PRIMER FOR NOVICE NEW CAR BUYERS

Top 10 Rules Protecting You from Predatory Car Dealers
This article is for those prospective car buyers that are the least prepared to safely navigate the “mine field” known as the car dealership. You may be very young and are purchasing your first car; or you may be an elderly widow whose husband had purchased all your cars. You might be an immigrant, new to our country and not proficient in the English language. You may have had to leave school and gone to work to support your family before you received as complete an education as you would have liked. Whether or not you fall into any of these categories, you can still benefit from these 10 rules. I promise you that, if you rigorously follow them, you will buy your next new car at a low price, and will not be taken advantage of by a car dealer. 

• Never, never, never buy a new vehicle in response to a car dealer’s or manufacturer’s advertisement. All auto advertisements are lies designed to get you “in the door” and sell you a car at a price much higher than the advertised price. To skeptics of this statement, I challenge anyone to show me a new car advertisement that they responded to and bought (paid in full for) the same car at the advertised price. 

• Spend several days, preferably weeks, searching for and studying which is the best vehicle for you and your budget. Online sources are vast and excellent. My personal favorites are www.ConsumerReports.org,www.Kbb.com (Kelly Bluebook), and www.Edmunds.com.

• Begin price-shopping only when you’ve identified the specific vehicle you will buy. You must know the year, make, model, included options, and the MSRP. The MSRP (Federally required Monroney Label), the manufacturer’s suggested retail price, allows you to compare discounts between competing dealers. This way you’re comparing “apples and apples”. Dealers will try anything to switch you to a different vehicle so that you cannot accurately compare their price with their competitors’.

• You must test-drive the specific vehicle you plan to buy. This is the only time you’ll physically visit the car dealership. Don’t go in alone. Two heads are better than one, and there’s less likelihood that you’re later involved in a “He said…she said argument”. Do not let the salesman know that you’re planning to buy soon; he’ll turn up the pressure to sell you a car TODAY. Tell him that you’ve just begin to look around and want to take a test drive. Be sure you allow yourself a long test drive, not just around the block. Once you take delivery of your new car, there’s no bringing it back.

• Now the fun begins! From the safety and comfort of your home, you can shop and compare prices with as many car dealers as you want. Do your shopping online via email. Create a separate free email address with Google, Microsoft, Yahoo, or Apple so that you’re not deluged by car salesmen. Withhold your real phone number. If the online template requires a phone number, make one up (or give them the number of somebody you don’t like…just kidding. 😊

• Make it clear in your online communications, that the price you’re asking for is the OUT-THE-DOOR price. This is the most difficult and necessary part of this “primer”. Car dealers almost NEVER give their prospective customers out-the-door prices; In fact, car salesmen can be FIRED for doing this because they’ve armed the prospective customer with a price that can be shown to their competition. If the competitor offers a lower price, the first dealer loses the sale. So, why would they give YOU an out-the-door price? You make it clear that, if they don’t, they’ll never hear from you again and they will definitely lose the sale; but if they do give you their out-the-door price, you’ll show their competition, and if they don’t beat it, you will buy from this dealer. With “no out-the-door price”, they have NO chance; with an out-the-door price, they have some chance. “Half a loaf is better than none.

• Definition of the Out-The-Door Price: The amount of money you can write a check out for, present it to the salesman, and then drive your new car home. Most of the profit car dealers make is added to the price you saw advertised or were quoted by the salesman. It’s added in the form of hidden fees and dealer-installed accessories. The only legitimate fees that can legally be added are government fees like sales tax and license/registration. The reason you must insist that ALL charges be included in the out-the-door price is that car dealers are experts at disguising dealer-hidden-fees as legitimate government fees with names like tag agency fee, electronic filing fee, notary fee and doc fee. These are simply added price/profit to the dealer.

• Don’t play the dealers’ game by arguing about hidden fees and dealer installed accessories. Car salesmen are trained to overcome all objections, including those raised against hidden fees and dealer installed accessories. Virtually all dealers charge hidden fees and add unwanted accessories to the car after you’ve committed to the sale. By insisting on a TRUE out-the-door price which you will compare to their competition, you’ve taken away all the value to the dealer of hidden fees and accessories. That value to the dealer is sneaking those price increases, in and making you believe its “Standard Operating Procedure”, or maybe you just don’t even notice. When they include their hidden profit in their out-the-door price, who cares? Their competition will keep them honest by beating their price if they can.

• Get financing quotes from your bank and/or your credit union. The interest rate, terms and down payment will probably be better than what the dealer offers. Also, you won’t be subject to being sold a lot of overpriced products in the dealer’s F&I department.

• If you have a trade-in, get bids from www.WeBuyAnyCar.com, CarMax, www.CarVana.com, or from the used car departments of dealers that carry the make of new car your buying. Only trade your old car in if the dealer can offer you a competitive price. Keep in mind that most states allow you a sales tax deduction on a new car equal to the sales tax percent of the value of the trade-in.

OPEN LETTER TO FLORIDA CAR DEALERS

SUBJECT: 

ELIMINATE HIDDEN FEES
Dear fellow Florida car dealer, I started in the retail auto business in 1968, about 52 years ago, and I have seen a lot of changes in the way we dealers sell cars and the expectations of our customers. My remarks in this column are made sincerely and with a positive intent toward you and your customers. I’m not trying to tell you how to run your business; I’m suggesting a change that will reward both you and your customers.

Virtually every car dealer in Florida adds a multiple, hidden charges to the price of the cars he sells, variously referred to as a “dealer fee”, “doc fee”, “dealer prep fee”, “tag agency fee”, “electronic filing fee”, dealer services fee”, etc.. This extra charge is printed on your buyer’s orders and is programmed into your computers. It has been regulated and minimized in many states including California. Florida has virtually no regulation and no regulation that is enforced. You charge these hidden fees to every customer and it ranges from a few hundred dollars tothousands. Florida law requires that you disclose in writing on the vehicle buyer’s order that these charges represent profit to the dealer. Florida law also requires that you include these fees in all advertised prices. You almost never do this, and another way that you get around the law by limiting the number of advertised vehicles (typically one).

The argument that I hear from most car dealers when I raise this issue is that the hidden fees are fully disclosed to the buyer on the vehicle buyer’s order. But most car buyers are totally unaware that they are paying this. Usually they negotiate the car purchase on your “worksheet” which is not a legal document. The legal buyer’s order is only “revealed” in the finance office when it’s spit out of the computer with dozens of other documents the buyer must sign. Who reads all the voluminous paperwork associated with buying a car? The few who notice it assume it’s an “official” fee like state sales tax or license and registration fee. Those few astute buyers who do question the fee are often told that your dealership must charge this fee on very car, which is untrue. These astute buyers are also told that all other car dealers charge similar fees. This is almost true, but, as you know, my dealership does not.

The reason you charge this fee is simply to increase the price of the car and your profit in such a manner that it’shidden from your customer. This is just plain wrong. Dealers will admit this to me in private conversations and some will admit that they have considered eliminating the fee as I did but are afraid of the drastic negative impact to their bottom line. By being able to count on an extra $500 to $3,000 in profit that the customer is not aware of or believes is an “official fee”, you can advertise and quote prices below cost and end up making a big profit. Or, if the price you quote the customer does pay you a nice profit, you can increase that profit by several hundred or thousands of dollars.

This “extra, unseen” profit is even better for you, because you don’t pay your salesmen a commission on it. That’s being unfair to your employees as well as your customers. When the rare, astute buyer objects to the hidden fees, the you can simply decrease the quoted price of the car by the amount of the hidden fees. This would have the same net effect of removing it. The salesman won’t do this because he’ll lose his commission (typically 25%) on the decrease in his commissionable gross profit.

