The Dealer Fee... “Whatever?”

My column this week is a reaction to an article that appeared in this week’s edition of The Automotive News. For those of you “not in the business”, The Automotive News is the premier trade publication for the automobile industry. It is read by manufacturers, distributors, dealers, and everyone else associated with the car business.

The headline of the article, “Document Fee Began with a Lie, ‘Inventor’ Says,” grabbed my attention (to say the least). However, the neutral stance toward the nefarious “doc fee” that the publication seemed to take is what prompted my reply.

Below is the text of my email to the author, Edward Lapham, followed by the original article printed in the Automotive News.

Good morning, Ed. J

I was very surprised to read your commentary in this morning’s Automotive News, but I enjoyed it very much.

You may have heard of me. I’m the dealer in Florida who is championing making the doc fee (aka dealer fee, prep fee, etc.) illegal. I’m one of the few dealers who don’t charge such a fee which has grown enormously since Mr. Fashjian “invented” this concept in 1967. There’s a Mazda dealer in Delray, FL and a Nissan dealer in Ft. Pierce who charge $1,549 for dealer fees. The average fee in my market is over $750.

You can check me out on my website, www.earlstewarttoyota.com or my blog www.EarlStewartOnCars.com.

In your article, you say:

“We know that consumer advocates, assistant attorneys general and investigative reporters from TV networks consider the "doc fee" to be a consummate evil that some dealers use to gouge a little more profit out of poor, defenseless, unsuspecting customers. Dealers, who have had their gross margins eroded by factory pricing and Internet-savvy consumers, consider the doc fee to be manna from heaven that lets them squeeze a little more profit out of every deal. Whatever. “
I guess “whatever” means that Automotive News takes no editorial position on this. I can certainly understand why since most car dealers, the vast majority of your subscribers and advertisers, engage in this “questionable” practice.

I’m guessing that you consider this a “whatever” because there’s a split on opinion between consumer advocates, assistant attorneys general and investigative reporters from TV networks and car dealers. Have you wondered how car buyers feel about it? Why doesn’t Automotive News engage a pollster to measure the sentiments of car owners and prospective car buyers about doc fees/dealer fees?

Since you consider the current status this a draw (whatever), maybe the customer can be the tie breaker.

Sincerely,

Earl Stewart



EDWARD LAPHAM
Document fee began with a lie, 'inventor' says
Edward Lapham Automotive News -- February 15, 2010 - 12:01 am ET
COMMENTARY

Edward Lapham is executive editor of Automotive News.

I had an intriguing conversation with John Fashjian last week. He told me that three years ago, he sold his Framingham Chrysler dealership in Framingham, Mass., and moved to Florida.

More significantly, Fashjian matter-of-factly said he's the guy who invented the document fee.Of course, there is a difference of opinion about the add-on charge.We know that consumer advocates, assistant attorneys general and investigative reporters from TV networks consider the "doc fee" to be a consummate evil that some dealers use to gouge a little more profit out of poor, defenseless, unsuspecting customers.

Dealers, who have had their gross margins eroded by factory pricing and Internet-savvy consumers, consider the doc fee to be manna from heaven that lets them squeeze a little more profit out of every deal.

Whatever.

Here's how Fashjian said it started. In 1967 he was sales manager at Bancroft Motors in Worcester, Mass., selling Datsuns for next to no profit. For example, he remembers that the Datsun B1200 stickered at $1,962.50, and customers tried to get him down to $1,900. The way Fashjian told it, he decided that bumping the price up to a rounder number would help with negotiations and -- since he wasn't a math major -- would make figuring the 3 percent Massachusetts sales tax easier because there were no personal computers or pocket calculators back then. So he arbitrarily added $12.50 to every sticker, which bumped the price to $1,975. Then Fashjian told customers that since Datsuns are imported, the fee was to cover the cost of going to the port and taking care of the documentation.

And they bought it!

That $12.50 seems anemic by today's doc fees, which Fashjian said net some dealers up to $1,000 or more. It's a great tale. And, you know, I thought about running Fashjian's picture with this column. But the next thing you know, somebody might put it up in the post office. Or the Automotive Hall of Fame.

Sleazy Tactics

In a free market, competition is the name of the game. When you stumble, your competitors are always ready to jump in and take advantage. That's the way it is.

Toyota has stumbled, and it is the right - the responsibility - of the other car manufacturers and dealers to do their best to gain from the situation.

However, this week we have witnessed a new low when one of my competitors crossed the line and boldly lied to the consumers in our community. Napleton Nissan in Riviera Beach sent out a mass mailing of phony "Toyota Recall Notices" to thousands of people in our area.

This sales solicitation came in an official looking envelope, complete with the red Toyota logo and typeset. The return address said it was from "Notification Headquarters."

Inside the envelope there is more false information about the recall and Toyota vehicles that were not even affected are listed.

It goes on with even more deceptive offers. They say they will buy back your Toyota for "Original Base MSRP." They neglect to mention that "Original Base MSRP" does not include the price of any options added, manufacturer's delivery fee ($775), or the dealer fee added by most dealers. They go on to explain that this value will be further lowered by the mileage of the vehicle and incentives you received when you bought it. In other words, it's business as usual.

The letter is signed by Napleton Nissan's general sales manager, Bret Macy.

Napleton Nissan should be ashamed of themselves for sending out such a deceptive and misleading solicitation. I cannot say I'm surprised; their newspaper ads typically assume the same style, but, as I said, they have reached a new low.

You can view the actual mail piece by clicking here.

“Piling on” Toyota?

Regular readers of this column, my blog (EarlStewartOnCars.com), and my Saturday morning radio talk show know that, even though I’m a Toyota dealer, I’m not “in the tank for Toyota. I tell it like it is and when I think Toyota is doing something wrong, I’m not afraid or timid about speaking out.

So, first I’ll say that Toyota brought a lot of this on itself. Last October 2nd, Akio Toyoda, the current CEO and grandson of Toyota’s founder, said “We have to listen to our customers and make better cars”. Mr. Toyoda also said that that his company has gone through 4 of the 5 stages leading to failure, of “hubris born of success, undisciplined pursuit of more, and denial of risk and peril,” Toyoda was citing Jim Collins, the author of How the Mighty Fail. He said that leaves his company in the 4th stage which is “grasping for salvation”. Looking back on the past few weeks, this seems almost prophetic. After hearing Akio Toyoda’s remarks, I immediately read How the Mighty Fail. I did so out of respect for Akio Toyota’s courage to “tell it like it is” and was heartened about Toyota’s future because the first step to improvement [the Japanese word for continuous improvement is “kaizen”] is recognizing and admitting your mistakes. I also read the book because I wanted to be sure my company would never experience similar problems.

Now, let’s talk about “piling on” Toyota. Akio Toyoda has been strongly criticized in recent weeks by virtually all of the media, especially the Wall Street Journal and Automotive News for going into hiding and refusing to address the recall issues. I have to ask myself “why?” given the astonishingly candid remarks he made to the world on October 2nd. Have you ever heard a CEO of GM, Chrysler, Ford, or Honda make such a statement? His comments that Toyota needed to “listen to its customers and make better cars” and that his company was “grasping for salvation” are unprecedented by any CEO of any company, auto or other, that I can recall. They were made in response to the sudden acceleration problem which, at that time was being addressed as a floor mat issue. What is it exactly that the media wanted the man to do... fall on his Samurai sword?

Toyota is the biggest and best auto manufacturer on the Planet. They build the highest quality cars on the Planet. Consumer Reports, in my opinion the most accurate, objective judge of consumer products anywhere, recommends more models made by Toyota than any other manufacturer. They have temporarily taken the eight Toyota models recalled off their recommended lists, but are putting them back on as soon as the pedals are fixed. As of February 8 all of these new models have the new accelerator pedal and are recommended. Dealers are in the process of fixing all of the ones that have already been sold.

