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Monday, July 30, 2012

Open Letter to all Auto Manufacturers: Get Sincere About Customer Satisfaction

Dear, GM, Ford, Chrysler, Toyota, Honda et al,
Isn’t it about time you “got real” about how your dealers satisfy their customers? I know you pay lip service to this, just like your dealers do. Ask any auto manufacturer CEO what the most important thing “in the world” is and he will say “satisfying our customers”. This is the same verbal assurance every car dealer will give, especially when they’re being interviewed by the media. But in your hearts, you know that profit, market share, and volume are numbers one, two, and three in your books and sincerely satisfying your customers is lucky to be number four.

Now I know you only build the cars and it’s your dealers who sell them to the public. The dealer is your customer and the car buyers are the dealers’ customers. Therefore it must be the dealers’ fault that car buyers rank auto retailers as the least ethical profession, tied with Congressmen and lawyers. I’m going to tell you why that isn’t the case. I’m going to tell you why you bear the ultimate responsibility for why car buyers fear, distrust, and dislike your dealers.

Reason #1: You measure your dealers’ success and reward them primarily by how many cars and parts they buy from you. High volume dealers “can do no wrong” and you look the other way when they resort to unethical advertising and sales practices. I challenge you to show me one high volume dealer whose franchise contract you terminated or didn’t renew based on bad customer satisfaction. What kind of message does that send to all of the other dealers? The message is clearly that as long as I sell a lot of cars, how I do it doesn’t really matter to my manufacturer. Most of my competitors are using sleazy, bait and switch advertising to sell lots of cars; therefore I have no choice but to follow suit.

Reason #2: To save face, you measure your dealers’ customer satisfaction by email and snail mail surveys that you know can be, and are, manipulated by your dealers. With email surveys, dealers can simply “make a mistake” when they record an angry customer’s email address. Or, worse yet, they can fabricate an email address, which comes to the dealership address. When the survey arrives, they rate their dealership 100%. Some manufacturers were forced to recognize the fact that this was being done and scolded the dealers when they traced the IP addresses from hundreds of customers back to the dealership. Scolded dealers now use PC’s at diverse IPs like libraries and employees’ homes. For snail mail and email, dealers offer incentives like a free tank of gas for bringing in a blank survey which the dealer fills out and mails in. Or the car or service salesman simply intimidates the customer into giving the dealers a good score, “If you give me a bad survey, I might lose my job!”

Reason #4: Your compensation plans from the top down are designed to reward only high car and parts sales. In those few compensation plans that do reward high customer satisfaction scores, they work against you because it’s so easy for the dealers to cheat on the surveys. Your employees either look the other way or actually encourage the dealers to cheat. All they care about is their dealers getting high customer satisfactions scores and don’t care or want to know how they do it.

Reason #5: Most auto manufacturer senior executives don’t have a clue about what’s going on in the trenches of car dealerships. They don’t see the unfair, deceptive and even illegal advertising and sales practices. Their vision of what’s going on in the auto retail world is largely from their computer reports which are based on flawed data from manipulated customer surveys. Or, they get their input from big volume dealers who often have the same problem of not really knowing what’s going on in the trenches. Large volume dealers, the heroes of the manufacturers, are usually out of touch just like the senior manufacturing executives. There are two reasons that large dealers and senior manufacturing executives don’t take action to honestly improve customer satisfaction. One reason is that some truly don’t know. The second reason is that they know, but don’t “want” to know because they would lose their “deniability” if it ever comes out.

There are other reasons and I could go on and on but I think five reasons are enough to get your attention. I have two messages for you. The first is for the executive who truly doesn’t know what’s going on in the trenches of your car dealers. Visit several of your car dealerships anonymously. Don’t go to the dealerships near your headquarters around Detroit or Torrance, but out of the area to dealers who never see a senior factory guy. Pretend to buy a car and actually drive your car in for service. You will be shocked, and at last enlightened. My second message is for those senior auto executives who know damned well what’s happening in the trenches, but pretend not to in order to maintain deniability. I’ll speak your language. Sincerely satisfying your dealers’ customers will determine your future success, compensation, and bonuses in the very near future. This is the 21st century and consumers are a lot smarter and demanding then they were in the 20th. They are very sensitive to being ripped off and the only reason they have accepted it this long is that they had no choice. Most car dealers took advantage of them and all manufacturers tolerated it. More dealers will begin to do business the right way because it “works” and you will see their incredible success. If you want to succeed in your position you will make those changes in the way you reward and accept those dealers who treat their customers right and those who don’t.

