The Owner of the Car Dealership is Accountable

Congress passed a law a few years ago that really “shook up” publicly owned companies. It’s called Sarbanes-Oxley, named after the Congressmen who sponsored the bill. Basically this law says that the CEO and other high echelon management of a public owned company cannot get of the hook from wrong doings because he claims he didn't know what his employees were doing. I believe the same rules should apply to all businesses, even if their stock is not publicly held. The boss should always be held accountable for the actions of his employees and this should apply especially for car dealerships.

Most of the employees that the customer comes into contact with in a car dealership are paid on commission. Those employees get a percentage of the profit that the company makes on the transaction. Car sales people, service sales people (also called service advisors or assistant service managers), parts sales people, and the mechanical technicians who work on your car are mostly all paid on commission. This method of pay tilts the relationship between the customer and employee in somewhat of an adversarial manner. The employee wants the profit to be as high as possible but the customer wants it to be low. In a car dealership that has talented, fully engaged, and ethical management, this potentially adversarial relationship is kept in a fair balance. Without the oversight of upper and middle management and careful hiring practices, some employees will exploit a customer to increase his commission.

What brought the subject of this column to mind was a call I received yesterday from a 78 year old widow from Ft. Pierce. She called to thank me for writing my column and to tell me that she wished she had read some of my columns before she bought her 2005 used Mazda. This was the first car she had bought on her own. Her husband had always taken on this responsibility. She paid the dealership a huge profit on her purchase. She was sold a maintenance package that she believed cost only $25 but it really was $2,500. She was rushed to sign the papers at night because the dealership was closing. In the morning, when she realized the mistake, she drove back to the dealership and asked to back out the sale but was told it was too late. She was told she had signed all the papers and that they had already sold her trade-in even though she had not given them the title.  When she asked to speak to the General Manager, three different employees identified themselves as the General Manager. I get a lot of sad calls like this.

The owner of that dealership should know what’s going on. I’m giving him the benefit of the doubt by saying that he doesn’t know because if he does know it’s even worse. The owner should look at the big picture and the long term view of his business. You can take advantage of customers and benefit in the short run, but you eventually “pay the piper” when your bad reputation spreads far enough. Most of the bad things I hear about car dealers from their customers are not illegal things. They are simply unethical and not the way one human being should treat another. Refusing to refund the money of an elderly, widow after she realized that she had been taken advantage of is not illegal, but it sure “stinks”. Jim Press is the top executive for Toyota over all of North America and he is also the only non-Japanese to occupy a place on Toyota’s board of directors. He was quoted in the book, The Toyota Way by Jeffrey Liker, as saying “It’s what you do for a customer when you don’t owe him anything that is the true measure of character. It’s like sticking up for somebody who can’t defend himself”. I really like this quote and I have it engraved on a plaque which I give out each month to the employee who wins the “Above and Beyond Award”. This award goes to our employee who does something for her customer above and beyond what the customer would have expected.

If you have a bad dealing with your car dealership, do your best to contact the owner. This is impossible with publicly held dealerships like AutoNation and United Auto Group, but you should be able to talk to their General Managers. If it’s privately owned dealership, don’t give up until you see the owner.

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 advisors.

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 advisor 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. 

How much is that auto in the window?

 

I’m writing this article on Monday, September 10, 2012. I copied the title and the illustration above from an article in today’s Wall Street Journal. I’m not guilty of plagiarizing because I’m giving credit to the Wall Street Journal and the reporter, Charles Passy who wrote the article. After what happened to Fareed Zakaria, I want to be very careful. You can read the entire article online by clicking on www.earlstewart.com/pdf/WSJ.pdf.

The Wall Street Journal reporter interviewed me several times over the past month for this article. I sent him copies of invoices, buyer’s orders, dealer addendum labels, and names of people I knew around the US who were experts on unfair and deceptive advertising by car dealers. It was important to me because having what I’ve fought against for so many years written about by a national publication adds credibility. Not only does the Wall Street Journal have the largest circulation of any newspaper in America, but it’s also arguably the most respected daily publication.

One might ask, why don’t local newspapers write stories about car dealers’ unfair and deceptive sales and advertising? The answer, like so many, is “follow the money”. Every local newspaper has an auto advertising section with most of, if not all of the dealers in that market. Newspapers seem to be the advertising choice of many dealers, although TV has definitely cut into their revenue. In large metro markets TV ads are so expensive that most dealers have no choice but to use the newspaper. Car dealers are the single largest source of ad revenue in many newspaper markets.

Now I know that journalistic ethics require a separation between the news, editorial, and advertising departments. But that’s the way it used to be. Today local newspapers and even some national ones are struggling for survival. Ethics go out the window when it comes to survival. Would you steal food for your child if you had no other recourse?

