillion dollar severance package. The CEO just resigned after the heat from Congress got to high…some are calling for criminal charges.

The cause of this huge scandal was determined to be the pay plans of the low level employees whose job was to “sell” the credit cards and accounts that were being illegally placed in customers’ names without their knowledge. Management had set quotas on these so called “upsells” which a bank employee must meet if she wanted to keep her job. These quotas were very high (higher than most other banks). These low level employees had to make a choice between deceiving their customers or losing their jobs. This system worked very well for many years because Wells Fargo led the banking business in “upsells” by a wide margin.

Do you see where I’m going with this? The last time you bought a car the salesman that sold you that car was paid about 25% of the profit that the car dealership made. Almost every car dealership does not have a fixed price on the cars they sell. Virtually every car sold by most car dealerships has a different price and markup…even on identical year-make-models. Prices and markups depend entirely on the amount of profit the salesperson can negotiate with the buyer. These markups vary widely! The same car on the same day can be and are sold for prices and profits varying by thousands of dollars. It would not be unusual for a car to be sold for a $100 profit to one customer and a $5,000 profit to the next, on the same day! The first salesman would make only a $25 commission but he second one would make $1,250! As you would expect, the well informed, sophisticated buyer and negotiator pays much less for their cars than others.

So, we’ve established that, by design, car salesmen have an adversarial relationship with you, their customers. The customer wants to pay the lowest price for your car and they want you to pay the highest price. Now, I’ll explain why the salesman must charge you more money than you want to pay. If he does not make his profit quota, the car dealer will fire him. All car dealerships have quotas for their sales people and those sales people that fall short are fired. The turnover for car salesmen is the highest of any profession, averaging 66%! This means that two out of three sales people will be fired or quit within the year. The survivors are the those that produce the most profit for the car dealer.

Car dealers have a minimum acceptable average profit that they must make on their cars. The problem is that the sophisticated, educated buyers won’t pay this price. The “slack” must be made up for by overcharging the less informed buyers…typically the very young, very old, uneducated, and those who aren’t conversant in English. A car dealer or a car salesman might have a goal of making $2,000 average profit per car, but for every car he has to sell for a $100 profit, he must sell another for a $3,900 profit to meet his average.

What the owner and upper management of the car dealerships have created is a culture identical to what Wells Fargo created. They designed a pay plan pitting the goals of the customer against the goals of the sales people. Then they established unrealistically high quotas that necessitated the sales people do WHATEVER IT TAKES to meet those goals if they wanted to keep their jobs. One could argue that the sales people are guilty when they knowingly employ unethical and illegal sales tactics in order to make sales at higher prices than the customer would normally pay. On the other hand, let me pose this question to you. How far would you go to put food on the table for your family, make your car and mortgage payments, and provide medical care for your kids?

The upper management of Wells Fargo and the upper management of all car dealerships know, or should know, what their sales people are doing to their customers to meet their quotas. Warren Buffet is the largest stockholder of Wells Fargo Bank. He didn’t know what was going on, but he should have. This is what happens when you grow too big…you’re insulated from what’s going on “in the trenches”. Ironically, Warren Buffet just bought a chain of car dealerships whose salesmen are doing to their customers exactly what his Wells Fargo salesmen did to theirs. I admire and respect Warren Buffet very much, but I won’t excuse him for his fiduciary responsibility as an owner of a business to protect his customers.

Many owners and CEO’s of car dealerships today, like Mike Jackson (AutoNation) and Roger Penske (Penske Automotive Group) have the same problem as Warren Buffet. However, there are lots of other car dealer executives, below the owners level that are more likely guilty of, not only knowing about, but aiding and abetting these practices. They “don’t want to know” what’s really going on because this gives them “deniability”. These are the truly guilty ones and the ones that should be purged from the system.

Monday, October 10, 2016

Car Dealers’ Latest Dirty Little Secret The “Electronic Filing Fee” aka Dealer PROFIT

During the last Florida legislative elections, Senator Joe Negron lead an effort to roll back about “$12” of the cost of registering a car in Florida. He said this would save Floridians about $230 million a year. It was supposed to bring back the tag registration cost to where it was about 7 years ago, when the legislature raised it because of the bad economy. He was, thankfully, successful in his efforts.

