TEN BOOBY TRAPS WHEN YOU LEASE A CAR

The percentage of cars being leased, not purchased, is growing at a rapid rate. Currently it is about 25%. The manufacturers and the car dealers are pushing leasing because dealers make a lot more money when the lease a car and the manufacturers and dealers have a much better chance that you will be a repeat customer when you lease. For the careful, sophisticated consumer, leasing can be the best option, but these are ten traps to avoid if you lease your next car.

(1) You owe the bank or leasing company for damage beyond “normal wear and tear” and excess mileage. The danger here is because many people return their car to the dealership after the lease expires without getting signed, written verification of what damage exists on the car and what mileage is on the odometer. Return lease cars commonly sit on the car dealer’s lot for weeks or even months before the bank or leasing company gets around to picking the car up to send it through the auction. Anybody might be driving that lease car in the interim. It could be an employee of the dealership. A returned lease car with a full tank of gas can be a big temptation. In many dealerships the accounting for returned lease cars is very sloppy. Remember, the car does not below to the dealership, but to the bank or leasing company. The dealer doesn’t even have insurance on this car. The insurance may even still be in your name. A return lease car can easily be stolen and no one would even notice. I have heard many horror stories of customers who received bills from their leasing company weeks after returning their lease car for thousands of dollars in damage and excess mileage that they say they were not responsible for. Your only protection is to be sure that a representative of the dealership fills out, with you, a complete return lease inspection form which notes all damage, the estimated cost of repair and the mileage. As an extra precaution, I recommend taking pictures of your lease return car. Be sure that this is signed by the dealership representative and you get a copy.

(2) A lease ad with a large down payment and short term. Most lease ads you see on TV or read in the newspaper have a large down payment hidden in the fine print. A down payment of $4,000 is typical. Ironically one of the biggest reasons people lease cars is to avoid laying out more cash. Dealers do this because a cash down payment on a lease is “leveraged” compared to a down payment on a purchase. A $4,000 down payment on a lease will reduce the monthly payment much more than on a purchase. Also, watch out for shorter lease terms such as 24 months compared to 36 or 48 which are normal. Remember, when buying a car, your monthly payments are paying for the “whole car”. When leasing, you are only paying for a small part of the car…the time you use it. A 24 month lease requires less of a down payment to lower the monthly payment than a 36 month lease or 48 month lease. You can actually lease a car for “zero dollars per month” if you put up a large enough down payment. The banks call this a “one-pay lease”. All you are doing is making all of your lease payment up front and, to a lesser extent; this is what you’re doing when a dealer sneaks in a large lease down payment in the fine print.

(3) Low mileage allowance. Be sure you know exactly how many miles are allowed in your lease contract. By restricting the number of miles you are allowed, the dealer can quote a lower monthly payment. I’ve seen lease ads with as low as a 7,500 annual mileage allowance and a 25 cent per mile penalty. Most people drive a lot more miles than this. If you missed this in the fine print and are a fairly typical driver who puts 15,000 miles a year on your car, you would get a surprise bill from the leasing company of $5,625 at the end of a 36 month lease!

Car Dealers’ Latest Dirty Little Secret The “Electronic Filing Fee” aka Dealer PROFIT

This increased profit to car dealers is generally called the “Electronic Filing Fee or E-Filing Fee”, but there are other names that dealers use, just as they do for the infamous “dealer fee” like “dealer services”. Car dealers used to process the tag and registration required on new and used cars themselves. About 7 years ago they began outsourcing this to companies that can do this work cheaper than they can themselves. The typical cost of this outside service is only $10 or $12. So, not only did the car dealers reduce their expense, they passed along the reduced expense to you, the car buyer! But wait, there’s more! Car dealers are also marking up this reduced expense and passing this along to you too! I’ve seen Electronic Filing Fees marked up to $598…that’s a 5,980% markup!
At my dealership I began using a registration service company named Title Tech in 2009 and they charge me $10 to prepare the tag, registration, and title work for each new customer. This saves me considerable time and money from doing it myself. In the past I always absorbed the higher expense and I don’t pass along the reduced cost to my customers either. It’s adding “insult to injury” to mark up this cost and pass it along to you.

The word “fee” is almost always used by dealers when they are trying to disguise additional profit or to pass along an expense to you (which is the same thing as additional profit). When car buyers are lucky enough to even notice the Electronic Filing Fee, they usually assume it’s a tax or fee charged by the state, federal, or local governments. They do the same thing with the dealer fee under its various other names like documentary fee.

Florida law considers the Electronic Filing Fee to be the same thing as a Dealer Fee and requires that it be disclosed and used by car dealers as such. The language Florida requires for disclosure is “This charge represents costs and profit to the dealer for items such as inspecting, cleaning, and adjusting vehicles and preparing documents related to the sale”. The law also requires that the Electronic Filing Fee be included in all advertised prices. Unfortunately most dealers are ignoring this law just as they do with the additional profit they make with the Dealer Fee.

Dealers almost never include their Dealer Fees or Electronic Filing Fees in their advertised price which is a flagrant violation of Florida law. If they even mention that they have a dealer fee, they will say in the fine print something like “prices plus tax, tag, and fees”. A few dealers will disclose in the fine print, “plus tax, tag, and $999.95 dealer fee”. The Florida Senate says “The law requires that the fee be included rather than “specifically delineated” in the advertised price.” Most car dealers’ advertising is done on TV and the fine print disclosure is literally unreadable.