A problem with the brakes of the 2010 Prius was announced and may result in a recall by the time you read this. Consumer Reports has gone on record as saying that the 2010 Prius’ brakes are safe and the vehicle is perfectly safe to drive. They also rank the Prius as the most reliable car on the Planet, including not only other hybrids but all gasoline powered cars too.
Guess what? Now the Washington Post is attacking Consumer Reports for saying good things about Toyota! The Washington Post also attacked NHTSA, the National Highway and Traffic Administration, NHTSA, for not being tough enough on Toyota. I wonder if they thought they were being tough enough when Ray LaHood, the U.S Secretary of Transportation, said that people driving recalled Toyotas should stop driving them immediately and take them to their dealers [how can you take them to your dealer if you can’t drive them?). Of course, somebody higher up in the Obama administration (Maybe our President himself] made him retract that statement immediately but “the bell had already rung” and more panic was created.

Why do you suppose this phenomenon occurs? I think it has something to do with the American psyche of “loving the underdog” and conversely “loving to kick the top dog”. Most people wanted the New Orleans Saints to win the Super Bowl even though the Indianapolis Colts was the better team. No other golfer except Tiger Woods would have suffered such a fire storm of criticism for infidelity.

Another factor might be “politics”. Our government has invested billions in GM and Chrysler against the argument from many that they should have been allowed to fail. You and I (the taxpayers) are now the majority stockholders of GM and Chrysler. We taxpayers are also the voters who will decide the next election. If our stock in GM and Chrysler rises we may be more inclined to reelect those who invested billions of dollars of our money in these two auto companies. One way to help GM and Chrysler sell more cars is to crush their competition. Speaking of pandering to those who have a powerful influence on elections, how about the UAW? They never liked Toyota because most of Toyotas plants are non union. If Toyota gets squashed and GM and Chrysler get larger, that creates lots more jobs for the UAW.

A final reason for this unfair piling on might be over zealous patriotism. Even though 95% of Toyotas are manufactured in America by Americans, lots of people still think of Toyota as a “foreign” car. If they gave this a little more thought, they would understand that Chrysler is a foreign car. Previously Chrysler was owned by Daimler Benz, a German company and now it will be controlled by Fiat, an Italian company. You would be amazed at some of the vile, racist email and voicemail I receive from bigots who think of themselves as patriots.

In closing I want to thank my customers and friends for the fantastic support they’ve given me and my family during these difficult times. When my home, cell, and red phones ring, most all of the calls are those of support like “hang in there, Earl. We will always continue to be you customer”. I’m writing this column on Sunday morning, February 6. A woman just called me on the red phone from my dealership. She had driven up from Boca Raton so that we could fix the accelerator pedal on her Camry. She told me that another dealer had told her it would be several weeks before they could get to her. Furthermore, not only are people still buying Toyotas from my dealership, but we are gaining market share like never before. In January we soared from the #31 volume Toyota seller in the USA to #16! We began February as the #1 seller of Toyotas in the Southeast USA.

SHOULD I BUY MY CAR AT THE END OF THE LEASE?

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 then 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 its 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 can not 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 mean that if you did take very good care of your lease car, drove it carefully, kept it in a garage, waxed and washed 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. Oftentimes 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 them 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 usually very competitive.

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?

Business Ethics:

Niche Opportunity for Car Dealers

If you tuned in my live radio talk show either of the last two Saturdays, you heard me interviewing Professor Marianne Jennings, an expert on business ethics. She’s written 10 books, the most recent being The Seven Signs of Ethical Collapse; How to Spot Moral Meltdowns in Companies…Before It’s Too Late. She made the comment that with the ethical vacuum in today’s business environment there was a true niche opportunity for those that do run ethical businesses.

I’d be lying if I said “I hate to toot my own horn” because I’m no different from anyone else. I love to brag about the accomplishments of my company’s team. The only reason I don’t do it more is because I know its boring to my customers. My customers care a lot more about being treated with courtesy, efficiency, and integrity than the fact that we sell more cars than anybody else.

But, if my company’s success can send an important and useful message to other car dealers, then touting my company’s success can serve a useful purpose. My company’s stated purpose is to “Make the car buying and servicing experiences pleasurable ones for our customers, and, leading by example, bring integrity and respectability to the image of car dealers everywhere.” Therefore this is my “excuse” to tell you and other car dealers how well Earl Stewart Toyota did in 2009. The message to other car dealers is that you too can prosper if you follow the ethical guidelines that Earl Stewart Toyota has followed.

Earl Stewart Toyota has the highest customer satisfaction scores in sales for 2009 of any other Toyota dealership from Orlando to Key West, coast to coast. We also were in a virtual tie with Maroone Toyota in Ft. Lauderdale for the best in service and parts customer satisfaction. We are the #1 volume Toyota dealership in sales satisfaction in the entire USA based on the November YTD numbers. The December numbers were not out as of today, but we were so far ahead, I’m confident we will remain #1,

We outsold every car dealership Palm Beach and Broward Counties in 2009. In fact, only Kendall Toyota in Dade County and Ft. Myers Toyota in Lee County sold more cars. We finished 2009 as the #4 volume Toyota dealership in the Southeast USA and #31 in the USA. We were #3 in Florida in 2009, but were #2 in Florida and the Southeast USA for the last half of 2009.

All of this is pretty amazing when you consider we’re located in the small town of Lake Park, Fl, population approximately 9,000. It defies conventional wisdom to think that a small town car dealer could outsell all of the dealers in Jacksonville, Orlando, Tampa, Ft. Lauderdale and even Atlanta Ga. It also defies conventional wisdom for a car dealer who rarely ever advertises a price or has a sale to outsell all those who seem to never stop having sales.

So there you have it car dealers of Florida…the secret to my success. Half of me hopes that you will listen and treat your customers better…the human side. The competitive side of me hopes that you never get it and allow me to continue to grow my market share and win over your customers.

LIST PRICE & MSRP MIGHT NOT BE THE SAME

Just when I thought that I knew all the tricks that some car dealers play, I discovered a new one in Saturday’s Palm Beach Post.The ad screamed “GET UP TO $12,000 OFF”. The new cars featured in the ad showed many discounts over $3,000 and $4,000. Then I found the gimmick. The discount was off of “List” price, not the manufacturer’s suggested retail, or MSRP. Most people, including me, use the terms list price and MSRP interchangeably. However, MSRP is a legal term deriving from a law sponsored by U.S. Senator Monroney, about 40 years ago. The Monroney label is required by law to be displayed on all new vehicles showing the manufacturer’s retail price, MSRP.The purpose of this law was to offer the consumer some basis for comparison of prices between different car dealers. Before this law was passed, a car dealer could post any price he wished on the window of a new car. If he posted a price with a markup of $10,000, he could advertise a $5,000 discount and still make a $5,000 profit.The ad I am referring to in Saturday’s Palm Beach Post shows discounts from “list” price, but defines it in the very fine print at the bottom of the ad as being “MSRP plus installed options”. There it is! The giveaway is “plus installed options”, if your eyes are good enough to read the fine print (I had to use my magnifying glass). By jacking up the MSRP with “installed options”, a car dealer has circumvented the law sponsored by Senator Monroney. This dealer can now advertise huge discounts, limited only by how high a markup he wants to put in his “installed options”. There is no law limiting the markup in an installed option. Dealers commonly install options with very low cost with high perceived value to the too trusting or careless customer. Some examples are undercoating, paint sealant, fabric protector, stripes, theft insurance, and rust proofing.I came across another surprise in The Stuart News. If you have read my past columns, you know about “dealer fees” aka “dealer prep”, doc fees, and a few other misleading names. This charge is simply additional profit to the dealer disguised as a state or federal fee like sales tax or license and registration. The amounts range from $495 to $895. State law requires that this “fee” be included in all advertised prices and my surprise was that there are some dealers ignoring this law. The prices advertised in The Stuart News in the ads I am referring to disclosed in the very fine print “all prices plus tax tag & dealer fee”. This is a violation of state law. Unfortunately, it is impossible for the Attorney General’s office to police all of the car ads in the state every day.Dealer fees, dealer prep, doc fees, etc. are bad enough even when they are included in the advertised price. The tactic employed by dealers to get around the law requiring that the dealer fee be included, it to switch the prospective buyer to another car. This is easily done by these means: (1) Pay the salesman no commission or a minimal commission on the advertised car. (2) Make the color and accessories of the advertised car very unattractive. (3) Have only 1 or 2 cars available at that advertised price. (4) Limit the time a buyer can buy that specific car by fine print saying “price good on date of publication only”. (4) Simply telling you that the car has already been sold. How are you to know? Many states like California make dealer fees illegal. In my opinion they should be made illegal in Florida. Please write your legislator on this issue.Your best defense against this kind of thing is to choose the dealership you buy your car from with great care. Find a dealership that has a good reputation with the Better Business Bureau, Count Office of Consumer Affairs, and the Attorney General’s Office. Preferably choose a dealer who has been in business for a longer time. Ask friends, neighbors or relatives who may be driving a model that you are interested in how their experience was with that dealer.