Another reason that I’m encouraged by this Wall Street Journal article is that every auto manufacturing executive reads this newspaper every day, especially articles about automobiles. Also, most car dealers also read the Wall Street Journal. Reading a negative report about deceptive car dealer sales practices in a highly respected national newspaper has got to get their attention. Many manufacturers and most car dealers seem to be in denial about how they endeavor to trick their customers with misleading, false ads and sales practices. I’m a Toyota dealer and I was shocked when Toyota recently removed the financial penalties from violating the Toyota Dealer Advertising Covenant, TDAC. They said they did this based on a request from the national dealer council. The TDAC was created over ten years ago to establish ethical guidelines for Toyota dealers’ advertising. It was written with the input of dealers and all dealers had to sign to promise to abide by its tenets. An example of a tenet would be that a dealer cannot advertise a car for a price unless he will actually sell the car for that price…no “bait and switch” advertising. As you would agree, laws are not effective without penalties and Toyota used to fine dealers very large sums for violating these advertising covenants. Now, there are no financial consequences for a Toyota dealer violating the TDAC. Other manufacturers have similar covenants but enforcement and and penalties are rare.

I have to believe the auto industry will awaken one day and realize that almost all other retailers in the 21^st century have left car dealers in the dust. Most car dealers are still employing the “get ‘em in the door any way you can and make as big a profit as you can get away with” shabby tactics that were common practice fifty years ago. Most manufacturers and some dealers are beginning to realize that car dealers are held in the lowest esteem of any other retailer. Car sales and service complaints top the list and car dealers rank dead last in the professional ethics ranking, tied with congressmen, lobbyists, and lawyers.

I tell manufacturers and my fellow dealers that if we don’t regulate ourselves, you can bet the government will step in and do it for us. As I write this article, the Federal Trade Commission is conducting hearings all around America asking for input about unfair and deceptive trade practices by car dealers. If the government steps in like they did with our nation’s banks, car dealers and manufacturers can expect to be up to their eyeballs in expensive regulations, red tape, and bureaucracy.

Translating Misleading Car Ads

In previous columns I have recommended that you avoid reading most cars ads in the newspaper and in direct mail. Most TV and radio car ads are similarly misleading. My suggestion is that you carefully choose the precise year, make, and model you want with the precise accessories and get at least 3 legitimate bids from car dealers on the Internet or, next best, at the dealerships. However, if you do find yourself perusing the large number of car ads in the local paper, here are some translations of common misleading ads. I took these straight from a local paper.

20% to 40% OFF MSRP. Never buy a car based on how big a discount you are quoted. Always calculate the price you are willing to pay based on an accurate understanding of the cost of that vehicle. Different makes and models have different markups and factory incentives can cause the true markup to vary widely. What sounds like a big discount may also pay the dealer too big a profit.

LIQUIDATION SALE. Most of the time you pay just as much for a car during a “sale” as you do without a sale. The only exceptions are factory incentives which do have an expiration date. A “sale” is what advertisers refer to as a “call to action”. They are looking for something that will motivate you to come in today, rather than procrastinate. It doesn’t seem to matter if the motivation is untrue.

UP TO $15,000 OFF. Many dealers have an additional markup on top of the manufacturer’s suggested retail price, MSRP. They commonly label this a “Market Adjustment Addendum”. This can be thousands of dollars. Discounting a car thousands of dollars means nothing if the dealer just added a “Market Adjustment Addendum” for an amount equaling or exceeding the discount.

STK#62029A. When you see a number like this next to the price of a new car, it means that that is the only car you can buy for that price. The number is the stock number for that specific car which is supposed to tell you that this is the only car at this price. Many of these ad cars are of undesirable colors and accessories. They are advertised below cost and the loss is charged to advertising if they have to sell one. You chances of buying one of these are slim and none.

CREDIT PROLEMS ARE NO PROBLEM. This type of ad is particularly insensitive and distasteful. It is meant to attract people who have such bad credit that they think they cannot obtain financing. Unfortunately, there are people whose credit is so bad that no lender will offer them financing. These people are disappointed and embarrassed when they learn the truth that “credit problems can be, in fact, big problems”.

MINIMUM $10,000 TRADE-IN ALLOWANCE. This is just like the huge discounts. A trade in allowance means nothing if the car has been marked up high enough to offset the extra trade-in allowance.

WITH ACCEPTABLE CREDIT. This allows dealers to add a fine print disqualifier which is an extremely high Beacon score that disqualifies 99% of the car buying population. It is used in conjunction with very low lease payments or purchase payments. It is a “bait and switch” which affords the dealer the opportunity to raise your payments (and his profits) because your credit is “not acceptable”…to him.

PRICE GOOD ON DATE OF PUBLICATION ONLY. You will find this only in the fine print at the bottom of the page. This is added protection to the dealer, in addition to the stock # mentioned above, that he won’t have to sell you the car at the advertised price.

AS LOW AS or FROM.  You will see this in smaller print next to a very big price and a big, pretty picture of the car. This is a further “C.Y.A.” for the dealer so that he doesn’t have to sell that car at that price.

WE’LL BEAT ANY OTHER DEALER’S PRICE OR THE CAR IS FREE. Some claims are so outlandish that I hesitate to bother warning you about them. Applying the old saying “if it sounds too good to be true, it probably isn’t” should protect most people from this kind of ad.

I could go on and on, but I hope I have already made my point. Car dealers’ ads are the absolutely worst way to decide which car you should buy and what price you should pay. When you respond to most car dealers’ ads, they are in control. You must take control and let the dealer respond to your carefully thought out and researched choice of year, make, model, accessories, and what price you offer to pay him.