What Sen. Joe Negron and, apparently, the rest of the Florida legislature either didn’t know or care about is that, at about this same time, car dealers began passing along and marking up an expense to car buyers. This is increasing their profits far more than the $230 million a year that reducing tag registration fees will save.

This increased profit to car dealers is generally called the “Electronic Filing Fee”, “E-Filing Fee”, or “Tag Agency Fee, but there are other names that dealers use, just as they do for the infamous “dealer fee” like “dealer services” or “Dealer Prep Fee”. Car dealers used to process the tag and registration required on new and used cars themselves. About 8 years ago they began outsourcing this to data processing companies that can do this work cheaper than dealers can themselves. The typical cost of this outside service is only $10 or $12. So, not only did the car dealers reduce their expense, they passed along the reduced expense to you, the car buyer! But wait, there’s more! Car dealers are also marking up this reduced expense and passing this along to you too! I’ve seen Electronic Filing Fees marked up to $598…that’s a 5,980% markup!

At my dealership I began using a registration service company named Title Tech in 2009 and they charge me $10 to prepare the tag, registration, and title work for each new customer. This saves me considerable time and money from doing it myself. I inadvertently (and wrongly) passed this expense along to my customers for a short time until I discovered my mistake, which I immediately corrected. I’m refunding this extra charge to all of my customers that I overcharged. This saves me considerable time and money from doing it myself. In the past I always absorbed the higher expense and I don’t pass along the reduced cost to my customers either. It’s adding “insult to injury” to mark up this cost and pass it along to you.

The word “fee” is almost always used by dealers when they are trying to disguise additional profit or to pass along an expense to you (which is the same thing as additional profit). When car buyers are lucky enough to even notice the Electronic Filing Fee, they usually assume it’s a tax or fee charged by the state, federal, or local governments. They do the same thing with the dealer fee under its various other names like documentary fee.

Florida law considers the Electronic Filing Fee to be the same thing as a Dealer Fee and requires that it be disclosed and used by car dealers as such. The language Florida requires for disclosure is “This charge represents costs and profit to the dealer for items such as inspecting, cleaning, and adjusting vehicles and preparing documents related to the sale”. The law also requires that the Electronic Filing Fee be included in all advertised prices. Unfortunately, most dealers are ignoring this law just as they do with the additional profit they make with the Dealer Fee.

Dealers almost never include their Dealer Fees or Electronic Filing Fees in their advertised price which is a flagrant violation of Florida law. If they even mention that they have a dealer fee, they will say in the fine print something like “prices plus tax, tag, and fees”. A few dealers will disclose in the fine print, “plus tax, tag, and $999.95 dealer fee”. The Florida Senate says “The law requires that the fee be included rather than “specifically delineated” in the advertised price.” Most car dealers’ advertising is done on TV and the fine print disclosure is literally unreadable.

The other loophole permitted by Florida law is to allow the dealers to offer only one car with the dealer fee included in the price. That would not be so bad if the dealer clearly communicated this to the buyer. But dealers use something I call “the old stock number trick”. Every car in a dealer’s inventory is assigned a stock number for accounting purposes. A typical stock number is something like “#A25771”. Dealers will put their stock number for that particular advertised car in the fine print at the bottom of the ad or elsewhere. Even if a customer sees the stock number, they have no way of knowing what it means. When the prospective buyer responds to the advertisement, the salesman tells him that the advertised car was sold but, “not to worry”, he has several more “just like it”. Yes, he does have several more identical cars in terms of model, accessories, and MSRP. But, because they have different stock numbers, the law now permits him to add his extra profit to the advertised prices disguised as Dealer Fee and Electronic Filing Fee.

It’s an affront to the car buyers of Florida that their Attorney General and their legislature allow this to continue. Car dealers have powerful lobbying groups like the Florida Auto Dealers Association (FADA) and the National Dealers Association (NADA) and they clearly communicate to Pam Bondi, the AG, and the legislature that they better not “mess with” their Dealer Fees and Electronic Filing Fees.

