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.

“Post-Clunker” Era: A Buying Opportunity?

The trade journal for auto manufacturers and dealers, Automotive News, predicted that September 2009 will be the worst retail month for retailing automobiles in 28 years. Nevertheless, virtually all manufacturers have increased their output of new vehicles based on the huge response to “cash for clunkers” in late July and most of August.

Adding these two facts together, very low demand and very high inventories, translates into a “buyer’s market” for new automobiles. Inventories are building rapidly after being severely depleted in August. The manufacturers are gambling that the 700,000 new vehicles that were sold by trading in a clunker were mostly plus business. They want to believe that most of those sales were to buyers who would not have bought a car if the US government had not given them $4,500 or $3,500 for their clunker. What happened in September, an absolutely terrible retail month for car dealers, suggests otherwise. It suggests that the cars dealers sold in late July and August were to people who would have bought anyway but moved up their purchase to take advantage of the “cash for clunkers” program. Car sales were very bad before “cash for clunkers” and they could get much worse afterwards. Add to that the overreaction of the manufacturers of building and shipping too many new vehicles to dealers and car-buyers may have a great buying opportunity even if you don’t own a clunker that the government can give you $4,500 in taxpayer’s dollars for.

If you are in the market for a car, just remember that time is on your side. New vehicle inventories will build for the next 30 to 60 days. Car production is not like a faucet that you can turn on and off. If the manufacturers guessed wrong two months ago, which I believe they did, it’ll take them another two months to “shut off the faucet”. Meanwhile, they will increase their advertising, rebates, special lease rates, and generally do whatever they can to move that excess inventory. The dealers will be doing the same thing.

Please remember that “dealer desperation” can work against you as well as for you. Expect to see deceptive advertising increase in direct proportion to the size of dealers’ inventories. When shopping for a car expect to be told “if you sign in now and drive the car home today, I will give you a special price” or “this price is good today only”. Never, ever buy a car on the first day that you begin shopping. It should take you at least two weeks of due diligence and competitive price shopping before you can make an intelligent decision.

Please refer to my blog, www.EarlStewartOnCars.com for hundreds of articles written on “how not get ripped off by a car dealer”. Here are the basics that you should commit to memory: (1) Research the right car for you in Consumer Reports or on the Internet, www.KBB.com or www.Edmunds.com. (2) Always get at least 3 competitive bids on the exact same year, make, model car you want. If leasing, be sure all terms and condition of the lease are the same, not just the monthly payment. (3) Likewise get 3 bids on your trade-in price and on the interest rate on your financing. (4) Be sure you know the “out the door” price. Most dealers add dealer fees/doc fees/dealer prep fees, administrative fees/transportation fees etc. to the price they quote you.

I WRECKED MY CAR…NOW WHAT?

The article below was written by Alan Napier, the manager of my body shop. It was written for my Toyota customers but the advice Alan gives applies to any make of car.

This Is Supposed To Be Easy

Dealing with your insurance company has never been as difficult as it is right now. 2008 was a disaster for most insurance companies. Falling revenues, catastrophic disasters, poor investments and last years financial meltdown led to losses for most major carriers. Why should you care? Because now that the horse is out, they’ve slammed the barn door. This means that they are utilizing more aftermarket, remanufactured and junk yard parts to repair your vehicle. It means that insurance companies are applying discounts to their estimates that were not there prior to the collapse of Wall Street. It means that they are not negotiating in good faith with your repair facility to bring your vehicle back to its pre-accident condition.

What Can I Do?

Most importantly, insist that your damaged parts be replaced with new genuine Toyota replacement parts. Toyota only provides warranties on new OEM parts. If necessary, involve your agent. Remember, your agent works for you and should be your advocate when dealing with claims staff.

Second, insist that the insurance appraiser explain the estimate they are providing to you. Many times the estimate will not come close to paying for all of the vehicle damages. It’s not a mistake when this occurs, but a calculated tactic. Many people don’t repair their vehicles and have no idea that their insurance company did not provide enough funds to repair the car properly. Point out any damage that the appraiser doesn’t acknowledge on the estimate and insist that it be added to the appraisal right away. Often the appraiser will tell you he has already written the check, so he cannot change the estimate until the vehicle is at a repair facility. This is not true. The appraiser is obligated to pay for all of the visible damage regardless of how many estimates and checks he has to write. As with any negotiation, be polite, but firm.

I Don’t Have Time for This!! Somebody Help Me!!

