Minimizing the Pain of Having Your Car Serviced

The pain of buying a used or new car may be greater than the pain of having it serviced, but you need to have it serviced far more often than you have to buy a car. Below, I am listing eight suggestions to make your visit to your car dealer’s service department as pleasant as possible.

(1) Choose the dealer with the best service department. Remember that you don’t have to have the same dealership service your car that sold you your car. You probably bought your car from the dealer who gave you the best price. You should have your car serviced at the dealer who can best maintain and repair your car. The price of service is important, but secondary to the quality of the service and repairs. Do a little research. Ask friends and neighbors who drive your make of car. Check with the BBB and the County Office of Consumer Affairs. Ask the service manager at the dealership to show you his factory score on CSI (customer satisfaction index). Every manufacturer surveys dealers’ service customers and ranks that dealer by how well he treats his customers.

(2) Establish a personal relationship with your service advisor. The person in the service drive who writes up your repair order is very important. Be sure you get a good one. He should be knowledgeable, attentive to your needs, promptly return phone calls, and recommend only necessary services. You might not find this person on your first visit, but if you aren’t comfortable with the person you are dealing with, ask for one with whom you are. When you make an appointment to have your car serviced, always ask for that service advisor.

(3) Don’t pay the “gotcha”, miscellaneous supplies fee. Almost all car dealers tack on a phony fee when you pay your bill which is simply more profit to the dealer, but is disguised by various labels. It is also sometimes called “environmental impact fee”, “sundry shop supplies” and many others. The cashier just adds a percentage ranging from 5% to 10% to your bill. This is no different than the “dealer fee” that the sales department tacked on to the price they quoted you on the price of the car. Most dealers will waive this fee if you complain about it, especially if you threaten to call the BBB, their manufacturer, or the Florida Attorney General’s office.

(4) Always road test your car, preferably with the technician. If you brought your car in for a drivability problem such as a noise, vibration, or pulling to the right or left, don’t accept the car back until you ride in the car with the technician or service advisor and confirm that the problem has been remedied. I also recommend that you drive the car with the service advisor to demonstrate the problem when you bring it in.Experiencing what you experience always communicates your problem more accurately than listening to your description of the problem.

(5) Ask for a written estimate of the total cost of repairs and maintenance. Florida law requires that the dealer give you a written estimate. By law, they may not exceed this by more than 10%.

(6) Make an appointment ahead of time. You should insist on making an appointment and you should try to make that appointment at a time when the dealer’s service department will be least busy…typically the middle of the afternoon on weekdays or Saturday and Sunday. Avoid the 7:30-8:00 morning rush. When your service advisor has written up your repair order, ask him how long it will take. After he tells you, ask him to let you know ahead of time if, for any unforeseen reason, your car will not be ready in the promised time. Often times when you call a service department they will tell you to “bring the car in anytime” or “come right over”. Service advisors will tell you this because they are either too busy or too lazy to take the time to make a proper appointment. When they tell you this, tell them that your time is very valuable and that you insist on an appointment at a time when they can get you in and out quickly. Always write down the name of the person that gave you the appointment.

(7) Shop and compare high cost repair prices. Most service departments are competitive on maintenance items like oil changes, wheel alignments, and tire rotations. However, the costs of major repairs can vary considerably. If you are looking at an air-conditioner, transmission, or engine repair that can cost several thousands of dollars, get bids from more than one service department. Often just suggesting that you will do this will keep the cost down from the dealership you prefer.

(8) Introduce yourself to the service manager. This falls along the same philosophy as developing a good personal relationship with your service advisor. It can’t hurt to know the “boss”. If you are on first name basis with the service manager, it just might earn you a slightly higher level of treatment from those that work for him.

Earl's Suggested Word Track for No Haggle/No Hassle Car Buying

You can use this word track to buy a car online, via regular mail, over the telephone, or in person. I strongly recommend that you use online but I know that some car buyers, seniors like me, are not as comfortable with buying over the Internet. Using this word track in person can work, but it will be much more difficult and take a lot longer. Only a person with a very strong will, stamina, and a very thick skin should attempt this. I strongly recommend that you don’t.

(1) Dear Car Salesman, “Within the next two weeks (enter your own time frame), I will be purchasing (leasing) a (fill in the specific make, year, model and optional accessories).” You should carefully research the vehicle that you decide to purchase using all sources of information available such asConsumer Reports. You should also test drive the car to be sure it feels and drives the way you want it to. It is vital that you not change your mind during the purchasing process. If you do change your mind, you must begin all over again. Never let a car salesman change your mind for you. That is one of their favorite ways to charge you more money than you had anticipated paying.

(2) “Please quote me your lowest price on (your specific car). This price must be an out-the-door price with only state sales tax and the license tag fees paid to the state. To be sure there is no confusion, please understand that the only dollar amounts that I will pay in addition to the price you quoted are taxes and fees actually paid to the state government. I will not pay dealer fees by any name such as electronic filing fees, tag agency fees.”

(3) “I understand that my request may not be one you wish to comply with because you are concerned that I will shop and compare your price with other car dealers. Your concerns are valid because this is exactly what I will do. You may be asking yourself, ‘why should I do this if I know that my lowest price may not be low enough and that I will show it to your competitor to get an even lower price?’ My answer is quite simple; you may have only a small chance of winning my business if you do give me your lowest price, but you will have ZERO chance of winning my business if you do not, because you will never hear from me again.”

(4) “I will sell my trade-in to the highest bidder, just like I will buy my new car from the lowest bidder. I will also finance my car at the lowest interest bid by a bank or credit union. If you can meet or beat other dealers and banks, I will trade my car into you and/or finance with you.”

(5) “If you quote me your lowest out-the-door price and I come to your dealership to purchase my car, please don’t even think about: (A) Telling me that the car I specified was sold and that you would like to show me other cars just like it. (B) Telling me that the car I specified has some accessories/options that you installed like nitrogen in the tires, glass etch, pin stripes, floor mats, paint sealant, etc. (C) Telling me that you priced in rebates and incentives that I don’t qualify for like college graduate, military, customer loyalty, customer conquest, etc. (D) The price you quoted me is only valid if I finance my car through you. If you do any of these things, I will not only not buy from you, but I will report you to the Florida Department of Motor Vehicles, BBB, the County Office of Consumer Affairs, Florida Attorney General, and your manufacturer. “

(6) “If everything goes well with no shenanigans, I will write a letter of commendation to your owner and manufacturer. I will also tell all of my friends, neighbors, relatives, work associates, and club members about my wonderful experience with you and your dealership. I will also post recommendations on Google, Yelp, Facebook, and Twitter.”

(7) “The choice is yours and I hope that you see the benefits of selling me a car at the lowest price you can afford to give me. I also hope you can see the dangers of giving me a dishonest price so that you can get me into your dealership and try to charge me more than we agreed.”