Another reason you don’t hear much about this deception upon car buyers is that the media has assumed their “Hear no evil, see no evil, speak no evil” stance. The local TV, newspapers, and radio are deathly afraid of losing car dealers’ advertising. Car dealers are the largest local advertisers. Some of you may know that my wife, Nancy, and I were fired 2 years ago from our weekly consumer advice radio show on Seaview radio which we had done for almost 7 years. This was because of dealer threats to cancel their advertising. When I reported this attack on free speech to the Palm Beach Post, they refused to run the story or even allow me to purchase an advertisement that states the truth. Fortunately, Seaview Radio was purchased by JVC radio over a year ago and the new owners immediately brought us back. And doubled our airtime to 2 hours. You can tune us in every Tuesday afternoon 4-6 at 900 AM The Talk of the Palm Beaches or stream us at www.StreamEarlOnCars.com.

What can you and I do about this when we have such powerful institutions as the media, Attorney General, and Florida Legislature siding with the car dealers against you, the consumers? The answer is MAKE SOME NOISE! “We, the people” support, not only the media, but the politicians. Without our viewing, listening and readership the media can’t sell advertising and without our dollars and votes, politicians can’t get elected. Call, write, or email your local newspaper, radio and TV station, and local senator and representative. Tell them you’re tired of them kowtowing to the car dealers and the Florida Automobile Dealers Association. Demand that the laws on the Electronic Filing Fee and the Dealer Fee be enforced. Tell them “WE’RE MAD AS HELL AND WE WON’T PUT UP WITH IT ANYMORE”.

Monday, September 26, 2016

Should I Exercise My Option to Buy My Leased Car?

One of the advantages of leasing is your option to buy the lease car at the end of your lease at the residual price. The residual is what the leasing company “guessed” your car would be worth at the end of your lease. They guessed because nobody has a crystal ball that tells them exactly what a used car will be worth 3 or 4 years in the future. If they guessed low, you have an opportunity. If they guessed high, you have no obligation; it’s the leasing company’s problem and they have to sell the car and take a loss. 

The best thing about making this decision is that you are holding the best hand in the card game between you, the leasing company, and the dealer. That is because you know your car better than they do. You probably have been driving it for close to three years, you know how well you have maintained it, how worn the tires are, whether or not it has been wrecked and repaired, and how many dings, dents, or upholstery blemishes there are. You know if it was garaged and how you carefully you drove it. You also know, better than anybody, how well it runs. All of these things determine the value of your car.

Unless you buy a new car, you cannot have as much confidence in any other used car that you may buy than your own used lease car. The only assurance that you have when you buy somebody else’s used car is their word or the dealer’s word about how it was driven and maintained. That means that if you did take very good care of your lease car, drove it carefully, kept it in a garage, waxed and washed it faithfully, and maintained it carefully it is worth more to you than anybody else because you are the only one who knows that. And you can never be sure about that for any other used car you might buy.

Given that you like your lease car and want to keep it, the next step is determine its wholesale market value. The leasing company usually is not in the business of selling cars, just leasing them. Getting rid of off-lease cars is expensive and time consuming for them. You have an advantage here too and you should be able to negotiate a good price. Remember, you know your car much better than they do. They will usually give you a price you can buy the car for without even looking at it. It doesn’t happen often but sometimes they will call you first about buying your lease car before the lease is up. Be careful when this happens because this can mean that they are facing a loss if they have to wholesale your car at the auction. They are calling you to sell you your car for more money than they can get for it at the auction.

That is why you need to establish the current wholesale market value for your car. Car dealers call this ACV, for actual cash value. Check the Internet for information on the value of your car. www.kbb.com, the Web site for Kelly Blue Book is one of the best sources. Consumer Reports can also give you this information. The best check on the wholesale value is to actually drive your car to 3 or 4 car dealerships that are franchised for your make. If you drive a Ford, visit as many Ford dealerships as you can and tell them you want to sell your car. You aren’t misleading them because it’s a lease car. You could exercise your option to buy it from the leasing company and then resell it to the dealer, if the dealer’s offer was higher. If you live near a CarMax store, the largest retailer of used cars anywhere, they buy a lot of used cars over the curb and their prices are often competitive, but always check CarMax’s price too. 