If you just really don’t want to deal with all of that, that’s where we come in. Your insurance company will advise you to repair at a shop that “works with us”. Translation: “They do what we tell them.” Earl Stewart Toyota will insist that your insurance company pay to repair your vehicle properly, per the manufacturers’ recommendations, to its pre-accident condition. Bring in your car, show us the related damages, sign a repair authorization, hand us the keys and you are done. It’s that easy. We take care of everything from that point. All we ask is that you support our efforts to negotiate with your insurance company. They will do everything from using scare tactics to telling outright falsehoods to save a few bucks. You trusted us to sell you a Toyota and maintain it to manufacturers’ standards, now trust us to repair your collision damaged vehicle to its pre-accident condition.

What is the “true” cost of that new car?

It is almost impossible for you to determine the true cost of a new car. This might sound crazy, but many dealers don’t know the true cost of their cars. The manufacturers and distributors invoice their dealers for an amount when they ship them a car that is almost always several hundreds of dollars more than the true cost. It’s fair to say that in virtually every case the “invoice” for a new car is much higher than the true cost. By true cost, I am referring to cost as defined by GAAP, generally accepted accounting principals.

You probably have heard about “holdback”. That is an amount of money added into the invoice of a car ranging from 1% to 3% of the MSRP which is returned to the dealer after he has paid the invoice. Some manufacturers include the cost of regional advertising in the invoice which offsets the dealer’s advertising costs. Another fairly common charge included in invoices is “floor plan assistance”. This goes to offset the dealer’s cost of financing the new cars in his inventory. Another is “PDI” or pre-delivery expense which reimbursed the dealer for preparing the car for delivery to you. I could name several more, depending on the manufacturer or distributor. Some of these monies that are returned to the dealer are not shown as profit on his financial statement and some are. Technically a dealer could say that the cost he showed you reflected all of the profit (by definition of his financial statement), but the fact would remain that more money would come to back to him after he sold you the car. To me, that’s called profit.

Besides holdbacks and reimbursements for expenses, you must contend with customer and dealer incentives when trying to figure out the cost of that new car. You will probably be aware of the customer incentives, but not the dealer incentives. Most dealers prefer and lobby the manufacturers for dealer rather than customer incentives just for that reason. Also, performance incentives are paid to dealers for selling a certain number of cars during a given time frame. These usually expire at the end of a month and are one reason why it really is smart to buy a new car on the last day of the month.

Last but not least, remember the “dealer fee”, “dealer prep fee”, “doc fee”, “dealer inspection fee”, etc. which is added to the price you were quoted by the salesman.. It is printed on the buyer’s order and is lumped into the real fees such as Florida sales tax and tag and registration fees. Most dealers in Florida (it is illegal in many states) charge this fee which ranges from $500 to $1,000. If you are making your buying decision on your perceived cost of the car, even if you were right, here is up to $1,000 more in profit to the dealer.

Hopefully you can now understand why it is virtually impossible to precisely know the cost of the new car you are contemplating buying. Most often the salesman and sales manager is not completely versed on the cost either. Checking the cost on a good Internet site like www.kbb.com or www.edmunds.com is about the best you can do. Consumer Reports is another good source. One reason that Internet sites don’t always have the right invoice price is that different distributors for cars invoice their dealers at different prices.

Do not make a decision to buy a car because the dealer has agreed to sell it to you for “X dollars above his cost/invoice”. This statement is virtually meaningless. As I have advised you in an earlier column, you can only be assured of getting the best price by shopping several dealers for the exact same car and getting an “out the door” price plus tax and tag only.

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.

A Sea Change in the Way Cars Are Sold?

The dictionary defines a sea change as “a striking change, as in appearance, often for the better.” A lot of economists and other experts have speculated that we are experiencing a sea change in America, or even globally, as a result of this worst recession since the Great Depression. The experts are saying that Americans will never again spend as much or save as little as they have. Because so many of us have lost our jobs, had our homes foreclosed on and cars repossessed and have seen our 401K’s cut in half we will never be the same.

Nobody disputes the fact that the Great Depression caused a sea change, at least in that generation who lived in it. Those of you who were old enough to remember the thirties will vouch for that. I was born in 1940 but my father was born in 1892. He was a young man during the thirties and those years changed him for the rest of his life. Even though he was a relatively wealthy and successful Pontiac dealer, he saved and spent his money as if he might be looking for a job tomorrow. As a child, I can remember my mother admonishing him for wearing his shirts and his pants for too many days. He didn’t want to spend the money to send them to the cleaners. A lot of my Dad rubbed off on me and I still can’t stand to throw anything away. My wife, Nancy, has to cajole me to donate shoes or clothes that don’t fit me anymore to Goodwill or other charities.