BEWARE OF DIRECT MAIL CAR ADVERTISING

Of course, you should be careful of all advertising…newspaper, TV, and radio, but direct mail can be especially deceptive. The reason this is so is because direct mail usually “flies beneath the radar” of the regulators. There are so many ads in violation of rules and laws that the regulators are overwhelmed. They focus on the most visible ads, often the ones that they see themselves in the newspaper or on TV. Direct mail represents a very small percent of total advertising. One reason for this is that it is considered by many advertising agencies to be too expensive and relatively ineffective. I believe that the only way to make direct mail effective for many advertisers is to use deception.

I have a couple of direct mail pieces on my desk and will cite some examples of this deception.  “We’ll will buy back your present vehicle for up to $5,000 over current Kelly Blue Book Value on trade towards he purchase of a Brand New Toyota or Pre-Owned model.***” The asterisk is for the very fine print disclosure on the back of the letter which reads: On select models. Discounts and rebates will vary from model to model. Of course, with the two words “up to” in front of the $5,000, no disclosure is really necessary. Buying back your present vehicle for $1 over current Kelly Blue Book Value is technically “up to”$5,000.

Attached to the letter is a something that looks like a check made payable to the recipient for $8,207. Here we go again with the “up to”. “You can apply this registered voucher for a discount ‘up to’ $8,207 off MSRP on a new Toyota.” Of course there is another asterisk which states “on select models”.

But there’s more! “Just for attending this event, you will receive 5 “golden” $1 coins as a gift, and you may have won $100, $250, $50, or possibly even $4,500 cash!” We, of course, have another asterisk which says that your odds of winning anything are 1 in 25,000. I often wonder who responds to these ads, not understanding the difference between a “golden coin” and a gold coin. Or, who really think they have a reasonable chance to win anything.

It’s not over yet! “Every application for credit will be immediately submitted and processed for approval and on-the-spot delivery REGARDLESS OF PAST CREDIT HISTORY”. Of course, the operating key word here is “submitted”. There is no guarantee of “approval”. They will simply “submit” you application to the bank and if you have bad credit, the back will reject your application.

“During this weekend event, any new Toyota or used vehicle could be purchase with ZERO cash down!” The key word here is “could” instead of “can”. Of course, there is the old asterisk, which, if you can find and then read the fine print, it says with approved credit. You have to a very high Beacon score to buy a new or used car with zero down payment. Less than 1% of car buyers would have this high a Beacon score. There is also a phrase which says “CASH DOWN IS NOT SUGGESTED”. This dealer might not suggest it but I can almost guarantee the bank will not only suggest it but demand it.

“Due to overwhelming response and customer request, I would like to again offer you a personal invitation to receive 80% of base original MSRP for the car you are currently driving.” This promise doesn’t even have an asterisk. Of course the base MSRP excludes accessories. Sometimes an offer is so ridiculous that you wonder who would ever believe it. Ask yourself how any car dealer could promise to pay 80% of the new base MSRP on a used car that they have never seen. They don’t know how many miles are on the car, whether it has been wrecked, or even if the car will still run.

Direct mail claims like those above, unfortunately do work. People actually come in and buy cars. Unfortunately these ads prey on those who are uneducated, have difficulty reading English, or are simply gullible.  My advice is to ignore all car dealers’ direct mail solicitations. I’m not saying that 100% are phonies, but 99% are and the odds are so overwhelming, you’re better safe than sorry. 

www.earlstewarttoyota.com

Phony Dealer Window Stickers Circumvent the intent of Federal Law

Chances are you never bought a new car without a Monroney Label. You may not even recognize the name “Monroney”, and think of the label that appears on all new cars as simply the “sticker or the “window sticker”. Only if you bought a car before 1958 would you not have had this federally mandated window sticker attached to your new car. Senator Mike Monroney was the driving force behind this Federal law, Chapter 28, Sections 1231-1233, and Title 15 of the United States Code. This law requires that all car manufacturers affix a manufacturer’s suggested retail price, MSRP, on every new car and truck they sell in the form of a window sticker.  This MSRP is the same for all cars of the same make, model, year, and accessories. This Federally mandated window sticker can only be removed by the buyer of the car and failure to adhere to this law is punishable by up a $10,000 fine and one year in jail per offense.

The reason that this law was passed in 1958 is that car dealers were resorting to deceptive advertising and sales practices to inflate the price of cars and prevent accurate price comparisons by car buyers. Car dealers were adding on extra charges, over-allowing on trade-in allowances, and offering artificial discounts. Because there was no standard price on any car, the dealer could quote any price he wanted as the retail price of the car. If a car buyer shopped at three different Ford dealers for a specific Ford model with the same accessories, he would be quoted three different retail prices. The discount he was offered was just a function of how high the dealer wanted to make the retail price. The trade in allowance could be as high as the customer wanted just by marking up the new car higher.

Well you guessed it, today in 2012, fifty-four years later, car dealers are “adding on extra charges, over-allowing on trade-in allowances, and offering artificial discounts” to deceive their customers just like they did prior to 1958. The main deceptive device that the dealers invented to accomplish this was the “addendum label or sticker”. It is also referred to occasionally as a supplemental sticker. I’ve written about this before and I used the name “phony Monroney”. I call the addendum label this because most dealers design their own stickers, addendum labels, to look identical to the federal Monroney labels. They use the same colors, logos, size, and right down to the same font size and style. This is clearly an attempt to deceive the car buyer into believing that the total price is the official manufacturer’s suggested retail price. Sadly, it doesn’t have to be a very good counterfeit because many car buyers never even look at the Monroney sticker on the car they buy.