South Florida Car Dealers: Give Me a Call Saturday

As many of you know, I’ve been doing a live radio talk show, “Earl Stewart on Cars” for over three years. The show is aired on Seaview radio, 95.9 FM and 960 AM every Saturday morning between nine and ten. My wife Nancy is part of the show and we try to give advice to car buyers and car owners about buying and servicing their cars, especially how to avoid being taken advantage of by some car dealers. My weekly intro to the show goes like this:

“Good morning. My name is Earl and I’m a recovering car dealer. I sold my first car in 1968. A little more than ten years ago, I decided I was selling cars the wrong way. This show is just one of the ways I’ve changed my company and my life for the better. I’ll share with you all of the tricks of the trade I’ve learned in almost 40 years of selling cars. I’ll answer all of your questions about buying a car or having it serviced. I’d like to share with you this quote from Jim Press, the former top Toyota executive for all of North America. Jim said, ‘It’s what you do for a customer when you don’t have to. That’s the measure of true character…kind of like sticking up for someone who can’t defend himself’.”

We get a lot of callers almost every Saturday. People call to share their bad experiences, and some good, with their car purchase or service. We get a lot of questions on subjects like is leasing better than buying or should I always take my car back to the dealership for service or use an independent shop. Our Saturday morning show has exceptionally good ratings and our listener base is growing rapidly. The Seaview management is even discussing bringing the show national through syndication.

If I have any regret about my show, it’s that I don’t get any calls from other car dealers or their employees. I have received a few calls from car dealers from other parts of the country. Most of these are retired and have moved to South Florida. These calls are always complimentary. If you’ve listened to my show, you know that I’m very candid in my criticism of many South Florida car dealers. I’ll specifically name a car dealership and a specific ad if it’s illegal or deceptive. I also discuss specific unethical sales practices like quoting prices that are lower than what the dealer will sell the car for. I’m highly critical of the “dealer fee” which is added to the quoted and advertised prices of cars by almost every dealership in South Florida.

Last Saturday, I thought I had a great idea about how to encourage car dealers or their employees to call my show. I offered $100 to the first employee or ex employee [employed within the past year] to call into the show. I even offered $500 to the first such caller from any of the many Napleton dealerships. The Napleton dealerships are the largest auto advertisers in the PB Post and have many franchises and locations in PB County. Napleton advertises prices that are disclosed in the fine print to be plus his $799 dealer fee and “dealer installed accessories”. He also excludes multiple rebates from the advertised prices like college graduate, active military service, and owner loyalty when very few, if any, buyers could qualify. I consider this to be unethical and deceptive advertising.

I was amazed that I did not get one call from a single car dealer or their employee taking me up on my offer. I deliberately included ex-employees as being eligible because I thought that current employees may be intimated to call the show if still working for the dealership. I promised the callers that I would give them as long as they wanted to voice their side of the story regarding their advertising and sales practices. I assured them that they would not be cut off or muted out as many talk show hosts do when they have a caller who is vociferously disagreeing with them.

I’m going to give this another try this coming Saturday, January 16. I might even “up the ante” if I have to. Hearing the car dealers’ side of the story is not only fair, but it makes for much more interesting and exciting radio. If you’re employed by a car dealership in South Florida or were within the past year, please consider calling in. The show will run this Saturday morning between 9 and 10 and the toll free call-in number is 877 960-9960. I promise you that your opinions will be heard and I will not insult, abuse, or embarrass you or cut you off. Do you know someone that works for a South Florida car dealership or did within the last 12 months? Please let them know that they can make a fast $100 [or $500] if they are the first to call into my show.

BAIT & SWITCH ADVERTISING

(READ THE FINE PRINT)

All car dealers pay the manufacturers the same prices for their new cars. Dealers will lead you to believe that volume dealers pay less, but this is not true. So, when a car dealer advertises a price for a new car in the newspaper, he has no price advantage over his competition.

Virtually all of the prices for new cars you see advertised in the newspaper are so low that it would be impossible for a dealer to remain in business if he sold more than a very few cars at that price. The reason for this is that, if a dealer advertised realistic prices with a reasonable profit built in, another dealer would advertise a lower price. The dealer who advertised a realistic price is actually helping his competitor sell a car.

Most of the new car prices advertised in the newspaper are below the dealers actual cost. He protects himself by selling very few at this price and counting this loss as a cost of advertising. Next to an advertised car you will see some letters and numbers like, #5632A. That is the “stock number” of the car being advertised. This is all that the dealer does to tell you he has just one at this price. The chances are that if you are not the first person in the dealership on the morning of the ad, this car will be gone.

Look for these two fine print disclosures at the bottom of the ad: (1) Price good on date of publication only. (2) Price good with copy of this ad only. These are just two more ways the dealer can avoid selling you the car at the advertised price.

If you read my last column, you understand about “dealer fees”. These fees are additional dealer profits ranging from $500 to almost $1,000 that are added to the agreed upon price of the car by most dealers in Florida. Florida law requires that this dealer fee be included in the advertised price. When the salesman tells you the advertised car has been sold but he has another one “exactly like it”, he can legally add back on that dealer fee.

As you can guess, the salesman’s commission on an advertised car is either zero or very small. Having a very small incentive to sell an advertised car, he will most likely encourage you to buy any other car.

My recommendation to you is to ignore advertised new car prices. If you must respond to an ad car, call the dealership first and ask if the car is still available. If the answer is no, you have saved yourself a lot of time and aggravation. If the answer is yes, ask if they will hold the car for you. If you have to, offer to give them your credit card for a deposit to hold the car. If they won’t hold the car, save yourself the wasted trip.

The only way to get the best price on a new car is by getting competitive bids from at least 3 car dealers for the exact same year, make, model, and accessorized car with the identical MSRP. You can do this on the Internet, by phone, or in person. Use Consumer Reports magazine, the Internet (www.edmunds.com and www.kbb.com are two excellent free sources of information), or even your local library.

CASH FOR CLUNKERS COVER UP?

“Cash for Clunkers” aka CARS, the government stimulus program for the auto manufactures and dealers last August was generally regarded as one of the more effective stimulus programs of the Obama administration. It cost us taxpayers $3 Billion but it sold almost one million new cars. There are arguments on how many extra new cars it sold and how many of those that were sold would have been sold eventually anyway. But, overall, it is generally considered a far more effective stimulus than TARP and certainly a lot less expensive.

What puzzles me is why there is so little media coverage of the fact that most customers who bought new cars under this program did not receive a fair trade-in for their clunker. There was a class action lawsuit filed in New York against one of the largest dealer groups in the country on this point and the Oregon Attorney General has ruled that all car dealers must pay their clunker customers what they received from the salvage yards to which they sold the clunker. Both of these incidences received virtually no national or local media coverage.

In my judgment, the clear intent of the Cash for Clunkers program was that the buyer should receive a trade-in allowance commensurate with the value of her clunker, just like a normal sale with a trade-in would. Unfortunately, the government did not make this abundantly clear and therefore most car dealers took advantage of this “loophole”. Most car dealers allowed hundreds of dollars less than they actually sold the clunkers to salvage yards for. Some dealers gave their clunker customers absolutely nothing for their trades.

I read in the auto manufacturer/dealer trade publication, Automotive News, that the average trade-in allowance estimate for clunkers was $75. Since the government did allow the dealer to keep $50 for administrative costs, this meant that the average clunker customer netted $25. I sold 286 new Toytota in the clunker program and my average sale to the salvage yards was for $445. If this average applied nationally to the one million clunkers, this would mean that car buyers under the clunker program were underpaid on their trade-ins by about $400 million.