Now that you are armed with the true market value for your car, you can negotiate the best price with the leasing company. Even if they won’t sell you the car for the ACV, wholesale value, paying as much as $2,000 over wholesale for a car you have absolute confidence in is a good deal. If you can buy it for wholesale or below, you should celebrate!

Another thing to be on the lookout for with the leasing company is when they offer to extend your lease for the same monthly payment you are currently making. That is not a good deal. They are doing this because they will lose money if they sell this car at the auction at the present time. They want you to keep making payments on the car so that their depreciation rate catches up with the residual value. The residual value is the price they guessed your car would be worth in 3 years. If you had leased the car for longer at the onset of your lease, the payments would be lower than they are now. Why should you pay the leasing company the same as they charged you for a shorter lease?

Monday, September 19, 2016

Why the First Set of Tires on Your New Car Wear Out Fast

The tires that came with your last new car were not designed by Michelin, Goodyear, Bridgestone or any other tire manufacturer. They were designed by the manufacturer of your car. If your new car came with a set of Michelins, Michelin made the tire but they made it to the specifications set by your car manufacturer. These tires are referred to as OEM (original equipment manufacturer).

Furthermore, your manufacturer does not warranty the tires on your new car even though he tells you that you have a “bumper to bumper” warranty. The last time I checked, my tires were between my front and rear bumpers. Even though GM designed the tires on your Chevrolet, they have no responsibility if they are defective. The tire manufacturer bears that responsibility.

The OEM tires that came with your car can’t be replaced (which is a good thing) after they’ve worn out. And they will wear out much sooner than they should. This is because virtually all auto manufacturers specify very soft rubber which means they wear out too fast. Why would the manufacturer do that? They want that new car to have the smoothest ride possible, even at your expense of having to buy a new set of tires at half the mileage you should have to. When you test drive that brand new car and it rides very, very smoothly you’re more likely to buy it. You’ll find out how fast the tires wear out much later, and when you do you’ll blame it on the tire maker.

By the way, another way the car makers delude you into thinking your ride is very smooth is by recommending low tire inflation. The number you see on your door jamb or in your car’s owner’s manual is the car manufacturer’s recommended air pressure. The number on your tire is the tire maker’s recommendation. The number on the door jamb is the minimum and the number on the tire is the maximum. There’s typically a 10-pound difference.  I recommend you try the maximum and, if the ride’s too rough, split the difference. You’ll not only get longer tire wear but better gas mileage.

I can’t prove it, but I suspect another reason auto manufacturers design their own tires is to cut costs. By cutting a few corners in the design and specifications, they can increase their profit and/or cut the overall car price. If their purpose was to design a better tire, why wouldn’t they make these OEM tires available for the car owner to buy after the first set wears out? Many car owners “think” they’re replacing their Firestones or Michelins that were on their new car with the same tire, but they’re not. The tire might be the same size and look the same, but it’s a different model number.

One thing you should look for on your first set of replacement tires is the “tread wear index” which is molded into the side of your tires. This number will be 200 to 800. Your OEM tires will have a lower number because their made of softer rubber. If the tires that came on your car had a 200 tread wear index and you replaced them with 400, you should get twice the mileage on your second set of tires. The car might not ride as smoothly, but most people can’t even notice. And to my way of thinking, cutting you tires cost in half is pretty good compensation for a slightly rougher ride.

When replacing your tires, don’t get enamored by a sexy brand name. Brands aren’t always built on quality but also on advertising. Also, a famous brand tire makes all different kinds of tires to many different designs and specifications. Just because it’s a “Michelin” doesn’t necessarily mean it’s a good tire. If Michelin made that tire for an auto manufacturer who designed the tire with only two things in mind…low cost and soft ride, you didn’t get a very good tire. My recommendation is to check Consumer Reports for the best tire replacements. You’ll find tire brands recommended that you may never have heard about. The Japanese and Chinese make some very good tires but they have funny sounding names and you don’t see them advertised heavily on TV. 