Almost all car dealers add an addendum sticker next to the Monroney sticker. The addendum stickers usually list dealer added accessories that have very low cost to the dealer but very high markups to the car buyer. Common accessories are paint sealant or polish, fabric coat like Scotch Guard, stripes, Nitrogen in tires, and cheap theft deterrents like window etch. A package of these accessories will typically cost the dealer less than $100 but will carry a retail asking price of $995 to $2,995 or higher. In addition to dealer accessories there is commonly an additional markup to the MSRP carrying an innocuous, indecipherable label like ADM, MAA, or RMV. These letters stand for Additional Dealer Markup, Market Adjustment Addendum, and Regional Market Value. The amount varies from dealer to dealer and is simply a function of how much chutzpah the dealer has and how gullible he thinks his customers are.

Currently there’s a dealer in South Florida, West Palm Beach Kia, that marks up every one of their new cars by $6,998 over the Monroney label, the MSRP! This comes from a virtually worthless $2,500 “appearance and protection package” and a $4498 Regional Market Value”. You might ask yourself, “Who could possibly fall for advertising a big discount when the dealer first marks the cars up $7,000 over MSRP?” You will be surprised to learn that this dealer is one of the highest volume sellers of any make in Florida.  As you know, Kia is not one of the more popular selling cars, so what other than this advertising can you attribute to their success?

Deceptive advertising and sales practices work and that’s why Congress passed a law fifty-four years ago to stop exactly this practice. I don’t pretend to be an attorney, but it seems to me that what dealers are now doing is flaunting a federal law.  What Senator Mike Monroney envisioned and the law he introduced was to protect car buyers from exactly what West Palm Beach Kia is doing so successfully today. Senator Monroney wanted all car buyers to be able to compare a discount offered by one Kia dealer with other Kia dealers on the same year, model and equipped Kia. Adding a $7,000 markup to the MSRP so that larger discounts can be advertised and larger trade-in allowances can be offered is flaunting the intent of Chapter 28, Sections 1231-1233, and Title 15 of the United States Code. If it isn’t a direct violation, it absolutely is a circumvention of its purpose and intent.

www.earlstewarttoyota.com

Florida CAR DEALERS “WIN” THE TRIPLE CROWN Least Respected, Most Complaints & Highest Dealer Fees

In recent surveys, car dealers have accomplished the perfect storm of fear, distrust, and vilification by the public. The most recent Gallup poll for the “Most and Least Respected Professions” listed car sales people tied for dead last with Congressmen and Lobbyists. In a recent poll by the American Consumer’s Federation, car sales and service received more complaints than any other business. And, lastly, in a recent survey by True Car, Florida car dealers had a higher average dealer fee ($610) than any other state in the USA. 

You would think that there would be some local attention paid to this by the media and the regulators. The national media reports these stories and the local media will sometimes report the national story but never do they relate it to local car dealers. National regulators like the Federal Trade Commission are highly critical of dealers unfair and deceptive trade practices. The FTC has formed an “Auto Dealer Task Force” and are holding meeting all around the USA for input from consumers and consumer advocates about ways car dealers are preying on their customers. But have you heard about any serious effort by the Florida Attorney General’s Office or any other state or local regulators to stop car dealers’ blatant deceptive and illegal advertising and sales practices?

The TV and radio stations and the newspapers depend on car dealer advertising for economic survival. Each type of media, TV, radio, and print compete with each other for car dealers’ business. If a newspaper writes an unfavorable article about a local car dealer, he simply pulls his advertising from that newspaper and moves it to TV and/or radio. If a broadcast TV channel exposes a local car dealer, he moves his ads to another TV channel or medium. Money talks.

The Attorney General is an elected office and all of the other state regulators are either elected politicians or appointed by politicians. Florida politicians fear the powerful car dealer lobbies in Tallahassee. The most powerful lobby is the Florida Automobile Dealers Association, FADA, and there are other lobbying car dealer associations in Tampa, South Florida, and Jacksonville. A long time ago I was a director for the FADA and for the South Florida Auto Dealers Association, SFADA.  In fact, I even served on the executive committee of the FADA. This is when I became aware of how much money and influence we car dealers had through our associations. Car dealer associations contribute huge sums of money to candidates of both parties. They don’t care which side of the aisle he’s on or what political philosophy a candidate has; they care only if that candidate will “play ball” when it comes to not voting for regulating car dealers.

