Newspaper Ethics: An Oxymoron?

Regular readers may wonder what newspaper ethics have to do with cars, which are what I write about. The answer is that car dealers are the biggest advertisers in most local newspapers. In fact, in the last ten or twenty years, they have grown to become the largest, maybe second to real estate. Without car dealers’ ads, most local newspapers could not exist. One notable exception is Hometown News which publishes this column weekly. The reason you don’t see more newspaper ads in Hometown News is because of my column and for this, I salute Steve Erlanger, the publisher. He has the courage and ethics to allow me to write the truth in spite of the fact that it costs him advertising revenue.

This is not the first fight I’ve had with the Palm Beach Post. I wrote “Journalistic Ethics in Car Advertising” for my blog and Hometown News two years ago. And I wrote “Never Having to Say you’re Sorry if you’re the Palm Beach Post” just a couple of months ago. I don’t know if feel more anger about the erosion of journalistic ethics in newspapers or more pity. Self Preservation is our strongest, most basic instinct. Advertising revenues are the lifeblood of newspapers and ad dollars have dried up to the point where most local daily newspapers are hanging by a thread. This newspaper ad revenue draught started with Television and the Internet was the coup de grace. If I and my family were starving and I had no other choice, I might resort to less than ethical means to provide us food.

However, it’s one thing to print unfair, deceptive and even illegal ads for car dealers in your newspaper because you rely on them for ad revenue. It’s an entirely different thing to attack the good, ethical, and honest sheriff of Palm Beach County and imply that he’s stealing money from the taxpayers to buy lunches for himself and political supporters.

Below you will see the headline from the Palm Beach Post of April 5, 2012. Below that is my letter to the editor which was published April 9, 2012. The highlighted parts are portions of my letter that the PB Post chose to redact.

The most important message I wanted to send with my letter is that it’s easy for the PB Post to attack a good man like Sheriff Ric Bradshaw. After all he’s a Republican and a public figure. Most of the Post’s readers will applaud this attack because they side with the PB Post politically and because they read only the headlines. Ric Bradshaw knows that a public figure has little chance of winning a libel suit against a newspaper and a lawsuit would just draw more attention to the accusations. That’s why you never see an attack like this on a large advertiser in their paper. A car dealer can fight back by, not only suing for libel, but stopping his advertising.

I wrote another blog article several years ago after having the honor and privilege to have lunch with Bob Woodward of the Washington Post and Watergate fame. The article is entitled, “A Conversation with Bob Woodward about Integrity in the Media”. Bob Woodward told me that he believed that the greatest threat to the future of the USA and the world was that “the media is failing to fulfill its vital role to report all of the news fearlessly, completely, honestly, and ethically”.

 POST BURIED LEAD; SHERIFF DID NOTHING WRONG

If the PB Post wants to express its opinion that Sheriff Ric Bradshaw is untrustworthy and not fit for his elected position, say it in your Opinion section, not a front page, headline news article as you did Thursday, April 5..."Post Exclusive"; Ethics Investigation; SHERIFF CHIDED FOR USING TAX MONEY FOR MEALS.

You covered yourself quite well for those few who read long newspaper articles completely to their conclusion. You ultimately disclosed that Sheriff Bradshaw had done absolutely nothing wrong! In fact, what he had done was commendable. So why is this headline on the front page?

The answer, of course, is that you know people scan newspapers and read headlines and it’s that first impression that gets your message across. Would the PB Post write a headline story, "TIM BURKE ACCUSED OF CHILD MOLESTATION”, if he was so accused by a disgruntled ex-employee (of which the PB Post has many)and there was no other evidence?

One last thing, what purpose did you have for digging up the fact that John Staluppi, who Sheriff Bradshaw took to lunch, "was 'accused' decades ago of mob ties"? John Staluppi is a very successful businessman and philanthropist who provides thousands of jobs and donates millions of dollars to worthy causes. Since when is being "accused" something to be ashamed of?


I'm beginning to believe that the only way a South Florida resident can protect her or himself from a character attack by the PB Post is to be a large advertiser. From the looks of your plummeting advertising revenues, this will soon leave most of us without protection.

Beware the Phony Monroney

This blog post originally ran five years ago. It’s important that I run it again today because violation of this Federal law, especially its intent, which is to inform car buyers of the official retail price suggested by the car manufacturer, is rampant by most car dealers. The US Senator who drafted this law, Mike Maroney, said this about his law, “The dealer who is honest about the so-called ‘list price’ cannot compete with the one who ‘packs’ several hundred dollars extra into it so he can pretend to give you more on the trade-in.” Senator Monroney said this in 1958 and the only thing that has changed is that dishonest dealers are now charging several thousand dollars extra. As I write this, the national average price of a gallon of gas is over $4 and climbing. Car dealers are marking up fuel efficient cars, especially, hybrids by thousands of dollars. They add  their dealer window sticker, identical in style to the Monroney label right next to it so that it’s virtually indistinguishable. Then, to add insult to injury, they remove the both labels before delivery which is illegal. 

“Phony Monroney” should not be confused with “Boney Maroney” (I got a gal named Boney Maroney. She’s as skinny as a stick of macaroni). That song was first recorded by Larry Williams during my high school years, 1956-1958. You will appreciate this lame attempt at humor only if you are about my age, 66.

The Monroney label is the window sticker that is mandated by federal law to be affixed to every new vehicle sold in the United States up until the time the new owner takes delivery. The name, Monroney, derives from Senator Michael Monroney’s law passed by Congress in 1958. Prior to the proposal of this bill, there was often a large discrepancy between the showroom price and the actual price of a new vehicle.  The fact was that existing price tags did not tell the full story.  Most customer-quoted prices were for "stripped-down" models and did not include additions for preparation charges, freight charges, federal, state, and local taxes, or optional factory-installed equipment requested by the purchaser. These hidden charges were used by some dealers to increase the selling price while giving the new vehicle buyer an inflated idea of their trade-in allowance.  This price confusion led to a slump in auto sales during the early 1950's.  Senator Monroney's bill was designed to prevent the abuse of the new vehicle list prices, but would not, however, prevent dealers and buyers from bargaining over vehicle prices.

Well, as you might expect, car dealers have figured out a way to evade this very good law. An alarmingly large number of dealers use a label that is designed to look almost identical to the official Monroney label. It has the same coloring, fonts, type size and layout. This “phony Monroney” is affixed right next to the genuine article. Unless you really look close and read all of the fine print, you will have no idea that you are looking at a counterfeit Monroney label. This phony Monroney includes extra charges to artificially inflate the manufacturer’s suggested list price, MSRP.

One of the most egregious of these charges is an addition of pure markup just for profit which has a variety of names. Some of these are “Market Adjustment”, “Additional Dealer Markup”, “Adjusted Market Value”, “ADM”, “Market Adjustment Addendum” and “Market Value Adjustment”. This is simply an amount that the dealer adds to the manufacturer’s suggested retail price. It is virtually always used in high-demand, low supply cars. I have seen these labels with charges as much as $10,000 added to the MSRP. Additions of $1,500 to $3,995 are common. Dealers also use the counterfeit labels to price dealer-installed accessories, which are OK, as long as the accessories are not marked up higher than the manufacturer marks them up.