If you don’t know me, I should tell you that I don’t profess to be some “holier than thou” car dealer who was always perfect. Although, I never did anything illegal, when I look at some of my advertising and sales tactics 30+ years ago, I’m not always proud. But I have evolved as my customers have evolved. My customers’ expectations, level of education, and sophistication are much higher today. Your customers are no different. As I began treating my customers, and employees, better I discovered that they began treating me better. Yes, I used to charge a dealer fee ($495), and when I stopped charging it many years ago, it was scary. But I did it because I could no longer, in good conscious, mislead my customers. Just because everybody else was doing the same thing did not make it right.

Now here’s the good news. My profit per car did drop by about the amount of the dealer fee when I stopped charging it. But when my customers realized that I was now giving them a fair shake and quoting the completeout-the-door price with no “surprises” the word spread. My volume began to rise rapidly. Sure, I was making hundreds of dollars less per car, but I was selling a lot more cars! I was, and I am, selling a lot of your former customers. My bottom line is far better than it was when I was charging a dealer fee. You can do the same!

Why am I writing this letter? I’m not going to tell you that I think of myself as the new Marshal that has come to “clean up Dodge”. In fact, I understand this letter is to some extent self-serving. Lots of people will read this letter to you and learn why they should buy a car from me, not you. And, I’m also aware that most dealers who read this will either get angry and ignore it or not have the courage to follow my lead. But maybe you will be the exception. If you have any interest in following my lead, call me anytime. I don’t have a secretary and I don’t screen any of my phone calls. I would love to chat with you about this. My personal cell phone number is 561 358-1474.

Sincerely,



Earl Stewart

Why Do Car Dealers Lie about their Prices?

You probably already know that you can’t buy a new or used car for the advertised price; the out-the-door price always ends up thousands of dollars higher. Car dealers are the only retailers that routinely trick their customers like this, at least to the degree that car prices are understated.

Have you ever wondered why virtually all car dealers do this? Imagine that you owned a Ford, Honda, Chevrolet, or Toyota dealership in Southeast Florida. Each of these car brands has as many as 20 dealers and no fewer than 12 selling the IDENTICAL product. Toyota has 19 car dealerships between Ft. Pierce and Key West. Every Toyota dealer pays Toyota the exact same price for their cars; but Toyota dealers don’t sell those cars to their customers for the exact same price. They mark up each car as much as they can…the highest price that the customer will pay. If a Honda dealer sells 25 identical Honda Accords in a given month, the likelihood is that each sold for a different price; the typical variation in profits on the identical vehicle can range from a few hundred to a few thousand dollars.

Let’s say you owned a Honda dealership. The Honda manufacturer gives you a quota…a minimum number of Hondas you must sell monthly and annually to fulfill your contract allowing you to sell Hondas and often to receive volume cash bonuses. The only way you can do this is to price your Hondas “competitively”. But, you also must maintain a high enough markup on each Honda, so that your dealership remains profitable. This is the “Catch 22” and dilemma of all car dealers. A South Florida Honda dealer has EIGHTEEN other Honda dealers advertising the same cars he sells. If you advertise a Honda Accord for a higher price than most other Honda dealers, you won’t sell enough to meet your quota; if you advertise that Honda Accord for a lower price you’ll sell lots of Accords, but you’ll lose money on every car.

Therefore, all Honda dealers and all car dealers of all makes see only one viable course of action. Advertise their cars at a very low price, lower than their competition (and lower than they can or will sell the car for), so that the customers will come in to buy. Once the customer is in the dealership, the “games begin” to raise the advertised price to a price as profitable to the dealer as he can negotiate. The tools the dealers use to accomplish this are many…hidden profits (aka dealer fees) disguised as government fees, dealer pre-installed accessories, and switching the customer to a different vehicle or a lease rather than a purchase.

Car dealers see themselves as having no choice but to sell cars this way if they’re to remain in business. They blame their actions on the auto franchise system and there is some truth to this. Apple sells you iPhones directly, but Toyota cannot sell you a Toyota directly; car manufacturers MUST sell through their dealers. This system is mandated and entrenched by state law in all 50 states. The manufacturers created the dealer franchise system in the early twentieth century because they couldn’t sell their cars fast enough directly. Once a critical mass of dealers was created by the auto manufacturers, the dealers organized and lobbied their state legislatures to created laws protecting their franchises from the manufacturers. The main reason they did this was because the manufacturers were granting franchise agreements to too many dealers…” over-dealering”. Too many car dealers selling the same car in a market creates too much competition because it drives the prices down. Unfortunately for the dealers, there were (and are) already too many. Today, car dealers are overprotected, enjoying exclusive markets with state laws making it almost impossible to control, much less, eliminate even the most “problem” car dealers.

The auto franchise system is over 100 years old and obsolete, but it’s entrenched and will remain for the foreseeable future. New vehicles will, one day, be sold online directly by the manufacturers and maybe even through Amazon or Walmart. Vehicles will be built to order and delivered within a week. The price you see will be the price you pay, and you will be able to return the car for a full cash refund if you change your mind. Service, maintenance, and repairs on modern vehicles is minimal. Separate service centers will still exist to handle this need. Service centers will also have new vehicles of each model for you to inspect and test drive. Tesla is doing today exactly what I described, except for the one-week delivery time and unconditional moneyback guarantee.

But there’s a larger reason why car dealers get away with their deceptions. That is “because they can”. Auto manufacturers realize they’re stuck with the dealer franchise system and “if you can’t beat ‘em, join ‘em”. Auto manufacturers have huge political lobbying clout and, when you add the car dealers and their associations’ money, state and federal politicians have no choice but to “play ball”. There are about 17,000 franchised car dealers. They have enormous lobbying power nationally through NADA, the National Auto Dealers Association, and they also have enormous lobbying power in all 50 state legislatures. The political donations that Big Auto and Car Dealers give politicians make the NRA look small by comparison.

ATTORNEY GENERAL ASHLEY MOODY: ENFORCE FLORIDA’S LAWS REGARDING ADVERTISING HONEST CAR PRICES

Attorney General Moody, as the top-ranking law enforcement officer of Florida, I ask you to investigate a sampling of new vehicle advertisements by Florida car dealers. These are readily available to you in Tallahassee, online from your home and office PC and your smart phone.

If your investigator indicates an interest in buying one of these advertised cars from that car dealer, they will discover that they cannot buy it at the advertised price “including all fees or charges that the customer must pay” according to Florida statute 501.976*.
You may have heard of me. I’ve been a car dealer in Florida for over 50 years. In those latter years I’ve evolved into a consumer advocate helping car buyers from being taken advantage of by car dealers. I’ve been doing a weekly radio show on this subject for 17+ years. Each week we mystery shop a South Florida car dealer. http://www.mysteryshoppingreports.com is the link to my archives of these reports. Our typical report involves responding to an online, TV, direct mail, or newspaper advertisement. We send a mystery shopper in who pretends to want to buy the advertised vehicle at the advertised price. In virtually all mystery shops (over 600), there are additional, hidden charges, including “non-governmental” fees, added to the advertised price. As an attorney and Florida’s top law enforcement officer, you should appreciate the fact that I’ve never been sued by a car dealer based on charges I’ve made regarding his violation the Florida Unfair and Deceptive Trade Practices Act and I’ve made hundreds of such charges. As an attorney, you know that the perfect defense against libel and slander is the truth.

When I raised this issue with your AG predecessors, Bill McCollum and Pam Bondi, I was told that the AG’s office didn’t have a significant number of complaints from Florida car buyers on this issue. I believe the reason that Florida car dealers have been violating this law for so long is because the law has never been enforced, and that car buyers have become “accustomed to being deceived”. They may not know about the law. They may think that filing a complaint is not worth the effort because 99% of all car dealers are adding hidden fees to the advertised price, and car buyers consider it the norm.

Floridians spend more money on automobiles than anything except housing, and they need your protection from being over charged millions of dollars annually by hidden charges violating Florida Statute 501.976.