(8) “I wish you the best of luck and I sincerely hope we can do business and have a long car buying and servicing relationship.”

Car Buyers: Beware of "The Box"

OK, you've just bought that new or used car and the pressure is off…right? WRONG! The next step for the car dealer is to get you into the “box”. You won’t hear this word mentioned. It’s inside car dealer slang for the F&I office or the business office. This is the place that you sign all of those papers making the sale legal and final. But in addition to that, it’s also a very important profit center for car dealers. In many car dealerships it’s the most profitable department. It’s not uncommon for car dealers to make an additional $1,000 profit or more in “the box” on each car they sell.

Here’s how that profit is generated. First and usually foremost is making money on the interest they charge you. Essentially, they make money on “the spread” just like banks make money when they loan it. For example, a car dealer will borrow money from Bank of America for 2.9% and loan it to you for 5.9%, or whatever interest rate they can convince you to accept. The second way they earn that big profit in “the box” is by selling you “products” which are added to the price of the car you just bought. There are many products and some of the most common are extended service warranties, maintenance plans, road hazard insurance, GAP insurance, window etch, and LoJack.

The way you should protect yourself on the interest rate is to have already shopped your own bank or credit union and two other banks for the best interest rate you can qualify for. Never go into “the box” without knowing what the best rate other banks or credit unions will allow you. The best way to protect yourself against the products they will try to sell you is to completely understand each product. Do you want or need an extended warranty on your new car? If this product costs $1,900 for example, how long are you going to keep the car and how long are you likely to be driving it when it’s out of the manufacturer’s warranty? Ask the same questions of each product they try to sell you. If you are unclear on the merits of a product, do not commit. You can always go home and think about and seek advice from friends and advisers.

Another important tactic that I recommend is to never go into “the box” alone. If it’s just you and the F&I manager [often called business manager], and there is a dispute over what was said, it’s just your word against his. Also, having a friend or adviser present will usually be a deterrent to any attempted deception.

These are some of the kinds of deception you should be on the lookout for. Tying the sale of a product like an extended service contract to the interest rate or eligibility to have the bank finance your car is illegal. But this practice happens all too often behind the closed doors of the “the box.” The F&I manger may tell you that the bank “requires” you to buy the extended warranty, GAP insurance another product in order to protect the bank’s collateral. This is simply a lie and it’s illegal for banks or car dealers to do this. Another common form of deception is to simply not disclose the products or interest rate and have you sign the contract without reading it. There are a large number of documents to be signed after you buy a car. Buyers are often in a state of euphoria now that they have bought their dream car and are in too much of a hurry to sign everything and drive their new car home. The car dealer is required by law to give you a signed copy of the installment sales contract. Be sure you carefully read it and be sure have a copy. If you don’t get a copy, you may find that you signed a different contract than the one you read.

Extended service warranties, GAP insurance, and other insurance products are regulated in Florida unlike many other states. This affords you some degree of protection like being able to cancel an insurance product as long as you did not use it. You can do this in 60 days for a 100% cancellation. You don’t get the cash back and your monthly payment won’t go down however. But the amount is taken off the principal amount you are financing through the bank. You cancel insurance products after 60 days, but the cancellation is not pro rata and you pay a large penalty.

If you remember nothing else from this article please remember this one thing. Do not hurry the process of financing your car and signing the papers. Do not let the car dealer encourage you to sign anything you don’t understand. Time is on your side because it will allow you to think and to consult with others who can help you make your final decision. I get a lot of calls from victims of “the box” and the one thing they all have in common is that they let themselves be rushed into signing the documents so that they could drive their dream car home that same day.

10 New Year's Resolutions for Florida Car Dealers

I was recently interviewed for an article by a reporter for Nationwide Insurance’s Blog, “In the Nation”. The reporter asked me to “Identify 3 trends that I believe will shift in the automotive industry by 2025.” This is what I told her would be the first and most important trend:

The current, old 20th century way of buying a car will vanish by 2025.
The car dealer franchise system will disappear and all makes of cars will be sold online and directly by manufacturers through manufacturer-owned stores like Apple and Tesla operate today. The manufacturers will also provide service and make new models available for display and demonstration drives.

The reason for this is the exponential acceleration of education and knowledge of the consumer, driven largely by the Internet. Perennially car dealers have ranked at or near the bottom of the Gallup “Honesty and Ethics” in Professions poll. The modern, educated consumer will no longer tolerate the treatment they must endure to buy a car. The only reason franchised car dealerships exist today is because of state franchise laws, lobbied in by car dealers and their associations, which entrench car dealerships under state laws and prevent manufacturers from selling cars directly.

Public sentiment overwhelmingly supports buying cars directly from the manufacturer through factory owned stores and it’s only a matter of time before politicians will be forced to comply with public sentiment.  

Of course, I hope I’m wrong about this forecast, but wishing it won’t happen does not change the inevitable. I do believe there is some chance that car dealers can mend their ways and this is why every year I offer these Ten New Year’s Resolutions.

1. Eliminate your dealer fee. This pure profit to the dealer is added to the price of the cars you advertise and the prices your salesmen quote your customers. The average dealer fee is approaching $1,000 and this is the average of how much you deliberately understate your true selling prices. 
2. Eliminate the fine print in your TV, newspaper, digital and all advertising which significantly increases the true price of your advertised cars. You commonly add “dealer installed accessories”. You also reduce your advertised prices by discounts most can’t qualify for, such as college graduate, active military, farmer, current owner of the same make car, etc. 
3. Don’t inflate the MSRP of the new cars you sell with “addendum stickers” that add overpriced accessories like nitrogen in the tires, glass-etch, and pin stripes. You than advertise discounts from “dealer list” or just “list price”, tricking the buyer into believing she’s getting a larger discount. 
4. Eliminate the haggle and hassle pricing game. Put the real, out-the-door price on the cars you sell. No other retailer plays the games you play with their customers. 
5. Eliminate Bait and Switch advertising. Always have the advertised cars in your inventory and, if you run out, give your customers a rain check for when you can obtain them. 
6. Don’t lure your customers in with inflated price offers for their used car. Making them think you desperately need their particular car when you want only to sell them a new car is simply unethical. This applies to all other forms of “get ‘em in-the-door by any means necessary’ advertising. 
7. Don’t over mark up the interest rates to unsuspecting, unsophisticated customers. You are well aware that most customers can obtain lower interest rates directly from their credit unions and banks. 
8. Don’t switch customers from a purchase to a lease for the purposes of secretly increasing the price and your profit. By focusing on the lower payments that leases offer, you trick your customer into not taking into account that she builds no equity with her lease payments. 
9. Stop advertising that you can finance people with bad and no credit. You make these false promises because when you “cast that advertising net of false hope”, you catch a few unsuspecting victims whose credit isn’t as bad as they thought it to be. But most of those you drag into your dealership cannot be financed. These are treated unsympathetically and without respect. They are often told that you “will get back to them” but you never do. 
10. Eliminate the yo-yo delivery which is also known as the “spot” and puppy dog” delivery. Americans fall in love with their automobiles and they often buy on emotion. You exploit this weakness by encouraging buyers to drive their purchased car home the same day they “fall in love” with their new car. You also trick customers into believing that they qualify for better interest rates and terms than they really do. But, after taking their car home and bragging to their friends and neighbors, you often call them to say the interest rate, monthly payment and down payment are much higher than you promised. 