The other loophole permitted by Florida law is to allow the dealers to offer only one car with the dealer fee included in the price. That would not be so bad if the dealer clearly communicated this to the buyer. But dealers use something I call “the old stock number trick”. Every car in a dealer’s inventory is assigned a stock number for accounting purposes. A typical stock number is something like “A25771”. Dealers will put their stock number for that particular advertised car in the fine print at the bottom of the ad or elsewhere. Even if a customer sees the stock number, they have no way of knowing what it means. When the prospective buyer responds to the advertisement, the salesman tells him that the advertised car was sold but, “not to worry”, he has several more “just like it”. Yes, he does have several more identical cars in terms of model, accessories, and MSRP. But, because they have different stock numbers, the law now permits him to add his extra profit to the advertised prices disguised as Dealer Fee and Electronic Filing Fee.

It’s an affront to the car buyers of Florida that their Attorney General and their legislature allow this to continue. Car dealers have powerful lobbying groups and they clearly communicate to Pam Bondi, the AG, and the legislature that they better not mess with their Dealer Fees and Electronic Filing Fees.

Another reason you don’t hear much about this atrocity on consumers is that the media has assumed their “Hear no evil, see no evil, speak no evil” stance. The TV, newspapers, and radio are deathly afraid of losing car dealers’ advertising. Car dealers are the largest local advertisers. Some of you may know that my wife, Nancy, and I were fired from our weekly consumer advice radio show on Seaview radio which we had done for almost 7 years (We’ve been back on the air for about a year on 900 AM, The Talk of the Palm Beaches). This was because of dealer threats to cancel their advertising. When I reported this attack on free speech to the Palm Beach Post, they refused to run the story or even allow me to purchase an advertisement that states the truth.

What can you and I do about this when we have such powerful institutions as the media, Attorney General, and Florida Legislature siding with the car dealers against you, the consumers? The answer is MAKE SOME NOISE! “We, the people” support, not only the media, but the politicians. Without our viewing, listening and readership the media can’t sell advertising and without our dollars and votes, politicians can’t get elected. Call, write, or email your local newspaper, radio and TV station, and local senator and representative. Tell them you’re tired of them kowtowing to the car dealers and the Florida Automobile Dealers Association. Demand that the laws on the Electronic Filing Fee and the Dealer Fee be enforced. Tell them “We’re mad as hell and we won’t put up with it anymore!”

Why New Car Tires Wear Out So Fast

The tires that came with your last new car were not designed by Michelin, Goodyear, Bridgestone or any other tire manufacturer. They were designed by the manufacturer of your car. If your new car came with a set of Michelins, Michelin made the tire but they made it to the specifications set by your car manufacturer. These tires are referred to as OEM (original equipment manufacturer).

Furthermore, your manufacturer does not warranty the tires on your new car even though he tells you that you have a “bumper to bumper” warranty. The last time I checked, my tires were between my front and rear bumpers. Even though GM designed the tires on your Chevrolet, they have no responsibility if they are defective. The tire manufacturer bears that responsibility.

The OEM tires that came with your car can’t be replaced (which is a good thing) after they’ve worn out. And they will wear out much sooner than they should. This is because virtually all auto manufacturers specify very soft rubber which means they wear out too fast. Why would the manufacturer do that? They want that new car to have the smoothest ride possible, even at your expense of having to buy a new set of tires at half the mileage you should have to. When you test drive that brand new car and it rides very, very smoothly you’re more likely to buy it. You’ll find out how fast the tires wear out much later, and when you do you’ll blame it on the tire maker.

By the way, another way the car makers delude you into thinking your ride is very smooth is by recommending low tire inflation. The number you see on your door jamb or in your car’s owner’s manual is the car manufacturer’s recommended air pressure. The number on your tire is the tire maker’s recommendation. The number on the door jamb is the minimum and the number on the tire is the maximum. There’s typically a 10 pound difference.  I recommend you try the maximum and, if the ride’s too rough, split the difference. You’ll not only get longer tire wear but better gas mileage.

I can’t prove it, but I suspect another reason auto manufacturers design their own tires is to cut costs. By cutting a few corners in the design and specifications, they can increase their profit and/or cut the overall car price. If there purpose was to design a better tire, why wouldn’t they make these OEM tires available for the car owner to buy after the first set wears out? Many car owners “think” they’re replacing their Firestones or Michelins that were on their new car with the same tire, but they’re not. The tire might be the same size and look the same, but it’s a different model number.

One thing you should look for on your first set of replacement tires is the “tread wear index” which is molded into the side of your tires. This number will be 200 to 800. Your OEM tires will have a lower number because their made of softer rubber. If the tires that came on your car had a 200 tread wear index and you replaced them with 400, you should get twice the mileage on your second set of tires. The car might not ride as smoothly, but most people can’t even notice. And to my way of thinking, cutting you tires cost in half is pretty good compensation for a slightly rougher ride.

When replacing your tires, don’t get enamored by a sexy brand name. Brands aren’t always built on quality but also on advertising. Also, a famous brand tire makes all different kinds of tires to many different designs and specifications. Just because it’s a “Michelin” doesn’t necessarily man it’s a good tire. If Michelin made that tire for an auto manufacturer who designed the tire with only two things in mind…low cost and soft ride, you didn’t get a very good tire. My recommendation is to check Consumer Reports for the best tire replacements. You’ll find tire brands recommended that you may never have heard about. The Japanese and Chinese make some very good tires but they have funny sounding names and you don’t see them advertised heavily on TV. 

Hidden Profit Charge on Your Auto Service Invoice

The last time you paid your bill for your car’s maintenance or repair, there was about a 99% chance that there was an extra charge at the bottom of the invoice. This extra charge was not for the parts used or labor performed on your car. If you noticed it at all, it was hidden at the bottom of the invoice near the line for sales tax.