* Florida Statutes


TITLE XXXIII

REGULATION OF TRADE, COMMERCE, INVESTMENTS AND SOLICITATIONS

CHAPTER 501 CONSUMER PROTECTION

501.976 Actionable, unfair, or deceptive acts or practices. —It is an unfair or deceptive act or practice, actionable under the Florida Deceptive and Unfair Trade Practices Act, for a dealer to:

(16) Advertise the price of a vehicle unless the vehicle is identified by year, make, model, and a commonly accepted trade, brand, or style name. The advertised price must include all fees or charges that the customer must pay, including freight or destination charge, dealer preparation charge, and charges for undercoating or rustproofing. State and local taxes, tags, registration fees, and title fees, unless otherwise required by local law or standard, need not be disclosed in the advertisement. When two or more dealers advertise jointly, with or without participation of the franchisor, the advertised price need not include fees and charges that are variable among the individual dealers cooperating in the advertisement, but the nature of all charges that are not included in the advertised price must be disclosed in the advertisement.

(17) Charge a customer for any predelivery service required by the manufacturer, distributor, or importer for which the dealer is reimbursed by the manufacturer, distributor, or importer.

(18) Charge a customer for any predelivery service without having printed on all documents that include a line item for predelivery service the following disclosure: “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.”

Your Car’s Interior Can be as Coronavirus Resistant as the Cabin Interiors of Billionaires’ Private Jets

Warren Buffet sold all his commercial airline stock, more than $4 Billion, in reaction to the
Coronavirus pandemic. He sold none of his NetJets stock, the private jet company he controls

You probably know that the commercial airline business is in serious financial trouble, and many airlines are seeking government assistance to avoid bankruptcy or worse. People are afraid to fly for fear of contracting the Coronavirus. There isn’t the same fear when flying private aviation. NetJets, Wheels Up, Delta Private Jets, JetSuite and most other private aviation aren’t affected. Of course, one reason is that there are fewer people with less close contact in private jets.

Another reason I believe, is a biostatic agent, ClearCabin Barrier powered by PreventX, being used by almost all private jets to treat their cabins’ interiors. This product is sprayed on all exposed surfaces inside the airplane and is effective for at least 90 days. It dries quickly in 15-30 minutes, and isn’t harmful to leather, cloth, vinyl, or any other surface. It’s like a “ceramic coating” that kills viruses on contact and protects surfaces from being re-infected after it’s applied. Because ClearCabin is not a disinfectant, the airplanes are treated first with a good disinfectant; the ClearCabin is then applied to keep the plane virus free for at least 90 days.

I’ve researched this product and found that it’s widely used in hospitals, cancer/bone marrow and transplant wings. Professional sports uses ClearCabin in their locker rooms including the Miami Heat, Washington Redskins, Orlando Magic, Detroit Lions, and Minnesota Vikings. This germ virus inhibitor is even applied to products like New Balance shoes, Dr. Scholl’s inserts, Burlington socks, Wilson sporting goods, and Brillo Scrubbing Pads.

I’m so impressed with this product that I recently purchased some from The Leather Institute in Shrewsbury, New Jersey. I called them when I got an email from the CEO of Wheels Up (private aviation fractional ownership), Kenny Dichter, announcing that all Wheels Up airplanes were treated with ClearCabin. If you’re interested in this product you can contact The Leather Institute and they can direct you to a location near you that sells the product and/or can treat the interior of your car.

My Toyota dealership has just begun to use ClearCabin. We will first disinfect our vehicles with a certified disinfectant like Clorox or Lysol and then treat them with ClearCabin Barrier. This protects the car’s interior for at least 90 days even if a cough or a sneeze should temporarily re-infect a surface.

Unfortunately, at this time, there’s no product anyone knows of that will guarantee against contracting the Coronavirus. But I believe this two-step process of disinfecting the interior of your car and following up immediately with the application of ClearCabin is the very safest you can make the interior of your vehicle.

A Tool to Help You Get the Out-The-Door Price from a Car Dealer

This same column ran a few months ago before the Coronavirus pandemic struck the world. I’m rerunning it now because car dealers are so desperate to sell cars that they’ve pulled out all the stops with respect to trickery and deception. This is arguably the best way to get an honest, low, bottom-line price on a new or used car.

Below, you’ll find a link to a form that was created based on a discussion with Nancy Stewart, my co-host on our radio show, “Earl Stewart on Cars”. This radio show runs every Saturday morning 8-10. You can stream it at www.StreamEarlOnCars.com. It’s also available at www.Facebook.com/EarlOnCars andwww.YouTube.com/EarlOnCars.

The next time you purchase a vehicle, insist that the price quoted to you by the salesman be certified by the signature of a manager of the dealership; or, if you are responding to advertisement, be sure that the advertised price is so certified.

Most of the skullduggery by car dealers comes from two sources, hidden fees added after the price is advertised or quoted and dealer installed accessories that are pre-installed on the vehicles, but not included in the advertised or quoted prices.

You can even use this form when you shop by phone or online. Fax or scan and email the form to the car salesman and insist that he sign it and fax or email it back.

This form is available for download at EarlOnCars.com or you can just click this link http://earlstewartteam.com/pdf/outthedoorpriceaffidavit.pdf.

You may even be thinking, what if the car salesman refused to sign this document? My answer is simple…LEAVE!

Hidden Charges in the Service Department

The last time you paid your bill for your car’s maintenance or repair, there was there was an extra, probably unnoticed charge at the bottom of the service invoice. This extra charge was not for the parts 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 hidden PRICE INCREASE 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", “Environmental Impact Fee”, etc. The “Waste Oil Disposal Fee” is particularly deceptive and dishonest because car dealers sell their waste oil to refiners for a tidy profit. 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. If a car dealer wanted to name the fee CAR DEALER’S RETIREMENT FUND, it would be legal (and a lot more honest than Environmental Impact Fee).

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 is over $1,000, 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. Calls from these customers are what inspired me to write this column. One caller that 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.

Buying a Car During a Pandemic... Best of Times; Worst of Times

If you go about it in the right way, you can buy a new or used vehicle in the next 30 to 60 days at lower price than you ever paid before. If you’re not careful, you will be taken advantage of by the car dealer, paying him a higher profit than you ever paid before.

Why is today the “best of times” to buy a car? Auto manufacturers are fearful for their very existence. When the Covid-19 threat is behind us, many auto manufacturers won’t have survived. Ford’s bond rating was recently downgrade to “Junk” and all the major auto manufacturers have had their bond rating (cost to borrow money) downgraded. Ford, GM, Chrysler, and Nissan are likely candidates for bankruptcy.

The “auto-selling pie” has suddenly been radically reduced in size, and too many auto manufacturers are competing for a big enough slice of the smaller pie to survive. There’s simply not enough pie to go around. Survival is our most powerful instinct, and it motivates us to do things we would never otherwise do.

Auto manufacturers are offering huge discounts and financing terms that were unheard of before this pandemic. If you don’t remember anything else from this article, remember this: MAUFACTURER DISCOUNTS, REBATES, ZERO PERCENT FINANCING, NO PAYMENTS FOR SEVERAL MONTHS, AND LOWER LEASE PAYMENTS ARE TRUE, but CAR DEALERS ADS ARE MOSTLY UNTRUE.

Most car dealers have very large overhead expenses. The manufacturers require that they invest millions of dollars in large facilities for selling new and used cars, parts, service, and sometimes collision repair. The dealer can control some expenses like advertising, and he can reduce personnel expenses by layoffs. However, he still must pay his rent or mortgage payments, utilities, and the interest to finance the cars in his inventory. (almost all dealers borrow millions of dollars for this). This means that every car dealer has a certain level of sales and service that he must sell in order to break even and hopefully make a profit. A car dealer may average selling monthly 100 new vehicles, 75 used, and servicing 500 cars. This dealer was probably making a nice profit, maybe $100,000 per month. During the Coronavirus, dealer sales are off anywhere from 40% to 70%. This almost certainly causes him to lose a substantial amount of money monthly, because he’s selling cars and service below his breakeven point, about 75 new, 50 used and 350 service vehicles. After the car dealer has slashed the expenses that he can, he has only one choice to SURVIVE. He must raise the prices of the fewer cars he sells.