The power of the car dealer lobby was fully understood by me four years ago when I attempted to get a bill through the Florida legislature to outlaw the dealer fee. I flew to Tallahassee and testified before the state senate commerce committee. The FADA testified at that same hearing defending the dealer fee. The bill never even got out of the committee much less get a house sponsor. When I returned home and spoke “off the record” with some local state legislators, I was told why I didn’t “have a snowball’s chance” of getting the dealer fee made illegal in Florida. The legislators I spoke to agreed with me that the dealer fee was a bad thing for the consumer but they also said it would be politically impossible for them to publically take that position. Offending the powerful car dealer lobbyists would jeopardize their reelection. An analogous situation is playing out now with respect to gun control. The national news recently reported several terrible incidents of mass killing by deranged killers who legally obtained their guns. You would think that some politicians would have rushed to introduce more gun control regulation or better enforcement of the current regulation.  Have you noticed that democrats, republicans, and independents have done or said nothing? The reason is the National Rifle Association, NRA, the most powerful lobbying association anywhere. 

I wish I had an answer to this dilemma. Our political system leaves a lot to be desired but it’s still the best on the planet. It hasn’t really changed that much over the years. Politicians’ #1 and #2 priorities have always been to get elected and reelected. Our founding fathers foresaw this problem and that’s why they provided for freedom of the press in the First Amendment. The news media is often referred to as the “Fourth Estate”, meaning the fourth branch of our government next to the Executive, Legislative, and Judicial. The news media’s job is to keep the other three branches, especially the legislative, honest. Our founding fathers might not have foreseen what impact the greatest recession in our history might have on the news media. Survival is a primal instinct and it can trump ideals like courage and integrity. If a journalist loses his job today, he might have a very hard time finding another. The watchdogs that our founding fathers created to keep our politicians honest are too afraid to growl for fear the VP of advertising might not like it.

www.earlstewarttoyota.com

BUYING TIRES: “CAVEAT EMPTOR”

In case you’re a little rusty on your Latin, “Caveat Emptor” means “Let the Buyer Beware”.  This is something to keep in mind when you buy anything, but the danger of being ripped off when you buy new tires ranks right up there with buying and servicing your car.

Retailing tires is very important to, not only tire companies like Goodyear, Firestone, and Michelin, but independent retailers like Pep Boys and Tire Kingdom. In recent years car dealers have become very interested in selling tires too. The reason is that car customers too often don’t return for service and service is generally more profitable to car dealers than selling cars. Independent service departments and tire manufacturers’ retail service and tire outlets are taking away car dealers’ service business. Tires are something that you have to buy regularly for your car. Wherever you go to buy one or more new tires, the tire seller will take that opportunity to sell you additional services and products…you can bet your life on it.

Tires have become “loss leaders” for car dealers, tire factory service stores, and independents. When I say loss leaders, I don’t mean that you don’t end up paying the tire seller a profit on the tire transaction. What I mean is that the advertised price would result in a loss to the seller if he really sold it at that price. This is very similar to car advertising. Car dealers go through a great deal of thought and effort to advertise a price which is perceived to be lower than they will really sell you the car and tires sellers do the same thing. You can be sure that you can never buy a tire advertised on the Internet, newspaper, or TV for the price that you see.

To demonstrate this I chose one of the largest tire sellers in the USA, Tire Kingdom. I chose them because, as the leader, they set the pace in how tires are sold and advertised. Buying tires from other sellers, including most car dealers, will be at least as risky and often more so.

I sent in a mystery shopper to two Tire Kingdom retail tire and service outlets in Palm Beach County. My shopper responded to an ad for a special sale which is blanketing TV, newspaper and the Internet. The ad says that from August 1 to August 12 you can buy one tire and get the second one free. I watched the TV ad several times and it is literally impossible to read the fine print disclosure. By going to Tire Kingdom’s website, I was able to read the fine print, but the vast majority of respondents to this sale would come from TV and be clueless to the “gotchas” in the fine print.

The first revelation to my mystery shopper was that only certain makes and types of tires were eligible. No name brands like Michelin or Goodyear were available for this sale. Interestingly there was an inconsistency on this between the two Tire Kingdom stores we shopped. In fact, there were several inconsistencies between the stores on types of tires, prices and other procedures.

To me the biggest deception was that the tire buyer was required to purchase “road hazard insurance” and a wheel alignment.  The prices on the insurance ranged between 14% and 18% of the total price of the tires and the prices of the wheel alignment ranged from $114.99 to $79.99.  The advertisement didn’t say they are advertising a package deal for tires and road hazard insurance and wheel alignments. But the fine print (indecipherable on TV) disclosed this condition. Being required to buy a four wheel alignment is wrong for two reasons. Firstly, buying a wheel alignment should be your decision and not tied to the purchase of tires. Secondly, what if your wheels don’t need an alignment? You may have had your four wheels aligned two hours ago, just now run over a nail in the road, and now have to buy a tire.

BUT WAIT THERE’S MORE! The fine print also tells you that you must pay $1 per tire for the state tire tax. This is a real tax but it should be included in the quoted prices. There’s another fee you are charged which is a “tire disposal fee” which Tire Kingdom can charge you any amount they like. It’s not specified. The truth is that Tire Kingdom actually sells many of their take-off tires to used tire dealers for a nice profit. I do the same thing in my dealership and that profit off-sets my cost of having take-off tires hauled away and disposed of. And the final “gotcha” is the infamous “shop fee” which usually is 10% of the full retail price of the service invoice with a cap of $35. Now remember that there is no legal prohibition or cap on “tire disposal or shop fees”. Tire Kingdom imposes their own caps and prices on these rip offs. Other tires sellers are left to their own chutzpah and imagination to gouge you to limit of your tolerance.