I truly hope that a miracle can occur and car dealers will begin treating their customers the way that they would like their friends and families to be treated when they bought cars. If not, my forecast will come true.

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” for “subprime” 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.

Consumer Reports: Your Best Friend in Choosing a Car

If you don’t already subscribe to Consumer Reports, you should. I have been a subscriber for as long as I can remember. My wife, Nancy, and I rarely buy any product without consulting this great magazine. I also subscribe to Consumer Reports online edition which is even more current than the regular magazine. I recently received their annual auto issue, which no car buying family should be without. All libraries would have this on hand.

Don’t be fooled by other magazines with similar names purporting to objectively analyze and recommend products. There is only one Consumer Reports. They do not accept any advertising and therefore are not beholding to any companies. They even go beyond this and will not allow a retailer or manufacturer to use the name Consumer Reports in their advertising. Even if Consumer Reports gives a product a great rating, that company cannot mention this in their advertising. If they do, they get sued by Consumer Reports. No other company goes this far and is this “squeaky clean”. J.D. Powers is a company that ranks and compares lots of products including cars, but they allow companies to use the JD Power name to advertise their products when they rated them good. You can understand why a consumer might be just a little more skeptical of J. D. Powers’ objectivity than Consumer Reports’.

I am not saying that Consumer Reports is infallible. They do make mistakes and they have been successfully sued by some companies that were affected by their mistakes in testing. But this is very rare. As a car dealer for almost half a century, I have not always liked what I read about all of the makes and models of cars I have sold, but I grudgingly had to admit that the reports were almost always accurate. In fact, the last issue of CR gave negative reviews to two models of the cars I now sell, Toyota. I have to confess that with some makes and model cars I have sold over the years, I was very thankful that the circulation of Consumer Reports is not very large. Their circulation is growing as consumers become more educated and sophisticated.

This annual auto issue should be a mandatory read before you buy your next used or new car. Here are some of the articles in this issue…Top Picks (the best new vehicles they have tested), Best and Worst (tells you the ones you definitely shouldn’t buy), Coming for 2016, Who Make The Best Cars (best manufacturers), Buy Better on the Web (The Internet is the best place to buy your next car), Reliability trends (repair histories on all makes and models), What’s Next in Auto Safety, and Used Cars, Best and Worst.

Consumer Reports also offers other car buying services like their “New Car Price Service” which discloses the actual cost to the dealers, rebate and incentive information, negotiating strategies, and their expert recommendations. They also offer a “Used Car Price Service” which provides an evaluation tool kit that helps you establish the right price for most used cars made from 2005 to 2015.

Is VW the Only Auto Manufacturer To Put Profit Before Integrity?

You must know about this unprecedented crime by the world’s second largest auto manufacturer. It has been headline news for many weeks now, and the news keeps getting worse. Just in case you’re from “another planet”, Volkswagen cheated on the Environmental Protection Agency’s (EPA) rules for emissions in diesel engines. As if that wasn’t bad enough, they also cleverly installed software in their diesel cars that hid this fact from anybody testing emissions. VW, not only committed a crime but then committed a second crime to hide the first crime! Volkswagen fired their CEO and promoted the CEO of Porsche (owned by VW) to be the new CEO of VW. It has recently been discovered that the same crimes were committed by Porsche and Audi (also owned by VW). 

Now the focus is on the famous question, “Who knew what, and when did they know it?” Hopefully there will be a thorough investigation and VW will not get away with furnishing a few sacrificial lambs from middle management or engineering to “take the fall”. A crime this big and wide spread cannot have been known by only a few. As drastic as this may sound, I think there is a very real possibility that most of VW’s executives and many of the rank and file were privy to this dirty big secret. 

My reasoning for thinking this is that the entire auto industry has been amazed and skeptical for the past 3 years over how Volkswagen had designed and built a diesel engine that was so clean, powerful, and economical when no other manufacturer has come close. VW can brag all they want about “German Engineering”, but over the last 50 years American and Japanese engineering have become the standard. In fact, I’m astounded that no other manufacturer suspected and objected. It’s possible that the reason for this is that they knew how VW was accomplishing and getting away with this and planned on doing the same thing…or maybe they already were. The British newspaper, The Guardian wrote “The issue is a systemic one” across the industry quoting Nick Molden, whose company Emissions Analytics tested the cars. The Guardian revealed that diesel cars from Renault, Nissan, Hyundai, Citroen, Fiat, Volvo and Jeep all pumped out significantly more NOx in more realistic driving conditions.

I wouldn’t be the least bit surprised to learn that the same tricks have been used to manufacture gasolinepowered vehicles to meet emissions standards. As you probably know, the more stringent the EPA restriction on emissions, the more difficult it is for a manufacturer to produce a car with acceptable performance and fuel economy. Performance and fuel economy is what sells cars…low emissions play second fiddle. Also, the federal rules on fuel economy, “Corporate Average Fuel Economy” standards (CAFE) are extremely challenging and expensive for auto manufacturers. The federally mandated average fuel economy for all cars by 2025 is 54.5 miles per gallon. The fine for not meeting this standard is $55 for each mile per gallon missed times the total number of vehicles manufactured. Some manufacturers have been fined hundreds of millionsof dollars. BMW and Mercedes were fined $231M and $262M respectively!

Auto manufacturers are “caught between a rock and a hard place”. They must comply with EPA emission standards and CAFÉ fuel economy standards which are at odds with each other…the cleaner the emissions, the worse the fuel economy. If that isn’t enough, they must build a car that people want to buy and a car’s performance is the number one reason a person buys a car. Good fuel economy and low emissions are both detrimental to good performance. 

Survival is the #1 instinct in humans and corporations. If auto manufacturers believe the only way they can compete in the market place is to cheat on federal standards, there’s a good chance they will. Furthermore, if an auto manufacturer is trying to compete honestly but strongly suspects, or knows, that his competitors are cheating and getting away with it, he may feel he is left with no other recourse but to cheat as well. 

On a side note, I find this to be a primary motivation for car dealers who cheat their customers with unfair and deceptive advertising and sales practices. I know many well intentioned dealers who would much prefer to sell cars honestly, but believe they have no choice but to match their competitors’ bait and switch tactics to compete successfully.

