The Federal Trade Commission: Most Car Ads are ILLEGAL

Can you remember reading, seeing or hearing a car dealer’s advertisement that had no fine print? The TV advertisements are especially egregious because, even with HD, it’s literally impossible to read the fine print. If the print were large enough, it’s not displayed on the screen long enough for you to completely read it. You’ve all heard the radio “fine print”. The advertisers are experts at making it incomprehensible. One trick is to put the disclosure at the beginning of the ad so that it appears not to be a part of the advertisement. They will use a different voice, which speaks very softly and very fast. I believe that they record the disclosure at normal speed and electronically increase the speed of the recording to an incomprehensible level. The fine print in newspapers and direct mail is the only fine print that is even possible to read and it often takes a magnifying glass to do so. Some tricks to make it even more unreadable are to make the color of the print blend with the background color of the paper (dark blue print on a dark red background), obfuscate the message by mixing in some legitimate, irrelevant disclosures like “Dodge is a copyrighted brand name of Chrysler Corporation, and they usually locate the fine print as far away from their false claims as possible.

Of course fine print deception is not limited to car dealer advertisements. Car manufacturers, pharmaceutical companies, and most other retailers take advantage of their customers in this manner too.

The Federal Trade Commission says that advertisers are not allowed to “contradict other statements in an ad or to clear up the misimpressions the ad would otherwise leave.” The FTC also says that “Accurate information in a footnote or a dense block of text likely will not remedy a deceptive representation conveyed by a headline or other prominent selling message because reasonable consumers may not read the footnote.”

Car dealer leasing ads and car manufacturer leasing ads commonly advertise low lease payments with large down payments, often obfuscated as “capital cost reductions”. You’ll see a new BMW advertised for $399 per month but when you take in consideration the $8,000 down payment which is impossible to read on the TV screen, the payment might actually be $899 per month.

You see a lot of “100% Guaranteed Credit Approval Ads”, but the fine print says that your credit score will affect the terms and down payment. Interpreted, this means if you have bad credit, you will have to make a down payment up to 100% of the price of the car and the financing terms could be as short as one month. The disclaimer in the fine print is a total contradiction of the headline, bold print claim of the ad and a violation of Federal law.

A popular deception by many car dealers is to advertise a very low price in the headline of the ad with the fine print totally contradicting the ad price. This is done by the fine print saying that the “price excludes dealer installed accessories” which can total thousands of dollars. The fine print also often says “customer must qualify for all rebates and incentives”. These are impossible for any one person to qualify for such as military rebate, college rebate, loyalty rebate, and conquest rebate. To qualify for all the rebates one would have to be on active duty in the military, a graduate of a 4 year accredited college within the past 6 months, drive the same make car as is advertised, and drive a specific competitive make car at the same time.

Another fine print scam is “Lowest Price Guaranteed or We Pay You $1,000”. There’s even one dealer who says he’ll give you the car free if he can’t beat his competitor’s price. The fine print says the dealer reserves the right to buy the other car from his competitor at the lower price. Now, what are the odds that your car dealer’s competitor will agree to that? The fine print also says that you must bring him a buyer’s order signed by the other dealer to verify the lower price. Have you ever asked a car dealer to give you a signed copy of a buyer’s order without actually buying the car from him? He won’t give it to you for the simple reason he doesn’t want to allow his competitor to see it and beat his price.

Florida law requires that dealer fees be included in the advertised price of all cars. Most dealers do not to this but instead disclose the dealer fee in the fine print. Often times they do not even disclose the amount of the dealer fee but simply say “plus dealer fee” or “plus fees”. Florida law does not put a cap on dealer fees as many states do. In theory, a dealer could have a $10,000 or higher dealer fee. Many have dealer fees over $1,000 now. This practice is a clear violation of the Federal Trade Commission’s rules.

I read in the newspaper last week that Governor Rick Scott had just signed 8 more bills into law. This week we have 8 more laws than we did last week. What our state and our country need are not more laws, its more enforcement of the laws we already have on the books.

Anatomy of a Car Ad

Most car advertisements are deceptive to the extreme. That doesn’t mean that all car dealers are bad people. I believe that many car dealers believe that they have no alternative but to “fight fire with fire”. Some car dealers are bad people in the sense that they choose to deliberately trick prospective customers into coming into their dealerships. In the minds of the other car dealers, who would rather advertise honestly, they have no choice but to “out exaggerate” and even “out lie” the bad dealers. The bottom line is there is no difference in the net effect on you, the car buyer. One could argue that the real villains in all of this are the regulators or even the media. The state attorney general, the Department of Motor Vehicles, the County Office of Consumer Affairs and even the BBB look the other way when it comes to unfair and deceptive advertising of car dealers. With the exception of the BBB, their defense is that their “just too busy” with other concerns. In the case of the BBB, as long as a member pays his dues and responds to all complaints, he will usually have a high BBB rating. The dealer who ran the advertisement this article is about, Napleton Hyundai, has an A+ BBB rating! The media are complacent in running ads that are obviously deceptive, pleading ignorance. They also recognize that car dealers are one of their, if not their, largest advertisers.