One has to ask, why the media is ignoring this at least ethical violation which has cost American car buyers hundreds of millions of dollars. I can think of only one reason and that is the fact that car dealers and manufacturers are among the largest advertisers. Asking the same question of why the NHTSA doesn’t take action I can think of only one reason too. That is that the National Automobile Dealers Association, NADA, is a very powerful lobbying group. They are so powerful that they were able to at least temporarily halt the cancellation of GM and Chrysler dealers by GM and Ford which was mandated under the government bailout program.

The amount that a clunker was sold to a salvage yard for is a matter of public information and should be available from NHTSA under the Freedom of Information Act. If you bought a car under this program, you might be interested to know how much you should have received as a trade-in vs. how much you actually received. I’m working on accessing this information and I will advise all of my readers when I’m successful.

The Six Deadly Sins of Car Salesmen

The internationally renowned research and polling company, J.D. Power, LLC conducts an annual survey of U.S. car buyers to learn what motivates them to buy from one particular car dealer rather than another. Their latest survey of 48,000 recent car buyers discovered that there were six reasons that people chose not to buy from a car dealer.

Surprisingly 49% of people who buy cars, buy from the first dealership they visit. This is a shocking statistic to me because it means that a lot of car buyers are not getting competitive prices from several dealers. This means that they overpaid for their vehicles. Of the 51% of those 48,000 car buyers who shopped more than one car dealership before buying, 21% bought the same make car from another dealer than the first one they visited for six reasons. I’ve labeled these “The Six Deadly Sins of Car Salesmen”.

(1) Thou shalt not be rude to thy customer. In schools for sales people, no matter what you’re selling, you’d think this would be full explained. How could a salesman expect to make a sale after insulting the prospective customer? But, apparently it happens often. One of the most common offenses is male chauvinist car salesmen referring to female customers as “honey” or “sweetie pie” and even telling them to go home and come back with their husbands.
(2) Thou shalt not be dishonest with thy customer. Of course this applies only to the salesmen who are “caught’ being dishonest.
(3) Thou shalt be knowledgeable about thy product. Today’s automobile is a highly complex, very sophisticated computerized machine. Buyers look to the sales person for answers to their questions. A buyer rightfully assumes that, if the salesman can’t even show me how the navigation system works or tell me what the city gas mileage is, why she should believe he’s right about anything else he has been telling her.
(4) Thou shalt not pressure thy customer. Can you believe that car salesmen still haven’t figured this one out yet? Who likes to be pressured? I often drive by car dealerships and see a half dozen or more sales people gathered together in a “pack”, often smoking cigarettes waiting for their prey to drive onto the lot. I wonder how many prospective car buyers just keep on driving after drinking in that fearful scene.
(5) Thou shalt not ignore thy customer. My first reaction to this one is how a salesman, especially in such dire economic times, could afford to ignore anybody that might be thinking about buying a car. The unfortunate answer is that a lot of car salesmen think they can tell just buy a person’s appearance if they can afford to buy a car. Boy is that stupid! I know many wealthy people who dress down because they like the comfort or because they don’t want to be seen as having a lot of money. That guy who walks into a car showroom wearing a Tee shirt, flip flops, and jeans may well be able to buy the whole dealership.
(6) Thou shalt quote thy customer a firm price. You may find this hard to believe, but this is true of 95+% of car sales people. In fact, a lot of car dealerships have a firm rule never to give a prospective customer a firm price unless that customer will buy now. A salesman can be fired for giving a customer a firm price and letting that customer leave the dealership. This is “old school” but still common and it’s very insulting to the customer. When I ask other car dealers why they continue this practice, they ask me “why should I give the customer a firm price so that he can go to my competitor and let him beat it by $100?” What these car dealers don’t understand that this is what the free marketplace is all about…shopping and comparing products and prices so that you can make the best buying decision. If you deny your customer this inherent right, he will not buy from you. If you do give the customer a firm price, you show your trust and often times that customer will return to give you a 2nd chance to meet a better price.

I wish all of my readers a Merry Christmas or I hope you already enjoyed a happy Hanukah and I wish everyone a happy New Year.

Shame on Florida and Federal Politicians and Regulators

On December 11th [my birthday] the U.S. House of Representatives passed a bill which provides a sweeping overhaul for oversight of financial institutions by a new Consumer Financial Protection Agency. This was in response to an effort by our federal government to improve regulation of our lending institutions and avoid another financial meltdown which came close to bringing us into a 2nd depression.

Before the bill could be passed, an amendment to subject car dealer-assisted financing to some Consumer Financial Protection Agency oversight was withdrawn. This was the result of strong lobbying efforts by the National Automobile Dealers Association. Consumer advocates argued that dealers are the biggest target of consumer complaints to state agencies and have been the subject of a number of lawsuits over financing for consumers.

“The House exempting auto dealers from fiscal oversight is just not right”, said a Consumer Federation of America spokesman Jack Gillis. “Each year millions of Americans finance their second biggest purchase through car dealers, and these consumers deserve the same protection as those working directly with financial institutions.”

We see the same dereliction of duty by Florida politicians, regulators and the Florida counterpart to the NADA, the FADA Florida Automobile Dealers Association. The Florida legislature is lobbied heavily by the FADA not to pass good laws to protect Florida car buyers and the Attorney General will not enforce the ones we already have.

I know exactly what car dealers and political conservatives [I’m both] will say when they learn about this…”We don’t need more government regulations and laws”. However, I have to reluctantly differ on this. It’s easy enough to say that we don’t need more laws and regulations but what we do need is enforcement of the laws and regulations we already have. That’s true, but what happens when you do not enforce the current laws and regulations? We do not enforce them and that’s what got us into this recession. When you see more laws added to the books, it’s because the current ones are being ignored. It may be faulty logic, but making new laws is at least doing something.

If Bill McCollum reads this or politicians like Dave Aronberg who are running for Bill’s current position of Florida Attorney General, I’m talking to you. I’ll describe advertisements by just one car dealer in the PB Post auto classified section. You can see for yourself if you can locate a copy of last Saturday’s paper. If you can’t don’t worry because the same ads run almost every day. You can see similar ads in newspapers [and TV and radio] all over Florida. I gave you an easy one to find because this dealer spends more on advertising in the PB Post than any other. You can’t miss his ads…or maybe you can because you have allowed him to run rampant for years.

Should I lease or buy my next car?

Unfortunately, as with most things, there is no simple answer to this question. However, it is important that you evaluate both options because one or the other usually will have a significant cost advantage.

The most important factor in deciding between a lease and a purchase is the vehicle you choose. If you are buying a used vehicle, you can pretty much rule out a lease as a viable alternative. The reason for this is that banks and other leasing institutions do not offer favorable money factors or residuals on used cars. This translates into you paying more for the lease. Ironically, residuals should be relatively higher for used cars. The residual is the percentage of the depreciated value of the car remaining at the end of the lease. A used car experiences the largest portion of its depreciation when it is driven off the showroom floor. But banks and leasing institutions are leery of used cars because they have to rely too heavily on the dealer for their true condition and most used cars have no new car warranty remaining.

If you are buying a new car, the most attractive leases will usually be with makes and models having the highest resale values. You can check this by comparing the cost of the new car with the wholesale value of a 2, 3, or 4 year old model. A good Web site for this is www.kbb.com, the Web site for Kelly Bluebook. This is how the banks and other leasing companies calculate their residuals. The makes with the higher residuals and resale values are your more popular makes, those that don’t employ excessive rebates and incentives, and those that don’t sell large numbers of cars to rental and leasing companies. Generally speaking, these are mostly your Japanese makes, some European, and even some domestic cars that are in high-demand and low supply like the Chevrolet Corvette or Pontiac Solstice.

If you decide to purchase a new car that has a high resale value which makes it makes it a good candidate for leasing, be sure that you get lease quotes from several banks and/or leasing companies. The money factor (equivalent of the interest rate in a purchase) and residuals will vary. You should shop your financing if you are buying and shop your lease rates/residuals if you are leasing.

Many people think there is a “tax advantage” to leasing. This is not true. You can deduct only that portion of the usage of a car that is for business whether you lease or buy. For a lease that represents part of the lease payment and for a purchase that represents part of the depreciation.