Monday, September 12, 2016

How to Negotiate to Buy a Car

Buying a new or used car is one of the last bastions of the negotiated price. In some countries, negotiation is fairly commonplace in retail stores, but in America virtually all products are sold at a fixed price. Some of us are simply not comfortable negotiating and most of us are not very good at it. 
As I have said in previous columns, the best way to buy a new or used car in on the Internet. You can do your research on which car is the best to suit your needs, get guidance on what kind of price you can expect to pay, and finally get quotes from several dealerships on that specific car. However, everybody is not “Internet savvy” and if you are not, you may find it necessary to walk into a car dealership and negotiate for the lowest price.

If you are not comfortable with negotiation, the best advice I can give you is to bring someone along with you who is. Car sales people and sales managers are trained experts in negotiation. This is how they make their living. Here are some tips for you if you decide that you want to negotiate the best price on a car. 
  • If you have a trade-in, keep that separate from the negotiation. Negotiate the best price on the car you are buying and then negotiate the best price you can get for your trade-in. Don’t fall for the old “over allowance” on your trade-in ruse. This is where the dealer makes up the price of car you are buying higher so that he can make you think you are getting more for your trade-in. 
  • Never buy a car on payments alone. Always negotiate the best price you can for the car you are buying and then calculate your best payment when you have negotiated for the best interest rate. 
  • Be sure you understand how the dealer arrived at his retail price. Federal law dictates that a Monroney label be affixed to every vehicle with a manufacturer’s suggested retail price. Many dealers mark that up with another label, often referred to as a “Market Adjustment Addendum”. This markup can be several thousands of dollars. 
  • Expect the first price you are given to be substantially higher than what you can buy the car for. Sales people and sales managers are trained to “start high because you can always come down”. Don’t be afraid to offer substantially less than the initial asking price. You should look at just like the car salesman does, but the reverse…”start low because you can always go higher”. If the salesman excepts your first offer, you probably offered too much. In fact, shrewd car sales people are trained to always ask for more money, even if the offer is good one. This is because they don’t want to “scare off the customer” by telegraphing to the customer that he “left some money on the table”. 
  • If the sales person asks you for a deposit before he will begin negotiating, determine whether the deposit is refundable. Florida law requires a nonrefundable deposit be disclosed in writing on the receipt. If this is printed on your receipt, insist that this be waived in writing on your buyer’s order. If the dealer will not agree to this, be warned that he may be able to keep your deposit if you change your mind about buying the car. 
  • Be prepared for a lot of “back and forth” when the salesman takes your offer back to the manager. When you get close to finding a mutually acceptable price, the manager himself will often come to talk to you. Don’t be intimidated stick to your guns even when they tell you this is “positively, absolutely the lowest price”. Even if you think you do have the lowest price, a great strategy is to get up, walk out of the showroom, and get into your car to drive away. This will often precipitate an even better price. When you try this, the worst case scenario is that you really do drive home, but you can always return and buy the car the next day for the last price they quoted you. They may tell you that you have to buy today, but nine times out of ten that is a bluff. The only exception is when there are factory rebates and incentive expiring. 
  • The last day of the month really is a good time to buy a car. The salesman’s bonus money is maximized, the factory incentives are in effect, the managers are desperate to make their quotas, and it is the one time of the month when the buyer has the best edge in negotiation. 
Caveat emptor “let the buyer beware” could have been written specifically for what you can expect when you walk into a car dealership to negotiate the best price. You are up against experts who negotiate for living. But, if you will follow my advice above, you should be able to hold your own and maybe even get a great deal.

Monday, August 29, 2016

Beware: The Phony Monroney

This blog/article is a rerun, but it’s important that I run it again because it involves a violation of a FEDERAL LAW…or at the very least its intent. The law is meant to inform car buyers of the official retail price suggested by the car manufacturer. The U.S. Senator who drafted this law, Mike Monroney, said this about his law: “The dealer who is honest about the so called ‘List Price’ cannot compete with the one who packs several hundred dollars extra into it so he can pretend to give you more on the trade-in.” Senator Monroney said this in 1958 and the only thing that has changed is that dishonest dealers are now charging several THOUSAND dollars extra. To add insult to injury, some remove both labels before delivery which is illegal.