This full page newspaper ad appeared in Sunday’s (5-20-13) PB Post and Sun Sentinel. You can view the ad by clicking on www.AnatomyOfACarAD.com. The upper LH side of the ad has a picture of the General Manager with the caption, “Thanks for making us your #1 volume Hyundai store 55 months in a row in PBC.” The ad is for the North Palm Beach and WPB Napleton Hyundai stores. There are 3 Hyundai dealers in Palm Beach County, 2 of which are owned by Napleton. The 3^rd is Delray Hyundai and it’s not surprising that 2 Hyundai stores sell more than one.

Reading left to right, “Double your Rebate up to $8,000”. In the fine print it says on “select models” off of dealer list. The key word is “dealer” list which is not MSRP, but a markup over MSRP by as much as Napleton chooses…thousands of dollars over the manufacturer’s suggested retail price. Furthermore the fine print says “trade-in required”. This is so Napleton can allow you far less for your trade than it’s worth to help him cover doubling the rebate. The ad also says “free leather” or $1,000. Napleton can give you a “free 5 caret diamond ring” if you allow him to mark his dealer list price up high enough!

Reading further to the right you will see, “$1 over invoice”. The dealer invoice is not what the dealer really pays the manufacturer for the car. The average car invoice packs in thousands of dollars in profit to the dealer in the form of holdbacks, advertising subsidies, dealer cash incentives, and customer cash incentives to name a few. Any dealer would be happy to average the “invoice profit” on every car he sells.

Reading further to the right, “$4,500 for your trade” even if you have to “push, pull, or drag it” into the dealership. Napleton can give $45,000 for all trades if you’ll let him mark up the new car as high as he wants…remember his cars are all priced at “dealer list”, not MSRP which is displayed on the federally mandated Monroney sticker.

Just below this is 0% financing, $0 down payment, and 0 payments for one year. Of course to get 0% financing, you can buy only the Sonata and Santa Fe models and pay (you guessed it!) dealer list. $0 money down and 0 payments for one year are available only with credit approval by the banks (banks usually prefer a down payment and will not waive payments for one year). Oh, none of the above is available on the cars in this advertisement (fine print).

On the top far right of this ad, “We will beat any Hyundai dealer in the USA by $500 or we will give you $1,000.”  This requires a valid buyer’s order from the other dealership signed by you and the manager. Virtually no car dealer will give you this unless you are buying the car and driving it home at the same time. They do not want to allow you to show a firm price to their competition which they can beat. Also in the fine print, Napleton reserves the right to buy the car on which the other car dealer gave you the low price, at that price. I can promise you that no car dealer is going to sell a car to his competitor and allow that competitor to steal his customer and sell him a car. If Ed Napleton can show me proof that he has ever honored this “Price Beater Guarantee”, I will contribute $10,000 to his favorite charity.

Just under the phony guarantee is “Drive a 2013 Hyundai Santa Fe sport for only $179 per month lease. The fine print requires $3,967 down payment. You also must qualify for all rebates and incentives. This means that you must be an active member of the military and a college graduate of an accredited 4 year university within the last 6 months. It may also include loyalty or competitive conquest rebates. This means that you would have to be driving a specific year and model Hyundai or a specific year and model of a competitive make to be eligible for  the advertised payment.

There are 7 more models with advertised lease prices, just like the Santa Fe, each requires a large down payment. Also, in the fine print, all lease payments are “plus dealer installed accessories”. This means that Napleton can add thousands of dollars in virtually worthless accessories to the advertised prices. Typical dealer accessories are nitrogen in the tires, paint sealant, stripes, emergency road service, and glass etching. This can add thousands of dollars to the already highly marked up dealer list.

Finally, almost every advertised car carries a number next to the price. One example is stock #46413F45 for the Elantra. In the fine print it says that the $795 dealer fee is included in the price. Florida law requires that the dealer fee be included in the price of every advertised car. But, if you buy any other Elantra than stock #46413F45, you will pay an extra $795, even if that Elantra is identical to the advertised car. The salesman is also not paid a commission on the advertised car, so you can imagine how good your chances are of buying that car even if it hasn’t already been sold.