When customers confuse the phony Monroney with the real one, this distorts their point of reference for comparing prices between different dealerships. One manufacturer’s Monroney labels are consistent. A 2007 Honda Accord with the same factory accessories will have the same MSRP at every Honda dealership you visit. But if dealers fool you into thinking their label is part of the Monroney, you are not comparing “apples and apples”.  This can adversely affect a good buying decision in a number of ways. Some buyers focus mainly on how big a trade-in allowance they can get for their old car. If one dealer has the same car marked up $3,000 more than another dealer, he can offer you $3,000 more for your trade and still make the same profit as the other dealer. Some buyers focus on how big a discount they get from “sticker”. It’s easy to give a higher discount if you have artificially inflated the MSRP by thousands of dollars.

My advice to you is carefully inspect the sticker on the new car you are contemplating buying. Read it completely and especially the fine print. If there is a second label on the car, it is possible that it is fair. This would be for purposes of adding an item, installed by the dealer like floor mats or stripes, priced the same as the manufacturer charges. If that second label includes a markup over MSRP for no reason other than profit for the dealer, make sure that you adjust for that number in your comparisons for discounts and trade-in allowance. Some dealers also add a second markup to these labels and that is the infamous “dealer fee” also sometimes called “doc fee” and “dealer prep”. Some dealers do not put this on the phony Monroney but print it on their buyer’s orders and program it into their computers.

An Eagle Scout Gone Bad: Rationalizations of a Car Salesman

The following are comments posted by a car salesman last week on one of my blog articles. The post came from "Anonymous", but he identifies himself as “an Eagle Scout with morals and ethics intact”. He refers to himself as “Johnny”, which may or may not be his real name.

His letter is interesting because Johnny’s comments perfectly capture the rationalization of car dealers and salespeople about why it’s OK to take advantage of their customers. It’s OK because deceiving a customer is necessary to make a profit and profit is a good thing. I guess, the greater the deception and the larger the profit, the more good it provides. Johnny is intelligent and articulate (although his spelling and grammar leaves a little to be desired) and he truly seems to believe what he’s saying.  

If I sent Johnny’s letter to every car dealer in the United States, a majority of them would not only agree with him but applaud him for saying it. Many auto manufacturers also follow Johnny’s brand of faulty logic and refuse to influence their dealers against deceptive tactics like dealer fees and addendum labels, which I call “phony Maroney’s”. Manufacturers know that for a dealer to sell the maximum number of cars, he must sell some at exorbitant profits to those “suckers” who can be taken advantage of…suckers like young first time buyers, the very elderly, the uneducated, and the language impaired. Large profits from these victims allow dealers to sell more cars near or below his actual cost, increasing his normal volume in order to hit factory objectives which pay large bonuses to the dealer.  

At first I thought I would answer all of this car salesman’s rationalizations and point out his lapses in logic. On further thought, I thought it best to leave it completely unedited, with no retorts, challenges, corrections etc. and let you be the judge.  

The following comments are unedited:

PART ONE-Hi. I've been in car sales for 3 years now and at first (I am an eagle scout with morals and ethics strongly intact), I felt guilty when I would make full profit on a consumer. Sometimes that would pay me 1,000.00 in my pocket to help support my family of four. Which supports the economy to btw... Then my mgr asked me how long will that thousand dollars last me, a week? I said yes maybe two if I plan accordingly. How long do you think your client will use his new car, helping him get to work to make money to feed his family? Three maybe four years before they trade it in... Let me ask you these questions earl, and EVERYONE else: since when is profit a dirty word? And who wins in the long run in a car purchase transaction? Why can every other business in the UNITED STATES OF AMERICA Mark up their products 2 or 3 times the cost making houge profits (300%) while car dealerships make maybe 1-3% of a profit margin? I understand a car or a house is a big ticket item so they can be negotiated (so said somebody one day), but one day I would like to haggle for the price of a t-bone at Publix, or gasoline or underwear or shoes or suits or GROCERIES or the cell phone bill or the electric bill. Seems as if everything for sale that you and use to Live goes up in price doesn't it? Um, wouldn't it be nice to see the invoice price of oil and bargain for gas? I think I made my point.

PART TWO-I work 60 hours a week selling a quality product, New or preowned, and I get paid by commission only. Most new car shoppers research the invoice price, market price, kbb price, blah blah blah. I understand that price is important as I am on a budget just like you... but what about the person that spent 2.5 hours presenting, explaining, and demonstrating the vehicles' features and how they will benefit YOU? Do you not see the VALUE in that salesperson's time? Isn't he/shemance allowed to make a decent wage for working hard for YOU? Nope and nope. Why? "Because car salespeople are scumbags and are trying to screw over every hardworking person. How can they live with themselves and make a profit? How dare THEY?" Dealer fees are profit, but it's very little in the grand scheme of things. The state of Florida makes more on cars than the dealership does about 80% of the time.

PART THREE-Since the internet changed the car business years ago to help the consumer get a fair deal (a couple hundred bucks over invoice), dealer fees came out to help keep dealerships open by making a DECENT profit and provide a service to the community helping people find what they want to go be mobile to have FREEDOM TO DO WHAT THEY WANT TO DO. nice huh? Again, profit is not a dirty word. We are providing a service and there is nothing wrong with getting paid for working.
I'll end this diatribe with an interesting fact: we say "Buyers are liars." It's kinda funny that 90% of people who are pointing a FINGER at car salespeople calling us scumbags are the ones who lie and treat us with disrespect and disregard us as human beings. My granddad told me a long time ago, "johnny, if you point your finger at someone remember that there are three of your own pointing back at you."

FINAL PART-I hope the day comes that the dealer fee goes away and EVERYONE pays MSRP. or EVERYTHING can be bargained for. Including gasoline. Unfortunately neither will happen so I can only hope that everyone I meet will end up liking me, my service, my product, and the VALUE of the car I am helping someone purchase, and that value exceeds the PRICE for which they will pay. Good Luck to you all, Godspeed, and try to treat us car guys with a little dignity. Come in well armed with.your pricing sheets and if we work hard enough, decide what percentage of profit we should make if we help you find the right car for your needs and if you received a world class experience. Think of it as a tip. Like a server in a restaurant, which I used to be... Carrabbas btw. Yum! A good server can make 20-29% of total sales in a tip for an hour worth of work. And good car salesman can work up to four hours helping people find a car, and not make a dime when the customer walks out because we didn't lower our price by 130.00. Wtf? Think about that. We put our pants on one leg at a time like you. And we go to work to put up with your bull. So just be cool.

One more thing. Where does a business get the money to pay its employees? From their profits of course. Dealer fees are.profit but it does eventually get distributed to pay the detailers, the lot porters, the office ladies, the receptionist, the mechanics, the parts dept, the electric bill, the gas we put in your car when you purchase it, the overhead, etc. Just another business trying to keep people employed to help spend money to keep our dragging economy from crumbling. Blame the oil companies and Starbucks. 6.00 for a cup of .30 coffee? Who are the ripoff artists now

Johnny, if you read, this, please call me and let’s discuss your beliefs about how cars are sold. My personal cell phone number is 561 358-1474. I promise to listen to everything you say with an open mind.  I would like you to visit my dealership in North Palm Beach and see how we do business. I would like you to talk to some of my salespeople and ask them how we sell cars and how we feel about our customers. My dealership is the largest volume, and most successful one in Palm Beach County and one of the largest in Florida and the USA. I promise to keep your identity confidential. I don’t have to know your real name or the car dealership you work for. I’ll even buy you lunch. If you like the way we do business, I might even offer you a job. What have you got to lose? By the way, respect and admire that you attained the rank of Eagle Scout. I was a Boy Scout, but never made it past the rank of Star.  

