Why Do Car Dealers Advertise Cars Priced Below Their Actual Cost?

Many of those cars you see or hear advertised on TV, radio, and newspaper would be great buys, IF YOU COULD buy the car. The problem is that the advertised cars cannot be bought at the advertised price. You might ask, how I can I know this? You might also suspect that, because I’m a car dealer, I’m just making mean spirited, unfounded allegations against my competition. For many years, at least once every week, I’ve “mystery shopped” car dealers all over South Florida. A mystery shopper is a person I train and pay to surreptitiously visit a car dealer in response to his advertisement on a specific car. The shopper feigns interest in buying a specific car advertised and is instructed to take the buying process as far as the seller will allow. In fact, in some cases we have asked the shopper to actually buy the car, but only if the dealer will sell the car at the advertised price. So far, we’ve never been able to buy a car at the advertised price, or even to get a signed contract to do so.

The reason for this is that most car dealers will never advertise a price that a competitor can beat and the only price a competitor would refuse to beat is one that is below his true cost. This means that 99% of the cars advertised cannot be bought at the advertised price. Their strategy is to lure you into their dealership at a price that is “too good to be true”. The car dealers’ vernacular for this kind of advertisement is “low ball” and the Federal Trade Commission calls it “bait and switch”. There are several ruses that car dealers use to avoid selling you the car at the advertised price.

(1) The most common is the “dealer fee” which is required by law to be included in the advertised price. Most dealers don’t obey the law and the Florida Attorney General does not enforce the law. Those that do follow the law have only one car available at the advertised price. If they do sell it to a very persistent buyer, they chalk up the loss on one car as a cost of advertising. The law permits the dealer to add the dealer fee to the price of all the other cars that weren’t specifically advertised, even though they are identical. The ad car is identified by a “stock number” hidden in the fine print.

(2) Probably the second most common bait and switch trick is “dealer installed accessories”. These usually consist of grossly overpriced items like “nitrogen in tires”, paint sealant, pinstripes, windows etch, and floor mats. These items typically cost a dealer less than $100, but he will price them over $1,000. The advertisement will sometimes disclose something like “prices don’t include dealer accessories”, but this is violation of the FTC law on fine print contradicting the advertised price.

(3) Another, not uncommon practice is to advertise a current year car that appears to be new, but in fact is used. This is also sometimes disclosed in the fine print. Dealers will often advertise current model cars that they have in their rental companies.

(4) Advertising a new car that has hidden features which would dissuade you from buying it. A favorite trick is advertising a new car with a manual (stick shift) instead of an automatic transmission. Another ruse is to have a very unpopular color, exterior and interior trim. Dealers even advertise “new” cars with lots of miles. There’s nothing in the law that prohibits a dealer from calling a car new because it has lots of miles. New cars can accumulate hundreds or thousands of miles by being driven between dealerships when they are “dealer traded”. Dealers commonly buy or trade cars with other dealers to get the right color and accessories on the model a customer wants. New cars are commonly driven by prospective customers who change their mind or whose credit turns out to be bad.

(5) As you probably know, most car salesmen are paid strictly on commission. This commission is typically 25% of the profit they make on the car you buy. The higher the price they sell the car for, the more they make. The advertised cars have no profit and usually there is no commission paid for selling it. Even if the dealer is willing to sell an advertised car at below his cost, what are the chances a salesman will sell it to you? He will do everything in his power to get you to buy another car where he can make a commission. This includes telling you that car has already been sold.

The best thing you can do is to ignore all advertised car prices and do your own independent research on what a good price is. You can learn this from Consumer Reports, Edmunds.com, and KBB.com. My favorite is www.TrueCar.com. When you determine what is a good price on the car you want to buy, get at least three out-the-door prices from three competing dealers.

Does the Internet Threaten The First Amendment?