Here are some things to be careful of if you lease: (1) Your insurance cost will be considerably higher. (2) Do not opt for a lease term beyond the time you want to drive the car. You may be tempted by lower payments on lease terms from 60 to 72 months, but don’t do this! You are obligated to pay the leasing company for many more months than you want to keep the car and you will have to pay a very large sum of money to get out of the lease early. (3) Never allow a dealer to switch you from a purchase to a lease at the last minute simply because they offer you a lower payment. This is common tactic to raise the profit on the transaction. Remember, at the end of the lease you own nothing, but after the last payment of a purchase, you own the car so naturally, your lease payment will be lower than a purchase payment. (4) Be sure you understand how many miles per year you will be allowed in your lease without a charge per mile. Most leases are for 12,000 miles per year. If you drive more miles per year, you could be confronted with a very large surprise charge at your lease termination. (5) When you sign your lease, there will be a “fee” commonly labeled a “lease acquisition fee”. Part of this fee goes to the leasing company but part may go to the dealer and is negotiable. Ask him to waive his portion of the lease acquisition fee because it is part his profit on the lease.

The cost of a car is total cost of the car during the time you drove it. If you lease, that is the sum of the payments. If you buy it, it is the total cost of the depreciation plus interest. Of course you have extraneous costs like maintenance, insurance, repairs, and fuel, but (except for insurance), these are the same for a lease and purchase. Too many people look only at the purchase price of the car. A higher priced car with a higher resale or residual value can actually cost you less than the lower priced car.

10 New Years Resolutions for Car Dealers in 2010

2009, with the exception for August [Cash for Clunkers] will go down as a 2^nd bad year in a row for our economy and especially for car dealers. I’ve been a dealer for over 40 years. I say that because I don’t want those dealers who read this to think I’m “kicking them while they’re down” by preaching redemption. I’m suggesting these resolutions because they can help these dealers survive these bad times and prosper even more when business returns to normal.

(1) Eliminate your dealer fee. We’ve seen some progress in dealers eliminating their dealer fees in Palm Beach County. Palm Beach Toyota and Royal Palm Toyota dropped their dealer fee in June and Royal Palm Nissan dropped theirs in November. This was due, not to a “moral revelation” by the dealer or legislative action but economic pressure. Palm Beach Toyota and Royal Palm Toyota are my two nearest competitors. Six years ago, when I eliminated my dealer fee, Royal Palm Toyota did not exist and Palm Beach Toyota was outselling my dealership by a wide margin. Now I outsell both dealerships combined. Hopefully other dealers can learn from this economics 101 course, Ethical Business Practices Equal Increased Business. Quote your customers the full, out-the-door price. The only additional costs passed to your customer should be federal, state, or local taxes and/or fees like Florida sales tax. This is the generally accepted practice in retailing all other products and services. A price is quoted to your customer when you communicate a price in any fashion including advertising a price in the newspaper, radio or TV, painting a price on a windshield or sign, saying a price over the phone or in person, or giving a price over the Internet. Your “dealer fee” is profit for you. It is not a “fee” and it should be included in your price.

(2) The buck stops with you. You are responsible for the actions of your employees. Your salesmen, service technicians and service advisors are virtually all paid on commission. If you do not police your people and hire ethical people your customers will be taken advantage of. If you are an absentee owner, as most owners of car dealerships are in South Florida are, you have to have someone running your store that knows and cares about what is happening to your customers. Your ignorance of the mistreatment of your customers is no more an excuse than being ignorant of a law when you break it. You may think you know how your employees are treating your customers, but I promise you that you don’t unless you communicate directly with some of them. You cannot rely exclusively on reports from your managers to tell you the truth.

(3) Don’t advertise a car at a price that you don’t want to sell it for. If you advertise a car for a specific price, you should be willing and able to sell that car to as many customers as respond to the ad. If you run out of stock, give the customer a rain check. Also, pay your salesmen a commission on the ad cars. Now most of you don’t pay a salesman a commission if he sells the ad car. What do you think that salesman is going to tell the customer who comes in on the ad? If you run out of that model, you should give your customers a rain check. When you don’t do that, it’s called “bait and switch”.

(4) Don’t insist or encourage your customers to buy and take delivery of their car on the same day. This is called a “spot delivery” in the trade. There are lots of thing bad about this. A car is the 2^nd largest purchase a person makes. The customer should be allowed time to reflect and think about this decision. Cars are often spot delivered when the credit has not been approved, especially nights and weekends when the banks are closed. Customer often have to be called back to sign another contract at higher payments, higher interest, and/or higher down payments. This is sometimes done deliberately because customers are often too embarrassed to tell their friends that they really haven’t bought that shiny new car they were showing off. Attorneys in other states have filed class action suits against car dealers and attorneys in this state are working on doing the same.

(5) Give customers who are” just looking” a price when they ask for it. It’s insulting to today’s sophisticated buyers to be told when they ask for the price that they can buy the car for, that they have to make an offer in writing with a deposit first. It’s also insulting when you tell the customer that you won’t give her a price until she’s “ready to buy”. Can you imagine being told this by a salesman at Best Buy when you asked the price of 50” Plasma TV? Your salesmen won’t give prices to your customers because they are afraid the customer will compare his price with the competition. This is what the free market place is all about! Customer should shop and compare. If you treat your customers with respect, integrity, and courtesy, they will return to you an offer you the right to meet or beat a lower price.

(6) Don’t advertise discounts from “dealer list” price. When you mark up the manufacturer’s list price by thousands of dollars and then advertise a discount, you are misleading you customers. The federal government has a law that every new car displays a “Monroney label” [named after the U.S. senator who sponsored this bill] on the window when it is sold. The reason for this law is to give car buyers a fair, even basis for comparing prices between different dealers. By confusing your customers between “dealer’s list” and “manufacturer’s list” you are circumventing the law.

(7) Don’t advertise lease payments that require large down payments hidden in the fine print. Most people lease cars to minimize their monthly payment. When your customer comes in on the ad finds out she has to pay $4,000 cash down to get the lease payment you advertised, it’s just plain wrong. There are some dealers who actually advertise prices with a qualification that the customer pays an additional sum first to get the advertised price.

(8) Do not advertise that you can get anybody financed no matter how bad their credit. This is not true and just plain cruel, especially during these terrible economic times with very tight credit.

(9) Don’t guarantee the lowest price with qualifications that cannot be met. Your qualifications are usually that you “reserve the right to buy the other car from the other dealer who beat your price” and that the customer must have a signed buyer’s order from the other dealership. You know that the other dealer will never agree to sell you that car and you also know that the chances of the customer getting out of the dealership with a signed buyer’s order without taking delivery are slim and none. Dealers reading this, I dare you to show me evidence that you have honored your guarantee with jus one customer. I’ll make you a bet that you have never honored that guarantee.

(10) Don’t offer a minimum $10,000 [or some other high number] for every trade-in. Sometimes these ads, say “if you can push, pull, or drag your old car in we will give you at least $10,000 toward the purchase of a new car. You then mark up the new car so high, you are not really offering the customer anything more than the wholesale value, if that.

Don’t Be “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 about 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?”

Earl Stewart: Consumerist or Capitalist?

“I’ve chosen to run the article below as my column this week. My dealership was honored to have
this article published in Toyota Today, which is the nationally circulated magazine for all Toyota employees and Toyota dealers in the USA.”

Outspoken Owner is ‘Complex’ Mix of Both

By Dan Miller /toyota today november/december2009

In the South Florida realm where he presides over the Toyota dealership that bears his name, Earl Stewart is a full-blown consumer advocate celebrity. He stars in the store’s television advertising. He posts a blog. He writes a newspaper column. He works the local speakers’ circuit. He even hosts a radio show, greeting his listeners with, “Good morning, my name is Earl and I’m a recovering car dealer.” “I’ve become a symbol,” he says of Earl Stewart Toyota of North Palm Beach. “Everyone wants to meet me. I don’t get any work done.”

Actually, if pressed, Stewart will admit that portraying the straight-talking grandfatherly car salesman who helps customers “get a fair shake” is his work. His three sons, Stu and Jason as co-general managers and Josh as Internet manager, mind the day-to-day store operations. That frees up Stewart, with the support of his wife Nancy, vice president of special projects, to spread his gospel of goodness, even if he ain’t no saint.

