Open Letter to Florida Car Dealers III

Subject: We Have Met the Enemy & He is Us! 

 

Dear Florida car dealer, even if you weren’t a good history student in school, you probably remember the quote from Commodore Perry from the War of 1812, “We have met the enemy and they are ours”. The satirical comic strip, Pogo, has a memorable quote satirizing Commodore Perry, “We have met the enemy and he is us”. This fits the image problem we car dealers have today. We brought it on ourselves through our devious advertising and sales practices. However, we blame everybody but us…our customers, lawyers, the media, and car dealers like me who dare to speak the truth.

This is the 3rd letter I have written to Florida car dealers in my weekly column. The first asked you to stop charging your “dealer fee” on top of the price you quote your customers. The second asked you to advertise cars at a price you were willing to sell the car for and have an ample supply of. In both letters I made the point that there is a minority of car dealers like me who do not charge dealer fees or resort to “bait and switch” ads. I also confessed that I used to be one of those dealers that I am writing about today. I did charge a dealer fee once and I did advertise cars that I hoped the customer would not buy.

At the end of each letter, I asked that you call or email me to discuss my letter. So far, I have received no phone calls and the only emails blame me and others like me, for the negative image that car dealers have in our society. Here is an example of the emails I have received from dealers: 

“I read your sanctimonious babble in today’s paper and you are correct in assuming your comments will garner the attention of other dealers. It is comments like the ones you made that keep public opinion of our chosen profession in the doldrums. Like it or not we’re together in this battle and your “holier than thou” claim will only fuel the fire. Want to show the world your true compassion? Donate 20% or more of you net profit to charity then you’ll truly be the “great guy” you aspire to be.”

We can see this sort of “shoot the messenger” attitude with our politicians who blame the media for their negative image. It always amazes me to hear Republicans accuse the media of left wing bias and the Democrats blame the same media for a right wing bias. Sure there is bias in the media just like there is some bias in all of us. But, when your image in the eyes of the American public is as bad as that of politicians and car dealers, how can you not understand that there is a problem? The only profession I can think of that ranks as low in the public esteem is that of lawyers. 

If you will call or email me to discuss my position in an open minded manner, I think you will be surprised and happy that you did. My business has grown steadily since I began to really understand that satisfying and respecting my customers was the most important single ingredient for my overall success. I’m certainly not making the claim that my way of doing business is the only path to success. I know a lot of car dealers who sell more cars and make more money than I do who do not take my approach with their customers. You can “fool some of the people all of the time”. However, that minority that can be fooled all of the time is shrinking daily as our customers become more educated and sophisticated. One day soon, there won’t be enough of them to go around and the majority of car buyers will be doing business with guys like me. 

Sincerely,


Earl Stewart

Cc: Pam Bondi
Warren Buffet
Ted Smith
Adam Putnam
Jeff Atwater
Rick Scott
Andy Gardiner
Steve Crisafulli

Open Letter to Florida Car Dealers Part II

 SUBJECT: STOP BAIT & SWITCH ADVERTISING

Dear fellow car dealer, in case you missed my last letter to you on “dealer fees”, you can find it on my blog just by clicking here Open Letter to Florida Car Dealers

The subject of this letter is the ads most car dealers run which are designed to motivate prospective car buyers to come into their dealerships believing that they can buy or lease a vehicle for less than they really can. These ads appear in newspapers, direct-mail, TV, radio, and the Internet. If you are one of the few car dealers who do not do this, I know you will enjoy reading this column and agree with me.

One of the most common lures is advertising the new vehicle below your cost. You spend thousands of dollars advertising monthly and consider losing a little money on one or two cars as part of your advertising budget. The problem is that you deliberately limit the number of cars you will sell at this price and you do this in a deceptive manner.

One way this is done is to show a stock number next to the price of the car. This translates into there being only one car available at that price. Another technique is to use the phrase “other cars available at similar savings”. First of all, how do you define “similar”? Secondly, Florida law requires that you include “dealer fees” in all advertised prices, but not in cars that are sold for “similar savings”. Adding back that dealer fee can turn a “loss leader” back into a profit.

Another trick is to show huge discounts from “list” when list is defined in the fine print as including “dealer installed” options. By simply marking up whatever options you choose to install on an advertised car, you can generate as much markup as you like.

Bait and switch is also aimed at monthly payments. By disclosing in the fine print that a very, very high credit score is required to qualify for an advertised low payment, lease or purchase, you limit the possible buyers that can qualify to a very small percentage of the population. The vast majority that cannot qualify ends up with a much higher payment and higher profit to you.