Car Dealers Have Infringed on Your Right to Sue!

Did you know that when you bought your last car that you agreed to waive your constitutional right to sue the car dealer who sold you the car and have your complaint heard in a court of law by a jury of your peers?

You probably did not, because an “arbitration clause” was hidden in the fine print of your contract that you signed. Even worse, you also are prohibited from even taking that car dealer to arbitration unless you write a “demand letter” first!

What is “arbitration” anyway?

The average person does not understand what arbitration is, much less know that they agreed to substitute this process for their right to sue when they bought their last car. Arbitration allows an individual who is employed by an arbitration company to decide who is right in a dispute, you or the car dealer. Professional arbiters can be retired judges or anyone that the arbitration company decides is qualified. Because car dealers use the arbitration company often and because car dealers determine the compensation to these companies, there is a good chance that the arbitrators are inclined to side with “the hand that feeds it”.

You can’t even file for arbitration unless you write a “demand letter” to the dealer which must contain specific information as prescribed by Florida statute 501.98. This is a summary of that law:

“Florida Statutes require that, at least 30 days before bringing any claim against a motor vehicle dealer for an unfair or deceptive trade practice, a consumer must provide the dealer with a written demand letter detailing the name, address, and telephone number of the consumer, the name and address of the dealer; a description of the facts that serve as the basis for the claim; the amount of damages; and copies of any documents in the possession of the consumer which relate to the claim. Such notice must be delivered by the United States Postal Service or by a nationally recognized carrier, return receipt requested, to the address where the subject vehicle was purchased or leased or where the subject transaction occurred, or an address at which the dealer regularly conducts business.” If you would like to read the detail of this law, you can access it online at https://www.flsenate.gov/Laws/Statutes/2013/501.98.

If you hire a lawyer because you believe a car dealer has taken advantage of you, you’re not eligible for reimbursement of any legal fees unless you have sent the demand letter exactly as described above. This is why most lawyers are reluctant to assist you because they know that the fees they would normally be entitled to are at risk…both because of the arbitration requirement and the demand letter.


What I’ve described is just one more reason why you should be extremely careful when you buy or lease a car. In the back of our minds most of us believe that when we are doing business with a car dealer, or anybody else, if we are taken advantage of we have the right to sue to force the company to make things right. This is not true with 99% of car dealers. You should realize this and be even more careful when you purchase a car. Access my blog for articles on every facet of doing business with a car dealer. There are hundreds of articles accessible in the archives of www.EarlStewartOnCars.com. You will learn never to go car shopping alone, get all promises by the salesman in writing, spend at least two weeks researching the purchase of car, and always get at least 3 competitive bids on the car you’re buying, your trade-in, and your financing.

OPEN LETTER TO FLORIDA CAR DEALERS, SUBJECT: ELIMINATE THE DEALER FEE

Dear fellow Florida car dealer, I started in the retail auto business in 1968, about 47 years ago, and I have seen a lot of changes in the way we dealers sell cars and the expectations of our customers. My remarks in this column are made sincerely and with a positive intent toward you and your customers. I am not trying to tell you how to run your business; I am suggesting a change that will reward both you and your customers.

Virtually every car dealer in Florida adds a charge to the price of the cars he sells, variously referred to as a “dealer fee”, “documentary fee”, “dealer prep fee”, electronic filing fee, and tag agency fee. This extra charge is printed on your buyer’s orders and is programmed into your computers. It has been regulated by capping the amount you can charge in most states including California. You charge this fee to every customer and it ranges from a few hundred dollars to over two thousand. Florida law requires that you disclose in writing on the buyer’s order that this charge represents profit to the dealer. Florida law also requires that you include this fee in all advertised prices. You don’t always do this and you get around the law by limiting the number of advertised vehicles (as few as one).

The argument that I hear from most car dealers when I raise this issue is that the dealer fee is fully disclosed to the buyer on the buyer’s order or invoice. But, most car buyers are totally unaware that they are paying this. Who reads all of the voluminous paperwork associated with buying a car? The few who notice it assume it is an “official” fee like state sales tax or license and registration fee. Those few astute buyers who do question the fee are told that your dealership must charge this fee on very car, which would not be true if you were to make the decision to not charge the dealer fee to anyone. These astute buyers are also told that all other car dealers charge similar fees. This is almost true, but, as you know, my dealership does not.

The reason you charge this fee is simply to increase the cost of the car and your profit in such a manner that it is not noticed by your customer. This is just plain wrong. Dealers will admit this to me in private conversations and some will confess that they have considered eliminating the fee as I have, but are afraid of the drastic effect to their bottom line. By being able to count on an extra $999 in profit that the customer is not aware of, or believes is an “official fee”, you can actually quote a price below cost and end up making a profit. Or, if the price you quote the customer does pay you a nice profit, you can increase that by several hundreds or thousands of dollars.

This “extra, unseen” profit is even better for you because you don’t pay your salesmen a commission on it. That’s being unfair to your employees as well as your customers. When the rare, astute buyer objects to the dealer fee, the law permits you to decrease the quoted price of the car by the amount of the dealer fee. This would have the same net effect of removing it. You often tell your customer that you must charge everyone a dealer fee if you charge just one. This is untrue. The salesman won’t lower the price by the amount of the dealer fee because he will lose a big part of his commission (typically 25%) on the decrease in his commissionable profit.

If you don’t know me, I should tell you that I don’t profess to be some “holier than thou” car dealer who was always perfect. Although, I never did anything illegal, when I look at some of my advertising and sales tactics 20+ years ago and more, I am not always proud. But, I have evolved as my customers have evolved. My customers’ expectations, level of education, and sophistication are much higher today. Your customers are no different. As I began treating my customers, and employees, better I discovered that they began treating me better. Yes, I used to charge a dealer fee ($495), and when I stopped charging it around 15 years ago, it was scary. But I did it because I could no longer, in good conscious, mislead my customers. Just because everybody else was doing the same thing did not make it right.

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

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

Sincerely, Earl Stewart

Car Salesmen Don't Look Like Car Salesmen Anymore

Many of my readers know that I send mystery shoppers weekly to car dealerships around South Florida so that I can learn how they are selling, leasing and servicing cars. I do this for two reasons. The first is that this is a common practice for all businesses to learn how their competition operates and to have the competitive edge you really need to know how your competitors do business. The second reason is that I feature a mystery shopping report on my weekly radio show, Earl Stewart on Cars that airs between 4 and 6  every Tuesday afternoon. I've done hundreds of these mystery shops and I've noticed an interesting trend over the years.