Monday, July 23, 2012

Don’t be “Spotted” “Puppy Dogged” or “ Yo Yo’ed”!

One of the most common unethical (and some say illegal) sales practices of car dealers is the infamous “spot delivery”. If you've bought a car in Florida (and most states), you probably have been spotted, puppy dogged, and yo yo’ed. Upwards of 60% of all car sales in Florida are spotted.

A “spot” is short for “spot delivery” which is literally translated into delivering your new or used car purchase immediately, “on the spot”.  The spot occurs as soon as you’ve picked out your car and signed all of the papers. The car dealer has a lot of reasons to do this. The biggest reason is that so you can’t change your mind about buying that car. Legally, a contract is more binding when the seller and buyer have exchanged “consideration”. Your consideration to the dealer was paying him for the car which includes down payments, a trade-in, and a contract promising to make monthly payments. The dealer’s consideration to you is the car which becomes consummated when you drive it home. 

Another part of why you won’t change your mind is that you will take the car home, park it in your drive way, and tell your neighbors, friends, and relatives that you just bought a new car. You’ll probably also brag about the fact that you have good credit, got a great price, a low interest rate, and a low down payment. Everybody will envy you because you can afford that new car, were so smart to negotiate such a good price, and had such good credit that you got the lowest interest rate and down payment. When you fall into this trap, you’ve just been “puppy dogged”. Have you ever bought a puppy for your kids and brought it home from the pet store? Your kids play with the new puppy and take it over to their friends’ houses to brag and tell them what great parents they have. What are the odds that you’re going to snatch that puppy out of your child’s arms and take it back to the pet store…even if it poops on your carpet?

As if all that isn’t enough, the dealer has another reason to spot deliver your car. If you traded in your old car, you can’t compare the price you paid for your new car because you no longer have your trade-in. Dealers have a vernacular for this too. It’s called “de-horsing”.  In fact, a dealer will often de-horse a prospect before she picks out a new car and/or signs the papers. He will give her a demo to drive home just so that he can keep her from comparing the trade-in allowance on her old car.

In fact, the delivery consideration and the puppy dog are such strong tools to keep you from bringing the car back, the dealer needs an “ace in the hole” just in case he wants you to bring the car back. This could be because he wants or needs you to pay more for the car, pay a higher interest rate or down payment, or have a cosigner on the installment sales contract. The dealer’s ace in the hole is another contract known as the “yo yo” or rescission agreement. This piece of paper which you might not even remember signing says that you have to bring your new car back if the dealer cannot find a lender who will approve your credit, down payment, interest rate, and/or amount financed. A yo yo goes out and back and of course rescission means the contract is canceled.  The yo yo agreement says that if you refuse to bring the car back, the dealer can repossess the car and charge you a high fee for its usage until you do bring it back, like 50 cents a mile and $50 a day plus his costs of recovery. If the dealer did not have this agreement signed, you could keep the car and make your monthly payments to the dealer at terms and conditions you originally signed. Dealers won’t do this because they don’t get all of their money up front as they do when they sell the finance contract to the bank. They also don’t like it because they assume the credit risk if the buyer defaults.

An interesting question to ponder is whether the dealer knew in advance that he could not find a lender who would finance your car with such a low down payment, such a low interest rate, for that little number of months. Why would he do such a terrible thing? Well he may think that you will fall in love with that car so deeply that you will agree to pay him more profit in terms of higher interest and down payment. He might know that you won’t want to suffer the embarrassment of telling your family, friends, and neighbors that your credit isn’t as good as you told them it was and you really aren’t so smart that you negotiated such a low price and down payment.