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 principals.

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. 

Are Car Buyers as Culpable as Decepetive Car Dealers?

Almost all of my columns and radio shows are aimed at car dealers who take advantage of their customers through unfair and deceptive advertising and sales practices. In my columns and my radio show I offer advice to car owners and car buyers on how to avoid being taken advantage of. I’m very far from being unique in that respect. There are many others who do the same thing and there’s a “mountain” of consumer information available online as well as in books and magazines. Furthermore, there are lots of government and private agencies who are there for the consumers’ protection including the Department of Motor Vehicles, the State Attorney General, the County Office of Consumer Affairs, the Better Business Bureau, the Department of Agriculture and Consumer Services, and the Department of Financial Services. But these sources of information and regulators cannot help the car buyers if they don’t avail themselves of them.
If a person leaves his car running with the keys in it, isn’t he just as responsible for having it stolen as the thief? Most women know better than to leave their purse out on the front seat when they park their car at the mall. How about those people who forget to lock their doors when they leave home? Or how about those that go on vacation and don’t stop their newspaper delivery, don’t leave on some lights, and don’t ask the local police and/or neighbor to keep an eye on their house? It’s not uncommon to see women and men wearing very expensive jewelry in public places.

How many professional animal handlers have been mauled and even killed because they didn’t take the proper precautions with wild animals. I hate to say this, but there has always been, and there will probably always be, an element of society that will take advantage of others. It’s just the “nature of the beast”…like the tiger mauling his trainer or the scorpion stinging the frog that carrying him across the river on his back in the parable.  We live in a very imperfect world and there are animals and humans whose nature it is to harm us or take advantage of us.

When I say that buyers are as culpable and deceptive as car dealers, I don’t mean all buyers who are taken advantage of. Just as there will always be those in our society whose nature it is to harm others, there will always be those in our society who will be victimized. These include the very young, the very old, the uneducated, the mentally challenged, and the language impaired.  Society must protect those who cannot fend for themselves. We must do a lot better job than we are now doing on this element of our society, but that’s for another column. This column is directed at those who do have all of the faculties needed to make an intelligent and safe decision to buy or service their car, but choose not to for expediency sake or maybe because their emotions overcame their rationality.

No car buyer who isn’t part of the “chronic victims group” that I’ve described is likely to be taken advantage of by any car dealer if he does his homework before he buys or services a car. Readers of this column and listeners to my radio show have read and heard it all before. Don’t go car shopping alone, always get three price quotes, never buy a car on the first day you begin shopping, your Internet price is the lowest, etc.

Those who are taken advantage of because they didn’t avail themselves of all of the protective sources and advice often complain loudly, to me and to their friends. But they don’t complain to the regulators very often. You’ve probably heard me rail at the regulators for not doing their job. The Attorney General and other agencies claim to be understaffed and spread too thin. Their excuse is true to some extent, but “the squeaky wheel gets the oil”. When I was asked to address the state senate commerce committee in Tallahassee about the evils of the dealer fee, the Attorney General testified with me and said they didn’t receive that many complaints about the dealer fee! If a person is taken advantage of, there is an “embarrassment factor’ involved in not notifying the regulatory agencies.  But that’s a feeble excuse. If more people would complain about unscrupulous car dealers to the regulators, the wheel would squeak loudly and action would be taken to fix it. You might not be made whole for the loss you just incurred, but you would lessen your chance of this happening to someone else, or you again, in the future.

Those of us who are able must exercise our free will and take accountability and responsibility for all of our actions including educating ourselves in the car buying and servicing procedures and reporting to the regulators those car dealers who don’t play by the rules.

Predatory Car Dealers Prey On South Florida Boomers

This is the third time I've run this article which originally ran five years ago. I ran it again last year, but it’s so important that I’m repeating it for the third time. The original title was “Car Dealers Exploiting the Elderly”. I’m doing for several reasons. First and foremost is that this problem is deadly serious and getting worse. The number of calls I get from elderly victims is increasing exponentially. There are many new readers to my blog and my Hometown News column who have not read either of my first two articles. And finally, the Associated Press recently issued a release, “Scams on elderly lucrative, rarely reported”.

The AP news release begins “Boomers beware: Scams, frauds and other financial exploitations schemes targeting older Americans are a growing multibillion-dollar industry enriching the schemers, anguishing the victims and vexing law enforcement officials who find these crimes among the hardest to investigate and prosecute.” The article goes on to explain that only a fraction of the abuse gets reported, often because victims are too befuddled or embarrassed.  Just last week I was helping female victim in her eighties, a widow who was all alone, having recently lost her son too. She told me that she was too embarrassed to tell any of her friends or the authorities. She asked me not to use her name in my column or on my radio show. I get calls from elderly victims of car dealers weekly and I’m sure that it’s “the tip of the iceberg”. How many more are afraid to call me, just as they are too embarrassed to tell their friends or the authorities.

Last year MetLife estimated the annual loss by victims of elderly abuse at $2.9 Billion. There is no more fertile feeding ground for predators on the elderly than South Florida. A car purchase is the second largest purchase a person makes and what more lucrative target and reward is there than an elderly widow buying a $30,000 new car, perhaps for the first time in her life.

Not a week passes without at least two or three elderly people contacting me about being victimized by a South Florida car dealership. These are usually pre Baby Boomers in their seventies, eighties and nineties. I’m happy to say that I have a high rate of success if I’m contacted soon after the purchase, within a few days. The first thing I do is contact the dealership’s owner. With publically owned dealerships like AutoNation (Maroone), Penske Automotive, and Sonic, and Group One I have to contact the real General Manager. I emphasize “real” because sales managers will often try to foist themselves off as the General Manager, but they are only in charge of the car sales departments and are really “general sales managers”. In the rare occasions I strike out, I have no alternative but to contact the Florida Department of Motor Vehicle, DMV which is the best governmental agency to keep a car dealer on the straight and narrow.

I use the term “car dealer” often in my columns and I want to make it clear that I am not trying to get personal. I could use the terms “car salesman” or “car sales manager”, but the dealer is the boss and I firmly believe the placard Harry Truman had on his desk, “The buck stops here”. The guy that owns the place is responsible for the actions of his employees. Just because he doesn’t know that there are some salesmen or managers taking advantage of his customers, is no excuse.

When I became a senior citizen I truly began to see the world in a different light. I have been a car dealer for over 40 years, but I have seen my own business through the eyes of a senior citizen for only the last few. One thing that has helped this awareness has been my relative new public persona, brought on by my TV commercials. Seeing me on TV (and also reading this column) precipitates a lot of phone calls, emails, and letters from seniors in Palm Beach, Martin, and St. Lucie counties. Some of these are very complimentary. Many of them are also calls for help or advice from those who were taken advantage of when they bought their car.

I get more calls from widows than any other single category. In my dealership last Friday, I was introduced to a widow in her seventies who had come in to buy a car with her nephew. She had never bought a car before. Her husband had always handled this responsibility. He passed away 2 years ago. She was very wise to bring along her nephew to assist her in her first car purchase.