Back in the day, car salesmen looked and sounded like what many people consider the stereotype for a car salesman. You know what I mean, gold chains, diamond pinkie ring, sunglasses, loud shirt, and white shoes. As car buyers became more educated, sophisticated, and demanding, it didn't take car dealers long to realize that they had to dress their car salesmen in a nicer fashion, “lipstick on a pig”, But even though they looked nicer, they sounded and acted pretty much the same.

With the advent of the Internet, Google in particular, today’s consumer has made a quantum leap in knowledge, education and sophistication. Today’s buyer of virtually everything is far more demanding and far less tolerant of deceptive advertising and sales tactics.

The most recent shift I've seen in car dealers’ efforts to make their salesmen seem less threatening is in who they hire and how they train their salesmen to behave. More and more car dealers are hiring younger sales people, and fewer older, experienced salesmen. These dealers want their sales people to treat their customers with courtesy and respect and gain their confidence. We've all heard the terms con man and con-artist. We also know the verb, to con. To con somebody means to steal from them as in Bernie Madoff. Did you know that “con” is short for confidence? A successful con man is good at gaining the confidence of his victim. The con man’s appearance and how he sounds play a critical role in this. I often hear people who were taken advantage of and stolen from say, “He looked and sounded like such a nice person”. Think about that for a minute. How successful could a crook be who looked and sounded like one?

The important thing to remember is that it’s usually not the car salesman who is responsible for the deception. Certainly he cannot be held accountable for the deceptive and often illegal advertising. In fact, many car sales people hate the advertising that brings prospective customers into the car dealership by false and misleading promises. Especially in today’s economy, many people work in car dealerships because they can’t find a job anywhere else. Imagine how embarrassing it must be to salesman, new to the car business, when he must try to explain away a bait and switch advertisement. How can you tell a prospective customer that the “sale car” on the showroom floor costs several thousands of dollars more than the one advertised on TV? In my mystery shops, it’s becoming more and more common for the salesman to “nicely” tell my shopper when she asks to see the advertised car that they can’t really buy the car for that price and to apologize for the deceptive ad! These sales people will say right up front that the ad is just to get you to come in so that they can try to sell you a car at higher price.

Also, the salesman is often an innocent victim when it comes to the deceptive sales practices. Many car dealers use attractive, friendly sounding sales people to lure the fly into the web. It’s been proven in studies that customers put more stock in the individual they deal with at a store than the store itself. If that salesman can capture your trust and especially if he can make you like him, the car dealership is 90% closer to closing the sale.

Today’s sales people are really more “greeters” than sales people. Many car sales people today are not privy to the cost or even the selling price of the cars they “sell”. The true cost of the car is known only by the sales managers who are also known as closers and team leaders. These managers are also the only ones authorized to quote a price. They also appraise your trade-in. The interest rates you pay and the warranties, maintenance plans, GAP insurance, etc. that you buy are all handled by mangers.

The bottom line is that it’s not the rude, aggressive car salesman you need to be afraid of. There are very few of those around anymore. The car dealers have wised up and you will be dealing with young, attractive, non-threatening, and polite sales people today. In many cases, they know very little about the unfair and deceptive sales and advertising. What little they do know makes them feel bad but they need the job and want to put food on the table for their family. As much as you like this salesman or saleslady, don’t give him or her your trust when it comes getting a fair price, trade-in allowance, lease payment, or interest rate. That nice, smiling sales person is the dealer’s pawn and is “just following orders”. Verify all of the numbers your new friend gives you by competitively shopping and comparing at least two other car dealers.

The Lemon Law: Your Nuclear Option

Lemon laws are state laws which give rights to purchasers of new vehicles if they find that they have bought a car with a defect that cannot be fixed in a timely fashion by the dealer or the manufacturer. Every states lemon law is somewhat different but they all have a lot in common and are aimed at the same result. Most car buyers have misconceptions of the lemon law. These are some the most common ones: The car owners think they are going against their car dealer when they are really going against their car’s manufacturer. If you prevail it costs the car dealer nothing. The manufacturer pays. The law applies only to cars purchased as new, not used. If you win a lemon law dispute, the manufacturer or dealer does not simply replace your car with a brand new on. The amount of credit you win toward a replacement vehicle is arrived at by deducting a charge for the usage of your lemon car based on time and mileage.

 

The complete lemon law process is a difficult and time consuming task for all concerned…you, the car dealer, and the manufacturer. It’s difficult for you because the law requires specific and extensive documentation. You must have allowed your dealer to try to fix the problem at least three times and you must have detailed written documentation of this. You must be sure that your complaint is clearly spelled out by the dealer on your repair order and that his failure to fix it is also a matter of written record. After three times, you must notify the manufacturer by certified letter that you are invoking the lemon law. Now the manufacturer has one last chance to fix your car. At this time, the manufacturer may take your car to another dealer who he feels is more competent in repairing your car. If the fourth attempt to fix your car fails, your case is assigned to a board of arbitrators. Their ruling is final. This entire process usually takes a very long time. A time of several months is not uncommon. Meanwhile, you’re saddled with a car that has a problem nobody can fix. 

 

When you formally invoke the lemon law with your certified letter, you sever all communications with the manufacturer other than formal, legal communications as dictated by the law. The manufacturer considers you a legal adversary and their attorneys consider anything they say to you as something that can be used against them in the arbitration. At this point they are legally barred from fixing your car or talking to you about fixing your car. 

 

All of the above is why I advise that you use the lemon law only as a last resort…the nuclear option. Put emotion aside and focus on what your purpose should be which is to have a car that you can drive without the problem that has been driving your crazy since you bought it. Your priority should not be to punish the dealer because as I already said, he suffers nothing from your winning a lemon law decision. You are punishing the manufacturer to some extent, but this is “business as usual” to all manufacturers who fight (and usually win) thousands of lemon laws annually. What I’m suggesting is that you might want to consider giving the dealer and manufacturer a little more time to fix your car after the first three attempts. If they look like they are sincere and trying hard, it could save you a lot of time driving your broken car (not to mention the mental anguish) compared to waiting months for the lemon law process to work itself out. 

 

I’m not saying that you shouldn’t tell the dealer and manufacturer that you will invoke the lemon law if you have no other choice. You definitely should do that. You should let both the dealer and the manufacturer know in no uncertain terms that you have meticulous documentation of their failed efforts to fix your car, you have familiarized yourself completely with the specifics of your state’s lemon law, and you will not hesitate to invoke it if you are left no other choice. This will instill a sense of urgency to fix your car ASAP if it’s within their abilities. The reason is the dealer and the manufacturer want to keep you as a customer. In fact, the dealer may stretch to give you a better deal on a new car to replace yours than you would ever otherwise have gotten. He can’t do that once the lemon law has been invoked because he would be trading in a “lemon”. A “legal lemon” has the same stigma as a flood car or totaled car that has been rebuilt. The manufacturer not only wants to keep you as a customer but wants to avoid the cost of arbitration (the manufacturer is responsible for all of the costs), the cost of disposing of a lemon, and the cost of the damage to their reputation by chalking up another lemon laws loss in the record books. For more information about the lemon law, Florida residents can call the lemon law hotline,800 321-5366 or you can click this link: http://www.myfloridalegal.com/lemonlaw.