A few years ago, my wife, Nancy, and I were fortunate enough to have lunch with one of the greatest living journalists, Bob Woodward of the Washington Post and Watergate fame.  He asked us what we considered “the greatest current threat to our American society”. This was shortly after 9-11 and we answered international terrorism. He disagreed and said that his biggest fear was that “the media is failing to fulfill its vital role to report all of the news fearlessly, completely, honestly, and ethically.” Bob Woodward told us he could see signs of this today, and that was back in 2009. He alluded to the economic pressures on the conventional media which allowed outside “forces”, like advertisers, to exercise influence that in previous times was ignored. The Internet is radically changing the way we get our information, news and opinion and this has taken away readers, viewers, and listeners from newspapers, TV, and radio. Of course this has resulted in fewer advertisers and plunging revenues, especially for newspapers and radio.

A few weeks ago, I wrote a letter to the Editorial Page Editor of the Palm Beach Post, Rick Christie. In the letter I complimented him on his Sunday editorial criticizing gas stations for posting gasoline prices that included a five cent discount, but only for those who paid cash. This deception caused buyers of gasoline to come in and buy gas only to discover that they had to pay an extra nickel a gallon if they paid with their credit card, which most of us do. I also included in my letter a request that he write another editorial or ask one of his investigative reporters to expose a similar pricing deception propagated by car dealers. That is the common practice of advertising car prices in newspapers and on radio and TV excluding a large portion of the price, commonly referred to as the DEALER FEE.  I told Rick Christie that I would like to meet with him and explain in detail this chronic problem with virtually all South Florida car dealers.

I was pleasantly surprised when I received an email from Rick Christie. He told me that he would be sure to pass along my story suggestion to Joel Engelhardt, the PB Post’s investigative Editor. He also commented, “As you know, we have a well-established policy of keeping our advertising and news operations separate.”  This comment was in response to my letter to the Editor in which I stated, “Why  is there no hue and cry about dealer fees ripping off car buyers for thousands of dollars like there is for gas station operators ripping off gas buyers for much less? I have a theory that the local media is afraid to spotlight dealer fees because car dealers represent such a large percentage of their advertising revenue.”

Rick Christie said he would meet with me “for a cup of coffee”. We agreed on Starbucks at CityPlace and we did meet there last Friday morning. It was a very surprising and pleasant meeting. I’d never met Rick before and was very impressed. Not only is he very knowledgeable and intelligent (as you would expect the editorial Editor of the Palm Beach Post to be, but he was a very nice guy who you couldn’t help but like very much. The “surprising” part of our encounter was the fact that he was totally honest and candid with me about why my letter to the editor will not be published, why no PB Post reporter will ever write a story about it, and why he will never write an editorial about it. The surprise was not that he refused to write about what I’d written in my letter to the Editor, but that he was so truthful about the reason.

In the briefcase that I brought to our meeting at Starbucks, I had several copies of car dealers’ advertisements from the PB Post in the previous Saturday’s edition as well as about a dozen consumer complaints submitted to the Florida Attorney General’s Office on local car dealers who had violated Florida’s law against deceptive and unfair trade practices. I also brought copies of the Florida statute requiring that the dealer fee be included in all advertised prices and the Federal Trade Commission law against fine print contradicting the understanding of the advertisement. We discussed all of this and, in my opinion, Rick Christie fully understood and agreed that that the allegations in my letter to the Editor were accurate and truthful.

Rick explained to me that he could not print negative stories about car dealers who advertised in the PB Post because they would stop advertising in his paper. This was in stark contradiction to what he had written in his email, “We have a well-established policy of keeping our advertising and news operations separate. I can only assume that he believed this when he wrote it, but his mind was changed by his boss, Tim Burke, the Publisher and Executive Editor of the PB Post. Why else would he write one thing in an email and a short time later contradict it in a face to face meeting? Earlier in our conversation at this meeting he said that he believed in printing virtually every kind of opinion in letters to the Editor. He said the only exceptions were those that were profane, obscene, or mean and hateful. He said that since he had been Editorial Page Editor at the PB Post, Tim Burke had asked him not to print only two letters to the Editor. I asked him why mine had not been printed, and he just gave me a knowing smile which I fully understood. Mine was one of those two.