I am learning as I approach 70 that I’m not quite as sharp in some areas as I once was. My memory is not as good and I am not as fast as I used to be. This is not to say that I am not as smart as I was when I was younger. In fact, I’m a lot smarter. There was a great article in the February 16 Wall Street Journal entitled “The Upside of Aging”. It explained how recent scientific studies have proven that even though certain mental abilities like memory and reaction times regress as we age, other more important mental abilities like judgment, empathy, vocabulary, and semantic memory more than offset the negatives. Semantic memory is the recollection of facts and figures from your field of endeavor or hobby and is most robust in seniors. If you would like to read this article just click on www.TheUpsideOfAging.com  or send me your email address or fax number and I will send it to you.

Buying the right car at the right price is no easy task. There are a lot of variables like trade-in allowances, monthly payments, discounts, interest rates, lease or buy, finance or pay cash, and all that I just mentioned has to do only with the cost of the car. What about which is the best make and model for you? This process should take lots of time in the study and preparation but too often purchases are made in just a few hours with little or no preparation.

The reasons why the elderly are so often targeted and exploited by car dealers (and other businesses) are many and complex. For one thing, there are just a lot of elderly people living in Palm Beach, Martin, and St. Lucie Counties. When a reporter asked John Dillinger why he robbed banks, Dillinger replied, “Because that’s where the money is”. Even though most senior citizens are smarter than ever, I believe that we are perceived by many as not being so smart. We are looked upon as easy prey. Also, I think that we pre-baby boomers grew up in a more trusting, family oriented time and we sometimes trust others more than we should.

In summary, if you are a pre-baby boomer like me, take extra precautions before you enter a car dealership. Do your homework carefully. Never, never make a rush decision. Do not buy that car on the same day you come into the dealership. Go home, discuss it with friends and family, and sleep on it. And if you call me, please call me before you buy the car, not after it’s too late.

What Makes Me Different From Other Car Dealers?

My wife, Nancy, and I were chatting this morning over breakfast. We were talking about my first book that I just completed, Confessions of a Recovering Car Dealer, which will be published next month. In the book’s research, I had printed out my father’s obituary from the Palm Beach Post. Dad died on January 14, 1977 at 84 years of age. Nancy said, “Wow! That means he was born in 1893!”  I replied, “Actually it was 1892. He was born in September. Maybe that’s why I’m kind of different”.  I meant it as a joke, but then I began to think about it and I do believe being raised by a father born in the 19th century has a unique influence on his children.

Henry Ford built his first car in 1896 and it was 1908 before he began building the Model T to sell to the public.  My Dad was 16 years old then. Dad was alive while Edison was either inventing things or his inventions were being put into use…the electric light bulb, motion picture camera, the phonograph and thousands of others. The Wright Brothers flew the first airplane when Dad was 11 years old. Back in the day, Dad flew Biplanes because nobody even needed a license then to fly or drive. The radio, forget about TV, wasn’t invented until my father was a young man. Dad used to tell me stories of how he and my grandfather and grandmother gathered around the crystal radio at night in their home in Detroit listening to broadcasts from over a thousand miles away in New York and Las Angeles.

Dad’s automotive career began in Detroit in 1910 when he drove a car he helped build. His first job was with the Maxwell Company (Do you remember that Jack Benny drove a Maxwell?). After a year with Maxwell, Dad was assigned as a road man for Maxwell, working out of Denver. In 1915 he went to work for the Dodge Brothers and soon became the sales manager in Springfield, Massachusetts. During World War I, he worked for the Lincoln plant in Detroit helping prevent sabotage. After the war, he left Lincoln to return to Dodge in Toledo, Ohio.

After a short time he left Dodge and was associated with a firm building the Oakland car which was the predecessor of the Pontiac. This began Dad’s long and successful career with General Motors. The Oakland became the Pontiac in 1922. In 1926 General Motors bought Pontiac and appointed my father the general manager of the Toledo, Ohio dealership. He remained in that capacity until 1936.

Dad was then assigned as a district manager for Pontiac for all of Florida. In February of 1937, he founded Stewart Pontiac Company. He borrowed $10,000 from my mother to get started in his own Pontiac dealership (She never let him forget that). The first car he sold was to a woman named Annie Swan. You can see that original car today on display in my Toyota dealership in North Palm Beach. Dad bought it back from Annie when she could no longer drive and had it restored.

Why does this family history make me different? Hearing all of these stories and more at my father’s knee and later when I was young man coming to work for my father in 1968, gave me a unique perspective on things. It made me realize how fast things can change. I believe we’re entering an era in the beginning of the 21^st century like my father experienced at the beginning of the 20^th century. The cars we’re driving today will bear no more resemblance to the cars we’ll be driving in 20 years than the Model T Ford does to today’s cars.

The way cars are sold today also will change drastically. In twenty years all cars will be bought over the Internet. The car dealership as we know it today will no longer exist. The car buyer of today is far more educated, sophisticated, and demanding than ever before. The manufacturers will truly understand this and with the advent of the Internet as the purchasing medium, the car dealer’s role will change dramatically.

Today’s manufacturers and car dealers will either “adapt or die”. All manufacturers and most car dealers pay lip service to customer satisfaction but too many still don’t walk the talk. The customer truly is “king” and what she wants and how the manufacturers and dealers respond to her will dictate their success or failure.

The third generation of Stewarts, my three sons, will be running things at my dealership in the future and I’m very comfortable with the fact that they “get it” when it comes to the customer reigning supreme. I know that they will look back on their grandfather as being the root source of that invaluable insight.

From the Palm Beach Post Opinion Zone Blog: Should ‘bad drivers’ be told who accused them?

Please follow this link to the Palm Beach Post Opinion Zone Blog and feel free to weigh in using the comments section.

Should ‘bad drivers’ be told who accused them?

Coming soon to your town… The Sam Walton of Car Dealers?

Sam Walton reinvented the retail business for just about every product except automobiles. Wal-Marts are now global and they’re both praised and vilified. They’re vilified by the small businesses and/or inefficient businesses they drove out of the market and they’re praised by consumers for their low prices. Sam accomplished what he did by building a retail machine that was more efficient than his competitors. He mastered the science and art of purchasing quality merchandise in volume domestically or abroad and tight inventory control which allowed him to charge the lowest prices. He built a reputation for quality, low price and integrity that is unmatched by any other retailer.

The reason Wal-Mart sells every other product except new cars is because of state franchise laws which protect car dealers from competition like Wal-Mart. In all 50 states, car dealers have been able to lobby their legislators over the years to pass state laws which give them an exclusive market territory. In Florida, for example, a manufacturer may not add another dealer of the same make within a 9 mile radius of the existing dealer. If they attempt to do this, the dealer can appeal this to the Florida Department of Motor Vehicles where a hearing judge makes the decision. The franchise laws also tell the manufacturers who can retail cars. A manufacturer is prohibited from doing so. A car retailer must have a factory franchise agreement. The results of all these archaic laws put a real damper on competition in the retail car business. It allows inefficient car dealers to remain in business and allows the haggling, horse-trading system of purchasing cars that dates back to the 19^th century to perpetuate.

Polls of consumers regularly rank their car buying and servicing experiences as among the worst of any other product or service. Car dealers are a consistently ranked in the bottom three of all professions along with lawyers and politicians. If we learned anything from the explosive growth of Wal-Mart, it is that consumers what the best price and a pleasant buying experience. A consumer doesn’t want to go into a retail store, buy a product, and find out the next day that his next door neighbor bought the same car for hundreds or thousands of dollars less from the same store. Yet, this is standard operating procedure for car dealers. The shrewd, educated, sophisticated negotiator can buy a car very close to dealer cost.  The very young, very old, uneducated, naive, or those not schooled at speaking English are likely to pay a lot more for the exact same car from that same dealer.