This service charge is the “little brother” of the infamous Dealer Fee, the arbitrary charge which is added to the bottom of the bill of sale when you buy a car. Just like the dealer fee, this service charge is not really a fee at all, rather it's pure profit to the dealership or independent service facility. Just like the dealer fee, it too goes by many different names: "Sundry Supplies Fee", "Miscellaneous Fee", "Hazardous Waste Disposal Fee", "Waste Oil Disposal Fee", etc... Unfortunately, charging any arbitrary extra amount onto the price of auto service is completely legal in Florida! There is also no law requiring consistency in naming this extra charge or even in limiting the amount of that charge.


The size of this bogus fee is calculated as a percentage of the total legitimate parts and service charge you incurred, and varies from as little as 5% to 10% and higher. Typically there is a self-imposed “cap” on this phony charge so that you don’t notice it when you pay your bill at the cashier. Caps also vary from about $25 to $50. Remember that most people service their cars about every 6 months or 5,000 miles and keep their cars 6.5 years. If your average “hidden charge for service” was $15, over the course of ownership you would pay $195 for work that was never performed on your car! The average dealer fee in Florida may be about $800, but a car dealer makes his money on the bogus service charge with volume. A car dealer may sell a few cars each day, but he or she may service dozens. Therefore a car dealer “steals” far more money from his service customer than he does his car buying customers.


Auto service companies and car dealers know that this is wrong and expect some of their customers (those that are alert enough to catch it) to react angrily. A call from one of these customers yesterday is what inspired me to write this column. The caller was a regular reader of my column and called me to ask what the “sundry supply fee” for about $30 at the bottom of his service invoice at Sunrise Ford in Fort Pierce was. I explained it to him. By reacting angrily and threatening to take his service business elsewhere, he was able to have his $30 refunded.


This is my recommendation to you: always inspect the service invoice before you pay. If there is any charge on the invoice that you cannot recognize, ask for a complete explanation. The explanation you are likely to hear is that these are for “miscellaneous” supplies and costs the dealer incurs in repairing the average car, probably not yours. They will talk about nuts and bolts, screws, fasteners, grease solvent, and maybe even “soap to wash the mechanic’s hands”. Of course these are just normal overhead costs of doing business. They might just as well be charging you for their power and water bill or salary to their mechanics. You tell them that their costs of doing business should have been included in the price you were quoted for the labor and parts on your repair order, not sneakily tacked onto the bottom of the invoice when you were paying the cashier.

Dealer Pre-Installed Accessories: Avoid them like the Plague

When I talk about unfair and deceptive sales practices by car dealers, number ONE on the list are pre-installed dealer accessories. Number two on that list is the Dealer Fee. Both of these common practices are the essence of how car dealers “bait and switch” you from the advertised car with the low price to the car they really want to sell you with the high price.

There are a lot of car dealers that represent each make sold, especially in Florida. Dealers advertise more than almost any other retailer because selling cars is intensely competitive. If you live in Florida, the chances are that there are at least 3 car dealers selling the make you want to buy within a short driving distance. If a car dealer advertises a price on a car higher than his competitors, you will probably not buy that car from him. Therefore, most car dealers do everything possible to make their prices appear to be lower. Statistics for all makes prove that the average transaction price on cars purchased is hundreds (and even thousands) of dollars more than the advertised prices. Virtually all advertised car prices are lower than the price that the dealer can profitably sell the car for.

You’ve heard the old saying that “necessity is the mother of invention” and the previous paragraph explains the necessity for the invention of the pre-installed dealer accessories (and the dealer fee). The pre-installed dealer accessories are products that dealers install (or claim to install) on all of their cars in their inventory. These accessories have a very low cost to the dealer and the dealer marks their retail price up to you by several hundred or even a thousand percent. Some examples of dealer installed accessories are nitrogen in the tires, pin stripe decals, paint sealant, fabric protection, emergency road service, glass etch theft protection, LoJack, etc. A “basket” of items like this can cost the car dealer under $100 but he will mark that up to $1,000, $2,000 or higher. When he adds this plus his dealer fee of $800 to $2,000 to the advertised price, the great price you thought you had, disappears into a high price with a large profit to the dealer.

My advice to you is simply to refuse to allow any pre-installed dealer accessory to be added to the advertise price of the car you want to buy. If the dealer won’t comply turn around and walk out. If in fact he has installed all of those overpriced accessories to all of his cars, he can obtain a car without them by trading cars with another dealer or ordering one from the factory. The same thing holds true for his dealer fee. It’s best to make it clear from the get-go that you will not visit a car dealer without an “out-the-door” price plus government fees only. Any “fee” by any name that is added to your out-the-door price must be one paid by the dealer to the state or local government…license place/registration and sales tax.

If you want an accessory that the car dealer can install, it can be installed after the fact and after you’ve had ample opportunity to verify its value and price. The best rule of thumb is to buy only accessories sold and installed by the manufacturer. These are usually high quality with a fair markup, and they are covered by the factory warranty. When you’re considering manufacturer’s accessories, be sure that they are from the manufacturer and not the distributor for that manufacturer. Distributor or port installed accessories usually carry much higher markups than factory installed.

Holdback or Holdup?

Back in 1968 when I first went into the retail car business with my father, I can remember asking him, “What is holdback?” I was learning the business and had been studying the invoices on new Pontiacs that General Motors sent us when they shipped a new car that we had ordered. We had to pay the invoice immediately when it was issued, sometimes even before the car arrived at our dealership. Actually, in most cases, it was our bank or GMAC who paid GM and we borrowed the money from them to pay for the car. 

My father’s answer to my question about holdback was that it was an increase in the amount of the invoice that we paid General Motors which was not really part of the price of the car. It was just an extra amount added to the real price of the car and included in the invoice. At that time it was 2% of the MSRP [suggested retail], so if a new Pontiac Bonneville had an MSRP of $10,000 and a true cost of $9,000, the factory invoice would be $9,200. I asked my father, “When do we get the $200 back?” He said, “At the end of the year”. I asked him if they paid us interest on our money and I can remember him laughing loudly and saying no.