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 principles.

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.

 

Minimize the Pain of Having Your Car Serviced

The pain of buying a used or new car may be greater than the pain of having it serviced, but you need to have it serviced far more often than you have to buy a car. Below, I am listing eight suggestions to make your visit to your car dealer’s service department as pleasant as possible.

Choose the dealer with the best service department. Remember that you don’t have to have the same dealership service your car that sold you your car. You probably bought your car from the dealer who gave you the best price. You should have your car serviced at the dealer who can best maintain and repair your car. The price of service is important, but secondary to the quality of the service and repairs. Do a little research. Ask friends and neighbors who drive your make of car. Check with the BBB and the County Office of Consumer Affairs. Ask the service manager at the dealership to show you his factory score on CSI (customer satisfaction index). Every manufacturer surveys dealers’ service customers and ranks that dealer by how well he treats his customers.

Establish a personal relationship with your service advisor. The person in the service drive who writes up your repair order is very important. Be sure you get a good one. He should be knowledgeable, attentive to your needs, promptly return phone calls, and recommend only necessary services. You might not find this person on your first visit, but if you aren’t comfortable with the person you are dealing with, ask for one with whom you are. When you make an appointment to have your car serviced, always ask for that service advisor.

Don’t pay the“gotcha”, miscellaneous supplies fee. Almost all car dealers tack on a phony fee when you pay your bill which is simply more profit to the dealer, but is disguised by various labels. It is also sometimes called “environmental impact fee”, “sundry shop supplies” and many others. The cashier just adds a percentage ranging from 5% to 10% to your bill. This is no different than the “dealer fee” that the sales department tacked on to the price they quoted you on the price of the car. Most dealers will waive this fee if you complain about it, especially if you threaten to call the BBB, their manufacturer, or the Florida Attorney General’s office.

Always road test your car, preferably with the technician. If you brought your car in for a drivability problem such as a noise, vibration, or pulling to the right or left, don’t accept the car back until you ride in the car with the technician or service advisor and confirm that the problem has been remedied. I also recommend that you drive the car with the service advisor to demonstrate the problem when you bring it in. Experiencing what you experience always communicates your problem more accurately than listening to your description of the problem.

Ask for a written estimate of the total cost of repairs and maintenance. Florida law requires that the dealer give you a written estimate. By law, they may not exceed this by more than 10%.

Make an appointment ahead of time. You should insist on making an appointment and you should try to make that appointment at a time when the dealer’s service department will be least busy…typically the middle of the afternoon on weekdays or Saturday and Sunday. Avoid the 7:30-8:00 morning rush. When your service advisor has written up your repair order, ask him how long it will take. After he tells you, ask him to let you know ahead of time if, for any unforeseen reason, your car will not be ready in the promised time. Often times when you call a service department they will tell you to “bring the car in anytime” or “come right over”. Service advisors will tell you this because they are either too busy or too lazy to take the time to make a proper appointment. When they tell you this, tell them that your time is very valuable and that you insist on an appointment at a time when they can get you in and out quickly. Always write down the name of the person that gave you the appointment.

Shop and compare high cost repair prices. Most service departments are competitive on maintenance items like oil changes, wheel alignments, and tire rotations. However, the costs of major repairs can vary considerably. If you are looking at an air-conditioner, transmission, or engine repair that can cost several thousands of dollars, get bids from more than one service department. Often just suggesting that you will do this will keep the cost down from the dealership you prefer.

Introduce yourself to the service manager. This falls along the same philosophy as developing a good personal relationship with your service advisor. It can’t hurt to know the“boss”. If you are on first name basis with the service manager, it just might earn you a slightly higher level of treatment from those that work for him.

A Real Out-the-Door Price!

You’ve heard the term, “Out-the Door” price, many times and the chances are that you’ve used it yourself. There’s also the common phrase “Bottom-Line” price. In my dealership, I post all of my prices online and on my cars, but they really aren’t “Out-the-Door” prices because I don’t include the sales tax or the Florida state tag and registration fees. Although I’ve considered doing this, I haven’t for a few reasons…sales tax varies based on if there’s a trade-in and the value of the trade-in. Tax and registration vary depending on whether it’s a new tag or a transfer and the date of birth of the purchaser. I could assume the highest sales tax and tag and registration amounts, but this would make my price look higher than all other dealers who never include this in their advertising. 

What all of this means to you, the car buyer, is that NO ADVERTISED PRICE is an out-the-door price or a bottom line price. In fact, NO PRICE, VERBAL OR WRITTEN, is an out-the-door price. The danger is that almost all car dealers will tell you that the advertised price and the price they verbally quoted you is out-the-door or bottom-line. These terms have, unfortunately, become all too common, but they are very misleading. 

A prudent car buyer should shop and compare prices between competing dealers even if they a use a third party car buying service like TrueCar.com or Costco. Most car dealers do not want you to have an out-the-door price for this very reason. They do not want you to be able to shop and compare their price. The price that they advertise and “say is out-the-door” excludes, not only sales tax and tag/registration fees, but additional profit to them that are disguised as “official fees” and dealer installed accessories. 

The “Dealer Fee” (which is a generic term for additional dealer profit) goes by many other names and was created by dealers to trick you into paying them more profit than their advertised price. Unfortunately the dealer fee was made legal in Florida thanks to the strong lobbying power of car dealers and their associations like FADA, the Florida Auto Dealers Association. In fact, not only did the Florida legislature make this legal, but they also allow dealers to name the dealer fee anything they like and allow them to charge as much for it as they want. Some of the common names used by dealers are Administration Fee, Doc Fee, Dealer Prep Fee, Handling Fee, Pre-delivery Inspection Fee, E-Filing Fee, Electronic Filing Fee, Tag Agency Fee, Notary and Closing Fees, and Dealer Services Fee. Many dealers add more than one of these and the total dealer fees can exceed $2000! 

The E-Filing Fee, Electronic Filing Fee, and Tag Agency Fee are often included with the sales tax and tag and registration fees. These are the most deceptively named dealer fees of all. Dealers commonly do not disclose these as dealer fees as required by Florida law and some do not even charge sales tax on this profit which is another violation of Florida law. Sales people will usually tell customers that these fees are part of the tag and registration fees from the state, which is an outright lie. 