If you’re a regular reader of my articles, you know that car dealers sell each car at different prices to every buyer. A Ford dealer will typically sell an identically equipped F150 truck (same MSRP) at different prices to every buyer during a given month. The profits on this truck can range from $100 to $5,000 or even higher. Dealers can do this by their “smoke and mirrors” unfair and deceptive sales practices. They’ll undervalue your trade-in allowance, charge you a high interest rate, make you believe they’re giving you a large discount by falsifying the MSRP, or add hidden fees and dealer installed accessories that you don’t realize you’re paying for.

The very real and generous discounts being offered by auto manufacturers make it easier for car dealers to raise their price to you. When you negotiate to buy their car, they’ll try to make you focus on the special deals offered by the manufacturer, like “no payments for 6 months and zero percent for 72 months”. Remember, this is a discount being absorbed by the manufacturer, not the dealer*. When you buy your next new car, you automatically get the manufacturers’ discounts, but you still must FIGHT for the dealer’s discounts. In fact, you’ll have to fight harder than ever because that dealer must average a higher profit per car than before the Coronavirus pandemic to SURVIVE. You’re buying one car and that same car will be sold to several other buyers during the month. You want to be the shrewd buyer that paid this dealer $100 profit, not the ones that paid $2,000 to $10,000!

You do this by remembering or rereading my articles on using competition to get the lowest price. Shop at least 3 car dealerships online after having chosen the exact year-make-model car you will buy. Shop your trade-in value separately and your financing separately. Beware hidden fees and dealer installed accessories and never commit to buy unless you have a bonified out-the-door -price. The definition of an out-the-door price is the amount of money you write out a check for, hand to the car salesman, and drive your new car home.

With the Coronavirus pandemic it’s mandatory that you do your car shopping and buying online. You should be able to do this without ever having to visit the dealership or interact with a salesman. The dealer should consummate the purchase and financing online and deliver your car to home.

Good luck and I pray for the safety of you and your family.

*Although special offers that are coming directly from the manufacturer are legitimate, you must also be careful to read the fine print. For example, Ford is offering "no payments for six months." Three of the months are deferred payments for which you will still be charged interest. The other three months are being "paid for" by Ford, but your rebate is less... you are actually paying more for the car!

Compassion, Car Payments, and Coronavirus

There’s not much good to be said about this terrible worldwide pandemic. Covid-19 has brought on unprecedented business closing triggering record levels of unemployment. Too many Americans are suddenly unable to make their rent or mortgage payments and their car payments on leases and purchases.

Banks and leasing companies are threatened, not only because few people are borrowing money to buy homes or buying or leasing cars, but those that already rented, bought or leased have stopped making their monthly payments.

All lenders are more inclined to reduce and relax monthly payment requirements if the borrower contacts them first and asks. To a lender, being called by borrowers represents good faith, and is an indicator that this borrower is more likely to pay out the loan than the borrower that doesn’t call.

The sooner you call your lender, the better. Don’t call the car dealership that you bought or leased from because the dealership is not the lender. Even though you bought or leased your car there and signed the lease agreement or retail installment contract, the dealer “sold” the contract you signed to the real lender…a bank or leasing company. Oftentimes the lender is owned by the vehicle manufacturer…Ford Motor Credit, Toyota and Honda Financial Services, Chrysler Capital, etc.

If you’re leasing a car and the end of your lease is approaching, you may, understandably, not want to start the process of buying or leasing another vehicle at this time. Call the leasing company and ask for an extension on your lease. You’re almost sure to get a three-month extension at the same monthly payment and you can ask for more…six months isn’t out of the question.

If you’ve been laid off and making your lease or purchase will be difficult, ask for a hiatus on making your monthly payments. Tell them how much time you need before you can resume making payments or ask for a reduction in the amount. This won’t harm your credit rating. You should tell the lender when you expect to be back to work and any other factors that will affect your ability to begin making your payments again or resume making the full payments.

Remember that the key to success in this tactic is to CALL THE LENDER BEFORE THEY CALL YOU. If they call you first, they’re not calling to help, they’ll be calling because you didn’t make your payments on time. By calling them first, you have the upper hand, and are very likely to get some relief on your loan or lease payments.

Coronavirus, Car Dealers, and Consumers

Deservedly and not unexpectedly, there’s a huge amount of negative media focus on the consequences of COVID-19. Call me a “cockeyed optimist”, but I believe that, in the aftermath, one positive result will be making it possible for car buyers to get an honest, transparent and competitive price when they buy a car.

This will happen as car dealers realize that almost nobody is coming into their showrooms to buy cars. They’re already advertising that they will deliver the car to your home, but the problem is you must buy it first. If a car buyer is to maintain safe distancing during the CD-19 threat, she doesn’t want to visit the car dealership, interact with car salesmen, and will try to buy the car online.

I’ve always advocated shopping for the best price online. For one thing, you can shop and compare prices at a lot more car dealerships on the car you choose. You can also maintain your anonymity by not revealing your real phone number and using a different email address. This eliminates the annoyance of multiple calls from multiple car salesmen. Car dealers know that and will “dig in their heels” on giving you an honest, out-the-door price. They don’t want you to compare their price with their competition.

Last week, I mystery shopped, online, Palm Beach Toyota in West Palm Beach, FL on a new Camry. I told them that because of the Coronavirus crisis, I wanted to buy my car completely online without leaving my home. The only price I was able to get was MSRP, and I knew that even that price wasn’t out-the-door because Palm Beach Toyota adds over $1,000 in hidden dealer fees. They asked for my phone number, but I told them I preferred to communicate online (I used a Yahoo email address under a pseudonym). When I said that I would not buy the car until I had an out-the-door price, all emails stopped. I sent them an email this morning saying that I had contacted five Toyota dealers, and only one had responded with an out-the-door price. I said, if I don’t hear back from you by noon today, I will ask that Toyota dealer to deliver the new Camry to my home. I finished this column and waited until noon today (Monday, April 6) for a reply from PB Toyota. There was no reply and, had I been a real buyer, they would have lost

It will take car dealers a while before they realize that they have no choice, but to give you their best out-the-door price. April will be a VERY BAD sales month for all car dealers and May will be even worse. Lots of car dealers and some manufacturers will go out of business. Those car dealers that want to survive will have to sell cars at lower prices than their competition. Because the number of customers that buy a car will be, at best, half of normal, the car dealers that survive must give the customers what they demand…an online out-the-door price.

As I write this article, nobody knows for certain how long this crisis will last or how severe it will be; it will end, and everything will eventually get better, but retail buying, including cars, will never return to normal. The new normal with car buying will be better than what has been going on for over 100 years. The Coronavirus will bring an end to the haggle/hassle, bait-and-switch, hidden fee style of selling cars that has always been.

My wife, Nancy, and I are pretty much quarantining ourselves like most Americans. I conduct my business meetings by www.Zoom.com or conference calls. Our groceries and everything we buy are delivered from Publix, Costco, Walmart, Target, and the king of online, AMAZON. We love it and will never go back to the old way. We shop and compare to ensure the lowest price. We select the products we buy after reading online reviews by verified purchasers. Deliveries are very fast, next day or 2 days 90% of the time. Most purchases offer unquestioned returns for full credit. Millions of Americans who didn’t do most of their shopping online have had to and will continue to have to for months. They will have tried online and fallen in love with it before this crisis ends. THEY WILL NEVER GO BACK TO THE OLD WAY OF RETAIL.

It’s a good think Amazon came along and threatened the other retailers a few years ago. It forced the smart ones like Walmart, Costco and Target to seriously get into the online business. Those that didn’t perished or soon will. It took a worldwide pandemic to get the car dealers’ attention, but now it’s their turn.

Economic Threat to Auto Industry

(Huge Opportunity if You Need to Buy a Car)

“No idea or behavior shift has ever spread more quickly or completely in the history of the planet. In seven weeks, the life of every single person on Earth changed, and the unfolding tragedy and the long slog forward will drive expectations for years. Expectations about being part of a physical community, about the role of government and about what we hope for our future.”