It may surprise you to hear that I completely understand and “almost” agree with the decision by the PB Post not to print the truth about car dealers’ illegal advertising. The PB Post does a lot of good in our community and employs a lot of people. If the car dealers stopped advertising, they might go out of business and we would have no newspaper and hundreds of people would lose their jobs. Self-preservation is our strongest instinct. If I was Tim Burke and the decision was mine, what would I do? What would you do?

I don’t have a solution to this problem which is not confined to the PB Post. You read, see, and hear a lot of stories about businesses and individuals that defraud the public. Local TV, radio, and the newspapers are full of these investigative exposés. When was the last one you saw about a local car dealer or, for that matter, any other large advertiser on that TV or radio station or newspaper?

I don’t think the answer is government subsidy of the media as in PBS, the Public Broadcasting System, because then we are inviting government control. We could ask private enterprise to subsidize the media but then you have control by corporations. Maybe the thing that caused the problem may also be the cure…the Internet. Will truth in journalism prevail with Internet news and social media? Only time will tell.

Demand Genuine Factory Parts From Your Insurance Company

This is not the first article I’ve written for my blog and Hometown News on this subject. Thanks to my body shop manager, Alan Napier, a few years ago I was made aware of a very dangerous and common practice by virtually all auto collision insurance companies. This practice is the use of cheaper collision parts, like hoods, fenders and doors which are not proven to be as safe as the original factory parts that your car was manufactured with.

The law on this is very clear, “An insurer may not require the use of replacement parts in the repair of a motor vehicle which are not at least equivalent in kind and quality to the damaged parts prior to the loss in terms of fit, appearance, and performance.” For many years my body shop manager and I have asked all insurance companies who specified aftermarket parts (parts not made by the car’s manufacturer) to provide proof that they were compliant with federal crash test regulations. Not once has an insurance company agreed to do so. To my knowledge our federal government has never approved any aftermarket part as being equivalent in kind and quality to the original manufactures’ part.

Nevertheless, insurance companies continue to insist on the use of aftermarket parts because they cost them much less. That hood, door, or fender that your insurance company specified to repair your wrecked car was never tested and proven safe by any federal mandated crash test. Not only do the insurance companies save money by this practice but the body shop that repairs your car makes more money because they have a wider profit margin between the cost of the part and what the insurance company allows them to charge.

As I’ve said in previous columns, insurance companies usually have a list of “approved” body shops. They tell you that their shops are approved because they do high quality work and will guarantee the repair. The truth is they approve those shops that agree to “play ball” with them. The “approved” shops will agree to use non-manufacturer aftermarket parts unproven in U.S. government crash tests. Approved shops also agree to charge a lower price to the insurance company than other shops which can lead to short cuts on the repair. This can also lead to not paying the body repair technicians a wage high enough to employ those that are higher skilled.

My company and a large number of other body shops have filed a class action suit against the insurance companies because of this dangerous practice of specifying untested aftermarket parts. We have also pursued this with the National Highway Transportation Safety Association, NHTSA, and the Florida Office of Insurance Regulation. I have also reported this to the media. All have expressed interest and are “cautiously” investigating my allegations. I say “cautiously” because Big Insurance is the proverbial 800 pound gorilla. They have huge political clout with virtually unlimited lobbying resources. Nobody wants Big Insurance for an enemy. I will keep you posted on any progress I make with the state or federal regulators as well as the media.

My advice to you if you have a wrecked car that needs repairing is to insist that the insurance company and the body shop use only original manufacturer’s parts. If they balk at this or tell you that you will have to pay more money, show them this link www.AfterMarketPartsCanBeDangerous.com. You can click on this if you’re reading my blog or cut and paste it in your browser if you’re reading this in Hometown News. This is the complete Florida law specifying that insurance companies use only parts that are at least equivalent in kind and quality. To qualify, the parts must have been successfully crash tested on a car by our federal government. If they still refuse, tell the body shop that, under protest, you will pay extra for the original manufacturer parts, and that you will then sue the insurance company for the difference. My company sues the insurance company on behalf of our customers whenever necessary. We ask our customers to assign their right of litigation against their insurance company to us. Our customer pays only the lower amount and we recover the difference from the insurance company. We have never lost a case and the insurance companies prefer to settle these before they go to trial because they know they are wrong and know they will lose.