The Monroney label is the window sticker that is mandated by federal law to be affixed to every new vehicle sold in the United States up until the time the new owner takes delivery. The name, Monroney, derives from Senator Michael Monroney’s law passed by Congress in 1958. Prior to the proposal of this bill, there was often a large discrepancy between the showroom price and the actual price of a new vehicle. The fact was that existing price tags did not tell the full story. Most customer-quoted prices were for "stripped-down" models and did not include additions for preparation charges, freight charges, federal, state, and local taxes, or optional factory-installed equipment requested by the purchaser. These hidden charges were used by some dealers to increase the selling price while giving the new vehicle buyer an inflated idea of their trade-in allowance. This price confusion led to a slump in auto sales during the early 1950's. Senator Monroney's bill was designed to prevent the abuse of the new vehicle list prices, but would not, however, prevent dealers and buyers from bargaining over vehicle prices.

Well, as you might expect, car dealers have figured out a way to evade this very good law. An alarmingly large number of dealers use a label that is designed to look almost identical to the official Monroney label. It has the same coloring, fonts, type size and layout. This “phony Monroney” is affixed right next to the genuine article. Unless you really look close and read all of the fine print, you will have no idea that you are looking at a counterfeit Monroney label. This phony Monroney includes extra charges to artificially inflate the manufacturer’s suggested list price, MSRP.

One of the most egregious of these charges is an addition of pure markup just for profit which has a variety of names. Some of these are “Market Adjustment”, “Additional Dealer Markup”, “Adjusted Market Value”, “ADM”, “Market Adjustment Addendum” and “Market Value Adjustment”. This is simply an amount that the dealer adds to the manufacturer’s suggested retail price. It is virtually always used in high-demand, low supply cars. I have seen these labels with charges as much as $10,000 added to the MSRP. Additions of $1,500 to $3,995 are common. Dealers also use the counterfeit labels to price dealer-installed accessories, which are OK, as long as the accessories are not marked up higher than the manufacturer marks them up.

When customers confuse the phony Monroney with the real one, this distorts their point of reference for comparing prices between different dealerships. One manufacturer’s Monroney labels are consistent. A 2016 Honda Accord with the same factory accessories will have the same MSRP at every Honda dealership you visit. But if dealers fool you into thinking their label is part of the Monroney, you are not comparing “apples and apples”. This can adversely affect a good buying decision in a number of ways. Some buyers focus mainly on how big a trade-in allowance they can get for their old car. If one dealer has the same car marked up $3,000 more than another dealer, he can offer you $3,000 more for your trade and still make the same profit as the other dealer. Some buyers focus on how big a discount they get from “sticker”. It’s easy to give a higher discount if you have artificially inflated the MSRP by thousands of dollars.

My advice to you is carefully inspect the sticker on the new car you are contemplating buying. Read it completely and especially the fine print. If there is a second label on the car, it is possible that it is fair. This would be for purposes of adding an item, installed by the dealer like floor mats or stripes, priced the same as the manufacturer charges. If that second label includes a markup over MSRP for no reason other than profit for the dealer, make sure that you adjust for that number in your comparisons for discounts and trade-in allowance. Some dealers also add a second markup to these labels and that is the infamous “dealer fee” also sometimes called “doc fee” and “dealer prep”. Some dealers do not put this on the phony Monroney but print it on their buyer’s orders and program it into their computers.

Monday, August 15, 2016

Don't Get "Flipped" to a Lease

One of the most popular weapons in car dealers’ arsenals is the infamous “lease flip”. This is car dealer jargon for switching a customer who originally intended to buy a car to leasing the car.

Of course the motivation to do this is more profit for the dealer and a bigger commission to the salesman. That’s not to say that leasing a car is always more costly than buying one, but it can be if you’re not careful. And not being careful is exactly what happens when a purchase intender becomes a lessee.

Here’s how it happens. You come into the dealership to buy a car. You may have seen the dealer’s advertisement in the newspaper or TV for a particular model. More than likely you are prepared to make a down payment and/or trade in your old vehicle. You have a monthly payment in mind because almost everybody has a budget and we usually translate most purchases into whether or not we can fit them into our monthly budgets. You negotiate the best price you can to buy the car, or maybe the sale price is good enough.