BUT WAIT THERE’S STILL MORE! In the fine print is “No carry-outs”. I’ve seen this in some restaurants, but it’s an unusual term for Tire Kingdom and other tire sellers to tell you that before you can buy their tires at their advertised price, you must pay them whatever they want to charge you for mounting and balancing those tires.

I’ll end this article with constructive suggestions of how you can avoid these sorts of unfair and deceptive advertising and sales practices. Refuse to play the tire sellers games. Demand an “out the door” price for the specific brand and style of tires you want. Make it clear that it must include all federal, state, and local taxes, all fees like shop and tire disposal, all extra services like alignment, all extra products like road hazard insurance, and all services associated with putting the tires on your car like mounting and balancing. Ideally you should do this on the telephone and make it clear that you have only one check left in your checkbook and you will be filling it out at home for the total amount due, an out-the-door price. Of course, you should do this at least three times with three different tire sellers and buy them from the one who gives you the lowest price.

www.earlstewarttoyota.com

Open Letter to all Auto Manufacturers: Get Sincere About Customer Satisfaction

Dear, GM, Ford, Chrysler, Toyota, Honda et al,
Isn’t it about time you “got real” about how your dealers satisfy their customers? I know you pay lip service to this, just like your dealers do. Ask any auto manufacturer CEO what the most important thing “in the world” is and he will say “satisfying our customers”. This is the same verbal assurance every car dealer will give, especially when they’re being interviewed by the media. But in your hearts, you know that profit, market share, and volume are numbers one, two, and three in your books and sincerely satisfying your customers is lucky to be number four.

Now I know you only build the cars and it’s your dealers who sell them to the public. The dealer is your customer and the car buyers are the dealers’ customers. Therefore it must be the dealers’ fault that car buyers rank auto retailers as the least ethical profession, tied with Congressmen and lawyers. I’m going to tell you why that isn’t the case. I’m going to tell you why you bear the ultimate responsibility for why car buyers fear, distrust, and dislike your dealers.

Reason #1: You measure your dealers’ success and reward them primarily by how many cars and parts they buy from you. High volume dealers “can do no wrong” and you look the other way when they resort to unethical advertising and sales practices. I challenge you to show me one high volume dealer whose franchise contract you terminated or didn’t renew based on bad customer satisfaction. What kind of message does that send to all of the other dealers? The message is clearly that as long as I sell a lot of cars, how I do it doesn’t really matter to my manufacturer. Most of my competitors are using sleazy, bait and switch advertising to sell lots of cars; therefore I have no choice but to follow suit.

Reason #2: To save face, you measure your dealers’ customer satisfaction by email and snail mail surveys that you know can be, and are, manipulated by your dealers. With email surveys, dealers can simply “make a mistake” when they record an angry customer’s email address. Or, worse yet, they can fabricate an email address, angrycustomer@yahoo.com which comes to the dealership address. When the survey arrives, they rate their dealership 100%. Some manufacturers were forced to recognize the fact that this was being done and scolded the dealers when they traced the IP addresses from hundreds of customers back to the dealership. Scolded dealers now use PC’s at diverse IPs like libraries and employees’ homes. For snail mail and email, dealers offer incentives like a free tank of gas for bringing in a blank survey which the dealer fills out and mails in. Or the car or service salesman simply intimidates the customer into giving the dealers a good score, “If you give me a bad survey, I might lose my job!”

Reason #4: Your compensation plans from the top down are designed to reward only high car and parts sales. In those few compensation plans that do reward high customer satisfaction scores, they work against you because it’s so easy for the dealers to cheat on the surveys. Your employees either look the other way or actually encourage the dealers to cheat. All they care about is their dealers getting high customer satisfactions scores and don’t care or want to know how they do it.

Reason #5: Most auto manufacturer senior executives don’t have a clue about what’s going on in the trenches of car dealerships. They don’t see the unfair, deceptive and even illegal advertising and sales practices. Their vision of what’s going on in the auto retail world is largely from their computer reports which are based on flawed data from manipulated customer surveys. Or, they get their input from big volume dealers who often have the same problem of not really knowing what’s going on in the trenches. Large volume dealers, the heroes of the manufacturers, are usually out of touch just like the senior manufacturing executives. There are two reasons that large dealers and senior manufacturing executives don’t take action to honestly improve customer satisfaction. One reason is that some truly don’t know. The second reason is that they know, but don’t “want” to know because they would lose their “deniability” if it ever comes out.

There are other reasons and I could go on and on but I think five reasons are enough to get your attention. I have two messages for you. The first is for the executive who truly doesn’t know what’s going on in the trenches of your car dealers. Visit several of your car dealerships anonymously. Don’t go to the dealerships near your headquarters around Detroit or Torrance, but out of the area to dealers who never see a senior factory guy. Pretend to buy a car and actually drive your car in for service. You will be shocked, and at last enlightened. My second message is for those senior auto executives who know damned well what’s happening in the trenches, but pretend not to in order to maintain deniability. I’ll speak your language. Sincerely satisfying your dealers’ customers will determine your future success, compensation, and bonuses in the very near future. This is the 21st century and consumers are a lot smarter and demanding then they were in the 20th. They are very sensitive to being ripped off and the only reason they have accepted it this long is that they had no choice. Most car dealers took advantage of them and all manufacturers tolerated it. More dealers will begin to do business the right way because it “works” and you will see their incredible success. If you want to succeed in your position you will make those changes in the way you reward and accept those dealers who treat their customers right and those who don’t.