I copied and pasted this introductory paragraph from a blogger I follow religiously…Seth Godin. His words on the Coronavirus describe these times perfectly.

When I woke up this morning, before I had my coffee, I had an eerie feeling…” maybe this is a bad dream!” I know this is an old cliché, but if there was ever a time when it fits perfectly, it’s today. We’ve all had bad dreams that, during the dream, we wondered if this is a dream…usually that’s when you wake up. I’m pretty sure I’m not dreaming.

I’ve mixed emotions about writing on the Coronavirus/COVID-19. This blog/column is entitled “Earl on Cars” and maybe I should be explaining how you can avoid paying too much for your next car. On the other hand, all human beings on our Planet are thinking or talking about survival…physically and/or economically. Today, a car can be important to both your physical and economic wellbeing; so, I’ll advise you on how to buy or lease one during the Corona Crisis and get, not just a good price, but probably the best deal ever on a new or used car.

Auto manufacturers and dealers are as desperate as you. When this crisis passes, there will far fewer auto manufacturers and dealers than today. I’m a car dealer who sells a very popular make of car, Toyota, and my business stinks. Most manufacturers and car dealers aren’t as fortunate as I, and many with less popular makes won’t survive. Sensing this, car dealers and manufacturers will do whatever they can to outsell their competition, if they want to be among the “survivors”.

If you’re a regular reader of mine, you’ve heard me say, “Competition is your friend”. One thing all auto manufacturers have in common is being fiercely competitive. GM must outsell Ford, Toyota must outsell Honda, Mercedes must outsell BMW, etc. Expect the biggest discounts and rebates as well as lowest interest rates and payments. Today is not the time to rush out and buy or lease a car. Time is on your side as the COVID-19 pandemic peaks. Current predictions point to the end of April. Now is a good time to begin your homework…due diligence. Study Consumer Reports to decide exactly what year-make-model vehicle you want to buy. Once you do that, put out some price “feelers” online. Shopping online, you can expand your radius as far as you want to. If you want to buy a Cadillac, you can shop 3 or 4 dealers or 30 or 40! Time is on your side because you won’t be making buying decision until the end of April. This gives you time to “separate the wheat from the chaff”. Some dealers won’t satisfy your demand for an out-the-door price which includes ALL charges including dealer fees, dealer installed accessories, and tax and tag. An out-the-door price is the number you can write on your check, present it to the dealer, and drive the car home. Once you have at least 3 out-the-door prices on the exact year-make-model vehicle, you’re ready to strike at the end of April…the optimum time to buy a car.

On Thursday April 30, contact your “finalists” (at least 3) and let them know you’re going to buy your car from the dealer that reduces his price to you by the most. Reemphasize that their price must be final, out-the-door. At even the mere “hint” of a shenanigan, you’ll vanish, and they’ll never see or hear from you again.

My regular readers know that you should arrange your own financing with your bank or credit union. The only exception is low interest financing offered by the manufacturer. If you have a trade-in, you should have already shopped its value with Carvana, www.WeBuyAnyCar.com, CarMax, and AutoNation. Also, get bids from the used car departments of dealers that sell the same make of car as you’re trade-in.

If you follow these guidelines, I strongly believe that you will get the best deal on your next new or used car that you ever had; but let me close with one big caveat. You’re getting a great deal because car dealers and auto manufacturers are desperate. Desperation inspires both giving you a great discount or tricking you into believing you’re getting a great price when it’s not. Caveat Emptor/Buyer Beware. Good luck, and stay safe.

WORLD CRISES & U.S. LEADERS

Please excuse this column’s deviation from Earl Stewart on Cars automotive theme. I started to write a column on “How not to get ripped off by your car dealer”, but it seemed rather unimportant in view of the Coronavirus threat.

My father, Earl Stewart Sr., was born in 1892. He was an avid Republican and disliked Franklin Roosevelt and Harry Truman.

I’m old enough to remember that he strongly supported Harry Truman in World War II because he was our president and the leader of our country. After the war was over, he regressed to referring to President Truman as “that G.D. Haberdasher”. 😃

He told me that he also supported Franklin Roosevelt during WWI.

The Coronavirus, Covid-19, is potentially a greater threat to humanity than WWI or WWII. As I write this, nobody knows just how many lives will be lost or how much damage it will have on the world economy. We must hope for the best and prepare for the worst.

There’s almost no one alive today who was alive during WWI and very few that were during WWII. History tells us a lot about how the “free world” survived those times. Survival is our strongest instinct and the USA did what had to be done for us and the rest of the free world to survive. Looking back on some of the decisions our leaders made, there’s lots of controversy…Interring Japanese Americans in camps in California, killing millions of innocent civilians in Hiroshima, and Nagasaki, and knowingly sacrificing 37,000 American and allied soldiers during the Normandy Invasion. Arguments are made today on both sides of these and many other issues; but during WWII, there was no time for arguments or even compromise. Time was of the essence and our survival was at stake.

Much of what our leaders did to win those two world wars is still unknown. Censorship and secrecy will keep us from knowing everything done to ensure victory. But the bottom line is that we won and are not a German or Nazi state today…neither is the rest of the world.

Here we are in the 21st century when secrecy and privacy are almost nonexistent. Freedom of speech allows everyone to criticize and object to anything or everything. Everything is subject to debate and decisions are usually based on compromise. During an emergency, a crisis, these rights can slow us down.

To come out of this crisis as quickly as possible, we must decide and act as quickly as possible.Our leaders must put aside personal animosities, and political differences. We should send a message to our politician’s that we U.S. citizens, Democrats and Republicans, will “bury the hatchet” until covid-19 and our shattered economy are history. We can tell our elected leaders, Republicans and Democrats, that we want swift and strong legislation even if one side or the other doesn’t get everything they want. We should all watch our leaders carefully and, when they come up for reelection, remember those that played petti politics with our lives during this crisis and vote accordingly. I’ll vote for the Republican or Democrat who swallowed his or her ego and pride for the sake of winning WWWIII.

There’ll be plenty of time for political attacks and mindless partisanship AFTER we’ve defeated the Coronavirus.

Coronavirus “Catch-22”

Stay Home if You Might Have the Coronavirus

But If You Don’t Go to Work, You Won’t Get Paid

Catch-22 Definition (logic) A catch-22 is a paradoxical situation from which an individual cannot escape because of contradictory rules or limitations.

This column is directed to all businessmen, especially retailers like car dealers, department stores, etc. I’m sure, Mr. Businessman, that you’ve told your employees that they shouldn’t come into your workplace if they have symptoms that might be the Coronavirus. That gets you off the hook because you warned them, but how effective do you really expect this directive to be?

A lot of your employees, either cannot afford to go without a paycheck, or don’t want to. Human nature is such that some will come to work anyway, possibly even concealing their symptoms. Lots of employers don’t provide for sick pay or, if they do, require a doctor’s certificate to qualify. Many employees receive substantially less pay while off sick than they normally earn…especially commissioned employees.

I know what you’re thinking…a lot of my employees will take advantage of my generosity and “have a paid vacations” at my expense when they’re feeling just fine. You’re dead wrong! If you show your employees that you care for them and trust them, they won’t take advantage of you. Oh, maybe one or two will…there’s always a chance that we have a rotten apple in our barrel. But that’s a small price to pay to protect all your employees and customers, not to mention your business.

Sure, you can wait for the federal government to come to the rescue, but you know how long it takes politicians and federal bureaucracy to act. You can count on two things; politicians aren’t going to say or do anything that won’t help them get elected and the Republicans and Democrats can’t agree on anything.

If you truly want to make your workplace safer for your employees and customers, give them an incentive to stay home that they can’t refuse. Pay them as much as they would earn while staying home as they would in on the job. Pay commissioned employees based on their average earnings. Yes, this can get expensive, but not nearly as expensive if one or more employees spreads the virus to your other employees and customers. You’d be forced to close your business.