I have a hunch that Neanderthal car dealers are nearing extinction. The American consumer is getting smarter and more sophisticated every day. This new enlightened consumer won’t put up much longer with the old way of buying cars. If a customer walked into Macy’s and asked the salesman for the price of a Samsung big screen TV and the salesman responded, “How much are you willing to pay?” or “I can’t give you a price unless your willing to buy today.”, that consumer would “scream bloody murder”. But this exact thing happens as standard operating procedure in most car dealerships today.

The American consumer is also the American voter and I have a feeling that we are about to see some new pro-consumer legislation with respect to how cars are sold in America. State franchise laws that help to preserve the status quo will be examined closely. An example of these laws surfaced recently when a startup company, TrueCar.com, offered a new and refreshing way for car buyers to actually find out what the lowest price in their market was. This lasted about a year and TrueCar.com was growing like wildfire.

I wrote two columns about TrueCar.com. The first was entitled “Will TrueCar.com Change the Way You Buy a Car in The 21^st Century?” I wrote this before the intense pressure from car dealers, manufacturers, and state legislators caused TrueCar.com to “cave in” and redesign their unique, consumer-friendly lowest price system. My next article was entitled “Online Car Buying Service, TrueCar.com Caves in to Pressure by Auto Industry”.

Somewhere out there is another Sam Walton biding his time and waiting for the tolerance level of the American car buyer to “redline” when it comes to the old way she must buy a car today. I think the founder of TrueCar.com, Scott Painter, could have been that automobile Sam Walton, but he lacked the courage and folded under pressure. The American car buyer is waiting for you, Sam, and just like they did with Wal-Mart, the world will beat a path to your door. 

Never Having to Say You’re Sorry If You Are the Palm Beach Post

Can you remember when newspapers were the best and most prevalent sources of news? Unless you’re a baby boomer or even older, you probably can’t. Newspapers were the “only game in town” a long time ago. They were virtually the only way to advertise. Newspapers had a monopoly and most of them made tons of money. If a newspaper endorsed a political candidate, he got elected. They had huge influence over legislation. Their editorials strongly influenced social behavior. If you were the publisher or an editor of a newspaper you were very powerful and had to apologize to no man.

That’s the way it was, but no longer. Many newspapers have gone out of business and those that haven’t are struggling for survival. I personally believe that good newspapers with smart management will survive albeit in a different form than we used to think of them. Newspapers will have to think of themselves just like any small business that wants to succeed.  First and foremost, they must not only understand that “the customer is king” but they must act on it…walk the talk. The first rule of treating a customer like a “king” is that when you make a mistake and make the “king” unhappy you acknowledge the mistake, sincerely apologize, and then make it right. That’s how I run my small business and my great success is proof that this works.

About three weeks ago, a reporter for the Palm Beach Post, Mary Thurwatcher, interviewed my service manager, Wendy Smith, for a news story. The story was to be printed in the business section of the Palm Beach Post in a regular weekly feature entitled “Moving Up” which appears every Monday. Part of the regular format to “Moving up” is to ask the interviewee, what their favorite quotation is. It appears at the beginning of the article, just under the headline. Right under the quotation is the source, the name of the person credited with this quote. Wendy Smith, prior to becoming the service manager at Earl Stewart Toyota, worked twenty years for Southeast Toyota. For most of that time, Jim Moran was the owner and CEO of Southeast Toyota, her boss and mentor. In answer to the reporter’s question, “what is your favorite quotation?”, Wendy answered, “The future belongs to he who prepares for it”. Wendy told her that Jim Moran was the source of that quotation.

The Palm Beach Post reporter wrote a fine story about Wendy including the quotation. It was to run on the following Monday. Friday night, before that Monday, I checked with the Palm Beach Post’s website and found the story online. I was shocked to discover that the source of this quotation at the top of the article had been changed. Instead of Jim Moran being listed, the source of “The future belongs to he who prepares for it” was Malcolm X, the infamous racist hate monger and anti-Semite. It couldn’t have angered and frightened me much more if the article had listed Adolph Hitler.

My customer demographic is largely white, older, above average education and a significant percentage of my customers are Jewish. Virtually every customer I have was reading online that my service manager’s hero and mentor was Malcolm X! On Monday, those that missed the online article would see it in the newspaper. I don’t know if you’ve ever tried to reach anybody in authority at a newspaper on the weekend, typically you can’t even find anybody to report  that your newspaper wasn’t delivered until the following Monday. It was a miracle that a woman that works for me was able to get through to someone that was able to change the article’s quote. This effort took until late afternoon on Saturday before I was assured.

The reporter, Mary Thurwatcher, told us that she had written and submitted the quote just as given her by Wendy with Jim Moran listed as the source. She told us that the copy editor had never told her that there had been any change to the article whatsoever. I sent an email to the Publisher of the Palm Beach Post telling him what happened. I asked him to investigate and take the necessary action to fix the problem he has with his staff.  I told him that whoever made the change was either grossly uniformed as to who Malcolm X was or had made the change maliciously. In other words the act was either grossly incompetent or malicious. I had two reasons to send him the mail. One was to inform him so that he could fix the problem and the second was to elicit a sincere apology.

I received no apology and the emails I did receive from Tim Burke, the publisher and Nick Moschella, the senior editor were platitudinous. Tim Burke told me that he stood by the only email I got from Nick Moschella and felt it was sufficient.

Mr. Stewart:

  Thanks for following-up. I have talked to all parties involved. Of course, the editing change was well-intentioned – we do encourage our copy editors to question and challenge our reporters but there was a breakdown in this process.

  Glad you enjoyed the quite interesting story.

Sincerely,

  Nick Moschella

I guess Tim Burke thinks that just like in the old days he’s an 800 pound newspaper mogul who apologizes to no one. This attitude is not just plain thoughtless and rude, it’s bad business. I was responsible for saving the Palm Beach Post a lot of money. Had that article showing Malcolm X as the source of the quote run in Monday’s newspaper, I would have had no choice but to file a lawsuit against Cox Enterprises/Palm Beach Post. My damages would have been huge and so would have been the cost to the Palm Beach Post. Tim Burke dodged a bullet thanks to my catching his huge mistake before it was too late.  “Tim, it’s still not too late. How about telling me you’re sorry?

Online Car Shopping Service, TrueCar.com Caves in to Pressure by Auto Industry

You, the car buyer, just lost a big battle that you never even knew was going on! Regular readers of this blog and my Hometown News column, and listeners to my radio show know that I praised TrueCar.com for “Changing the Way Cars Will Be Bought in the 21^st Century”.  TrueCar was started by a young entrepreneur, Scott Painter, in 2008 and has grown remarkably up until now. Last year about 235,000 cars were bought through TrueCar, 2% of total USA car sales. Private investors have poured $275 million into the company. Why was it such a good company? For the first time ever, a car buyer was guaranteed the absolute lowest price in the market for any make and model. Once car buyers heard about TrueCar and understood what they did, it was a “no-brainer”. To buy a car any other way was insane. TrueCar was the best thing that ever happened to car buyers.

Now, it’s just like every other online car buying service, back under the control and manipulation of the car dealers. Last week TrueCar knelt down and surrendered to “The Man”, the power establishment of large car dealer groups like AutoNation, manufacturers like Honda, and politicians and regulators in the pockets of dealers in states like Colorado. As the pressure mounted, TrueCar was forced to stop doing business in 14 states. Their dealership members plunged from 5,200 last year to 4,200 this year. TrueCar makes their money, not from the car buyer, but from the dealer. The dealer pays TrueCar $299 for each car they sell on their program. The politicians, manufacturers, and large dealer groups caused many dealers to drop out of the program costing TrueCar millions of dollars.