My last column was an “Open Letter to Our Attorney General, Pam Bondi”. I asked her to consider reprioritizing her focus objectives to rid Florida of crime and unfair and deceptive trade practices. I hope she will look at this column and this advertisement by Napleton Hyundai. 

An Open Letter to Pam Bondi Florida’s Attorney General

Dear Ms. Bondi,

Thanks for working so hard to protect Floridians from being taken advantage of by those individuals and businesses that would deceive us to unjustly enrich themselves. I know that your responsibilities are enormous and that your resources are limited, especially given the current fragile state of Florida’s economy. I fully understand why you must choose your objectives carefully and then focus those limited resources in your fight against crime and unfair and deceptive businesses and individuals.

I respectfully suggest that you consider the deceptive advertising and sale of automobiles by Florida car dealers as one of your focused targets. Speaking to advertising, the easiest way for you to learn how prevalent deceptive car advertisements are would be to go online and read the auto classifieds in any major Florida newspaper. I suggest you start with the Palm Beach Post and the Sun Sentinel any Saturday, which is the day you will find most of the auto dealers’ advertisements. Viewing the e-editions of these two newspapers will allow you to also read the fine print which is helpful in discovering the almost universal “bait and switch” nature of these advertisements. The TV, radio, and direct mail advertisements are arguably even more deceptive. The TV and radio “fine print” disclosure is nonexistent because it cannot be read or heard by anyone even with the sharpest eyes and hearing. The car dealers don’t even try to legitimatize many of their direct mail advertisements because they know they fly below the radar of the regulators since they can specifically target all recipients.

Speaking to deceptive sales practices, I consider myself an authority on this because I have been “mystery shopping” car dealers in South Florida weekly for several years. I send in a mystery shopper who purports to be responding to an advertised used or new car. In the vast majority of these hundreds of shopping reports I’ve discovered unfair and deceptive sales practices. In many cases sales people will openly admit to the shopper that the advertisement is a lie and that its sole purpose is to get people to come into the dealership. Probably the most common violation is the failure to disclose the “dealer fee”. In recent years most dealers have begun charging customers for their “electronic filing fee”, marking up their cost for tag and registration by as much as $300-$400. This new version of the dealer fee most often  not disclosed on vehicle buyer’s orders as is required by Florida law for the dealer fee although it is a dealer fee by another name.

A car purchase is the 2^nd most expensive purchase a person makes and, unlike a home purchase, the purchase is made about every 4 years. For most Floridians, nothing else requires a higher percentage of their earnings than their cars. If I’m right and most transactions involving car purchasing in Florida includes deceptive advertising and sales practices, this should be a priority item for your office to regulate.

For many years I have attempted to persuade the Florida Automobile Dealers Association, FADA, to regulate themselves. Although the chairman and president of FADA are receptive to this, they have been unable to get agreement from the executive committee and directors. I have suggested that FADA ask dealer volunteers in the various markets around Florida to monitor advertising and investigate consumer complaints. If a dealer was found to be engaging in unfair and deceptive advertising and/or sales practices, FADA would send him a warning letter. If he ceased and desisted from these practices, that would be the only action taken. If the dealer did not, FADA would notify your office and you would take whatever actions necessary to bring this car dealer into line.
 

I think it is in the best interest of Florida car dealers to regulate themselves, but there must be some “teeth” in that regulation. I believe if you wrote Larry Morgan, the chairman of FADA and Ted Smith, the president, a letter asking that FADA consider some self-regulation and submit that plan to the Florida Attorney General’s Office for approval, this might get the “self-regulation ball” rolling. Please call on me any time I can be of assistance. My cell phone number is 561 358-1474 and my email address is earl@estoyota.com.

Sincerely,

Earl Stewart

www.earlstewarttoyota.com

BUYING A CAR WHEN YOU HAVE A CREDIT PROBLEM

There are fewer things more sensitive or embarrassing than having to share your personal credit problems with a stranger. Having credit problems can also put many buyers in a weakened and defensive position when buying a car. Many people with bad, or too little, credit feel like the car dealer is somehow “doing them a favor” by selling them a car and getting them financed. Make no mistake about it. A car dealer is probably making more money selling a person with bad credit a car than one with good credit. If you have a credit problem, go about buying a car with the same care and due diligence as if you had the very best credit. Shop and compare your financing, your interest rate, and your trade-in allowance. Get at least three quotes on each of these.

