Open Letter to Florida Car Dealers

I wrote this letter to Florida car dealers almost a decade ago and, so far, I’ve received no replies…at least from car dealers. But I’ve received thousands of replies from car buyers thanking me for taking a stand against the Unfair and Deceptive Trade Practice of dealer fees. I thought that I’d give it another try.

FRIDAY, AUGUST 24, 2007

SUBJECT: ELIMINATE THE DEALER FEE

Dear fellow Florida car dealer, I started in the retail auto business in 1968, about 39 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 etc. This extra charge is printed on your buyer’s orders and is programmed into your computers. It is regulated in many states including California. You charge this fee to every customer and it ranges from a few hundred dollars to several 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 his buyer’s order. But, most car buyers are totally unaware that they are paying this. Who reads all 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 is not true. 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 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, the right thing to do would be 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. The salesman won’t permit this because he will lose his commission (typically 25%) on the decrease in his commissionable gross 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 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 Marshall that has come to “clean up Dodge”. In fact, I’m 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 and 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. My cell phone number is 561 358-1474.

Sincerely,

Earl Stewart

Red Flags to Watch for When Buying or Leasing a Car

The “Big Sale Event"

If you go online or turn on the TV, you will find that most car dealers in your area are having a “sale” of some kind. It may be because of a current holiday, “too large an inventory” of cars, to “reduce their taxes”, “the manager is out of town”, or some other nefarious lure. “Advertising 101” says that you should give the prospective buyer a “motive to act”. Unfortunately, it doesn’t matter whether the motive is real or not. The fact is that most car dealers do not sell their cars for less during “sales events” than they do at any other time. I point this out so that you don’t rush your buying decision. If you don’t buy a car during the tight time constraints of a phony sales event, you can negotiate just as good a price, if not better, the next day. The exceptions to this are legitimate rebates offered by the manufacturer. These often expire at the end of the month which is one reason why the “last day of the month” really can be the best time to buy a car”.

“The Price I’m giving you is only good for today."

If a salesman or sales manager tells you that, it is only a tactic to push you into buying the car. The only exception would be the expiration of a factory rebate. Once again, this is simply a tactic to push you into buying before you have a chance to do your comparative price shopping.

“Take the car home today and see how you like it."

Test-driving the car you are considering buying home can be a good thing. It will give you a lot better idea about how the car performs, etc. However, there are two reasons the car salesman offers this. One is that you must leave the vehicle you might be trading in with the car dealer. This means that you cannot shop prices with other dealers. The second reason is the psychological impact of parking that new car in your driveway where your family and neighbors can see it. The slang expression for this is “the puppy dog”. If you were to take home a little puppy from the pet store, you and your children would fall in love with her and could not return her the next day.

“You must give me a deposit before I can give you a price."

This must be one of the most insulting ways that some car salesmen have of intimidating a prospective buyer. It’s amazing how many people actually succumb to this which allows the salesman an element of control…. you can’t leave until they give you your money back. If confronted with this ultimatum, simply walk away.

“Are you ready to buy a car today?" 

Often, if you say no to this question, the salesman will tell you to come back when you are ready to buy. He will tell you to shop around and come back with your best price so that he can beat it. The salesman is afraid that, if he does give you his best price, you will go somewhere else and that salesman will beat it. Of course, that is the whole idea of competition and that is exactly what you should do. If the salesman is afraid to give you a price because his competitor will beat it, it must not be the best price!

“Make me an offer and I will take it to my manager for approval."

This is a very common tactic which you may have already encountered. It’s not unethical. It’s simply part of negotiating. I point this out so that you are fully aware that this is part of the negotiating game. Be aware, that no matter what price you offer, the manager will ask you for more money. Even if you mistakenly offered a high price that would be a very large profit for the dealer, the manager would ask you for more money. The psychology behind this is that if you suddenly accepted the offer, you may frighten the customer by thinking he had offered too much (which he would have). When you negotiate, you must be well versed on what is a good price for that car. Start out below the best price you think you can buy it for. If you cannot negotiate a price close to your best price, get up and leave. Continue this process with another car dealer.

The “really big” discount”

The other day a friend showed me direct mail advertising piece from a new car dealer with a coupon good for $2,000 discount on any car in his inventory. This is very common for online and TV ads too. Federal law requires new cars to have a price sticker on the window named the Monroney label. A discount from this suggested retail price gives you a fair basis for comparison. Unfortunately, most car dealers today, increase the suggested retail price substantially with the use of an addendum to the Monroney sticker often referred to as a “Market Adjustment Addendum”. This “adjustment” can be several thousands of dollars. Be sure you know what the true MSRP is for the car when you have been offered a “big discount”.

The best protection from all of the above is to find a car dealer that you can trust. Ask your friends about their experiences with dealers and call the Better Business Bureau and the County Office of Consumer Affairs. I have a list of dealers that I recommend and a list to beware of that you can access online at www.GoodDealerBadDealerList.com. All things being equal choose the dealership that has been in business a long time and an owner or general manager who will make himself accessible to you and all his customers.

Fake News Is No Worse Than Fake Advertising

The media has been bombarding us for nearly a year with their pompous outrage over “fake news”. The democrats are blaming the republicans, and parties are blaming the media, and everyone is blaming the Russians.

But what about fake advertising? Where is the media’s outrage when a car dealer advertises a car to make you believe it’s brand new, but when you try to buy it, you find out, either doesn’t exist, or it’s a used car? Most of the car dealer advertisements that you see on TV, hear on the radio, view online, read in the newspaper are FAKE.

The Federal Trade Commission, FTC, has regulation that requires the advertiser to display any fact that changes the price or payment of an advertised product in a clear and conspicuous fashion. The FTC says that this means it must be portrayed adjacent to the advertised price or payment and in as big letters. The next time you’re watching a car advertisement on TV, try to read the fine print. You’ll be lucky if you even notice it because it’s flashed on the screen for only a second or two, and the print is so small you couldn’t read it even if it stayed on the screen for 30 seconds.

The only reason I know what is being disclaimed in the fine print is because I’ve gone to the trouble of standing within inches of my TV screen with a high-resolution camera and taking a picture of the fine print which I then enlarge. This is how I discover the “$5,000 down payment” required for the low monthly payment advertised in large print along with the loud audio. I see $999.95 dealer fees, $398 electronic filing fees, $149 doc fees, $79.50 tag agency fees, etc. These “fees” are disguised, hidden profit to the dealer.

Another common deceit hidden in the fine print are price “qualifiers” that are impossible for the buyer to have. Most common are rebates named military, college graduate, conquest, and loyalty. Military means that you must be on active duty in the military. College graduate means that you must have graduated from a 4-year accredited college within the last 6 months. Conquest means that you must own or lease car which is not the same make as the car you’re looking at. Loyalty means that you must drive a car that is NOT the same make. These rebates, totaling over $1,000, are deducted from the advertised price.

What I’ve disclosed to you is just the tip of the iceberg when it comes to car dealers’ deceptive advertising. Why, you ask, does the media allow these advertisements to run? You probably know the answer before I tell you…M O N E Y. Car dealer advertising and car manufacturer advertising are two of the media’s largest sources of revenue.

Maybe IBM’s Watson could calculate how many billions of dollars are stolen from consumers in this country annually by fake advertising. All of our politicians are talking about lowering taxes, repatriating overseas money, and cutting costly regulations (we have plenty of regulations against false advertising but no enforcement).

I would like to see a politician run on the platform that she or he would stop fake advertising. He could do this largely by enforcing the laws and regulation we already have on the books. I would recommend one more law. Make it illegal for the media to run an advertisement that violated federal, state, or local laws.