Last week TrueCar stopped posting the lowest price in the market for you to choose. Instead, they offer a “target price”. A target price is higher than the lowest price in the market. To get the “lowest” price, you now have to contact the dealer. You’re not much better off than you are with no buying service. The MSRP on every new car window sticker is a “target price”, but you have to contact the dealer to get the lower price. I’ll agree that the MSRP is probably higher than the target price, but the principal is the same. If you have to negotiate with each dealer to get the real lowest price, how is the target price any better than sticker price?

Now, when you go to www.TrueCar.com and try to find the lowest price, you will find all of the dealers listed have the same “target price”. If a dealer submits a price above the target price, he is not listed. Before this capitulation to the power brokers, you had the price that each dealer in your market had submitted to TrueCar as his absolute lowest price. Now that price is hidden from you, the car buyer, only the car dealer who submitted the price and TrueCar know the lowest price.  In fact, other dealers don’t know the lowest prices submitted by their competition. They know only their own lowest price. This removes the very essence of what formerly made TrueCar, the car buyers’ best friend…COMPETITION between car dealers.

Now a TrueCar customer is right back to the old way of buying a car which is to call, email, or personally visit a dealer and ask him what his best price is. This invites the same old run around that you’ve probably experienced hundreds of times. “Are you prepared to buy today? That car is no longer available but I have another one just like it. When you’re ready to buy, come back and I’ll beat any price you get. That $999 is our “dealer fee”. All dealers charge this and we’re prohibited by law from removing it. The pinstripes, nitrogen in the tires, paint sealant, and fabric coat are an extra $1,799.”

I’m not a lawyer, but this whole thing sounds like price-fixing to me. A free market place is supposed to allow and encourage sellers of the same product to offer their lowest price to the buyers. Buyers are supposed to be enabled to easily choose the lowest price from among those offering those products. When sellers and manufacturers conspire to thwart this process, it’s called price fixing. Right now you can go on the Internet, click on www.Amazon.com  and dozens of other online retailers and select most any product (except a car) and find out the names of the sellers and the prices sorted from the lowest to the highest. Of course, you can also read customer reviews and determine shipping costs before you make your final decision. What makes cars exempt from that free market place process?

I’m especially disappointed in Scott Painter, founder and CEO of TrueCar because he had a really great concept, an “out-of-the box”, genius idea.  He could have been the Steve Jobs of online car buying services and changed the way cars were bought all over the world, just like Steve Jobs changed the world with the Macintosh, iPod, iPhone, and IPad.  But unlike Steve Jobs who stood up to enormous pressure from the establishment and most everyone telling him this can’t succeed, Scott Painter threw in the towel to make the fast, sure buck and avoid the conflict that lay ahead.

The good news is that someone will come along, take Scott Painter’s idea and have the courage and perseverance to make it work. That person will change the way cars are bought in the 21^st century. 

Car Dealers’ Bogus Lowest Price Guarantee

On my weekly radio show, I introduce myself as “the recovering car dealer”.  I say this because many years ago I employed many of the same unethical and deceptive advertising and sales practices as a lot of dealers do today. For a lot of reasons I won’t go into now, I finally “got it right” and in many ways, like a recovering addict, I’m preaching integrity like an addict preaches sobriety. At an AA meeting what lends credibility and authenticity to the message is that it’s coming from those who have “been there and done that”. Unless you've hit the bottom and struggled back to sobriety, you can’t really assure another addict that it can be done. An ex drunk or drug addict also knows all of the “tricks of the trade”. He knows how he deluded himself into believing he was not addicted. He knows how he rationalized his behavior as being acceptable and how he blamed his family and friends for not understanding him.

Years ago, I advertised a $500 lowest price guarantee. I did this for several years but I only paid the $500 out once. It wasn’t because nobody ever beat my price. It’s impossible for any retailer to always have the lowest price. I began to feel nervous because I never did pay out the guarantee. I was the first car dealer that I know of to come up with this idea. I wasn’t sure how the regulators would look upon a guarantee that was never paid out. The regulators know that car dealers are competitive and that no one dealer always sells his cars for less than his competition. If that were true, there would be only one car dealer of each make in a market. I instructed my sales managers to be sure and pay the $500 to anyone who bought a car from another car dealer because he beat our price. It was only after practically threatening my managers that we finally paid just one $500 guarantee.

What I learned from this experience is that it’s against “the nature of the beast” for a car salesman, manager, or dealer to admit that they lost a sale to a competitor. They will rationalize, ignore, or even lie to avoid confessing that they lost the sale. My lowest price guarantee was actually fair by today’s standards. We had a printed guarantee form that showed our price and left a blank for the other dealer’s price. We kept a copy and gave a copy to the prospective customer. Our conditions were that the customer return with a signed buyer’s order from the competitor and allow us the right of first refusal. This is what makes paying this guarantee virtually impossible. No competitor is going to give a prospective customer a final price knowing that the customer will take it back to the other dealer for a chance to beat his price.

Today, these dealers with the lowest price guarantees have raised the ante to as much as $3,000 or, if you can beat their price, will give you the car free! And they’ve added another condition which makes it totally impossible for you to ever earn their guarantee. In the fine print, this condition is “dealer reserves the right to purchase the exact vehicle the competitive dealer offers to sell for a lower price from that dealer”. What this means is that unless the dealer’s competitor agrees to help the customer “steal” the business from him by selling that same car to him, the dealer offering the guarantee is under no obligation to honor that guarantee. Take it from a guy who has been a car dealer for 44 year. If a competitor called me and said, “Earl, I’ve got Mr. and Mrs. Jones in my showroom. They’re the folks that you gave a price of $19,766 on this VIN number Camry. I can’t beat that price, so please sell me that same car for the same price so that I can sell it to Mr. and Mrs. Jones. If you don’t, they’ll buy the car from you and I’ll have to pay Mr. Jones my $3,000 lowest price guarantee. And I know you wouldn’t want that to happen to me, your competitor. What do you say, Earl?”

The real reason for the lowest price guarantee is to catch car shoppers off guard. They assume that the prices they are being quoted are the lowest in the market. Or else, how would that dealer dare to offer $3,000 if they beat his price or even pay for the car? By assuming that they are getting a good price they are less likely to shop and compare it. Repeat after me: “I SWEAR NEVER TO BUY A NEW CAR WITHOUT SHOPPING AND COMPARING THE PRICE WITH AT LEAST THREE CAR DEALERS”.

Do you agree with my premise that it’s impossible for any retailer to always have the lowest price? Then it would logically follow that dealers offering this guarantee will have paid out a few. I have a guarantee for those dealers. Mr. Dealer, prove that you’ve paid your cash guarantee to a customer who beat your price on a new car sale and bought the car from your competitor, and I’ll donate $500 to your favorite legitimate charity. To prove this, all of the paperwork will be submitted to an arbitration board of three CPA’s, one chosen by you, one by the customer, and one by me. To avoid you “setting me up” this offer is restricted to sales from the date of this column, 1-30-12,  back one year.