Of course my next question was why they do that. He told me that the reason they gave him was to be help dealers sell their cars for more money so that they didn’t go broke. He said that because they didn’t get their holdback money for such a long period of time, they began to think of their invoice as being the actual cost of the car. General Motors felt that many dealers were such poor businessmen that they might sell their cars so cheaply that they would go out of business. Now, because GM was kind enough to hold back hundreds of thousands of dollars of the dealers’ money [and pay them no interest on it] but return the money to them once a year, they could help the dealers make a bigger profit and maintain adequate working capital.

At that time I thought this was the biggest bunch of boloney I had ever heard and I was sure that this was a scheme by the manufacturers to keep a free float of millions of dollars of their dealers’ money under the guise of helping the dealers. I asked my father why the dealers didn’t strongly object to this and he said that most dealers actually “liked” the idea of holdback. When I heard that, I thought that maybe GM and the manufacturers were right about the dealers not being smart enough to sell their cars for a reasonable profit.

It took me a few more years in the business before I understood what was really going on with holdback. It was a “no brainer” as to why the manufacturers liked it but at last I understood its attraction to us dealers. Because we had to pay an extra amount over the true price of the car and not see that money for up to a year, we began to think of the invoice as the true price, even though it was actually inflated by hundreds of dollars. Because all manufacturers added holdback to all dealers invoices, the net effect was to raise the price of all cars to all buyers by the amount of this holdback. I know this is a dirty word, but it is price fixing on the grandest of scales. This might have been something that Henry Ford, Alfred Sloan, and Walter Chrysler concocted while playing golf at Bloomfield Hills Country Club outside of Detroit.

Another neat thing about holdback for us dealers is being able to tell our customers that we are only charging them “X dollars” over invoice. Or, we can tell them that we will sell them this car at invoice with no profit to us at all! [There’s a sucker born every minute] Dealers often have “invoice sales” with copies of the invoice pasted on the car windows. Who doesn’t believe that an invoice is the cost of the car? The truth is in the semantic skullduggery …”Mr. Customer, I solemnly swear to you that this the exact price that I paid the factory for this car. In fact, here’s a copy of the invoice.” That’s what the dealer “paid” the factory all right, but it’s not what the he paid the factory after he got his holdback check in the mail.

You might be thinking, so we’re talking about $200 more or less on a $10,000 car. Who cares? Don’t forget, that was almost 50 years ago. Holdbacks have expanded considerably and now instead of several hundred dollars we’re talking several thousand. Also, dealers no longer have to wait a year to get their hold back money back. Now they get it back monthly. Manufacturers even changed the names of these monies they hold back. These are innocuous names so that, if you see them on the invoice, you will have no suspicion…names like floorplan assistance, advertising, PDI, Administrative or DAP. Of course there are also cash rebates to dealers that don’t even show on the invoice. I estimate the average car invoice today includes $3,000 to $4,000 in hidden holdbacks to the dealer. Holdbacks are also applied to factory or distributor accessories like “protection packages” [wax, undercoat, window etch, roadside assistance], floor mats, window tint, etc.

The bottom line is that you don’t rely on the dealer’s factory invoice to determine the price you are willing to pay for a car. And be especially suspicions when the dealer quotes you a price of “X dollars over invoice” or actually shows you the invoice. You’ve heard the old joke, “How can you tell when a politician is lying?” Answer: When his lips are moving. “How can you tell when a car dealer is lying?” Answer: When he shows you the invoice.

Open Letter to Auto Manufacturers: Require Your Dealers to Obey the Law

Dear USA auto manufacturer,

My last blog was about the fact that most car dealers’ advertisements violate the Federal Trade Commission’s rule that “advertisers cannot use fine print to contradict other statements in an ad or to clear up misrepresentations the ad would otherwise leave.” The FTC states that any disclaimer regarding a price or a payment must be “CLEARLY AND CONSPICUOUSLY DISPLAYED”. You can read my last blog at http://oncars.blogspot.com/2016/02/the-federal-trade-commission-most-car.html.

I’m not telling you anything that you don’t already know. You see the TV, print and Internet advertisements of your franchised dealers and those of the other US auto manufacturers. In fact, I suspect that the reason you haven’t done anything about this before is because “everybody else does it!”, including YOU. Every auto manufacturer uses fine print in most of their advertising that “contradicts other statements” especially lease and purchase payments and selling prices. Your dealers are simply following your example. Some of your dealers might not even know that they are breaking the law because you are advertising just like them. I’m not a lawyer, but I’m confident that “everybody else does it” is not a very good defense when you break the law.

My opinion as to how we reached this sad state where almost every manufacturer and car dealer is violating the FTC regulations is that everyone felt they had to do so to remain competitive. Each manufacturer and dealer believes that if his competitors advertise prices and payments that are perceived to be lower than his, he will lose sales to his competitors. Each feels like he has no choice even if he feels bad about misleading his customers.

All of this begs the questions “Why doesn’t the Federal Trade Commission” enforce their laws better? I’m not positive about why that is but I’m guessing that it has to do with lots of things like insufficient budget, low priority, heavy lobbying by large corporations like GM, Ford, Chrysler, and Toyota and not enough consumer complaints. By the way, I believe that the reason more consumers don’t complain is that most don’t know that concealing important information in the fine print is illegal. Educating the public and the car dealers might be the first step toward resolving this serious issue. In fact, this blog is my small contribution to that education.