By the way, a fringe benefit of this is to build confidence in you from your employees and customers. You can’t put a price tag on that…it’s truly priceless. After the Coronavirus is “yesterday’s news”, your company’s brand and your brand as a leader will have grown substantially. I promise you that you’ll recoup, from increased sales and profits, all the costs of paying employees for staying home and then some.

Voted the Best Car Dealer in Palm Beach County

Regular readers of my newspaper columns and blog know I avoid promoting myself and my car dealership, Earl Stewart Toyota, in North Palm Beach, Florida. My weekly radio show (Earl Stewart On Cars), YouTube videos (www.YouTube/EarlonCars, public speaking engagements, and my book (Confessions of a Recovering Car Dealer) represent my efforts as a consumer advocate to help you avoid being ripped off by car dealers.

A year ago, a friend called to congratulate me for winning a contest sponsored by Palm Beach County’s newspaper, The Palm Beach Post, as the Best New Car Dealership and the Best Auto Dealer Service Department in Palm Beach County for 2019. I thought she was kidding because I didn’t even know there was a contest! I don’t advertise in the Palm Beach Post. One of my customers, employees or friends must have nominated my dealership in the contest without my knowledge.

2019 was the first year for this contest which was held again for 2020 and Earl Stewart Toyota won again! You may be wondering why I’m bragging about being the best car dealer when this column is supposed to be written by a consumer advocate giving you advice on how to buy, lease, maintain, or repair your car without being taken advantage of. That’s a fair question, and please allow me to answer it.

I really have two goals as a consumer advocate: (1) Equip you with the awareness, caution, and knowledge to protect yourself from being deceived by car dealers and (2) Set an example for car dealers to prove that ethics, honesty, and transparency with their customers is actually good for business.

There are literally dozens of car dealerships in Palm Beach County selling every make of car available. I have only one dealership. I sell new Toyotas which represent only about 15% of the new cars sold. I’m one of four Toyota dealers in Palm Beach County. Palm Beach Toyota, Southern 441 Toyota, and Delray Toyota are the others. Eighty-five percent of the new cars sold in Palm Beach County are sold by those dozens of other car dealerships that sell everything besides Toyota. Many car dealers in Palm Beach County own multiple dealerships…Schumacher, Napleton, and AutoNation for example. For more people to vote for Earl Stewart Toyota than those car dealers with multiple locations, I must have had car owners that don’t even own a Toyota voting for Earl Stewart Toyota.

At this point in this article, I am addressing all the car dealers in Palm Beach County who were not voted number one. I know you must be upset that you lost to me and you might not understand why a car dealer with only one location in a small town like Lake Park, FL (we’re technically in Lake Park but I use North Palm Beach in my name because so few people know where the small town (population 9,000) of Lake Park is. Logic must tell you that for me to win this contest, I must have received votes from other than Toyota owners that I sold. You must wonder why some of your customers must have voted for me. They voted for a Toyota dealer when they buy Hondas or Chevrolets!

Here’s why they voted for my Toyota dealership even though they like the make of car you sell more. (1) I don’t add over a $1,000 in hidden fees (aka dealer fees) to my advertised prices. (2) I don’t add over-priced, dealer-installed accessories to my advertised prices. (3) I post my lowest, out-the-door price on ever new and used car I sell. (4) I offer a 7-day UNCONDITIONAL moneyback guarantee on every new and used car I sell. (5) I don’t hide from my customers. I give every customer my personal cell phone number and have 5 red phoneslocated around my dealership that connect directly to my personal cell phone. Every Earl Stewart employee must adhere to the Earl Stewart Code. Check it out at www.EarlStewartCode.com.a

Why Do Car Dealers Lie about their Prices?

You probably already know that you can’t buy a new or used car for the advertised price; the out-the-door price always ends up thousands of dollars higher. Car dealers are the only retailers that routinely trick their customers like this, at least to the degree that car prices are understated.

Have you ever wondered why virtually all car dealers do this? Imagine that you owned a Ford, Honda, Chevrolet, or Toyota dealership in Southeast Florida. Each of these car brands has as many as 20 dealers and no fewer than 12 selling the IDENTICAL product. Toyota has 19 car dealerships between Ft. Pierce and Key West. Every Toyota dealer pays Toyota the exact same price for their cars; but Toyota dealers don’t sell those cars to their customers for the exact same price. They mark up each car as much as they can…the highest price that the customer will pay. If a Honda dealer sells 25 identical Honda Accords in a given month, the likelihood is that each sold for a different price; the typical variation in profits on the identical vehicle can range from a few hundred to a few thousand dollars.

Let’s say you owned a Honda dealership. The Honda manufacturer gives you a quota…a minimum number of Hondas you must sell monthly and annually to fulfill your contract allowing you to sell Hondas and often to receive volume cash bonuses. The only way you can do this is to price your Hondas “competitively”. But, you also must maintain a high enough markup on each Honda, so that your dealership remains profitable. This is the “Catch 22” and dilemma of all car dealers. A South Florida Honda dealer has EIGHTEEN other Honda dealers advertising the same cars he sells. If you advertise a Honda Accord for a higher price than most other Honda dealers, you won’t sell enough to meet your quota; if you advertise that Honda Accord for a lower price you’ll sell lots of Accords, but you’ll lose money on every car.

Therefore, all Honda dealers and all car dealers of all makes see only one viable course of action. Advertise their cars at a very low price, lower than their competition (and lower than they can or will sell the car for), so that the customers will come in to buy. Once the customer is in the dealership, the “games begin” to raise the advertised price to a price as profitable to the dealer as he can negotiate. The tools the dealers use to accomplish this are many…hidden profits (aka dealer fees) disguised as government fees, dealer pre-installed accessories, and switching the customer to a different vehicle or a lease rather than a purchase.

Car dealers see themselves as having no choice but to sell cars this way if they’re to remain in business. They blame their actions on the auto franchise system and there is some truth to this. Apple sells you iPhones directly, but Toyota cannot sell you a Toyota directly; car manufacturers MUST sell through their dealers. This system is mandated and entrenched by state law in all 50 states. The manufacturers created the dealer franchise system in the early twentieth century because they couldn’t sell their cars fast enough directly. Once a critical mass of dealers was created by the auto manufacturers, the dealers organized and lobbied their state legislatures to created laws protecting their franchises from the manufacturers. The main reason they did this was because the manufacturers were granting franchise agreements to too many dealers…” over-dealering”. Too many car dealers selling the same car in a market creates too much competition because it drives the prices down. Unfortunately for the dealers, there were (and are) already too many. Today, car dealers are overprotected, enjoying exclusive markets with state laws making it almost impossible to control, much less, eliminate even the most “problem” car dealers.

The auto franchise system is over 100 years old and obsolete, but it’s entrenched and will remain for the foreseeable future. New vehicles will, one day, be sold online directly by the manufacturers and maybe even through Amazon or Walmart. Vehicles will be built to order and delivered within a week. The price you see will be the price you pay, and you will be able to return the car for a full cash refund if you change your mind. Service, maintenance, and repairs on modern vehicles is minimal. Separate service centers will still exist to handle this need. Service centers will also have new vehicles of each model for you to inspect and test drive. Tesla is doing today exactly what I described, except for the one-week delivery time and unconditional moneyback guarantee.

But there’s a larger reason why car dealers get away with their deceptions. That is “because they can”. Auto manufacturers realize they’re stuck with the dealer franchise system and “if you can’t beat ‘em, join ‘em”. Auto manufacturers have huge political lobbying clout and, when you add the car dealers and their associations’ money, state and federal politicians have no choice but to “play ball”. There are about 17,000 franchised car dealers. They have enormous lobbying power nationally through NADA, the National Auto Dealers Association, and they also have enormous lobbying power in all 50 state legislatures. The political donations that Big Auto and Car Dealers give politicians make the NRA look small by comparison.