Lenders who specialize in lending to those with bad credit are known as “special finance” lenders. Many of these lenders charge the dealer a large upfront fee, as much as $2,500. Legally, the dealer is not supposed to add this fee to the price of the car you buy but, in the real world, the price of the car is usually higher as the result of this fee. In addition to an upfront fee, the interest rates are very high from special finance lenders. Because they anticipate a much higher amount of repossession losses, they must make more on each transaction. Don’t automatically accept a dealer’s opinion that you must finance through such a lender. There are many conventional banks these days that loan to people with bad credit. Their interest rates are lower and they don’t charge large upfront fees.  

There is much fraud in special finance lending. Credit applications are falsified to show more time on the job, higher incomes, etc. W-2 forms and check stubs are counterfeited. Buyer’s orders show accessories and equipment that do not really exist on the car. Hold checks or promissory notes are misrepresented as cash down payment. Co-signers signatures are forged. Confederates pose as employers, answering pay phones to verify employment. These falsifications are performed by finance managers, salesmen, brokers for special finance lenders (who are paid on commission) and the customers themselves. If you sign a credit application, be sure that you know all of the information on that application is accurate. Be sure that you understand and agree to all parts of the transaction including down payments, accessories on the car, etc. Never be a party to falsifying information to a lender to obtain a loan. This is a criminal offense.

Advertisements aimed at people with bad credit usually exaggerate with claims like, “We finance everyone”, “Wanted, good people with bad credit”, “No credit, no problem”, and, my favorite, “No credit application refused” (it doesn’t say your loan won’t be refused, just your application). My advice is to ignore these kinds of ads and these kinds of dealers. Their strategy is to take advantage of people with bad credit who they believe will buy any car, pay any amount of interest, and any profit to the dealers as long as the dealer can get them a loan.

It is common practice in Florida to encourage the car buyer to drive the car home immediately upon signing all of the papers. In some states like New York this is not permitted until all the car has been registered with the state in the new owner’s name. The reason for this immediate delivery (commonly referred to as the “spot delivery”) is to discourage and possibly even prevent the buyer from changing his mind. Taking possession of the car is a legal consideration making the purchase more binding. I recommend that you not rush the purchase or the delivery. For one thing you want to be sure that the car is exactly the way you want it…clean inside and out, all the accessories properly installed, no dings, dents or scratches, and that you have a complete understanding of how to operate all of the features of the vehicle.

I mention the risk of the “spot delivery” in this column on buying a car with bad credit because it can be especially harmful to someone whose credit is denied after the car has been delivered. You will most likely be required to sign a “Rescission Agreement” before you drive the car home. This is a legal document which requires you to return the car if your credit is denied. You will probably be told that your credit will be approved, but sometimes the dealer is wrong. The rescission agreement will have a charge for time and mileage that you have put on the car you are driving. Usually this is a very high charge from 25 cents per mile plus $50 per day and higher. It can take weeks for a special finance lender to rule on a credit application. If your credit is denied you could owe the dealer thousands of dollars which the down payment you made might not even cover.

As frightening as all of the above may sound, the one single thing you can do to prevent bad things from happening when you purchase a car is to choose your car dealer very carefully. How long has he been in business? What is his track record with the Better Business Bureau, the County Office for Consumer Affairs, and the Florida Attorney General’s Office? Ask friends, neighbors, or relatives who have dealt with this car dealer what their experiences have been like. Choosing a good dealer with integrity will resolve 95% of all your concerns. 

I’m Sorry, but Your Car Is Out of Warranty

Most everyone has heard these words, “I’m sorry but you’ll have to pay for this repair because your car is out of the manufacturer’s warranty”.  What should you do say or do? Obviously, we’re not talking about cars that are “way out” of warranty. A ten year old vehicle with 200,000 miles that has a 3 year or a 36,000 warranty will not be repaired free by your dealer or manufacturer. However, for cars those that are “close” to being within the warranty time and mileage there is a good chance that you can persuade the dealer/manufacturer to pay at least a portion of the cost of repair. This article is designed to tell you how best to do accomplish this.

The easiest way to have your car repaired at no cost is if you initially brought the vehicle in for a problem while it was still under warranty, the dealer “attempted” to fix it, but did not. When the problem resurfaces, as long as you have in writing and on the record that this happened, you should have no problem getting your car repaired at no charge.

To the lesser degree that your car is out of warranty, the greater is your chance that the factory authorizes a “goodwill” repair. Goodwill is what they call all repairs made at no charge when the car is out of warranty. If your car is only 5 miles out of warranty, this should be very easy to have approved. The further out of warranty, the more difficult this is and the less likely that you will have 100% of the cost paid by the manufacturer. For example, a car that’s 3,000 miles out of a 36,000 mile warranty may be granted just 50% of the cost of the repair under goodwill.