Don’t be “Spotted” “Puppy Dogged” or “ Yo Yo’ed”!

One of the most common unethical (and some say illegal) sales practices of car dealers is the infamous “spot delivery”. If you've bought a car in Florida (and most states), you probably have been spotted, puppy dogged, and yo yo’ed. Upwards of 60% of all car sales in Florida are spotted.

A “spot” is short for “spot delivery” which is literally translated into delivering your new or used car purchase immediately, “on the spot”.  The spot occurs as soon as you’ve picked out your car and signed all of the papers. The car dealer has a lot of reasons to do this. The biggest reason is that so you can’t change your mind about buying that car. Legally, a contract is more binding when the seller and buyer have exchanged “consideration”. Your consideration to the dealer was paying him for the car which includes down payments, a trade-in, and a contract promising to make monthly payments. The dealer’s consideration to you is the car which becomes consummated when you drive it home. 

Another part of why you won’t change your mind is that you will take the car home, park it in your drive way, and tell your neighbors, friends, and relatives that you just bought a new car. You’ll probably also brag about the fact that you have good credit, got a great price, a low interest rate, and a low down payment. Everybody will envy you because you can afford that new car, were so smart to negotiate such a good price, and had such good credit that you got the lowest interest rate and down payment. When you fall into this trap, you’ve just been “puppy dogged”. Have you ever bought a puppy for your kids and brought it home from the pet store? Your kids play with the new puppy and take it over to their friends’ houses to brag and tell them what great parents they have. What are the odds that you’re going to snatch that puppy out of your child’s arms and take it back to the pet store…even if it poops on your carpet?

As if all that isn’t enough, the dealer has another reason to spot deliver your car. If you traded in your old car, you can’t compare the price you paid for your new car because you no longer have your trade-in. Dealers have a vernacular for this too. It’s called “de-horsing”.  In fact, a dealer will often de-horse a prospect before she picks out a new car and/or signs the papers. He will give her a demo to drive home just so that he can keep her from comparing the trade-in allowance on her old car.

In fact, the delivery consideration and the puppy dog are such strong tools to keep you from bringing the car back, the dealer needs an “ace in the hole” just in case he wants you to bring the car back. This could be because he wants or needs you to pay more for the car, pay a higher interest rate or down payment, or have a cosigner on the installment sales contract. The dealer’s ace in the hole is another contract known as the “yo yo” or rescission agreement. This piece of paper which you might not even remember signing says that you have to bring your new car back if the dealer cannot find a lender who will approve your credit, down payment, interest rate, and/or amount financed. A yo yo goes out and back and of course rescission means the contract is canceled.  The yo yo agreement says that if you refuse to bring the car back, the dealer can repossess the car and charge you a high fee for its usage until you do bring it back, like 50 cents a mile and $50 a day plus his costs of recovery. If the dealer did not have this agreement signed, you could keep the car and make your monthly payments to the dealer at terms and conditions you originally signed. Dealers won’t do this because they don’t get all of their money up front as they do when they sell the finance contract to the bank. They also don’t like it because they assume the credit risk if the buyer defaults.

An interesting question to ponder is whether the dealer knew in advance that he could not find a lender who would finance your car with such a low down payment, such a low interest rate, for that little number of months. Why would he do such a terrible thing? Well he may think that you will fall in love with that car so deeply that you will agree to pay him more profit in terms of higher interest and down payment. He might know that you won’t want to suffer the embarrassment of telling your family, friends, and neighbors that your credit isn’t as good as you told them it was and you really aren’t so smart that you negotiated such a low price and down payment.

There’s even a good argument to be made for the fact that the spot delivery is illegal and perhaps even criminal because it’s a violation of the Federal Truth in Lending Act (TILA). Without getting too technical, the signing of the yo-yo agreement violates TILA because it means that the dealer is not the actual creditor.  The finance contract you and he signed is almost meaningless and used only to take you out of the market. The only meaning is that you may have the option of signing a new contract but this one might be for more money down, a higher interest rate and/or longer terms. If you’re interested in the legal specifics of why the spot delivery and yo yo agreement are illegal and possibly criminal, click on www.IngalsbeSpotDelivery.com. This legal memo was written by an attorney, Raymond Ingalsbe, who is an expert on car dealers’ illegal practices. He has practiced law in Palm Beach County for over 40 years and sues only car dealers. He even helps train other lawyers how to sue car dealers. In fact, he sued me several time before I cleaned up may act and entered my phase as a “recovering car dealer”.

The bottom line is that you should not allow yourself to be spot delivered. Whether it’s illegal or not, it’s certainly not a smart move for the buyer. You wouldn’t move into a new home before the bank approved your mortgage would you? When you drive that new or used car home, be sure that your credit has been approved by the lender for all terms and conditions such as interest rate, number of months, down payment, and who signed the contract (is a consigner required). If that means waiting a few days, that’s good too because it allows you time to think over a very important decision. Buying a new car is the second largest purchase most people make in their lives and should never be rushed.