Ways Dealers and Manufacturers Deliberately Distort Selling Prices

Before 1958, there was no such thing as a manufacturer’s suggested price (MSRP) on cars. We can thank the late Senator Mike Monroney for changing this with what has become known as the Monroney Label. Congress passed this into law on July 7, 1958 with severe penalties for violating the law. A dealer or manufacturer found guilty of removal or alteration of the label can be fined up to $1,000 and/or imprisoned for up to one year. It may be removed only by the purchaser for the vehicle.

The purpose of the Monroney label was to give consumers the ability to compare prices between different dealerships on the same make, model and equipped car. If you were shopping for a new Chevy Impala with power steering, power brakes, AC and other specified options, you could compare “apples and apples” at several different Chevrolet dealerships and make your buying decision on which gave you the biggest discount from MSRP.

Unfortunately, like so many well intended consumer laws, this law is no longer enforced. I do a weekly mystery shopping investigation of competing car dealers in South Florida and I know of at least one dealer that removes his Monroney labels and replaces then with his own retail price. The regulators don’t know about this and they don’t seem to care. Virtually all of the dealers add their own label next to the Monroney label to artificially increase the suggested retail price by thousands of dollars. The dealer label is disguised to resemble the Monroney label and, being adjacent, many customers assume it’s the official MSRP. More often than not, customers never look at the Monroney label on the car they buy. This means that you probably can’t shop and compare the car you want by discounts from the retail asking price which is what the U.S. Congress intended with the Monroney label. 

But what about comparing the dealers’ profits by measuring his markup above cost? You can find out what the invoice is on the car you want to buy very easily. This information is available on the web and, strangely enough, many car dealers will gladly show you their car’s invoice. The reason the dealer will willingly show you his invoice is because it does not reflect his true cost. In fact, it reflects thousands of dollars in profit on the average. This is where the manufacturers join the conspiracy. The manufacturers add thousands of dollars to their dealers’ invoices which they subsequently “kick back” to the dealers monthly. You probably have heard the term “holdback” which was the original 1%, 2% or 3% that is added. There are many other additions now including advertising fees, dealer prep fees, interest fees, and extra holdbacks on port installed accessories. The biggest item that dealers get back monthly is “dealer cash” which is a secret rebate on different models that the consumer doesn’t know about. I’ve seen dealer cash rebates as high as $10,000. In fact, there’s a dealer cash rebate known as the “stair step incentive” which can pays the dealer as much as hundreds of thousands of dollars every month. He gets paid an amount per car retroactively on every car he sells in one month if he hits his sales objective. Theoretically, a dealer can sell one car, at or below his invoice, and make an effective profit of tens of thousands of dollars…even hundreds of thousands!

As if all of the above isn’t enough, I haven’t even mentioned dealer fees or dealer “packs”. If you read this column or know me you know that my war against the dealer fee has been going on for 14 years. The dealer fee is just more profit to the dealer that he surprises you with when you sign your paperwork to take delivery of the car. It varies from a low of around $500 to high of $2,500, but there is no legal cap in many states.

I normally wouldn’t mention the dealers “pack” because it’s not something that affects the MSRP or is kicked back from the manufacturer to the dealer. A caller to my radio show last Saturday brought this up and I’m covering it in an abundance of caution just in case others would like to understand it. However, it possibly could affect the price you pay for the car, but not in the same way distorting the sticker price and the invoice does. A “pack” is an amount the dealer subtracts from the profit a salesman makes on a car he sells. A typical pack would be $700. A salesman sells you a car on which the dealer makes a profit of $1,700 but before he pays his salesman the typical 25% commission, the dealer subtracts the pack. The salesman is paid 25% of $1,000, not $1,700 saving the dealer $175 in sales commission expense.  Years ago packs were used by dealers to trick their sales people into thinking they were earning a higher percent commission than they really were. Since then, federal wage laws have been passed that require full disclosure of packs so that sales people do know exactly what their percentage is. However, I’m sure that there are some dealers still ignoring the law and tricking their sales people just like their customers. But, packs continue to exist even though there is no good reason for them. One could argue that the salesman will sell the car for more with a pack than without one, but the dealer and the sales managers generally set the price, not the salesman.

What does all this mean for you when you buy your next new car? Nothing more than what I’ve already warned you about in previous columns. Pay no attention to dealer advertised prices, window sticker prices, or dealer invoices. Never make a buying decision on the size of a discount from “retail” or markup over “invoice”. Make your buying decision by picking the lowest selling price from at least three different dealers on the exact same make, year, model, and accessorized vehicle. Separate your trade-in valuation and financing from the purchase transaction and get at least three bids on both of these too. 

Don’t Pay for Nitrogen In Your Tires

It’s bad enough that gas stations now make you pay to inflate your own tires with air. But at least you are getting what you paid for…air which does what it’s supposed to do and that is to keep your tires inflated.

Many car dealers are now charging customers to fill their tires with “pure” nitrogen. They tell you that nitrogen does not leak from your tires as quickly as air and this means that your tires will stay properly inflated longer before you have to add more nitrogen (and pay the dealer for this). What the dealers don’t tell you is that the air that is already in your tires is mostly nitrogen anyway. In fact, 78% of the air you breathe is nitrogen. Oxygen represents only 12% of the air. The rest of air includes carbon dioxide and other inert gases. I’m not sure what the purity of the nitrogen is that they pump into your tires for $199 (this is not a typo…one hundred and ninety-nine dollars for filling four tires full of mainly air). But, you can be assured that the purity of the nitrogen is not 100% and is probably closer to the 78% that regular air consists of.

Even knowing all of the above, I have to admit that I was curious about whether or not nitrogen could prolong tire live and improve fuel economy because I knew that NASCAR drivers used nitrogen filled tires and I heard that Volvo’s came from the factory with nitrogen in their tires.  I have a BS in Physics from the University of Florida and a Master of Science from Purdue and these kinds of things interest me. So, to find out for myself, my dealership conducted an experiment. We have a fleet of rental cars and we filled two tires of each car with pure nitrogen and 2 tires with regular air. Over the course of many weeks, we measured the pounds of inflation in the nitrogen and air filled tires. There was no difference in the inflations of the nitrogen v. s. the air filled tires. If there is no difference in the inflation, there can be no benefit from nitrogen of better gas mileage or fuel economy.

You may have read my column last week, “Beware the Phony Monroney”. In that column I warned you about car dealers that add a window sticker designed to look exactly like the federally mandated Monroney sticker. This is where you should look for dealer installed accessories and additional dealer markups over MSRP. Often these accessories have a high price but a very low cost. In the case of nitrogen in four tires selling for $199, this is exactly the case. Since air is already 78% nitrogen, it costs virtually nothing to extract nitrogen from the air. To be generous, let’s say the dealer’s cost is $10 including labor. That is a 2000% markup when he charges $199.

Just when I thought I’d seen it all, I actually saw window stickers on a car today from another dealer who had actually modified the Monroney label to show nitrogen filled tires. To do this, the dealer actually had to remove the real Monroney label, make the modification showing the nitrogen tires, and re-paste the Monroney label to the window. Federal law requires that a Monroney label not be removed until the vehicle is delivered to the customer. It also requires that it not be modified. This new vehicle was one we had traded for from another dealer and still had the counterfeit Monroney and the modified real Monroney attached to the window. The modified Monroney looked so authentic, that one of my technicians and my service manager inquired of Toyota about the necessity of our carrying nitrogen tanks so that we could refill these tires with Nitrogen. If this could fool a Toyota dealer’s technicians and service manager, it might fool you too.