It’s important to understand that the dealer often has no say in whether an out of warranty car can be repaired under goodwill. A good dealer should support your request for goodwill because he gets paid by the manufacturer for doing the repair and this make his customer happy.  A bad dealer might not support your goodwill request because he would like to charge you more for the repair than the warranty will allow. A dealer can charge you anything he wants for parts and labor but the factory allows him only his approved warranty labor rate, markup on parts, and time to complete the repair.  If a dealer is reluctant to support your request for goodwill, be sure to take your request all the way to top. Take it to the service manager, then to the general manager, and then to the owner. If the dealer won’t support you, try taking it to another dealer who will. It’s very important that you have the support of the dealer when you take your request to the manufacturer. Without it, it’s highly unlikely you will get help.

Some dealers are granted the authority to make goodwill adjustments directly as well as making decisions as to whether a repair should be covered under warranty. This can be good and bad. As I said earlier, a dealer can have an ulterior motive for not wanting to repair your car under warranty…he can make more money if he makes you pay. A dealer who is authorized to make warranty/goodwill decisions is so authorized because he has kept his warranty and goodwill costs low. This is bad for the customer if the way he has kept them low is by denying legitimate claims to make himself look good in the eyes of the factory and to avoid a warranty audit. To some service managers, it’s more important to be popular with the factory than with the dealer he works for.  You want a service manager who works for a good dealer and whose loyalty is with that dealer who will be for his customers.

Manufacturers and dealers will favor those customers who have bought cars from them and had their cars serviced with them. The dealer/manufacturer has your entire sales and service history on their computer. If you have bought 2 or more cars of this make and had them serviced regularly by the dealers of that make, they will “stretch” on the warranty coverage and goodwill.

When asking for repairs for your car that is out of warranty, be courteous, factual, and as brief as possible. Never threaten to take your business away, sue, or call the media. Never raise your voice or curse. Dealership and factory employees are just like you…they tend to respond more positively to someone who is courteous and rational. You should put your request in writing, email or regular mail. If things are moving too slowly, it’s a good idea to call the factory 800 customer assistance number. Your request will be referred back to the dealer, but it’s good to be on record with the factory.

When encountering difficulties, go on your PC and Google your repair problem. Google will direct you to chat rooms and other sources of information about people who have the same problem. You will be amazed at the number of people who have had the same problem. Sometimes even your dealer may not be aware that this repair is common among owners of the year, make and model. Knowing this gives you a strong psychological advantage.

When you Google your repair problem, you may find out that the manufacturer has issued a notice to their dealers about this problem. This kind of notice is referred to as TSB or Technical Service Bulletin. Sometime s TSB will authorize the dealer to repair the car under warranty but only if the customer asks! You may even learn that this repair is covered under a recall campaign, but the dealer should have now that when he checked your VIN in his computer.

The bottom line is don’t just take “no” for an answer. Go through the steps that I’ve covered above and you should have a pretty good chance of getting at least some of your repair paid for by the manufacturer.

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?

Earl’s & Consumer Report’s Ten Handy Tips on Cars

My regular readers know that I highly recommend Consumer Reports (CR) as the number one source of information on buying, leasing, or servicing your car. What makes CR superior to all others is their objectivity derived from being a not-for-profit corporation. They accept no advertising and all of their revenue derives from subscriptions and donations. When Motor Trend or Car and Driver magazines announce their “Car of the Year” award, the manufacturer inevitably has spent large sums of money advertising their cars in that magazine. CR will not even allow a manufacturer to give them a car to test; they buy the car from the manufacturer at retail! Furthermore, if CR gives a particular car a high rating, they will not even allow the manufacturer to use CR’s name or good report in their advertising. There is absolutely no conflict of interest when you read CR’s opinion on a car. You should always consult CR when choosing which make and model to buy and when determining what a fair price is.

The May issue of CR has ten great tips that can help you make decisions about your present car and in buying your next car.   If you’re a regular reader, you may have already heard me mention most of these tips and I’m flattered that CR agrees with my recommendations. I have added my take and enhanced advice on these CR tips.

(1)   Try before you buy. Never buy a car without trying it out for a reasonable period of time. Over 25% of people who buy cars, never even take a demonstration drive in the car they buy. Often these people are disappointed in some way with their new car but it’s too late because they’ve already signed on the dotted line. You should either rent a car of the same make and model for a few days or ask the dealer to loan you a car so that you can drive it in all conditions that you will be driving it after you buy or lease it.

(2)   Don’t lose radio presets when changing your battery. Just plug in a jump-start battery into your cigarette lighter during the battery change process. This protects other electronic modules from losing data too.