Now the salesman or more often the F&I manager/business manager tells you what your monthly payment will be. Let’s say that you have a trade-in worth $15,000 and aren’t going to put any cash down. The F&I [Finance and Insurance] manager tells you your monthly payment will be $427 per month. But that’s way more than you can afford and you tell him you can’t buy the car because you can’t afford that big a payment. He asks you how much you can afford and you tell him it must be under $350 per month. Now he has you set up perfectly for the “lease flip”.

“Mrs. Smith, I think I have just the right thing for you. What would you say if I told you that you can drive that new car home today for just $349 per month?” You say, “With glee, you say we have a deal!” Guess what? You’ve just been flipped. If you had bought the car at the advertised price or negotiated a very good price, the dealer probably would have made about $1,000 profit, and the salesman would have made about a $200 commission. Not that you’ve let yourself be flipped to lease, the dealer could be making $15,000 and the salesman could be making a $3,000 commission!

I’m not exaggerating. I get calls weekly from victims of lease flips. Many of the callers are elderly and many of them are widows who never bought a car before, but had relied on their husbands. There’s no law that limits the profit that a dealer can make when he sells or leases a car. $10,000, $15,000, and even $20,000 profits are made and usually on leases. The dealers can do this by using the trade-in as a capital cost reduction on the lease but allowing less for the trade than it is actually worth. In the example above, your trade-in may be worth $15,000 but you were allowed only $5,000 to reduce the capitalized costs of the lease. Also, the dealer could have raised the price of the car you negotiated or the sale price to MSRP or even 110% of MSRP which is allowable by the leasing companies.

By manipulating the number of months of the lease and the down payment [capitalized cost reduction], a dealer can give you as low a payment as you ask for and still make an exorbitant profit. Most buyers are so focused on monthly payments that they don’t carefully analyze what they are agreeing to and signing.

The shorter the number of months of a lease, the greater impact the down payment has on the monthly payment. A $5,000 down payment reduces the monthly payment on a 36 month lease by $139 per month, $208 on a 24 month lease, and $417 on 12 month lease.

Incredibly many victims of the lease flip, never thought about the fact that after the 12, 24, or 36 month term of the lease, they own nothing. After 36 months, a car with a good resale value should be worth at least half of what you paid for it. Many people who have never leased before think they can bring their lease car back early if they want. Leasing is not renting and you can bring your car back early only if you make all of the remaining lease payments. If you had bought the car for $30,000 and financed it for 36 months, you would have about $15,000 in equity at the end of 36 months and no monthly payments. You were building equity with every monthly payment in the purchase but you were building zero equity with your 36 lease payments.

As I said before, don’t let this frighten you from ever leasing a car. Leasing can be a good choice and sometimes the best choice. You can find six articles I’ve written for Hometown News: “Lease a New Car before You Buy It”, “Car Leasing Booby Traps”, “Be Very Careful When Leasing a Car”, “The Lease Acquisition Fee…the Bank’s Gotcha”, “Buy or Lease Your Car at the Right Time of Year”, and “Should I Buy or Lease My Next Car?”

Monday, August 08, 2016

Open Letter to Florida Car Dealers


SUBJECT: ELIMINATE THE DEALER FEE 

Dear fellow Florida car dealer,  

I started in the retail auto business in 1968 48 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. It has been capped and regulated in most states including California. You charge this fee to every customer and it ranges from a few hundred dollars to over two thousand. 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).  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 your dealership must charge this fee on very car, which is simply 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 and neither does CarMax and a few other ethical dealers.  

 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 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 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. When the rare, astute buyer objects to the dealer fee, the law permits you to decrease the quoted price of the car by the amount of the dealer fee. This would have the same net effect of removing it. The salesman 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 a few years ago, it was scary. But I did it because I could no longer, in good conscious, 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 sales volume grew significantly! 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 to you and learn why they should buy a car from me, not you. And, I am 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. 

My personal cell phone number is 561 358-1474.   

Sincerely, 
Earl Stewart