Last Friday, I was honored to be invited to an interview at the Palm Beach Post. Charles Passy, one of their oldest and best reporters, invited several local business owners and I was the one representing car dealers. It was Charles’ interview that gave me the idea for this column. The purpose of this interview was to learn what local businesses had experienced with their customers and employees that might suggest a sea change in saving and purchasing habits. You can read what everybody had to say in this Sunday’s, September 6, PB Post.

I agree that we are experiencing a sea change but one that is quite different from the one of the Great Depression. This time in addition to Americans being traumatized by the loss of their jobs, homes and retirement, they are traumatized by their loss of trust. Just a short while ago, insurance companies and banks were considered among the most trustworthy of institutions, but no longer. Wall Street and their government regulators are among the least trusted also. Trust in the media and politicians are at an all time low. Americans don’t know where to turn to invest or save their money. Just recently, Americans were so afraid of putting their money in a bank or any place else except the U.S. Government that they actually paid the government interest on treasury notes to keep their money safe.

The recent government incentive program, “cash for clunkers” is evidence of the lack of trust that car-buyers have for car dealers. Read car ads or watch them on TV and every day you will see offers of savings that exceed the savings of “cash for clunkers”. But when car buyers heard it from a trusted source, the United States government, they came in and bought cars in record numbers. August is the best auto sales month since January 2007 and it has occurred in the middle of the biggest recession since the Great Depression. In my Toyota dealership in North Palm Beach, I shattered my old record of 404 new Toyotas. I’m writing this column on Monday, August 31, and it looks like we will sell about 500 new Toyotas in August.

As many of you know, I practically never advertise prices. This is simply because most other dealers advertise prices less than what they are actually willing to sell the car for…often times below their actually cost. If I advertise a car for an honest price, mine will appear higher in comparison.

More evidence of this sea change of Americans gravitating to invest, save, and spend their money only with those whom they can trust is my rapidly expanding market share. I outsell my two nearest Toyota dealer competitors to the south of me combined. I outsell the three nearest Toyota dealers to the north of me combined. I outsell Ed Morse Delray Toyota by a large margin even though he is in a population area three times the size of Lake Park/North Palm Beach. I outsell all the Toyota dealers in the Orlando, Tampa, and Atlanta markets. I also outsell most of the Toyota dealerships in the Ft. Lauderdale-Miami markets. I am the 5th or 6th largest seller of Toyotas in the Southeast USA. I use only Toyota for comparison, because Toyota is the number one retailer and I obviously outsell all of the other makes.

I’ll probably take a lot of flak for bragging about how many cars I sell. I’d be lying if I didn’t admit it feels good to be #1. However, I believe my unparalleled success is good news for car buyers, even those who don’t buy Toyotas. Auto retailers everywhere are watching Earl Stewart Toyota and trying to figure out how we do it. If they figure it out, they too can match or exceed my success. And if they do, you, the car buyers of America will benefit as well.

CASH FOR CLUNKERS LEGISLATION IS A WASTE OF TAXPAYERS’ MONEY (With New Preface)

*Now that the cash for clunkers program has ended, I thought it would be good to rerun my original column on this subject. My belief about the program being ill thought out remains, but I’m hopeful about there being some economic benefit. This will be decided in the next few months based on whether the demand for new vehicles “falls off a cliff’ because clunker deals were not fresh business. There is a fear that we merely borrowed sales from the future from those who would have bought a new car in the next few months anyway.

The cash for clunkers program was not only wasteful of taxpayers’ money but it was administered just about as sloppily and inefficiently as is possible. Ray LaHood, the head of NHTSA did not have a clue as to how car dealerships operate, what paperwork is pertinent to a sale, or how a dealership’s cash-flow would virtually dried up by not paying dealers promptly. You will be reading about dealerships that were literally put out of business by this program because they did not receive the money from their sales from NHTSA. As I write this preface, less than 10% of the $3 Billion dollars has reached dealers. My own dealership is owed well over $1 million. Because dealers make far less than $4,500 or $3,500 on a sale, every clunker transaction drove them further into a negative-cash position….some to the point of bankruptcy and thousands were forced to quit the program early.