(3)   Car dealers’ direct mail sales are almost always bogus. Car dealers do a large amount of direct mail advertising. These sales are contracted with outside companies that often supply trained hucksters to sell you a car. The premise of the sale is usually a lie. “We desperately need used cars of the same make and model that you are driving” is one of their favorites. Also, direct mail advertising flies under the radar of the regulators. They are far more likely to see TV, radio, and newspaper ads but the direct mail is directed specifically individuals car dealers choose. They don’t include the state Attorney General on their direct mail list. J

(4)   Don’t bother using nitrogen in your tires. It’s hard to believe that car dealers are still tricking customers into paying money to put nitrogen in their tires. CR tested the effectiveness of nitrogen on tire gas mileage and tire longevity and found it to be worthless. I conducted my own test even before CR did. Nitrogen is worthless in your tires mainly because that regular air is already 78% nitrogen.

(5)   Don’t be timid about filing a complaint on your car dealer. Too many people are either too embarrassed or too shy to notify the manufacturer, county office of consumer affairs, BBB, the DMV or the state AG after they’ve been ripped off by a car dealer. When you remain silent you allow and encourage that dealer to continue doing the same thing he did to you to others.

(6)   Leather seats are a good investment. There are lots of worthless accessories and options you should avoid like nitrogen and pain sealant. Not only does leather look, feel, and smell luxurious in your car it actually enhances the resale value. Another bonus is that it’s actually easier to clean than cloth interiors. But, beware of “dealer installed” leather. Try to always opt for factory leather. If you buy the dealer installed leather, look carefully at exactly what you’re buying and see how it differs from the factory installed.

(7)   Be wary of being among the first to buy that new model. It’s always safer to wait a year before buying a brand new model with a major redesign. Unfortunately the manufacturers often rush a new model to market without getting out all of the bugs.

(8)   Synthetic oil is now recommended by most manufacturers. This is one of CR’s recommendations that I don’t endorse 100%. They suggest you find out before you buy a new car if synthetic oil is recommended, suggesting that you might want to buy another make that recommends fossil oil because it’s less expensive. When synthetic oil first came out it was about twice the cost of regular oil. But the price is coming down as the sales volume grows. Also, the recommended interval to change oil with synthetic is twice as long. Synthetic oil will inevitably be recommended in all cars soon. It is consistent with today’s very tight tolerance engine designs and it does improve your gas mileage slightly. Also, if you choose, you may still use regular oil instead of synthetic but you must change your oil twice as often.

(9)   Consider leasing, not buying, that electric, hybrid or plug-in hybrid. Battery technology is improving so quickly that you could end up with a hybrid or plug-in with an obsolete battery. Your resale value would plummet. Tesla just announced a leasing program for their electric vehicle out of desperation because buyers are afraid they will end up with an obsolete car. If you want to buy a Tesla (which I don’t recommend), by all means lease, don’t buy one.

(10)                       Pass up factory built-in navigation. These factory navigation systems are way over-priced, $1,500 to $2,500, and many of them aren’t as accurate or don’t have as many features as the Garmin you can buy at Costco for $250. You can mount a Garmin or Tom Tom GPS on your dash and have everything the factory navigation does and more. Smart phones today also have great navigation capability.  

OPEN LETTER TO FLORIDA CAR DEALERS: ELIMINATE THE DEALER FEE

 

This column originally ran in October of 2006 and I thought the timing was very appropriate to run this column again. The current President of the Senate, Ken Pruitt formed a Senate Investigation committee to investigate the dealer fee and the results have been sent to the Florida legislature. In a nutshell, the recommendation is that the legislature ban or at least cap dealer fees as they have in other states. If you want to read the entire text of the Senate’s recommendation, you can click on www.EarlStewart.com and then “Results of Florida Senate Dealer Fee Investigation”. By the way, dealer fees are just as rampant as they were in 2006 and dealers are actually increasing the amount they charge. You can pick up a copy of the Sun Sentinel, Palm Beach Post, Stuart News, or any other South Florida newspaper and find illegal ads by dealers who do not include their dealer fees in their advertised prices. Those who do comply with the law, include the price in just one car [disclosed covertly by an alpha-numeric code which means this stock number is the only one available that price]. You come in for the advertised car and it has “already been sold but they have another one just like it”. What they don’t tell you is that their dealer fee can now legally be added to advertised price because it isn’t the same car that was advertised.