The other broad category of trick that dealers use to enhance their out-the-door price is “Dealer Installed Accessories”. They add these to all the cars they sell and they typically increase their “out-the-door” price by at least $1,000. These dealer installed accessories consist of products that cost the dealer virtually nothing with super-inflated prices. Some common examples are nitrogen in tires, window etch, pin stripes, paint sealant, fabric protection, and road-side assistance. A typical addendum sticker which list the dealer installed accessories for $1,500 would have an actual cost of less than $100…a 300% markup!

The “surprise” you get when you try to buy a car at the advertised or quoted price averages over $2,500, not including the government fees of tax and tag. Advertised prices are typically far below what the car dealer will sell you the car for and are sometimes below his true cost. Dealers know that his competition is advertising unrealistically low prices and they have to meet or beat those prices. Dealers feel that if they advertised an honest price, they would actually be driving business to his competition. 

Now comes the hard part…how can you persuade a car salesman to give you his true-out-the-door price? I’ve learned from experience that there are two ways that work the best. I learned these from years of sending mystery shoppers into car dealerships all over South Florida. Technique #1 is to tell your salesman that you must have an out-the-door price including tax and tag in writing. He will surely respond that he cannot do this unless you’re buying the car right now. He may even tell you the truth which is that he does not want you to shop his price with his competition. You then respond that you will compare his price with your competition and you might buy a car from them. But if he gives you a good enough price, there’s a chance that you will come back and buy from him. On the other hand, if he refuses to give you a price, you will leave and never come back and that means he has NO CHANCE that you will buy a car from him. 

The second ploy, technique #2, that works fairly well is a little devious, but sometimes you have to “fight fire with fire”. Tell the salesman that you have to have a signed copy of the buyer’s order/invoice of the car he’s selling you with the out-the-door price for your credit union or bank. The credit union or bank needs this so that they can issue you a check which you will return with when you take delivery of the car. You can also add that they will also advise you if this is a fair price. This works most of the time. 

Of course, when you do get the dealer’s out-the-door price by either of these methods, you should shop and compare this price with at least two more dealers. It’s a shame that car buyers have to go to all this trouble to get an honest out-the-door price, but car dealerships are an anachronism, doing business the same way they did half a century ago. They are changing, albeit slowly, because of the Internet, the educated consumers of the 21st century and companies like TrueCar.com and Costco’s auto buying program.

Why Hondas Cost More Than Other Cars

When you buy a Nissan, Toyota, Ford, Dodge or any other low to medium priced car the dealer’s markup is much less than the markup when you buy a Honda. Yes, Hondas are better than many other makes. They score above average in quality, reliability, and low maintenance, but there are quite a few makes that are as good and maybe even better. Honda dealers sell you their cars at a higher price and profit margin than any other low-to-medium price make dealer because of something called the Honda Dealer Advertising Covenant.

This document is a contract that all Honda dealers must agree to and sign or experience huge financial penalties which would put them out of business. As a consequence, I’m aware of no Honda dealer in the USA that does not abide by the Honda Dealer Advertising Covenant. The key language is “ADVERTISED PRICING CANNOT BE BELOW DEALER INVOICE.”

You may be thinking, why should a rule stating Honda dealers cannot advertise below their cost be such a bad thing? After all, why would any car dealer want to advertise and sell cars below his cost? The answer is that Honda dealers’ (and all make car dealers’) factory invoice IS NOT HIS COST. All auto manufacturers “pack” profit into the factory invoice when they bill the dealer for their cars. This hidden profit comes in many forms such as “holdbacks” which are 2% to 3% of the MSRP and is standard for all manufacturers. A new Honda with an MSRP of $20,110 has an invoice of $18,753.68. Holdback is $385.80 and this amount is “kicked back” to the Honda dealer every 30 days. At this time this Honda has $1,200 in “dealer cash” packed in which is a secret rebatethat customers don’t know about. There is also something called the “Honda Transfer Balance” which is essentially another holdback profit kicked back to the Honda dealer. The sum of this hidden profit contained within the “invoice” is $1,875. The true cost of this Honda to the dealer is $16,878.53.

The average car has an MSRP of over $35,000 and holdbacks and other kickbacks on higher priced cars are even greater. Depending on the time of the year, the model, and the MSRP kickbacks to dealers can easily amount to well over $4,000. This means that all Honda dealers are required by the manufacturer to advertise their cars with a minimum built in profit of between $1,500 and $4,000 and even much higher.

It’s no surprise that Honda dealers love this advertising covenant. All of their advertising has a good profit built into the price. No other car manufacturer has this requirement although Toyota is thinking about changing their advertising covenant to copy Honda’s. At this time, all other make dealers are highly competitive in their advertising. This is good for you, the car buyer, because competition between car dealers keeps the price down.

The average profit on a new car is much less than many people think. Of course it varies by make, supply and demand of each model, and the time of year. The average profit on a new car, after all variable expenses, is around $1,500, but that is an average. Profits on each car sold by a dealer vary widely from zero (or below) to $10,000 and higher! Almost all cars are still sold by negotiation (haggle/hassle) and the shrewd negotiator gets the low price and others pay much higher.

What this means for Honda dealers, is that they have a huge “leg up” over all other make cars being sold. The best price that anybody can get on a Honda is the invoice which already has a higher than average profit “baked into it”. No matter how badly a Honda dealer wants to sell a particular car, he is prohibited from advertising it below a pretty good profit margin. This is not to say that a Honda dealer cannot sell the car below invoice, but it’s highly unlikely that he would. The main reference that buyers have for determining a low price is advertising and the floor on all advertised Hondas is fixed by Honda, the manufacturer. Only buyers who know about the Honda Dealer Ad Covenant and also know that the factory invoice has lots of profit hidden within it are likely to even ask for a discount from the advertised price, and certainly not when the dealer can show you his “invoice”.

I know very little about anti-trust law and I’m not even an attorney. But as a car dealer for many years, I’ve always marveled at why Honda was able to “get away” with this. I copied and pasted this excerpt from the website for the Federal Trade Commission: Price Fixing

Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms. Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor. When consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors. When competitors agree to restrict competition, the result is often higher prices. Accordingly, price fixing is a major concern of government antitrust enforcement.

Honda dealers compete with each other much more so than they compete with other make dealers. I’m a Toyota dealer and other Toyota dealers in my market are my most intense competitors. Most car buyers make up their mind which make car they want to buy and then compare prices among dealers of that make for the lowest price. I don’t understand why the Federal Trade Commission does not consider Honda’s Advertising Covenant PRICE FIXING. I understand that it is the Honda manufacturer that “forces” their dealers to advertise artificially high prices but the net negative effect on the Honda buyers is the same as if it were collusion only among the Honda dealers. Isn’t it the consumer that the FTC is supposed to be protecting? If I had to guess, I would say that the Honda dealers strongly influenced Honda to adopt this clause in their advertising covenant. It benefits the dealers and does not benefit Honda at all. In fact, one could argue that it harms Honda because selling Hondas at artificially high prices should reduce the total number sold. I wrote above that Toyota is considering copying Honda and Toyota dealers are strongly encouraging Toyota to adopt fixing the minimum advertising price at dealer invoice. Can you imagine the negative effect on car-buyers if all manufacturers followed suit!