Never Go Car Shopping Alone

I frequently get phone calls, emails, and texts from car buyers who have already bought a car. The “horse is already out of the barn”, and they want me to give them advice on how to get it back. Most of these car buyers went car shopping and bought their car alone. Most of the complaints are associated with verbal promises by the salesperson, not committed to writing. Bringing at least someone with you when you’re car shopping doesn’t negate the importance of getting all promises in writing, but substantially lowers the chances of a car salesman trying to pull a fast one. The salesman and his manager know that, in court, two people’s word trumps one.

A woman wrote me a letter in response to one of my columns. Her husband had recently passed away and this was the first car she’d bought on her own. The dealer didn’t have the model car with the accessories she wanted and was unable to locate one at another dealership. She didn’t want to decide without seeing the actual car she wanted to buy, but the salesman and manger talked her into signing a buyer’s order, assuring her that she was under no obligation to buy. They also included two accessories that she did not want because “the manufacturer required it”. I’ve heard of distributors ordering cars with certain accessories from the manufacturer which essentially makes them “standard”, but never “$250 floor mats” which was one of the accessories she mentioned. I get a lot of emails, phone calls, and letters from people who made a bad deal in their car purchase and want to know how they can get out of it. This is one of the less egregious, but I chose it because it was a simpler and shorter example.

There is strength in numbers when shopping and negotiating to buy a car. In fact, this applies to any serious decision in life. You might be the sharpest, shrewdest negotiator on the block, but your odds of striking a better deal and not get taken advantage of are enhanced when you have witnesses on your side. Personally, I make a habit of always having at least one partner when I am engaged in a serious, adversarial decision-making process. When meeting with those on the other side, I make it a point to arrive with at least as many people as they have present. One reason is the psychological factor. When you are in an office by yourself with 2 or 3 others, it can be intimidating. Another reason is that you always have people on your side to corroborate what was said. If a salesman or a sales manager makes a verbal promise that can be corroborated by a friend or two, it is far less likely to be broken. It will also hold up in court, if it must come to that. Of course, the better solution is to see that all promises are committed to writing.

Buying a car, especially a new car is often an emotional decision. Having a friend or two with you can help you make more of an analytical, logical decision. Another point of view is always useful when making an important decision. Also, having one or two friends with you slows down the process to a level more easily absorbed and understood by you. A friend will often think of a question you should have asked but forgot.

Ideally you should bring someone with you who is skilled in negotiation and experienced in buying cars. However, if you don’t know someone like that, somebody is better than nobody.

By the way, most car dealers are unhappy when prospective customers bring in advisors and friends. Naturally they feel that way because they recognize their chances of making a fast, very profitable sale are diminished.

DON’T GET FLIPPED TO A LEASE

One of the most popular weapons in car dealers’ arsenals is the infamous “lease flip”. This is car dealer jargon for switching a customer, who originally intended to buy a car, into leasing the car.

Of course the motivation to do this is more profit for the dealer and a bigger commission to the salesman. That’s not to say that leasing a car is always more costly than buying one, but it can be if you’re not careful. And not being careful is exactly what happens when a purchase intender becomes a lessee. You likely did all your homework and due diligence based on a purchase. Suddenly changing to a lease, puts you totally at the mercy of the salesman.

Here’s how it happens. You come into the dealership to buy a car. You may have seen the dealer’s advertisement in the newspaper or TV for a model. More than likely you are prepared to make a down payment and/or trade in your old vehicle. You have a monthly payment in mind because almost everybody has a budget and we usually translate most purchases into whether we can fit them into our monthly budgets. You negotiate the best price you can to buy the car, or maybe the sale price is good enough. Or, more and more often, the advertisement that brought you in showed a leasepayment, not a purchase payment. Dealers use deceptive language like “Drive this car for just $299 per Month” or “Take this Car home for Just $200 per month”. Notice the words buy, own, or purchase are never used.

Now the salesman, or more often the F&I manager/business manager tells you what your monthly payment will be. Let’s say that you have a trade-in worth $15,000 and aren’t going to put any cash down. The F&I [Finance and Insurance] manager tells you your monthly payment will be $427 per month. But that’s way more than you can afford, and you tell him you can’t buy the car because you can’t afford that big a payment. He asks you how much you can afford, and you tell him it must be under $350 per month. Now he has you set up perfectly for the “lease flip”.

“Mrs. Smith, I think I have just the right thing for you. What would you say if I told you that you can drive that new car home today for just $349 per month?” You say with glee, “we have a deal!” Guess what? You’ve just been flipped. If you had bought the car at the advertised price or negotiated a very good price, the dealer probably would have made about $1,000 profit, and the salesman would have made about a $200 commission. Not that you’ve let yourself be flipped to lease, the dealer could be making up to $15,000 and the salesman could be making a $3,000 commission!

I’m not exaggerating. I get calls weekly from victims of lease flips. Many of the callers are elderly and many of them are widows who never bought a car before but had relied on their husbands. There’s no law that limits the profit that a dealer can make when he sells or leases a car. $10,000, $15,000, and even $20,000 profits are made and usually on leases. The dealers can do this by using the trade-in as a capital cost reduction on the lease but allowing less for the trade than it is worth. In the example above, your trade-in may be worth $15,000 but you were allowed only $5,000 to reduce the capitalized costs of the lease. Also, the dealer could have raised the price of the car you negotiated or the sale price to MSRP or even 110% of MSRP which is allowable by the leasing companies.

By manipulating the number of months of the lease and the down payment [capitalized cost reduction], a dealer can give you as low a payment as you ask for and still make an exorbitant profit. Most buyers are so focused on monthly payments that they don’t carefully analyze what they are agreeing to and signing.

The shorter the number of months of a lease, the greater impact the down payment has on the monthly payment. A $5,000 down payment reduces the monthly payment on a 36-month lease by $139 per month, $208 on a 24 month lease, and $417 on 12 month lease.

Incredibly, many victims of the lease flip, never thought about the fact that after the 12, 24, or 36 month term of the lease, they own nothing. After 36 months, a car with a good resale value should be worth at least half of what you paid for it. Many people who have never leased before believe they can bring their lease car back early if they want. Leasing is not renting, and you can bring your car back early only if you make all of the remaining lease payments. If you had bought the car for $30,000 and financed it for 36 months, you would have about $15,000 in equity at the end of 36 months and no monthly payments. You were building equity with every monthly payment in the purchase, but you were building zero equity with your 36 lease payments.

As I said before, don’t let this frighten you from ever leasing a car. Leasing can be a good choice and sometimes the best choice. You can find six articles I’ve written at www.EarlOnCars.com : “Lease a New Car before You Buy It”, “Car Leasing Booby Traps”, “Be Very Careful When Leasing a Car”, “The Lease Acquisition Fee…the Bank’s Gotcha”, “Buy or Lease Your Car at the Right Time of Year”, and “Should I Buy or Lease My Next Car?”

Florida Car Dealers BOGUS Option to Purchase Your Leased Car

As a consumer advocate for auto buyers and Lessees, one of my most frequent complaints is that the car dealer added their hidden fees (aka dealer fees) to the lessee’s option to purchase price granted by the lessor in the lease contract. Below is the verbiage in a typical auto lease contract:

"PURCHASE OPTION AT END OF LEASE TERM. You have the option to purchase the Vehicle “AS IS” at the scheduled termination of this Lease, provided all sums due under this Lease have been paid by you and you notify us 15 days prior to the scheduled termination of this Lease. The price you pay will be the Residual Value (see Section 10) PLUS a purchase option fee in the amount set forth in Section 23. You will owe any official fees and taxes, documentary fees, tag or title transfer charge or fees, or other amounts charged in connection with the purchase of the Vehicle."

When you lease your new car, the salesman tells you that you have the option to purchase that car at the end of the lease. This option price is the “residual value” which is the estimated WHOLESALE value of the car at the end of the lease. Leasing companies also add a fee to this amount, typically about $350, which they say is to cover their costs of allowing you the option. It’s just more profit to the leasing company like their “lease inception fee” and “lease disposition fee”. But the good news is that this phony fee is disclosed (albeit in the fine print).