“It’s a complex thing,” says Stewart of his customer-centered philosophy. “If I did all of this and it hurt my business, I’d stop doing it. I’m no masochist. I want everyone involved to feel better about buying and selling cars. But it has to work. I have to be honest about that.”

Stewart’s career in car sales has almost always worked. His father, the original Earl Stewart, founded a Pontiac dealership in West Palm Beach in 1937. Stewart joined the family business in 1968 and the Toyota franchise came on stream in 1975. Back then, Stewart enjoyed success by selling cars the old-fashioned way, with high-pressure haggling. He raised his three sons, lived in a nice house, fished from the deck of a 60-foot sport boat and invested in other businesses.

But over the last decade, Stewart has systematically reengineered his approach. The book, “Customers for Life,” by Lexus dealer Carl Sewell was a primary influence. So was the University of Toyota’s Total Quality Executive Management course. But the real wake-up call came four years ago when Stewart was diagnosed with colon cancer.

“I thought I was going to die,” he says. “I now see things in a different light. I realized I wanted to pass along a business to my sons they can be proud of. And perhaps one day they can pass it along to their children.”

As such, unorthodoxy abounds. Advertising that once pushed price now promises fairness, courtesy and integrity. Red hotline handsets programmed to ring Stewart’s cell phone are strategically placed throughout the store, inviting customers to call if they’re not completely satisfied. Stewart’s business card divulges his cell and home phone numbers. Dealer fees, boosting the customers’ cost with little or no increase in value, have been eliminated.

The results? Among Toyota dealers, Earl Stewart Toyota ranks No.1 in volume in Palm Beach County, No. 5 in Southeast Toyota and No. 38 nationally— though located in a town of just 8,000. Monthly sales jumped from about 100 units 10 years ago to more than 350 in 2007, pulling back to the 200-plus level amid the current economic downturn.

“Did I change to sell more cars and make more money? Yeah, that’s part of it,” says Stewart. “But I also feel good about myself and sleep better at night. And my sons definitely feel better about the business, too.”

Reflections on Scott Rothstein, Greed, Courage and Karma

We have an alleged “mini Bernie Madoff” in South Florida and his name is Scott Rothstein. As I write this article, you will see the word “alleged” used a lot because, if I miss it once, Scott Rothstein will probably sue me. Let the record reflect that I intended to use the word “alleged” in front of every bad thing I say about “Scottie”.

First, let’s talk about greed. Guys like Bernie Madoff can scam people so easily because of the greed of the “scamees” [I hesitate to use the word sucker, for fear of being sued]. Most of Bernie’s victims were educated, wealthy, and sophisticated individuals. This raises the question of how such a person could believe that they could continuously earn higher returns on their investments than everybody else and never have a loss year. Add to that that they were refused any information about “how” Bernie was investing their money. Wouldn’t this make you nervous? I can come up with only one emotion that can overcome the common sense that would tell most people that this was a scam and that is pure, unadulterated greed.

The parallels between Bernie’s capers and those allegations against Scottie are many. The investors were educated, wealthy, and sophisticated. Also, Bernie didn’t draw the line at scamming business associates and investors unknown to him. Allegedly, one of Scottie’s biggest scores was from Ted Morse and his family and auto dealerships. Scottie was quoted as saying Ted Morse was his best friend. News reports say Ted was cheated out of $25-$60 million and his own lawyer admitted that it was in the “tens of millions”.

Further parallels are that investors with Scottie were told that they would get a guaranteed 10-15% annual return on their investments…strikingly similar to what Bernie promised his investors. Scottie’s investors were told that no details of the investments could be revealed to them because they were based on confidential settlement agreements. Scottie allegedly told some of his “scamees” that several of the settlements he was asking them to finance were to victims of the infamous Jeffrey Epstein, the Billionaire Palm Beach investor, convicted of paying children for sex. One story that Scottie told was that Epstein flew Bill Clinton down on his private jet to Palm Beach after setting a up a “date’ for Bill with an under aged girl. Of course, Bill wanted to settle this thing confidentially with the young girl who was a client of Scott Rothstein’s. Now, you can’t make this stuff up! Would you believe such an outrageous story?

Now let’s talk about courage. Every day that passes reveals more people who claim they knew Bernie Madoff was a crook all along. If that’s the case, why didn’t they speak up a long time ago? To be fair, there was one man, Alex Dalmady, who did speak out but the SEC ignored him. If Scott Rothstein stole $500 million in such an obvious Ponzi scheme based on such an outrageous premise, why didn’t lots of people speak out? I know local lawyers who, off the record, will say they knew all along that there was no way Scott Rothstein could earn the money to support his decadent life style from the proceeds of his law firms’ legal activities. Why didn’t they speak out before? I can tell you why…they were afraid they would be sued. The operative word here is “afraid”.

Almost every time I write this column, I wave a red flag at somebody [usually a car dealer] who must think about suing me and sometimes do. Abraham Lincoln said, "To sin by silence when they should protest makes cowards of men." He was referring to those who, in their hearts, knew slavery was wrong but were afraid to speak out against the status quo. I could also quote Ray Eberle who wrote “Fools rush in where angels fear to tread”. You can make the call as to whether I’m a brave man or a fool, but I believe in speaking my mind when it comes to those that do wrong.

Finally, let’s talk about Karma. You may never have watched the TV sitcom, “My Name Is Earl”. It’s kind of silly and not everybody’s cup of tea. Of course, I watched it when it first came out because of the name. There aren’t many of “us Earls” around. When I learned that the premise was about a character, Earl Hickey, who changed overnight from being a common crook to an honest person who devoted the rest of his life to redeeming his past sins, I was hooked. After all, that’s the story of my life too. I went from an average car dealer who would do almost anything to sell a car to a consumer advocate for the car buyers of Florida. The word Karma comes into play in “My Name Is Earl” because Earl’s hit by a car and then the wind blows away his million dollar lottery ticket. He interprets this as Karma punishing him for his past sins. He begins a quest to make whole all those he swindled and Karma causes the wind to blow the winning lottery ticket right back to him! You can watch reruns on Fox Channel 29, WFLX, week nights at 7 PM.

Here’s what Karma [or whatever you want to call it] has done for me. As of last month, my Toyota dealership in Lake Park, FL [population 9000] has sold more cars in this year than any other car dealer in Florida except two. We are the 4th largest volume Toyota dealer in the Southeast USA and the 34th largest in the USA. I alluded earlier to my being sued because of what I wrote in this column [which I also blog]. Guess who sued me! It was Ted Morse and his lawyers from Scott Rothstein’s law firm. Not only did Scottie’s law firm sue me on behalf of Ted Morse but they also sued me themselves. They alleged that I had defamed them as well as Ted. Of course, Rothstein’s law firm was dissolved because the FBI is investigating the owner for a $500 million Ponzi scheme and he took all of the law firms money to boot. There isn’t enough money to pay the law firm’s employees or the law firm’s clients and escrow monies. I’m waiting to see if they can scrape together enough money to continue their suit against me and defend my suit my suit against them. Stay tuned for further developments.

Always get an “Out the Door” Price

Many states have laws prohibiting car dealers from adding “fees” onto the prices they quote you. Unfortunately, Florida is not one of these states. The state law in Florida requires only that the dealers disclose on the buyers’ order that this additional charge is not a local, state, or federal fee, but is actually just profit to the dealer.

Almost every car dealership in Florida has this extra profit printed on their buyer’s order, under an assortment of labels like “Dealer Fee”, “Doc Fee”, and Dealer Prep”. You will not see it on the car’s price sticker you will probably not hear any verbal disclosure by the sales person or manager, unless you ask. If you ask, you will be told that “all other dealers charge this” and this is “almost” true.

Florida law also requires that when a dealer has this additional profit printed on his buyer’s order, he must not delete it for some customers and charge it to others. The only way he can effectively eliminate this extra profit is by reducing the quoted selling price of the car by this amount, but keep the dealer fee amount that is printed on the buyer’s order. This is rarely done because dealers do not pay their salesmen or managers a commission on the dealer fee. If you demand the price be reduced to compensate for the dealer fee, it cuts the salesman’s commission. Dealer fees range from $500 to $900 and a typical salesman’s commission is 25%, costing the salesman $125 to $225.