 

After reading this column, please contact your state legislator and voice your opinion about this “dealer license to steal”. I have invited Senator Jeff Atwater to appear on my radio talk show on Saturday, February 9. Jeff Atwater is to be the next President of the Senate, the most powerful politician in Tallahassee. We need to convince Jeff Water to pass legislation banning or at least capping it. I expect Senator Atwater will be able to come on my show, WSVU, Seaview AM 960. I’ve spoken to his assistant, Sherry, several times. In our last conversation, she gave me the date of February 9. There was one conflict. He had an appointment at 9:30 AM and my show is from 9 to 10. But she was optimistic it could be moved. If he can’t come in, she said he will call in. You can email Senator Atwater at Jeff@SenatorJeff.com and you can call him at 561 625-5102.

 

 

 

Dear fellow Florida car dealer,

 

 I started in the retail car business in 1968, about 38 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 made illegal in many states including California. You charge this fee to every customer and it ranges from a few hundred dollars to nearly a thousand. Florida law requires that, if you charge a dealer fee to any customer, you must charge all customers. It also 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 every car, which would not be true if you were to make the decision to not charge the dealer fee to anyone. These astute buyers are also told that all other car dealers charge similar fees. This is almost true, but, as you know, my dealership does not.

 

The reason you charge this fee is simply to increase the cost of the car and your profit in such a manner that it is not noticed by your customer. This is just plain wrong. Dealers will admit this to me in private conversations and some will admit that they have considered eliminating the fee as I have, but are afraid of the drastic effect to their bottom line. By being able to count on an extra $895 in profit that the customer is not aware of or believes is an “official fee”, you can actually quote a price below cost and end up making a profit. Or, if the price you quote the customer does pay you a nice profit, you can increase that profit by several hundred dollars.

 

This “extra, unseen” profit is even better for you because you don’t pay your salesmen a commission on it. That’s being unfair to your employees as well as your customers. 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 often won’t permit this because he will lose his commission (typically 25%) on the decrease in his commissionable gross profit.

 

If you don’t know me, I should tell you that I don’t profess to be some “holier than thou” car dealer who was always perfect. Although, I never did anything illegal, when I look at some of my advertising and sales tactics 20+ years ago and more, I am not always proud. But, I have evolved as my customers have evolved. My customers’ expectations, level of education, and sophistication are much higher today. Your customers are no different. As I began treating my customers, and employees, better I discovered that they began treating me better. Yes, I used to charge a dealer fee ($495), and when I stopped charging it a few years ago, it was scary. But I did it because I could no longer, in good conscience, mislead my customers. Just because everybody else was doing the same thing did not make it right.

 

Now here is the good news. My profit per car did drop by about the amount of the dealer fee when I stopped charging it. But, when my customers realized that I was now giving them a fair shake and quoting the complete out-the-door price with no “surprises” the word spread. My volume began to rise rapidly. Sure, I was making a few hundred dollars less per car, but I was selling a lot more cars! I was, and am, selling a lot of your former customers. My bottom line is far better than it was when I was charging a dealer fee. You can do the same!

 

Why am I writing this letter? I’m not going to tell you that I think of myself as the new Marshall that has come to “clean up Dodge”. In fact, I am well aware that this letter is to some extent self-serving. Lots of people will read this letter to you and learn why they should buy a car from me, not you. And, I’m also aware that most dealers who read this will either get angry and ignore it or not have the courage to follow my lead. But maybe you will be the exception. If you have any interest in following my lead, call me anytime. I don’t have a secretary and I don’t screen any of my phone calls. I would love to chat with you about this.

 

Sincerely,

 

Earl Stewart

100% GUARANTEED CREDIT APPROVAL BULL FEATHERS!

You can’t help but hear, see, and read car dealers’ advertising that they can get you financed in a new or used car no matter how bad your credit is. Why they would make such a patently untrue claim is not only evil but amazing. It’s amazing because they wouldn’t keep running the same advertisements if the ads didn’t work.

Banks don’t knowing lend money to people that have real bad credit. What does a dealer accomplish by spending lots of money on advertising that brings people into his dealership with bad credit?

You may have heard of “purse seining”. It’s a method of commercial fishing that uses a huge net to encircle the fish. Tuna are commonly caught using this method but, in the process, thousands of other fish and marine animals are simultaneously trapped in this giant net. Porpoises, turtles, and other species of fish are scooped up along with the thousands of tuna that are caught in a single effort of purse seining. Environmental groups like Green Peace strongly oppose purse seining because so many “non-tuna” fish and sea mammals are killed in the process.

A dealer advertising that he can finance you in a car, no matter how bad your credit, is “purse seining”. As you know, we are slowly emerging from the greatest recession since the Great Depression. Record numbers of people have bad credit and record numbers of banks have tightened their lending even on people with average credit. This increases the number of “fish” for unethical, greedy car dealers to purse sein for. They cast out their giant nets knowing that they will attract far more people with bad credit that no bank will lend money to than people who will qualify for a loan.