This particular dealer also had another charge added to the counterfeit Monroney sticker, a $4,995.00 “Market Value Adjustment”. Most prospective customers think that this is part of the manufacturer’s recommended retail price. They either end up paying too much money for the vehicle or think they are getting more for their trade-in or a bigger discount than they really are. It’s easy to allow someone an extra $5,000 on their trade-in when you have already marked the car up an extra $5,000 over sticker price. 

Will TrueCar.com Change the Way You Buy a Car in the 21st Century?

There’s a new company, TrueCar.com, that was started a little over a year ago by a bright, young entrepreneur named Scott Painter. Scott reminds me a little of Steve Jobs and Bill Gates because he’s extremely bright, ambitious and successful and he’s a “college dropout”. He studied political science and systems engineering at West Point for three years where he was elected class president. Then he won a scholarship to the University of California, Berkeley, where he studied economics for two years. Before he entered West Point, he joined the army and served as a “Spanish Interrogator” for the 82^nd Airborne. TrueCar.com is the last of 35 companies that Steve Painter has started. He started his first business when he was just 14 years old, “Scott’s Auto Detailing Service”.

I signed up with TrueCar.com less than a year ago. Their concept is unique and frankly kind of frightening. I had to think about it for a while before I agreed to become a TrueCar dealer. For starters, TrueCar charges the dealers $299 for every new car and $399 for every used car they sell under their program. All other lead generators for dealerships like AutoByTel, Cars.com, and AutoTrader charge a much smaller amount for each lead they give you and/or charge a monthly fee. TrueCar also requires access to your dealership’s computer accounting system because they must verify if you sold a car under their program and the price for which you sold it. This way, they know they will get paid by the dealer and that the dealer charged the TrueCar customer the agreed upon price. Finally, TrueCar pits dealers in all of their marketplaces against each other by posting their agreed upon prices on TrueCar’s website and allowing customers to choose the lowest price. This has the effect of forcing any dealer who wishes to participate to post a price that is lower than their competitors’ or the lowest price they can post.

TrueCar’s sales are soaring. Last year their dealers sold about a quarter million cars. Last month they sold about 30,000 compared to 18,096 in June. With car dealers the relationship with TrueCar is a “love-hate”. They love TrueCar because, if they post a price lower than the other dealers in their market, they sell a lot of cars. They hate TrueCar because, if you don’t post the lowest price, your competitor sells all the cars. Many dealers simply drop their TrueCar affiliation because they don’t want to or cannot sell their cars for such a small profit.

TrueCar not only has a very smart CEO in Scott Painter, but private investors who put up $35.5 million in 2010. You won’t find too many people who will invest that kind of money in a company that doesn’t have a good chance of succeeding. In fact, Scott Painter has raised almost $1.25 Billion dollars including all 35 startups. The investors in TrueCar must have liked his track record of success in the previous 34. As a car dealer, I’m afraid of TrueCar but as an investor, I love them. In fact, I tried to invest in TrueCar but was unable to find an avenue. I contacted Merrill Lynch and was told that there were no investment options available to the public.

Another reason that I’m reasonably certain that TrueCar will succeed is the hysterically negative reactions from car dealers, car manufacturers, state legislatures, state attorney generals, and TrueCar competitors. If you don’t already know it, car dealers have a lot of money and invest heavily in PAC’s and their dealer associations to get politicians elected. The National Auto Dealers Association, NADA, is very powerful, well financed and has great influence in Washington D.C. State dealer associations are also very powerful. Colorado has already banned TrueCar from doing business and Washington is considering it. Car manufacturers are concerned because they fear for the profitability of their dealers. On the one hand, they like dealers to sell cars at low prices because they sell more cars that way. On the other hand, they worry if they sell cars too cheaply because it might cause dealers to go out of business. Honda has instructed dealers that posting prices on TrueCar is a violation of their contractual agreement with Honda. Honda has a provision that prohibits a Honda dealer from advertising a new car below dealer invoice. The states and the attorney generals are attacking TrueCar on flimsy technicalities. One technicality is that they are violating state dealer license laws. This is patently absurd since many companies are providing car dealers with leads and charging for it but they just don’t do it as well as TrueCar. Another technicality is that some states ban third parties from getting commission for referring a buyer to a car dealer. Very few states have this law and this is simply a bad law and could be easily overturned as being unconstitutional. Competitors to TrueCar are also bad-mouthing TrueCar to their dealers. I won’t name any names, but one very large lead provider has been very vocal in providing its dealers with all of the negative hoopla surrounding TrueCar. I don’t blame them because TrueCar is threat to them just like it is to us dealers. Isn’t it amazing that the one entity that not considered by the dealers, manufacturers, state legislatures or an attorney general is the car buyer? No one is has asked what is best for the consumer. I guess that’s because consumers don’t have powerful paid lobbyists.

The only group that is truly thrilled about TrueCar is the consumer, the car buyer. If you haven’t heard of them before now, just click on their website, www.TrueCar.com and pretend to be buying a car. In just a few minutes, you’ll fully understand why car buying will never be the same again. The last huge impact on buying of cars was the advent of the Internet. Dealers and manufacturers reacted the same way they’re reacting to TrueCar. In fact, even today some dealers will refuse to quote you a price over the Internet. Most dealers now understand that the Internet is the wave of the future. About one-third of all cars sold are sold over the Internet today and this percentage will approach 100 within the next 10 years, especially with the advent of TrueCar.

TrueCar has essentially “perfected” the Internet purchase for the car buyer. Before TrueCar, dealers could still “play games” with the Internet buyer by adding dealer and doc fees, switching the buyer to another car at a higher profit, and various other tricks of the trade. TrueCar knows the exact car their customers buy and the exact profit the dealer makes. Why? This is because they have access to the dealer’s financial records through his data management system (DMS). This access is a condition of being a certified TrueCar dealer. If a car dealer charges the customer a higher profit than he agreed to, TrueCar knows it. If the dealer sells the customer a different car, TrueCar know it. TrueCar will drop the dealer from their certified dealer list in their market if they don’t play by the rules. There are two reasons for dropping the dealer. First they are cheating TrueCar’s customer and secondly they are cheating TrueCar who doesn’t get paid their $299 on a new car or $399 on a used.

Some car dealers will simply not be a part of TrueCar, but you can be sure that if another dealer of the same make is a certified member, his prices are lower. I strongly suspect that some dealers will actually collude with their competitors and “fix prices” artificially high. Of course this is a serious violation of a Federal law, the Sherman Anti Trust Act.

Now, I’m not saying that TrueCar is the only way you should ever buy a car. I even have an “ax to grind” with TrueCar. I don’t like the way they allow their dealers to not include dealer fees and doc fees in their quoted prices. They do require the dealer to disclose them separately, but you have to look in the fine print at the bottom of the quotation to find this. I don’t charge a dealer fee but a competing Toyota dealer can show a TrueCar price that is lower than mine which is actually higher than mine when you add back his dealer fee. If the car shopper doesn’t notice the fine print, he could end up going to the dealership with the higher price. In fact, TrueCar ranks the prices on their website without including the dealer fee. This is very wrong of TrueCar and I intend to call them on this. I also think that you should always get at least two other bids besides the TrueCar bid and give the other dealers a chance to beat the TrueCar price. Finally, you should always get three bids on your trade-in and financing. TrueCar can only guarantee that you get the lowest price on your new or used car. It can’t help you if you allow the dealer to undervalue your trade-in or overcharge you for financing.