Florida law requires that a dealer include the dealer fee in the price of an advertised car. This is often ignored by dealers advertising on the Internet and in direct mail because it is below the “radar screen” of the Attorney General’s office. In newspaper, TV, and radio ads one car is advertised at a low price with a seemingly innocuous designation like “#1234B” (the stock # of the car) all there is to tell the buyer that only one car is available at this price. Another common tactic is a fine print disclosure at the bottom of the ad reading “price good on date of publication only”. The odds of being able to buy one of these cars at the advertised price are not good. Not only is there only one car with the price good for just one day, but the salesman receives no commission or a much smaller commission if he sells you this car.

My advice is not to pay much attention to advertised car prices. Do your shopping on the Internet or by telephone. Insist on an “out the door” price including everything except sales tax and license tag. If buying a new car, get several “out the door” prices quoted on the exact same year, make, model, and accessorized car. Two very good free Web sites to get information on dealer costs and fair retail prices are www.kbb.com and www.edmunds.com. Consumer Reports is also an excellent source of product information and pricing information, but there is a fee for their Web site.

Open Letter to Florida Car Dealers V

Ethical Car Dealers Attract the Best Customers

Dear Florida Car Dealer:

In past columns I have “confessed” to advertising and employing sales tactics in years past that I am not proud of today. I hasten to say that I never did anything illegal, but 20 to 40 years ago my ethical standards were a lot lower than they are today. I evolved and my customers evolved. Consumers today are far better educated, informed, and demanding than those of three decades back. As I my business practices, sales tactics, and advertising improved, I noticed a very interesting, positive parallel improvement in the kind of customers my company was attracting. It was a sort of a “push-pull” phenomenon. I needed to get better to meet the expectations of my customers and, as I improved, I attracted a better kind of customer.

Today, my customers are smarter, more affluent, better educated, and “nicer”. There’s a good reason for this. For one thing, my advertising is totally ethical and honest. I don’t advertise used cars for $99, I don’t advertise that, if you buy vehicle you can get a second one free, and I don’t advertise a car below cost knowing that there is only one available which is next to impossible for the customer to buy. When you advertise like this, you attract people who are uneducated, gullible, naive or expecting “something for nothing”. The smart, fair dealing customers who know that “there is no such thing as a free lunch” buy their cars from me. I don’t surprise my customers with a dealer fee/doc fee ranging up to $1,000 which is nothing more than profit to you. In fact, many of my customers were almost yours, until you tried to “slip in” your dealer fee. A lot of my service customers used to be your service customers until they discovered that you charge an extra 5% or 10% on their service bill and tried to justify it by calling it “sundry supplies”, “shop supplies” or “environmental impact fee”.

So, you ask, what’s so great about having smart, educated, affluent, and nice customers? Well, for one thing, I don’t get sued like you do and I don’t get nasty letters from the BBB, County Office of Consumer Affairs, and Florida Attorney General’s Office. The last time I was sued was about 7 years ago. Ironically, my customer’s lawyer sued me because I settled a dispute with his client (my customer). After he wrote me a letter saying he was suing me I called his customer on the phone, drove out to her home, sat down with her and her husband at her kitchen table and settled our differences over a cup of coffee. This lawyer sued me because I had deprived him of the fee he would have charged her if he could have sued me. It’s an ongoing saga after all these years. It’s too long a story to tell here, but I will write a column about it one day. I’m guessing that the car dealers who read this column (and I know you do) have at least a half dozen lawsuits going on all of the time.

Another great thing about having nicer, smarter, more affluent customers is that they treat my employees and me with courtesy and respect, just like we treat them. I love to walk into my dealership because customers smile and wave and even stop me to tell me how well they were treated. Customers, who don’t see me in person, know that all they have to do is pick up one of four red phones located in the showroom, service drive, next to the service cashier, and in the body shop to be in immediate personal contact with me. I even give my customers my business card with my home phone number and my cell phone number. Most of the calls that I get are complimentary, just like my personal encounters. You wouldn’t do what I do because you couldn’t. Your secretary screens your phone calls and you wouldn’t dare give your home or cell phone number to a customer. By the way, if you aren’t familiar with my dealership, I probably sell a lot more cars than you do…I average about 475 a month. I have a lot more customers than you, so it’s not like I’m a little rural car dealer who can get away with what I do because I have so few customers.

Here’s another benefit of having such nice, intelligent customers. They don’t have unrealistic expectations like your customers. Remember that you probably tricked your customer into coming in with your advertising. If it worked and your customer bought a car from you thinking that you really could give him $10,000 minimum trade allowance on his car which was really worth only $500, you have reinforced his unrealistically high expectations. In his future dealings with you, he will continue to believe that he can get “something for nothing”. When you finally have to tell him “no”, he’s going to be mad, maybe even sue you.

There are other benefits, too numerous to mention, of having such happy, nice customers. Wouldn’t you like to come to work in that environment? Just think, no more law suits, no more nasty letters from governmental agencies, no more threats from the factory about your customer satisfaction index, and you could walk right through your service department or through your showroom without fear of being accosted by an irate customer. If you would like to give this a try, I would love to discuss it with you personally at any time. This is my 5th open letter to car dealers and I have yet to receive the first phone call… just a few nasty, anonymous emails. Maybe you will be the first to call.

Holdback or Holdup?

Back in 1968 when I first went into the retail car business with my father, I can remember asking him, “What is holdback?” I was learning the business and had been studying the invoices on new Pontiacs that General Motors sent us when they shipped a new car that we had ordered. We had to pay the invoice immediately when it was issued, sometimes even before the car arrived at our dealership. Actually, in most cases, it was our bank or GMAC who paid GM and we borrowed the money from them to pay for the car.

My father’s answer to my question about holdback was that it was an increase in the amount of the invoice that we paid General Motors which was not really part of the price of the car. It was just an extra amount added to the real price of the car and included in the invoice. At that time it was 2% of the MSRP [suggested retail], so if a new Pontiac Bonneville had an MSRP of $10,000 and a true cost of $9,000, the factory invoice would be $9,200. I asked my father, “When do we get the $200 back?” He said, “At the end of the year”. I asked him if they paid us interest on our money and I can remember him laughing loudly and saying no.

Of course my next question was why they do that. He told me that the reason they gave him was to be help dealers sell their cars for more money so that they didn’t go broke. He said that because they didn’t get their holdback money for such a long period of time, they began to think of their invoice as being the actual cost of the car. General Motors felt that many dealers were such poor businessmen that they might sell their cars so cheaply that they would go out of business. Now, because GM was kind enough to hold back hundreds of thousands of dollars of the dealers’ money [and pay them no interest on it] but return the money to them once a year, they could help the dealers make a bigger profit and maintain adequate working capital.

At that time I thought this was the biggest bunch of boloney I had ever heard and I was sure that this was a scheme by the manufacturers to keep a free float of millions of dollars of their dealers’ money under the guise of helping the dealers. I asked my father why the dealers didn’t strongly object to this and he said that most dealers actually “liked” the idea of holdback. When I heard that, I thought that maybe GM and the manufacturers were right about the dealers not being smart enough to sell their cars for a reasonable profit.

It took me a few more years in the business before I understood what was really going on with holdback. It was a “no brainer” as to why the manufacturers liked it but at last I understood its attraction to us dealers. Because we had to pay an extra amount over the true price of the car and not see that money for up to a year, we began to think of the invoice as the true price, even though it was actually inflated by hundreds of dollars. Because all manufacturers added holdback to all dealers invoices, the net effect was to raise the price of all cars to all buyers by the amount of this holdback. I know this is a dirty word, but it is price fixing on the grandest of scales. This might have been something that Henry Ford, Alfred Sloan, and Walter Chrysler concocted while playing golf at Bloomfield Hills Country Club outside of Detroit.

Another neat thing about holdback for us dealers is being able to tell our customers that we are only charging them “X dollars” over invoice. Or, we can tell them that we will sell them this car at invoice with no profit to us at all! [There’s a sucker born every minute] Dealers often have “invoice sales” with copies of the invoice pasted on the car windows. Who doesn’t believe that an invoice is the cost of the car? The truth is in the semantic skullduggery …”Mr. Customer, I solemnly swear to you that this the exact price that I paid the factory for this car. In fact, here’s a copy of the invoice.” That’s what the dealer “paid” the factory all right, but it’s not what the he paid the factory after he got his holdback check in the mail.