But, the most effective thing that you, the auto manufacturer, can do is set the example for your dealers. After you have begun to follow the law, require the same of your franchised dealers. I would begin by including a clause in your dealers’ franchise agreements that they must “obey all federal, state, and local laws”. If they do not, there should be penalties up to and including the cancelation of their franchise agreement. Furthermore you could include the same language in your advertising covenants, contractual agreements that you dealers must sign regarding ethical and honest advertising. I’ve heard it said that it’s difficult for you to know when you or one of your dealers advertises in a manner that is unfair, deceptive, illegal, and/or unethical. This brings to mind the famous quotation by the former Associate Justice of the US Supreme Court, Potter Stewart, (no relation)…” I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description ["hard-core pornography"], and perhaps I could never succeed in intelligibly doing so. But I know it when I see it…”

Finally, I respectfully suggest that you use the following language in your contracts with your dealers, the advertising covenants and franchise agreements, “Any additional payment required of the customer in order to obtain the advertised payment or price, except government fees or taxes, must be conspicuously displayed immediately adjacent to the price or payment and in the same font size, style, and color.”

When most dealers and manufacturers are abiding by the law, we will have reached the tipping point so that the outliers will be obvious and the FTC can easily enforce the law so that everybody does so. With almost all advertising being honest and transparent, no manufacturer or car dealer will have a competitive advantage based solely on deception. The car buyers will be free to choose the best price by shopping and comparing with different dealers and manufacturers the way the free marketplace is supposed to work. The lowest price or monthly payment they see advertised will really be the lowest. This will raise the image of car manufacturers and car dealers and it will increase their sales and profits.

The Federal Trade Commission: Most Car Ads are ILLEGAL

To read FTC's disclosure regulations click here

Can you remember reading, seeing or hearing a car dealer’s advertisement that had no fine print? The TV advertisements are especially egregious because, even with HD, it’s literally impossible to read the fine print. If the print were large enough, it’s not displayed on the screen long enough for you to completely read it. You’ve all heard the radio “fine print”. The advertisers are experts at making it incomprehensible. One trick is to put the disclosure at the beginning of the ad so that it appears not to be a part of the advertisement. They will use a different voice, which speaks very softly and very fast. I believe that they record the disclosure at normal speed and electronically increase the speed of the recording to an incomprehensible level. The fine print in newspapers and direct mail is the only fine print that is even possible to read and it often takes a magnifying glass to do so. Some tricks to make it even more unreadable are to make the color of the print blend with the background color of the paper (dark blue print on a dark red background), obfuscate the message by mixing in some legitimate, irrelevant disclosures like “Dodge is a copyrighted brand name of Chrysler Corporation, and they usually locate the fine print as far away from their false claims as possible.

Of course fine print deception is not limited to car dealer advertisements. Car manufacturers, pharmaceutical companies, and most other retailers take advantage of their customers in this manner too.

The Federal Trade Commission says that advertisers are not allowed to “contradict other statements in an ad or to clear up the misimpressions the ad would otherwise leave.” The FTC also says that “Accurate information in a footnote or a dense block of text likely will not remedy a deceptive representation conveyed by a headline or other prominent selling message because reasonable consumers may not read the footnote.”

Car dealer leasing ads and car manufacturer leasing ads commonly advertise low lease payments with large down payments, often obfuscated as “capital cost reductions”. You’ll see a new BMW advertised for $399 per month but when you take in consideration the $8,000 down payment which is impossible to read on the TV screen, the payment might actually be $899 per month.

You see a lot of “100% Guaranteed Credit Approval Ads”, but the fine print says that your credit score will affect the terms and down payment. Interpreted, this means if you have bad credit, you will have to make a down payment up to 100% of the price of the car and the financing terms could be as short as one month. The disclaimer in the fine print is a total contradiction of the headline, bold print claim of the ad and a violation of Federal law.

A popular deception by many car dealers is to advertise a very low price in the headline of the ad with the fine print totally contradicting the ad price. This is done by the fine print saying that the “price excludes dealer installed accessories” which can total thousands of dollars. The fine print also often says “customer must qualify for all rebates and incentives”. These are impossible for any one person to qualify for such as military rebate, college rebate, loyalty rebate, and conquest rebate. To qualify for all the rebates one would have to be on active duty in the military, a graduate of a 4 year accredited college within the past 6 months, drive the same make car as is advertised, and drive a specific competitive make car at the same time.

Another fine print scam is “Lowest Price Guaranteed or We Pay You $1,000”. There’s even one dealer who says he’ll give you the car free if he can’t beat his competitor’s price. The fine print says the dealer reserves the right to buy the other car from his competitor at the lower price. Now, what are the odds that your car dealer’s competitor will agree to that? The fine print also says that you must bring him a buyer’s order signed by the other dealer to verify the lower price. Have you ever asked a car dealer to give you a signed copy of a buyer’s order without actually buying the car from him? He won’t give it to you for the simple reason he doesn’t want to allow his competitor to see it and beat his price.

Florida law requires that dealer fees be included in the advertised price of all cars. Most dealers do not to this but instead disclose the dealer fee in the fine print. Often times they do not even disclose the amount of the dealer fee but simply say “plus dealer fee” or “plus fees”. Florida law does not put a cap on dealer fees as many states do. In theory, a dealer could have a $10,000 or higher dealer fee. Many have dealer fees over $1,000 now. This practice is a clear violation of the Federal Trade Commission’s rules.

I read in the newspaper last week that Governor Rick Scott had just signed 8 more bills into law. This week we have 8 more laws than we did last week. What our state and our country need are not more laws, its more enforcement of the laws we already have on the books.

Should I Exercise My Option To Buy My Lease Car?

One of the advantages of leasing is your option to buy the lease car at the end of your lease at the residual price. The residual is what the leasing company “guessed” your car would be worth at the end of your lease. They guessed because nobody has a crystal ball that tells them exactly what a used car will be worth 3 or 4 years in the future. If they guessed low, you have an opportunity. If they guessed high, you have no obligation; it’s the leasing company’s problem and they have to sell the car and take a loss.