You may have seen in the news last week that Lexus will begin a pilot program this January with their dealers posting their lowest selling price on every car they sell. Eliminating the haggle/hassle negotiation process has been on the minds of a lot of manufacturers and dealers. Old habits are hard to break, but most everybody agrees that the current way cars are sold is a “dinosaur” that must be replaced. A few car dealers around the country have made this move, including me. I changed to posting my lowest price on all of my cars 3 years ago and it’s made my dealership very successful and my customer very happy. I outsell all single point car dealers between Orlando, FL and Ft. Lauderdale, FL…about 300 miles. I’m the only one-price dealer in this area and I attribute a lot of my success to this fact.

Why do I bring this up when the subject of this article is “price fixing and the Honda dealer advertising covenant”? If I were a Honda dealer, or if Toyota copied Honda’s advertising covenant (as is being considered), I could no longer tell my customers what my low selling prices are! I would be forced to raise my prices on most of my cars because my lowest prices I now post are mostly below invoice. Currently I post all of my prices on all of my new and used cars online. If I had to abide by the advertising covenant most of these prices would be a violation of the advertising covenant.

Hopefully sane heads will prevail and Toyota will not adopt Honda’s ad covenant and hopefully the Federal Trade Commission will take another look at Honda’s advertising covenant to reconsider if this is a bad thing for the consumer

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.

It's War! Car Dealers VS TRUECar

This is the second time that the car dealers have declared war on the online company, www.TrueCar.com. The last time was in 2011 when thousands of car dealers boycotted TrueCar to force them out of business. The U.S. Justice Department investigated this for being an “Illegal Boycott” and, as far as I know, it’s still under investigation. The car dealers were joined by their state dealer associations (well financed political lobbying groups). These lobbyists pressured legislators and state attorneys general to find legal reasons to stop TrueCar from doing business in their states.

The car dealers almost won the last war by depriving TrueCar of millions of dollars in revenue (TrueCar earns $299 for every new car sold through their referrals). TrueCar was losing money and almost went bankrupt, but Scott Painter, the founder and CEO, was able to negotiate a truce with the car dealers and their political lobbying groups. TrueCar began to grow very rapidly again. They signed up dealers very quickly because they were attracting millions of car buyers. They grew to about 10,000 car dealers and are selling about 5% of all the cars sold in the USA.

 You, the car buyers, love TrueCar when you experience their service. Why? Simply because they offer an honest, low price and a fast, pleasant car-buying experience. Car dealers make their money by negotiating (haggle and hassle) the highest price that they can on each customer that walks into their showrooms. You and your next door neighbor might buy the exact same car but your neighbor might pay thousands of dollars less because he was a better negotiator. In most dealerships no two people pay the same price for a car. Typically the disadvantaged in our society end up paying the highest prices which is most unfortunate because they can least afford it.

You might be wondering “If the car dealers hate TrueCar so much, why do they have 10,000 dealer members?” That’s a good question and the answer is that car dealers “see the handwriting on the wall” and know that TrueCar is the wave of the future. Only a limited number of car dealers will be signed by TrueCar and they are getting close to that limit right now. TrueCar will never sign up all of the dealers. They will sign only enough to have representation in all markets. Dealers have rushed to join TrueCar for fear they will be left out in the cold when most car buyers find out that the only sure way to get an honest, low price is through a TrueCar dealer. Most TrueCar dealers joined up because they feel they have no choice…they have too!

But, there is a hardcore group of dealers that HATE TrueCar intensely. These dealers are usually owners of a large number of dealerships or publicly held dealer groups like AutoNation. AutoNation was recently “fired” by TrueCar when they were caught cheating on the fees owned to TrueCar. AutoNation was not only cheating on payments but they were not providing the transparency in pricing promised by TrueCar. They were using TrueCar to attract customers expecting an honest, low price and then charging them more than the TrueCar price. When confronted with this, AutoNation refused to turn over their sales transaction data which would have proven TrueCar’s charges. AutoNation claimed this data was proprietary even though all other TrueCar dealers (including me) gladly provide it to TrueCar.

Car dealers that own a large number of dealerships are very wealthy; many have nets worth exceeding a HUNDRED MILLION DOLLARS. Dealership groups like AutoNation are also very flush with cash. There’s nothing plaintiffs lawyers like better than rich men and companies that are angry with, and/or feel threatened by, a competitor! Lawyers in New York and California leaped at this opportunity. Most lawyers don’t care whether their clients are right or wrong; they do care about how much money they can make. Smart plaintiffs’ lawyers ALWAYS structure their fees so that they get paid handsomely even when their client loses.

Lawyers in New York and California where TrueCar has the most dealer-partners knew a great opportunity when they saw one. Most of them were already lawyers for car dealers and knew how much their dealer clients hated TrueCar. Even though these lawyers, and likely the car dealers, knew that TrueCar was in the right and lawsuits would be judged without merit or even frivolous by the courts, they proceeded for two reasons. First, collectively, they have more cash than TrueCar and might be able to force them to settle favorably for the car dealers. Secondly, they might be able to drive down the TrueCar stock price. If they can accomplish that, other plaintiffs’ lawyers would join in the fray and file class action suits on behalf of TRUE stockholders. Their hope was that, by joining forces with the stockholder class action lawsuits, they could put TrueCar out of business.  TrueCar stock plummeted and they were sued in class action suits representing the stock holders. TRUE stock has plummeted from a high of 25 to $5.99  as I write this article. The further the stock price drops, the more incentive for more shareholder suits.

This is truly a “David vs. Goliath” battle similar to what Uber is fighting against the entrenched taxi and limo companies of the world. Uber and TrueCar both provide far better, less expensive, honest services for their customers, but they are outnumbered and out financed by entrenched old ways of doing business. Change is a very difficult thing to bring about. I believe that truth, justice, and transparency will prevail for TrueCar as well as Uber.

I urge you to join the fight on the side of TrueCar the next time you buy a car. Click on www.TrueCar.com. You will be offered a platform to specify the exact car you want. You will be shown the prices for that car in your market, not just your price but the lowest prices, the highest prices and the average price. You will then be given three certified TrueCar dealers in your market and three low prices. You will be shown all extra fees that they might charge like doc fees, dealer fees and dealer installed accessories. You select the dealer of your choice and before you even visit that dealer you have an “out-the-door” price plus government fees (sales tax and tag) only. If you encounter any problem with that car dealer, you can contact TrueCar directly at 1-888-TRUECAR and they will make it right. You can also call me on my personal cell phone, 561-358-1474.