A favorite deception is to advertise very large “minimum trade-in allowances”. I have seen trade-in “minimums” as high as $15,000. These ads are clearly aimed at prospects from the lower economic strata that are currently driving older cars and may be less sophisticated and informed buyers. A smart buyer knows that you cannot possibly allow someone $15,000 on a trade-in worth $250 unless you make back that deficit in additional markup on the car you are selling.

Another deception aimed at the lower economic, less educated portion of our society is the “no credit, no problem” ad. Having bad credit or no credit most definitely is a problem. It might not be a problem for you but it is for the person with the bad credit and it is for the bank that will refuse to finance that person. Another version of this trick is “no credit application refused”. A sophisticated buyer knows that all you are saying is that you will allow anyone to fill out a credit application and you might even agree to submit it to a lender. But you are not telling him that her credit application will be refused if her credit is too bad or not sufficient.

There are other examples that I could cite and there will be new ways that many dealers will come up with to lure buyers into their dealerships. As I said in my last letter, I am asking you to voluntarily stop this form of advertising before the regulators make you stop. I am not suggesting what you are doing is illegal, but I am saying that it is not right. I am also saying that it is bad business. If I can’t get your attention by asking you to treat your customers with respect and consideration, how about if I tell you that you can sell more cars and make more money if you do?

You are successful in luring lots and lots of people into your dealership, but you sell only a small portion of these people cars. Those you don’t sell are probably angry at you when they learn they cannot buy the car for the price they believed. Even the ones you do sell may be angry because they had to pay you more money than they wanted. Unhappy customers don’t come back and they tell their friends. You have to spend more and more on advertising because your repeat and referral business is so bad. This is not good for your bottom line and your manufacturer is probably “on your back” because your customer satisfaction rating is so low.

If you would like to discuss this with me, please call or email me. My numbers and addresses are below.

Sincerely,

Earl Stewart

Cc: Pam Bondi
Warren Buffet
Ted Smith
Adam Putnam
Jeff Atwater
Rick Scott
Andy Gardiner
Steve Crisafulli

Open Letter to Car Dealers

SUBJECT: ELIMINATE THE DEALER FEE

Dear fellow Florida car dealer,

I started in the retail auto business in 1968, almost a half-century 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”, etc. This extra charge is printed on your buyer’s orders and is programmed into your computers. It has been capped, typically below $100, in most states but Florida allows you to charge as much as you can “get away with.” You charge this fee to every customer and it ranges from a few hundred dollars to THOUSANDS. In South Florida the average dealer fee is about $1,000. Your attorney probably advises you that if you charge a dealer fee to any customer, you should charge all customers, but that is to avoid lawsuits against discrimination. THERE IS NO LAW requiring that you charge all customers a dealer fee. Florida law does require that you disclose, in writing on the buyer’s order. that this charge represents profit to the dealer. Florida law also requires that you include this fee in all advertised prices. You don’t always do this and you get around the law by limiting the number of advertised vehicles (as few as one).

The argument that I hear from most car dealers when I raise this issue is that the dealer fee is fully disclosed to the buyer on his buyer’s order. But, most car buyers are totally unaware that they are paying this. Who reads all of the voluminous paperwork associated with buying a car? The few who notice it assume it is an “official” fee like state sales tax or license and registration fee. Those few astute buyers who do question the fee are told that your dealership must charge this fee on very car, which would not be true if you were to make the decision to not charge the dealer fee to anyone. You could easily avoid charges of discrimination by simply reducing your selling price by the amount of your dealer fee. 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 price of the car and your profit in such a manner that it is NOT NOTICED BY YOUR CUSTOMER. This is just plain wrong. Dealers will admit this to me in private conversations and some will admit that they have considered eliminating the fee as I have, but are afraid of the drastic effect to their bottom line. By being able to count on an extra $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 hundred dollars.

This “extra, unseen” profit is even better for you because you don’t pay your salesmen a commission on it. That’s being UNFAIR TO YOUR EMPLOYEES AS WELL AS YOUR CUSTOMERS. When the rare, astute buyer objects to the dealer fee, you should decrease the quoted price of the car by the amount of the dealer fee. This would have the same net effect of removing it. The salesman will argue against this because he will lose his commission (typically 25%) on the decrease in his commissionable gross profit. When you’re talking about cutting a salesman’s commission by 25%, he can come up with all sorts of “creative” reasons that the dealership MUST charge the dealer fee. 