Once again our Congress and Senate have proven that they are out of touch with reality or, perhaps more likely, simply inclined to pass any legislation that will get them reelected.

The “Cash for Clunkers” bill passed the House and the Senate and awaits President Obama’s signature. It is supposed to be help energy conservation because it will take higher gas mileage vehicles off the road. It’s also supposed to help our floundering economy because it will incentivize owners of “clunkers” to buy new cars. When the driver of a clunker, defined to be a vehicle with relatively poor gas mileage and worth up to $4,500, trades it in he gets a voucher for either $3,500 or $4,500. Then the dealer must scrap that vehicle.

Here’s why our politicians are out of touch with reality. Our country is in the worst economic condition since the Great Depression. The most severely affected are those at the lower end of the economic spectrum. Arguably even more important than housing to this class of people is transportation [you can sleep in your car]. It’s not possible for many to get to work without a car. It’s not even possible for many to look for work without car. How about taking your children to school or getting to a doctor or hospital? These are the people who buy “clunkers” because they don’t have the credit to buy anything more expensive. Or, maybe they can’t get any credit at all and can afford only cars cheap enough to afford to buy for cash.

If this legislation works the way the politicians say they want it to, it will remove most clunkers from the road and drive up the prices of those few remaining to make them unaffordable to those that have no other transportation option. Of course, a lot of the economically challenged are already driving clunkers. The new law doesn’t permit them to use the $3,500 or $4,500 voucher to buy a nicer, more reliable used car. They may only buy a much more expensive new car. Unfortunately, most people with bad or no credit who are forced to drive a clunker, won’t be able to get financed on a new car even with the $3,500-$4,500 down payment.

Logic dictates that no one would have his vehicle scrapped for a $4,500 voucher if was worth more than $4,500. But, who is to say what a clunker is really worth? I can tell you from my 40+ years in the retail auto business that you can show a used car to five different used car managers and get five different opinions as to what it’s worth. I advise consumers to shop their trade-in to at least three different car dealers before they accept a trade-in allowance from the dealer they buy from. Typically you will see a $2,000 to $5,000 difference between the 3 professional opinions. I see nothing in the legislation to control this variable. I can guarantee you that there will be thousands of vehicles scrapped that are worth more than the voucher amount. How will you feel knowing that you paid $4,500 of your tax dollars to scrap a car that had a market value of $6,000?

To the extent that lower gas mileage vehicles are taken off the roads, this is good. But energy conservation is not our country’s top priority right now. We need to think about cutting our 10%+ unemployment in half. Scrapping the only cars that many of our unemployed can afford to buy and driving up the prices of those that remain is not the right way to go about this.

The car dealers love this because of the general lack of understanding of this new law will likely drive potential buyers into their showrooms. You can argue that this is good because it will stimulate new car buying. But, is it good to stimulate the economy through deception? I’m already getting solicitations from marketing companies with all sorts of cute ideas about how to exploit this legislation. You can expect to see an advertising media blitz on “Cash for Clunkers”.

I will end this column on a positive note. One Congressman who voted against this legislation is Tom Rooney from my district, the 16th. There are always a few who vote their conscience and not what will get them reelected. Unless we recognize and vote for guys like Tom Rooney, this endangered species will vanish.

Cash for Clunkers to End Monday August 24th

The story below was just forwarded to us from TMS. The bottom line is as follows:

-The CARS program will end Monday August 24, at 8 PM EDT.
-All deals must be submitted by that time -Dealers are still able to resubmit rejected applications after the deadline

The Achilles’ heel of Car Dealerships [and even good businesses like Costco]

I’m often asked why my Toyota dealership in North Palm Beach is so successful. My dealership is actually located in the tiny little town of Lake Park [population 8,721 as of the last census]. I’m on the city border of North Palm Beach, so I advertise my location there so people can find me. I mention this because Earl Stewart Toyota sells more cars than any other car dealership in Palm Beach County. We are the 7th largest seller of Toyotas in the Southeast USA. People can’t understand how we can sell so many cars in such a small population area.

Furthermore, people are mystified by our high customer satisfaction ranking. Last year, for example, we were honored to be selected by Toyota as one of just 12 dealers [out of 1,277] in the USA for the President’s Cabinet Award. The award is based on sales volume and customer satisfaction.