The best thing about making this decision is that you are holding the best hand in the card game between you, the leasing company, and the dealer. That is because you know your car better than they do. You probably have been driving it for close to three years, you know how well you have maintained it, how worn the tires are, whether or not it has been wrecked and repaired, and how many dings, dents, or upholstery blemishes there are. You know if it was garaged and how you carefully you drove it. You also know, better than anybody, how well it runs. All of these things determine the value of your car.

Unless you buy a new car, you cannot have as much confidence in any other used car that you may buy than your own used lease car. The only assurance that you have when you buy somebody else’s used car is their word or the dealer’s word about how it was driven and maintained. That means that if you did take very good care of your lease car, drove it carefully, kept it in a garage, waxed and washed it faithfully, and maintained it carefully it is worth more to you than anybody else because you are the only one who knows that. And you can never be sure about that for any other used car you might buy.

Given that you like your lease car and want to keep it, the next step is determine its wholesale market value. The leasing company usually is not in the business of selling cars, just leasing them. Getting rid of off-lease cars is expensive and time consuming for them. You have an advantage here too and you should be able to negotiate a good price. Remember, you know your car much better than they do. They will usually give you a price you can buy the car for without even looking at it. It doesn’t happen often but sometimes they will call you first about buying your lease car before the lease is up. Be careful when this happens because this can mean that they are facing a loss if they have to wholesale your car at the auction. They are calling you to sell you your car for more money than they can get for it at the auction.

That is why you need to establish the current wholesale market value for your car. Car dealers call this ACV, for actual cash value. Check the Internet for information on the value of your car. www.kbb.com, the Web site for Kelly Blue Book is one of the best sources. Consumer Reports can also give you this information. The best check on the wholesale value is to actually drive your car to 3 or 4 car dealerships that are franchised for your make. If you drive a Ford, visit as many Ford dealerships as you can and tell them you want to sell your car. You aren’t misleading them because it’s a lease car. You could exercise your option to buy it from the leasing company and then resell it to the dealer, if the dealer’s offer was higher. If you live near a CarMax store, the largest retailer of used cars anywhere, they buy a lot of used cars over the curb and their prices are often competitive, but always check CarMax’s price too.

Now that you are armed with the true market value for your car, you can negotiate the best price with the leasing company. Even if they won’t sell you the car for the ACV, wholesale value, paying as much as $2,000 over wholesale for a car you have absolute confidence in is a good deal. If you can buy it for wholesale or below, you should celebrate!

Another thing to be on the lookout for with the leasing company is when they offer to extend your lease for the same monthly payment you are currently making. That is not a good deal. They are doing this because they will lose money if they sell this car at the auction at the present time. They want you to keep making payments on the car so that their depreciation rate catches up with the residual value. The residual value is the price they guessed your car would be worth in 3 years. If you had leased the car for longer at the onset of your lease, the payments would be lower than they are now. Why should you pay the leasing company the same as they charged you for a shorter lease?

Leasing is the Dealer’s Choice For Bait and Switch Advertising

Car dealers have always known that consumers’ #1 “Hot Button” is the monthly car payment. Most car buyers finance or lease their vehicles and almost everyone budgets their finances on a monthly basis. Your rent or home mortgage payment, food, insurance payments, and your income are usually paid or budgeted monthly. To most of us, the actual cash price of a car is less important to us than how much we can afford to pay per month.

Car dealers and auto manufacturers prefer leasing you a car to selling you one because it’s more profitable to both of them. It’s more profitable to the manufacturer because they have the control over someone to whom they lease that they don’t with a purchaser. Usually the manufacturer’s financing division owns the car you drive, not you and and you must return their car at the end of the lease. Forcing you to go back to the dealer gives them a much better chance of leasing or selling you another car. Dealers love this but, even more, they love the fact that they make about 50% more profit on a lease than a purchase. They can do this because a lease transaction is far more complex than a purchase. With leasing, the focus is on the monthly payment, not the things that actually determine the profit to the dealer like capitalized cost, residual, term or money factor. Most people who lease cars don’t even understand the meanings of this terminology, much less how their low monthly payment is calculated.

If you read my last blog, “Earl Stewart’s Business Ethical Dilemma”, you know about the trend for manufacturers to mandate a minimum price that their dealers are allowed to advertise. Honda was the first to do this, Mazda followed, and Toyota joined them this month. Honda, Mazda, and Toyota dealers who are inclined toward “lowball bait and switch” advertising may now find it more difficult to do on the majority of the car that they sell. If you don’t already know, bait and switch advertising means advertising a product at a price so low (the “bait”) that potential buyers are compelled to respond. These prices are so low, often below actual cost that the dealer does not want to (or will not) sell you the car at the advertised price. He “switches” you to another car that he can make a profit on or he adds hundreds or thousands of dollars unwanted equipment and fees to the advertised price.

This is the very reason that these manufacturers established a minimum price that car dealers are not permitted to advertise below. Clearly, with the best intentions, the manufacturers are trying to put a stop to bait and switch advertising. But as an unintended consequence, this will compel even more dealers to advertise lease payments. A car dealer can advertise as low a lease payment as he wants and still make a big profit as long as he adjusts the “capitalized cost reduction”, “lease factor” and/or term to his liking. The capitalized cost reduction is “lease-speak” for down payment, the money factor is “lease-speak” for interest rate and the term is the number of months of the lease.

Not only don’t most people who lease understand “cap cost reduction” and “money factor” but this information is concealed in the fine print. The prospective lease customer that comes into the dealership to lease that new Honda for $199 per month could not read the fine print requiring a $5,000 capitalized cost reduction (read “down payment”). Without that large down payment the real payment is $399 per month. The payment can also be manipulated by adjusting the term of the lease and the allowable miles or by not being clear about the total cash out-of-pocket required at signing.