If you don’t know me, I should tell you that I don’t profess to be some “holier than thou” car dealer who was always perfect. Although, I never did anything illegal, when I look at some of my advertising and sales tactics 20+ years ago and more, I am not always proud. But, I have evolved as my customers have evolved. My customers’ expectations, level of education, and sophistication are much higher today. Your customers are no different. As I began treating my customers, and employees, better I discovered that they began treating me better. Yes, I used to charge a dealer fee ($495), and when I stopped charging it a few years ago, it was scary. But I did it because I could no longer, in good 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. Sure, I was making a few hundred dollars less per car, but I was selling a lot more cars! I was, and am, selling a lot of your former customers. My bottom line is far better than it was when I was charging a dealer fee. You can do the same!

Why am I writing this letter? I’m not going to tell you that I think of myself as the new Sheriff 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

Cc: Pam Bondi
      Warren Buffet
      Ted Smith
      Adam Putnam
      Jeff Atwater
      Rick Scott
      Andy Gardiner
      Steve Crisafulli

The Gap Between Educated and Uneducated Car Buyers

We read a lot about “gaps" in our society. There are wealth/income, achievement, health, education, morality, employment and many more gaps. The current focus seems to be on the widening wealth gap. The very wealthy are getting richer and the middle class net worth is static or declining. I truly believe that most, if not all, of these gaps can be traced back to education. I’m not going to write an article on why education should be given a higher priority than it is; however I do believe that this problem is not being addressed adequately in our country and I do believe it’s one of the most serious problems we face. 

My “thing” is cars and advising you on how to buy, lease, service, and repair your car without being taken advantage of by your local car dealer. I do that with this column/blog, my radio show, “Earl Stewart on Cars” (Every Tuesday and Sunday from 4-6pm on 900 AM The Talk; stream it on www.900TheTalk.com. I also speak before groups such as Kiwanis, Rotary, public libraries, women and men’s clubs, schools, computer clubs, etc. If you are a member of a group in the South Florida, area, just give me a call. I wrote a book on how to buy and service your car entitled “Confessions of a Recovering Car Dealer.” You can buy it on Amazon and 100% of the proceeds go to charity. 

Because I’m totally accessible to the public (my personal cell phone number is 561 358-1474), I hear all of the stories of how car buyers are taken advantage of by car dealers. I have to say that there are good car dealers out there, more than there were 20 years ago, but there are more car dealers that do business the wrong way than the right way. Listening to these stories by victims of car dealers is one of the main things that motivate me to do what I do. Three of the most frequent complaints I hear are “I paid way too much money for the car, way too high interest on the financing, or got way to little an allowance for my trade-in.” 

There is one thing that sets buying a car apart from almost every other product you buy. That is that everybody pays a different price for the same car, gets a different trade-in allowance for the same car, and pays a different interest rate to finance the same amount of money. That means that if you were to buy a Ford F150 pickup truck today and your next door neighbor bought an identical truck tomorrow from the same dealer, the chances are that your neighbor would pay substantially more or less than you. The price difference could easily be thousands of dollars. 

What determines who gets the lower price and who gets the higher one? It has nothing to do with your race, sex, age, religion, or income; although there are studies that allege this is true, when you drill down in these studies you will learn that the underlying common denominator is “education”.

When you buy or lease a car, you are playing a game for money with the salesman and his manager. Both of them are paid a percentage of the profit they can make on the car they sell you. The higher the price they can convince you to pay, the higher their commissions are. The salesman and manager are professionals and you’re an amateur. They do this many times every day but you buy only one car every 4 or 5 years. They hold most of the good the cards in this game. They know the true cost of their car, the cash incentives to you from the manufacturer, but more importantly the secret cash incentives to the dealer. They are highly skilled negotiators and masters of psychology in winning your trust. Likability is one of the most important attributes of a good car salesman. When he looks you in the eye and says, “This is as good a price as I would give my own mother”, you want to believe him. 

The educated car buyer that has done his homework by reading Consumer Reports, www.TrueCar.com, www.KBB.com, www.Edmunds.com, and other very good sources of Internet information on buying cars can win this high stakes game. Those who do not educate themselves, take their time in the car buying process, and get competitive bids from different dealers will end up paying a lot more money. In almost any car dealership the profit on a vehicle can vary from as little as a few hundred dollars to several thousand dollars. You want to be the savvy buyer that will save thousands of dollars. I’ll leave you with one thought which will save you money in your next car purchase…Time is on your side. The longer you take in the car-buying process, the lower the price of the car will be. Never buy a car on impulse on the first day or even the first week of car shopping. The car salesman will give you a lot of reasons not to do this, but they are untrue.