I know that I sound like I’m bragging and I guess I am. A lot of people have been quoted as originating, “It ain’t bragging if you can back it up”. I first heard it when Mohammed Ali said it, but he probably wasn’t the first. In this column, I’m going to reveal the secret to my success. All car dealers and all businesses can use my secret to become at least as successful as I.

First, let me relate an incident that happened to me just recently at the Costco Wholesale Club on Northlake Boulevard in Palm Beach Gardens. Costco is my favorite retail store and my wife, Nancy, and I shop there almost every Saturday. In fact, I’m also a stockholder and, for readers of this column, I recommend you buy some Costco stock.

In the past several months we noticed that the shopping carts at Costco were littered with trash…used napkins, used tissues, paper and plastic bags, and unidentifiable “stuff”. This is partly caused by the free food samples that are passed out in paper cups or plates and with napkins and toothpicks sometimes. Customers eat their samples and throw what they don’t eat into their carts. When Nancy and I come into Costco on Saturday mornings and pick up our cart, we have to take the trash out of the cart with our bare hands and find a trash receptacle. This would be a nasty enough a task even without the Swine Flu pandemic in the news every day. Because I’ve been a regular member of Costco for 25 years or more, I know many of the store’s employees and regard many of them as my friends. I mentioned this to several of them and they promised to bring it up with upper management.

When nothing changed and the carts were still filthy, I spoke to a Costco employee who I knew very well and who I especially admired for his special concern for his customers. He suggested that I fill out a written suggestion and put it in the suggestion box in the front of the store. He said that all of these suggestions were sent to Costco headquarters in Issaquah, Washington. I did that, but two months later there was nothing done. At this point I took it upon myself to speak to the “weekend manager” because I shop at Costco only on Saturdays. He listened but didn’t seem very concerned. He told me that the reason the carts were littered with trash is because Costco customers left their trash in the carts. I told him that I understood the reason, but I thought the carts should be cleaned for the next customers. I asked him why the employees who picked the carts up from the parking lots and brought them back to the front of the store couldn’t clean the carts out first. He didn’t have an answer for that but he said he would “take it under consideration”.

About a month has passed since my last conversation. Last Saturday, the carts were still filthy. In fact, I cleaned out two carts for ladies waiting for carts plus my own cart. For those of you familiar with Costco, you know that you have to show your membership card when you enter the store. When I did this, I asked “the shopping carts are still littered with trash. Why can’t Costco clean them out?” The Costco employee replied, “It’s the customers’ fault that the carts are dirty”. I have to admit that I briefly lost my cool. I turned to him and said incredulously, “Are you blaming me because your shopping carts are dirty?” He looked at me angrily and said again, “It’s not our fault; It’s the customers’ fault.” Immediately after this, I went to men’s room so that I could wash my hands.

By now, you may have guessed what my secret to success is. You can sense my frustration with Costco which is still my favorite retail store, by the way. That frustration is that I, their customer, cannot communicate with higher management. When I advised the local lower level Costco employees, it went no higher than the weekend manger. When I send a written complaint to their headquarters, who knows what happens to it? When I spoke personally to the weekend manager, it stopped right there. Most of the employees in Costco are great employees who care very much about their customers. These employees agree with me that the shopping carts should be cleaned before they are returned to the customers. In fact, one employee said that they should emulate Publix which, not only cleans their carts meticulously, but provides sanitary wipes in a dispenser so customers can clean the cart’s handle.

When a customer has any kind of a problem in my company, I hear about it 99% of the time. As most of you know, nobody in my company, including me, screens their calls. All calls to me and all of my employees are put immediately through. If I’m not in the dealership, the calls are put through to my cell phone. You probably know that I have 4 red phones strategically located through my dealership. A red phone is always within a few steps of every customer. The sign on the phone says, “If we have not exceeded your expectations, please pick up this red phone; The buck stops here”. There is no dialing required and when the customer picks up that red phone it automatically dials my cell phone. If all of that isn’t enough, I give every customer my home telephone number which is printed on my business cards.

So there you have it, CEO’s of companies all over the world. This is the secret to success. LISTEN TO YOUR CUSTOMERS. You all say that but you don’t walk the talk. You have layer after layer of insulation between you and your customers…secretaries, assistants, middle managers, executive managers. All of them are telling you what they think you want to hear but not what’s going on “in the trenches”. It’s not easy, but who said success was supposed to be easy. How bad do you want it and how much are you willing to sacrifice to get it? Am I worried that my competition will read this and be able to compete more successfully against me? What do you think? LOL!