You would think that there are regulations preventing advertisers from hiding material information affecting the true lease payment of a car in the fine print and you’d be right. The Federal Trade Commission has such regulations but they are rarely enforced. State and local regulators almost never enforce such FTC rules. The essence of the FTC law is that anything in an advertisement that materially affects the price or payment must be “clearly and conspicuously” shown.

You can test the FTC’s Clear and Conspicuous Standard with these questions:

• Prominence: Is the fine print big enough for people to notice and read?

• Presentation: Is the wording and format easy for people to understand?

• Placement: Is the fine print where people will look?

• Proximity: Is the fine print near the claim it qualifies?

The next time you see a car dealers TV advertisement, try to read the fine print. It’s flashed on the screen for such a short period of time you might not even realize that there was fine print. Fine print in almost all TV ads is practically impossible to read. The same is true with radio “audible fine print” and most newspaper or Internet fine print.

My advice to you is to be leery of all car dealer ads but be especially leery of leasing ads. If you cannot find the capitalized cost reduction, lease factor, and the term in the advertisement, then the advertised payment is absolutely meaningless and certainly much higher than advertised. If you see an advertisement that violates FTC regulations, click on this website, www.FloridaCarDealerComplaints.com. You can download a complaint form from the Florida State Attorney General’s Office, Florida Department of Motor Vehicles, and the Florida Office of Consumer Affairs.

Earl Stewart’s Business Ethical Dilemma

An ethical dilemma is a complex situation that involves a mental conflict between moral imperatives, in which to obey one would result in transgressing another. One was recently forced upon me by Toyota Motor Sales, TMS, for whom I’m franchised to sell new Toyotas.

Most auto manufacturers have rules preventing their dealers from illegal and unethical advertising; however most manufacturers do not enforce these rules very strictly. When dealers violate them they merely get a slap on the wrist. Honda was the exception to the rule. For many years Honda had a unique rule for their dealers. They were strictly prohibited from advertising a price below dealer invoice. Mazda copied this rule a few years ago. This month, January 2016, Toyota added this rule.

The reason these three manufacturers wanted to restrict their dealers from advertising prices below dealer invoice was to prevent “bait and switch” advertisements. The manufacturers know what their dealers sell their cars for (transaction price) and they can monitor the advertised prices. They learned that the advertised prices were hundreds, even thousands of dollars lower than the prices they were actually selling their cars for. By putting a floor on the price that dealers could advertise, they hoped to bring the transaction prices close to the advertised prices.

You might be wondering why establishing the “invoice” as the minimum, or floor price would make any difference. Many car buyers believe that the dealer invoice is the true cost of the car; it is not. In reality, the invoice a car dealer receives from the manufacturer can include thousands of dollars in profit to the dealer. This extra profit is made up by several rebates or kickbacks that are remitted to the dealer by the manufacturer after the invoice is paid. Some of these "holdbacks" that are refunded to the dealers amount to 2%, 3%, or even 4% of MSRP. Requiring their dealers to raise their advertised price to the car’s invoice substantially raises the average advertised price.

As you know, dealers advertise a lot, probably more than just about any other retailer. A Ford dealer’s biggest competitors are the other Ford dealers in his market. They are all selling the exact same vehicles and the main thing that they have to differentiate themselves to Ford buyers is the lowest price. When a Ford dealer advertises on the Internet, TV, radio, or newspaper, it has to show you its lowest price otherwise you will buy from the Ford dealer that does. This is why the prices that Ford dealers really sell their cars for is much higher than their advertised prices. You probably have personally experienced this phenomenon. Can you recall ever buying a new car for the advertised price? Or did pay a dealer fee, doc fee, and pay for dealer installed accessories that were added to the advertised price? Maybe the car they advertised was “just sold” and they had only one available at that price. Or maybe, you feel like they gave you far less for your trade-in than you felt it was worth.

Because of this you can understand why the auto manufacturers are becoming concerned: the dealers who represent their brands are giving them a bad name! Gallup has published an annual poll entitled “Honest and Ethics in Professions” for over 30 years and car salesmen have ranked at or near the bottom of that poll each and every year. The auto franchise system is “broken” but state franchise laws force the auto manufacturers to use car dealers to sell their vehicles. These laws were lobbied into effect by car dealers and their associations over the last 50 years. Furthermore, even if the state laws could be overturned, GM, Ford, Chrysler, Toyota, Honda and the others are not prepared, equipped, or inclined to sell their cars direct. Tesla is already selling cars directly without a dealer network. Apple and Google are talking about selling cars directly too. These forward-thinking companies are keenly attuned to what consumers want. Additionally, companies like TrueCar are helping to sell cars online by offering honest, low prices with total transparency. With public sentiment so negative against car dealers, the manufacturers are afraid that they may be put in the position of having to sell cars direct whether they like it or not. They believe that the better course of action is to change the unfair and deceptive advertising and sales practices of their dealers.

This brings me to my “ethical dilemma”. I’m one of the very few “one-price” car dealers. This means that I post my lowest price on every new and used car I sell. My car dealership is just like the Apple Store, Amazon, or Publix. We post our lowest prices on all of our products. We post these prices online on our website - our virtual showroom - just like we post prices on the cars in our “brick and mortar” showroom. Unlike most other dealers I don’t advertise prices lower than I will sell the car for. I don’t make my customers negotiate with me before they can get my lowest price any more than Apple would make you haggle with them before you could get their lowest price on a MacBook computer or an iPhone.