Nine out of ten respondents to ads like 100% Guaranteed Credit Approval, Credit Amnesty for All, All Credit Applications Accepted, Bad Credit is No Problem, No Credit Application Refused, or Bankruptcies and Foreclosures Are No Problem will be turned away. These people are being lied to and if they question the truth of the advertisement they will be told things like “We didn’t say we guaranteed we would accept your credit; we said your credit application”. Or, they might say, “We will approve your credit on this $30,000 new Jeep Wrangler if you will give us a $29,000 down payment.” They legally cover themselves in the fine print. This fine print is totally illegible in TV ads, undecipherable in radio ads, and requires a magnifying glass to read in newspaper ads. They are technically granting you credit approval even if the down payment they require is 99% of the price of the car.

Those nine out ten who are rudely rejected are the “fish” that are “accidentally on purpose” caught up in the giant net, the purse sein. About one out of ten who was lured into the dealerships by these lies does buy a car. But who are these ten percent, why do they respond, and how are they able to buy a car? They respond for the same reason the 90% who cannot get financed responded and these people are the reason the dealers continue to advertise like this. They fall into four categories.

The first category consists of those who merely “think” they have bad credit but really don’t. There are some people who have always had near perfect credit and when they get one or just a few credit blemishes, like one past 30 day payment, they assume that they have bad credit now. These people are thrilled when the dealer is able to obtain financing and often will agree to pay a higher or buy a car that they didn’t really want because they dealer had “done them a favor”.
The second category is the group that does have bad credit but also has ample cash. They would prefer to finance the car but can and will pay cash if they have to, and they quickly find out that they have to. This same person will put a much larger down payment down and finance such a small portion that the bank will approve the loan.

The third category is the group that is willing to falsify a credit application which is a federal crime. Often these kinds of people have visited several dealers and have learned exactly what facets of their credit caused them to be rejected. They will falsify these facets such as income being too low by fabricating 1040’s or paycheck stubs. Sometimes they will have someone with good credit front for them to buy the car. This is called a “straw purchase”.

The fourth category is the group who can be duped by the dealer into signing a credit application that the dealer has falsified. Now when I say “the dealer”, it is really the dealer’s agent, the Finance and Insurance Manager. The dealer may or may not what is going on. The buyer is just as guilty as the dealer if he signed the credit application but sometimes the Finance and Insurance Manager forges the signatures.

The 90% of the fish who are thrown back into the sea are forgotten about. Usually they aren’t even shown the courtesy of a phone call telling them that their credit was turned down. They leave the dealership with hope in their heart often calling repeatedly to find out if their loan has been approved. Usually their calls are ignored. This is the part that angers me the most. There are few things more sensitive than a person’s credit rating. How embarrassing and humiliating it must be to those poor souls who have already led their friends, neighbors, and relatives to believe their credit was approved and they bought and financed a car.

In many cases, they actually drive the car home but are called later demanding that the car be returned immediately because their credit was rejected. This practice is referred to as either the spot delivery or the yo-yo delivery. I wrote about this in a previous column, “Don’t Be Spotted or Yo-Yoed”.

NEGOTIATING TO BUY A CAR

This post originally ran in 2006. As you might expect, nothing has changed in those years any more than anything have changed in the way car are retailed in more than half a century. Well, that’s not entirely accurate. My dealership eliminated the negotiating way of selling cars this year, 2013, after a trial experiment beginning in November of 2012. And, to be fair, CarMax, the largest retailer of used cars in the world also offers customers their one and lowest price without the need to haggle.

Why don’t more car dealers go to one price? It’s very simple. Car dealers know that if they give you their lowest price, you will compare that price with their competition and you will buy from the dealer that gives you the lowest price. Car dealers don’t want you to compare their price because they want to sell you their car at a higher price. When a customer asks for a price on any of my cars, I give it to her even if she calls on the phone or emails me over the Internet. Why don’t I worry that she will compare my price and buy from a dealer with a lower price. The truth is that I do worry and that’s why I post my lowest price on every car. But even then, sometimes the customer does find a lower price from another dealer and I lose the sale because it’s impossible for one seller to always have the lowest price. That’s the way the retail marketplace is supposed to work. It’s the way virtually all other products are sold except for automobiles. 

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.

(1)   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.

(2)   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.

(3)   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.

(4)   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”.

(5)   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.

(6)   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.

(7)   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.

Bait & Switch Advertising (Read the Fine Print)

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.