What is NOT disclosed is the added profit to the car dealer when you turn in your leased car and purchase it back from the leasing company. All car dealers in Florida (except my dealership) add as much as they want to your contractually guaranteed purchase option price. Dealers will tell you that they are adding their dealer fees, which Florida law allows; But they don’t tell you that Florida law requires this added dealer profit be INCLUDED IN THE ADVERTISED PRICE. The only indication of the price of your purchase option is shown in your lease contract and there is no mention of hidden dealer fees. In Florida, there is no limit to the size of a dealer fee, the number of dealer fees, or what the car dealer chooses to NAME his dealer fees. I know car dealers in Florida that charge more than $2,000 in dealer fees and they will add that to your lease purchase option.

I’m not an attorney, but I do have a Juris Doctor degree (JD) from the “Legal School of Hard Knocks”. I know that car dealers are agents for the leasing companies, especially when the leasing companies are owned by the car’s manufacturer. As an agent for the leasing company, dealers have a responsibility to fulfill the intended terms of the lease contract. I also know that under Common Law, all contracts must be entered in GOOD FAITH. It isn’t good faith to surprise the lessee with a $1,000+ added profit to the car dealer.

My advice to you if you’re anticipating buying your leased car, is to check with other dealers of your make to find out if one might consider waiving their dealer fees. Speak to the “higher ups” in the dealership and the leasing companies. They know what they’re doing is wrong and might waive the dealer fees. As a last resort, consult with a real attorney and ask his opinion. I believe that this practice represents a great opportunity for a class action suit against Florida car dealers and leasing companies. If you’re planning on leasing a car, make it part of the “deal” that, should you desire to exercise your lease option, you will not be charged dealer fees. The dealership will agree to that “in a heart-beat” to lease you a new car.

Car Dealers Can Fool Some of the People All of the Time

Almost everyone has read Abraham Lincoln’s popular saying, “You can fool some of the people all of the time, and all of the people some of the time, but you can’t fool all of the people all of the time.” I think Abe meant this to be a positive assertion that government may get away with deceiving us for a while, but in the long run, truth justice and the American way will prevail…and I think he was right.



However, it doesn’t work that way with unethical car dealers and uninformed car buyers. It’s always been “caveat emptor”, or “buyer beware when it comes to buying or servicing a car. Unfortunately for a buyer to “beware” he must be “aware”…that is to say educated, mature, sophisticated and experienced. This excludes a very large segment of our population including the very young, the very old, the uneducated, those with low I.Q.’s and those not proficient in the English language. Is this one reason why our regulators and elected politicians don’t seem to care or act with respect to the rampant unfair and deceptive sales practices of a large number of Florida car dealers? Most elected officials and regulators are lawyers and are highly educated and sophisticated. They don’t have a problem buying or servicing a car. In fact, the car dealer that tries to take advantage of a lawyer, regulator, or politician is asking for trouble.



I’ve been writing this column/blog and broadcasting my radio show, Earl Stewart on Cars, for about 17 years. I sometimes feel that I’m “preaching to the choir” when it comes to advising people how to avoid getting ripped off by a car dealer. You, my readers and listeners, largely fall into the category of the educated and sophisticated, “aware” buyer. Most of you aren’t taken advantage of when you buy or service your car because you won’t allow it. Unfortunately, there are enough uneducated, naive, and otherwise vulnerable consumers to feed those unethical car dealers who prey on the defenseless among us. All you must do is read some of the car ads online, direct mail, or the newspapers. To the educated, sophisticated buyer, these ads are actually funny, if you can forget the fact that so many fall prey to them and are taken advantage of by the dealers. For example, it’s hard for you or me to believe that anybody would respond to an advertisement without reading the fine print. Many dealers today are advertising prices that, when you read the fine print, are understated by many thousands of dollars. When you or I see a dealer stating that the car price is plus “freight”, we are educated enough to understand that the law requires that the freight cost be already included in the price. A shrewd buyer knows that “dealer list” is not the same thing as MSRP and that a large discount from “dealer list” means absolutely nothing. We know that the “lowest price guarantee’ is worthless if the dealer reserves the right to buy the car from the other dealer that offers a lower price.



There are those who argue that all buyers have the responsibility to guard against unethical sellers, to take care of themselves. In fact, that’s the literal translation of the Latin legal term “caveat emptor” …let the buyer beware. That’s sounds good, but what about the elderly widow whose husband recently died and who never had to make the decision on a major purchase in her entire life? What about the young person just out of school with no experience in the real world? How about the immigrant who struggles with English? Should we be concerned about our underprivileged classes who often drop out of school because they must go to work to support themselves or their family? You and I know lots of good people who, for one reason or another, simply can’t cope with a slick car salesman.



My bottom line is this, since we can’t rely on our regulators and politicians to protect those who “can be fooled all the time”, maybe we owe it to society to protect these folks. If you know someone who is thinking about buying a car or has a service problem with her car and you feel she may not have the ability to fend for herself with the car dealer, offer your support. If you’re one of the people who needs support, ask someone who can go “toe to toe” with a car dealer to come with you when you are car shopping. By the way, nobody, sophisticated or not, should car shop alone. Two heads are always better than one and it’s always a good idea to have a witness to what was said during a negotiation. And, of course, if you don’t have the time to help a person or you’re that person, you can always call me…I’m always here for you.





Best,



Earl

Auto Manufacturers Mandate Dealers to Advertise Higher Prices

Honda was the first auto manufacturer to require their dealers to advertise prices above dealer invoice; in fact, they’ve been requiring this for over thirty years. The industry name for this is Minimum Advertised Price (MAP). This might sound like a good idea if you don’t understand what a car dealer’s invoice truly is and is not. It is NOT the true cost of the vehicle sold to the dealer by the manufacturer. The dealer invoice contains up to several thousands of dollars in profit to the dealer. The manufacturer intentionally hides various sums of money in the dealer invoice that are kicked back to the car dealer at the end of the month, quarter, or year. These amounts go by various names like holdback (typically 2% or 3% of MSRP), advertising, dealer incentives, floorplan interest incentive, and monthly-quarterly-annual incentive bonuses.

Brands with voluntary MAP pricing policies include Subaru, Honda, Acura, Nissan, Infiniti, Toyota, Mazda, and Mercedes-Benz. Interestingly, GM has a MAP pricing policy for its Chevy Performance Parts line, but not its car brands, which are Chevrolet, Buick, Cadillac, and GMC. Historically, for most car dealers, more than half of the vehicles they sell are sold for below invoice. This fact is based on supply and demand. Having a rule that a vehicle must be advertised for more than the average expected markup, simply means that the dealer cannot advertise a competitive price.

When, for many years, Honda was the only manufacturer that required their dealers to advertise higher prices, Honda dealers were the envy of the industry. Dealers of all other makes wished that their manufacturers would invoke the same rule. The reason was that setting a floor on how low advertised prices could be raised their profit margins on Hondas far above the average profit margins on almost all other makes (except luxury cars like Mercedes and BMW).

The manufacturers’ official reason for this rule is to prevent their dealers from advertising prices lower than they will sell the car for. In other words, bait and switch advertising. This sounds like a good and noble reason, but the facts are that bait, and switch advertising exists as prevalently today as it did before the rules for Minimum Advertised Price (MAP) advertised were established. What this rule accomplishes is to decrease price competition between car dealers which has the predictable consequence of increasing the price paid by the consumer.

All the manufacturers have data available to them which compares the advertised prices with the actual transaction prices. They used this data as their reason for MAP; I don’t have access to this data, but I’d bet that there has been no narrowing in the discrepancy between the advertised prices and actual transaction prices since MAP was introduced.

What this all means to you, the car buyer, is that you cannot trust advertising by either the auto manufacturers or dealers. My advice to you is to totally ignore all car dealer and auto manufacturer price advertising. They both are stacking the deck against you in their advertising. The best way to get the lowest price on a new vehicle is by shopping and comparing several dealers’ OUT-THE-DOOR price. An out-the-door price is the price you can write a check for and drive the car home…no hidden fees and no extra charges for dealer installed accessories.