Toyota, like Honda and Mazda, is now telling their dealers that they cannot post a price on the cars displayed in their virtual, online showrooms if it is below the car’s invoice. They define it as advertising and I disagree with that. Because approximately one-third of cars that I sell are sold below invoice, this gives me only two choices. I can raise those prices several hundreds of dollars or I can show no price at all. If I raise my prices, I would be charging my customers more than I think is fair. If I don't display a price, I am not fulfilling the promise I made to my customers when I became a one-price dealer - to provide simple, honest up-front pricing.

Toyota, Mazda, and Honda’s rule on “no advertising of prices below dealer invoice” is well intended, but I don’t think they understood the unintended consequences of their actions. This rule is a serious blow to the small but growing number of legitimate one-price dealers like me. Retailers posting prices on their product is standard for nearly every product except for automobiles. The car dealer practice of haggling with customers is a relic and it's reminiscent of horse-trading in the 19th century. This well intended rule will discourage car dealers from moving into the 21st century where retailers tell their customers their lowest prices upfront without the haggle and hassle.

So there you have it. If I refuse to follow Toyota’s rules, I will be subjected to huge financial penalties which could put me out of business. If I obey Toyota’s rules I’m not being honest and transparent in my commitment to my customers about putting my lowest price on every car I sell.

I’m looking for advice and guidance from my customers on my dilemma. You can text or call me on my cell phone at 561 358-1474. You can email me at earl@earloncars.com.

Minimizing the Pain of Having Your Car Serviced

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Car Buyers: Beware of "The Box"

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

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

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

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

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

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

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

10 New Year's Resolutions for Florida Car Dealers

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

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

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

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

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

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

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

Buying a Car When You Have a Credit Problem

There are fewer things more sensitive or embarrassing than having to share your personal credit problems with a stranger. Having credit problems can also put many buyers in a weakened and defensive position when buying a car. Many people with bad, or too little, credit feel like the car dealer is somehow “doing them a favor” by selling them a car and getting them financed. Make no mistake about it. A car dealer is probably making more money selling a person with bad credit a car than one with good credit. If you have a credit problem, go about buying a car with the same care and due diligence as if you had the very best credit. Shop and compare your financing, your interest rate, and your trade-in allowance. Get at least three quotes on each of these.

Lenders who specialize in lending to those with bad credit are known as “special finance” for “subprime” lenders. Many of these lenders charge the dealer a large upfront fee, as much as $2,500. Legally, the dealer is not supposed to add this fee to the price of the car you buy but, in the real world, the price of the car is usually higher as the result of this fee. In addition to an upfront fee, the interest rates are very high from special finance lenders. Because they anticipate a much higher amount of repossession losses, they must make more on each transaction. Don’t automatically accept a dealer’s opinion that you must finance through such a lender. There are many conventional banks these days that loan to people with bad credit. Their interest rates are lower and they don’t charge large upfront fees.

There is much fraud in special finance lending. Credit applications are falsified to show more time on the job, higher incomes, etc. W-2 forms and check stubs are counterfeited. Buyer’s orders show accessories and equipment that do not really exist on the car. Hold checks or promissory notes are misrepresented as cash down payment. Co-signers signatures are forged. Confederates pose as employers, answering pay phones to verify employment. These falsifications are performed by finance managers, salesmen, brokers for special finance lenders (who are paid on commission) and the customers themselves. If you sign a credit application, be sure that you know all of the information on that application is accurate. Be sure that you understand and agree to all parts of the transaction including down payments, accessories on the car, etc. Never be a party to falsifying information to a lender to obtain a loan. This is a criminal offense.

Advertisements aimed at people with bad credit usually exaggerate with claims like, “We finance everyone”, “Wanted, good people with bad credit”, “No credit, no problem”, and, my favorite, “No credit application refused” (it doesn’t say your loan won’t be refused, just your application). My advice is to ignore these kinds of ads and these kinds of dealers. Their strategy is to take advantage of people with bad credit who they believe will buy any car, pay any amount of interest, and any profit to the dealers as long as the dealer can get them a loan.

It is common practice in Florida to encourage the car buyer to drive the car home immediately upon signing all of the papers. In some states like New York this is not permitted until all the car has been registered with the state in the new owner’s name. The reason for this immediate delivery (commonly referred to as the “spot delivery”) is to discourage and possibly even prevent the buyer from changing his mind. Taking possession of the car is a legal consideration making the purchase more binding. I recommend that you not rush the purchase or the delivery. For one thing you want to be sure that the car is exactly the way you want it…clean inside and out, all the accessories properly installed, no dings, dents or scratches, and that you have a complete understanding of how to operate all of the features of the vehicle.

I mention the risk of the “spot delivery” in this column on buying a car with bad credit because it can be especially harmful to someone whose credit is denied after the car has been delivered. You will most likely be required to sign a “Rescission Agreement” before you drive the car home. This is a legal document which requires you to return the car if your credit is denied. You will probably be told that your credit will be approved, but sometimes the dealer is wrong. The rescission agreement will have a charge for time and mileage that you have put on the car you are driving. Usually this is a very high charge from 25 cents per mile plus $50 per day and higher. It can take weeks for a special finance lender to rule on a credit application. If your credit is denied you could owe the dealer thousands of dollars which the down payment you made might not even cover.

As frightening as all of the above may sound, the one single thing you can do to prevent bad things from happening when you purchase a car is to choose your car dealer very carefully. How long has he been in business? What is his track record with the Better Business Bureau, the County Office for Consumer Affairs, and the Florida Attorney General’s Office? Ask friends, neighbors, or relatives who have dealt with this car dealer what their experiences have been like. Choosing a good dealer with integrity will resolve 95% of all your concerns.

Consumer Reports: Your Best Friend in Choosing a Car

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

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

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

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

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

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

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

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

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

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

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

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

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

Car Dealers Have Infringed on Your Right to Sue!

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

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

What is “arbitration” anyway?

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

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

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

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


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