You might be thinking, so we’re talking about $200 more or less on a $10,000 car. Who cares? Don’t forget, that was over 40 years ago. Holdbacks have expanded considerably and now instead of several hundred dollars we’re talking several thousand. Also, dealers no longer have to wait a year to get their hold back money back. Now they get it back monthly. Manufacturers even changed the names of these monies they hold back. These are innocuous names so that, if you see them on the invoice, you will have no suspicion…names like floorplan assistance, advertising, PDI, Administrative or DAP. Of course there are also cash rebates to dealers that don’t even show on the invoice. I estimate the average car invoice today includes $3,000 to $4,000 in hidden holdbacks to the dealer. Holdbacks are also applied to factory or distributor accessories like “protection packages” [wax, undercoat, window etch, roadside assistance], floor mats, window tint, etc.

The bottom line is that you don’t rely on the dealer’s factory invoice to determine the price you are willing to pay for a car. And be especially suspicions when the dealer quotes you a price of “X dollars over invoice” or actually shows you the invoice. You’ve heard the old joke, “How can you tell when a politician is lying?” Answer: When his lips are moving. “How can you tell when a car dealer is lying?” Answer: When he shows you the invoice.

BUYERS ARE LIARS!

I’m always amazed by the way car dealers who use deceptive advertising and unethical sales tactics rationalize their behavior by actually blaming you, their customer. The following is a direct quote from an anonymous car dealer’s email I received this morning in response to one of my recent columns in this newspaper: “I don't think you would make any of these comments if you sold fords in a non-metro market. How do you expect dealers to change when consumers think they should pay less than dealer cost for a car and then walk into any other form of retail store and pay what they are asking?? Your ideas are noble but there are other dealers who have tried 'your' methods who are no longer in business.” This dealer is saying that his customers are so ruthless and cunning that they won’t buy a car unless they can buy it below his cost and his only solution is to trick them into thinking that they are buying it below his cost, like tacking on a “dealer fee” to the price they quoted the customer. He also goes on to say that my “ideas are noble” but I can’t possibly be successful and I will go broke trying. I truly appreciate his concern and I want to assure him, if he is reading this article, that my business is doing very nicely.

This attitude is actually a prevailing part of the culture in many car dealerships. Many dealers, dealer managers, and sales people don’t trust their customers (how paradoxical!). They don’t even like their customers. A very common expression among car dealers and their sales staff is “Buyers are liars”. This means that a prospective customer will not tell you the truth about the condition of his trade-in, he will lie to you about the price he got from your competitor, and he is likely to remove those new tires that were on his trade-in when the dealer appraised it when he comes in to pick up his new car.

There are also a lot of dealerships where used car buyers and people with bad credit are held in especially low esteem. They have nicknames for people with bad credit like “slugs” and “roaches”. Apparently dehumanizing these unfortunate members of our society with derogatory labels makes it easier to treat them so shabbily. People with bad credit are targeted with direct mail and newspaper ads making absurd promises that convince prospective customers that they can finance a car no matter how bad their credit. In some dealerships applicants are coached on how to falsify credit application and pay records. In some cases the applicant may not even know he is signing a false credit application which is federal offence. In most cases the credit is refused and the applicants are not even given the courtesy of a return phone call to tell them this.

I don’t claim to be a psychologist (and I don’t even play one on TV), but I have read articles explaining how humans will stereotype other people in a fashion that falsely justifies their negative behavior toward those same people. We see this with racism and even in wars. If you make yourself believe that car buyers are out to take advantage of you, “buyers are liars”, you can’t feel guilty about tricking them into paying a dealer fee. If you trick a “roach” or a “slug” into coming in to buy a car on credit when they probably can’t, why should you feel guilty? After all, roaches and slugs don’t have feelings.

What these kinds of dealerships don’t understand is that you must trust a person first before you can expect her to trust you. You have to treat a person with respect before you can expect that person to respect you. Somebody has got to go first. My experience over the past 40+ years as a car dealer is that 99.9% of my customers are good people who I can believe and trust. Those are pretty good odds and I just assume that every customer I am dealing with is part of that 99.9%. Once in a great while I get burned, but the loss from that one in a thousand that takes advantage is far out-weighted by the other 999 who respond positively to my trusting them and treating them with respect.

Are Car Manufacturers and Dealers “Grasping for Salvation?

Last week Akio Toyoda, the CEO of Toyota, apologized to his customers, employees, and stockholders. He said that Toyota had suffered from “hubris” [Overbearing pride or presumption; arrogance], “undisciplined pursuit of more” and “denial of risk and peril”. He said that Toyota now is “grasping for salvation”. Akio Toyoda who is also the grandson of Toyota’s founder then said “Toyota has become too big and distant from its customers”. His confession and apology is courageous, refreshing, and encouraging. If GM and Chrysler had had a leader like Akio Toyoda, they wouldn’t find themselves where they are today. Mistakes don’t cause failures; Denial of mistakes does.

I ordered Jim Collins’ book, How the Mighty Fall, on Amazon. The author postulates that big companies don’t die suddenly but rather through five stages: (1) Hubris born of success. (2) Undisciplined pursuit of more. (3) Denial of risk and peril. (4) Grasping for salvation. (5) Capitulation to irrelevance or death. I must say that these stages describe General Motors, Chrysler, Ford, and even Toyota to a T. In fact GM and Chrysler may be in, or too near, the final stage 5, “capitulation, irrelevance, or death.

I was a Pontiac dealer in West Palm Beach from 1968 to 1999. I have lots of memories of those times, good and bad. The good times were when Pontiac was the 4th largest selling brand in the world, behind Chevrolet, Ford, and Oldsmobile. Pontiac and GM thought that Japanese cars were inferior and no threat whatsoever. I still remember the day in 1970 when the Pontiac zone manager, Murph Martin, visited my dealership and told me to get that “Jap” car off his showroom floor. He was referring to a Mazda as I had just signed a franchise agreement with that Japanese auto manufacturer. Today Pontiac no longer exists but Mazda is still going strong.

My regular readers will sense where I’m going now. Nobody can argue that car manufacturers, including Toyota, the mightiest of them all, have fallen precipitously in the past 3 years. I want to believe and I do believe that the new CEO of Toyota, Akio Toyoda, “gets it”. For him to publically apologize and acknowledge that his company was one step away from “capitulation to irrelevance or death” took great self awareness and courage. On the other hand, Ed Whitacre, the Chairman of GM, is doing TV commercials comparing GM cars to Toyota and Lexus, saying “If you can find a better car, buy it”. I have to say, “Hey Ed! Be careful what you wish for!” I would also recommend that Ed check out Consumer Reports, 2009 Best and Worst Cars, the April issue, page 17. All 34 car brands sold in America are ranked by Reliability. There is not one GM brand listed in the top half. Buick is 18th. The top 10 brands are all Asian. The bottom 10 includes GMC truck, Pontiac, Cadillac, and Saturn. Chevrolet is #24, 11th from the bottom.

But what about car dealers? In my opinion, we car dealers also have succumbed to the same temptations as manufacturers. Great success brings on hubris/arrogance. Big is never big enough and so we strive for more in an undisciplined fashion. When you make a lot of money and get lots of recognition, you feel “bullet proof”. Can you say “Bernie Madoff”? How many of us find ourselves in stage 4 “grasping for salvation”, like Akio Toyoda now? In order to successfully manage stage 4, a business owner or CEO must be courageous, but more importantly, he must have self awareness. Mark Twain said “It ain’t what you don’t know that gets you in trouble; it’s what you know for sure that just ain’t so”. I have to confess, that occasionally I start to feel a little “full of myself”. I’ve grown to be the largest seller of automobiles in Palm Beach County, the 5th largest Toyota dealer in the southeast USA. When I go out to a restaurant or shopping, lots of people recognize me and shake my hand. Now, when I get that feeling that I’m a “big shot”, I simply remind myself who it was that “brung me to the dance”… my customers.