There’s even a good argument to be made for the fact that the spot delivery is illegal and perhaps even criminal because it’s a violation of the Federal Truth in Lending Act (TILA). Without getting too technical, the signing of the yo-yo agreement violates TILA because it means that the dealer is not the actual creditor.  The finance contract you and he signed is almost meaningless and used only to take you out of the market. The only meaning is that you may have the option of signing a new contract but this one might be for more money down, a higher interest rate and/or longer terms. If you’re interested in the legal specifics of why the spot delivery and yo yo agreement are illegal and possibly criminal, click on This legal memo was written by an attorney, Raymond Ingalsbe, who is an expert on car dealers’ illegal practices. He has practiced law in Palm Beach County for over 40 years and sues only car dealers. He even helps train other lawyers how to sue car dealers. In fact, he sued me several time before I cleaned up may act and entered my phase as a “recovering car dealer”.

The bottom line is that you should not allow yourself to be spot delivered. Whether it’s illegal or not, it’s certainly not a smart move for the buyer. You wouldn’t move into a new home before the bank approved your mortgage would you? When you drive that new or used car home, be sure that your credit has been approved by the lender for all terms and conditions such as interest rate, number of months, down payment, and who signed the contract (is a consigner required). If that means waiting a few days, that’s good too because it allows you time to think over a very important decision. Buying a new car is the second largest purchase most people make in their lives and should never be rushed.

Monday, July 16, 2012

I DARE Car Dealers to Answer Just One Question about their Dealer Fee

Why don’t you include the profit you make on your dealer fee in the price of the car you quote to your customer? If you will answer this question truthfully then I pledge never to raise the issue of the dealer fee again.

The reason that I do hear from car dealers and the Florida Auto Dealers Association, FADA, as to why most car dealers charge a dealer fee is that it’s an “economic necessity”. Dealer margins are so low, the economy is so bad, and the car buyers are so armed with information on dealers’ costs and profit margins via the Internet that dealers need the extra profit they make from their dealer fees. OK, I’ll give you the benefit of the doubt and stipulate that this is a fact. I won’t even argue that I don’t charge a dealer fee and have been profitable for many years and even through this Great Recession.

Now answer my question because you can still charge the extra profit you must have to “survive” economically if you simply include your dealer fee in the prices of the cars you sell. Don’t add the dealer fee to the price if the car after the customer commits to buy at a lower price. Don’t hide the amount of your dealer fee in the fine print. Don’t tell the customer that the price is “plus tax, tag, and ‘fees’” fooling her into believing “fees” are state, federal, or local taxes. Don’t tell the customer that “all dealers charge a dealer fee” which you know to be untrue. Don’t tell her that the law requires that you must charge her the dealer fee because you charge others, which you also know to be untrue. Don’t tell the customer that the dealer fee is not a profit but expenses that you must recoup like doc fees, preparing the car for delivery, and administrative costs. When you went to school you should have learned in Economics 101 that the definition of profit is “the difference between the selling price of a cost or service and its total costs”. Besides, you don’t even pay to prepare your new cars for delivery because you are reimbursed by the manufacturer and you are not allowed by law to charge doc fees.

When I ask car dealers or FADA officials this question they always give me the same answer…Hamma, Hamma, Hamma, just like Ralph Kramden of the Honeymooners. You know what I mean…”the deer caught in the headlights” or the politician on “Meet the Press” when the moderator shows the video of something the politician said on camera two weeks ago that directly contradicts something he just said.

OK car dealers and FADA, if I’m wrong about this, here’s your chance to shut me up about the dealer fee forever. All you have to do is give me a truthful answer to this question. Why don’t you include the profit you make on your dealer fee in the price of the car you quote to your customers?

Monday, July 02, 2012

Negotiating to Buy a Car

Buying a new or used car is one of the last bastions of the negotiated price. In some countries, negotiation is fairly commonplace in retail stores, but in America virtually all products are sold at a fixed price. Some of us are simply not comfortable negotiating and most of us are not very good at it.

As I have said in previous columns, the best way to buy a new or used car in on the Internet. You can do your research on which car is the best to suit your needs, get guidance on what kind of price you can expect to pay, and finally get quotes from several dealerships on that specific car. However, everybody is not “Internet savvy” and if you are not, you may find it necessary to walk into a car dealership and negotiate for the lowest price.

If you are not comfortable with negotiation, the best advice I can give you is to bring someone along with you who is. Car sales people and sales managers are trained experts in negotiation. This is how they make their living. Here are some tips for you if you decide that you want to negotiate the best price on a car.

(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 accepts 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.