I DARE Car Dealers to Answer Just One Question about their Dealer Fee

Why don’t you include the profit you make on your dealer fee in the price of the car you quote to your customer? If you will answer this question truthfully then I pledge never to raise the issue of the dealer fee again.

The reason that I do hear from car dealers and the Florida Auto Dealers Association, FADA, as to why most car dealers charge a dealer fee is that it’s an “economic necessity”. Dealer margins are so low, the economy is so bad, and the car buyers are so armed with information on dealers’ costs and profit margins via the Internet that dealers need the extra profit they make from their dealer fees. OK, I’ll give you the benefit of the doubt and stipulate that this is a fact. I won’t even argue that I don’t charge a dealer fee and have been profitable for many years and even through this Great Recession.

Now answer my question because you can still charge the extra profit you must have to “survive” economically if you simply include your dealer fee in the prices of the cars you sell. Don’t add the dealer fee to the price if the car after the customer commits to buy at a lower price. Don’t hide the amount of your dealer fee in the fine print. Don’t tell the customer that the price is “plus tax, tag, and ‘fees’” fooling her into believing “fees” are state, federal, or local taxes. Don’t tell the customer that “all dealers charge a dealer fee” which you know to be untrue. Don’t tell her that the law requires that you must charge her the dealer fee because you charge others, which you also know to be untrue. Don’t tell the customer that the dealer fee is not a profit but expenses that you must recoup like doc fees, preparing the car for delivery, and administrative costs. When you went to school you should have learned in Economics 101 that the definition of profit is “the difference between the selling price of a cost or service and its total costs”. Besides, you don’t even pay to prepare your new cars for delivery because you are reimbursed by the manufacturer and you are not allowed by law to charge doc fees.

When I ask car dealers or FADA officials this question they always give me the same answer…Hamma, Hamma, Hamma, just like Ralph Kramden of the Honeymooners. You know what I mean…”the deer caught in the headlights” or the politician on “Meet the Press” when the moderator shows the video of something the politician said on camera two weeks ago that directly contradicts something he just said.

OK car dealers and FADA, if I’m wrong about this, here’s your chance to shut me up about the dealer fee forever. All you have to do is give me a truthful answer to this question. Why don’t you include the profit you make on your dealer fee in the price of the car you quote to your customers?

Negotiating to Buy a Car

Buying a new or used car is one of the last bastions of the negotiated price. In some countries, negotiation is fairly commonplace in retail stores, but in America virtually all products are sold at a fixed price. Some of us are simply not comfortable negotiating and most of us are not very good at it.

As I have said in previous columns, the best way to buy a new or used car in on the Internet. You can do your research on which car is the best to suit your needs, get guidance on what kind of price you can expect to pay, and finally get quotes from several dealerships on that specific car. However, everybody is not “Internet savvy” and if you are not, you may find it necessary to walk into a car dealership and negotiate for the lowest price.

If you are not comfortable with negotiation, the best advice I can give you is to bring someone along with you who is. Car sales people and sales managers are trained experts in negotiation. This is how they make their living. Here are some tips for you if you decide that you want to negotiate the best price on a car.

(1)   If you have a trade-in, keep that separate from the negotiation. Negotiate the best price on the car you are buying and then negotiate the best price you can get for your trade-in. Don’t fall for the old “over allowance” on your trade-in ruse. This is where the dealer makes up the price of car you are buying higher so that he can make you think you are getting more for your trade-in.

(2)   Never buy a car on payments alone. Always negotiate the best price you can for the car you are buying and then calculate your best payment when you have negotiated for the best interest rate.

(3)   Be sure you understand how the dealer arrived at his retail price. Federal law dictates that a Monroney label be affixed to every vehicle with a manufacturer’s suggested retail price. Many dealers mark that up with another label, often referred to as a “Market Adjustment Addendum”. This markup can be several thousands of dollars.

(4)   Expect the first price you are given to be substantially higher than what you can buy the car for. Sales people and sales managers are trained to “start high because you can always come down”. Don’t be afraid to offer substantially less than the initial asking price. You should look at just like the car salesman does, but the reverse…”start low because you can always go higher”. If the salesman accepts your first offer, you probably offered too much. In fact, shrewd car sales people are trained to always ask for more money, even if the offer is good one. This is because they don’t want to “scare off the customer” by telegraphing to the customer that he “left some money on the table”.

(5)   If the sales person asks you for a deposit before he will begin negotiating, determine whether the deposit is refundable. Florida law requires a nonrefundable deposit be disclosed in writing on the receipt. If this is printed on your receipt, insist that this be waived in writing on your buyer’s order. If the dealer will not agree to this, be warned that he may be able to keep your deposit if you change your mind about buying the car.

(6)   Be prepared for a lot of “back and forth” when the salesman takes your offer back to the manager. When you get close to finding a mutually acceptable price, the manager himself will often come to talk to you. Don’t be intimidated stick to your guns even when they tell you this is “positively, absolutely the lowest price”. Even if you think you do have the lowest price, a great strategy is to get up, walk out of the showroom, and get into your car to drive away. This will often precipitate an even better price. When you try this, the worst case scenario is that you really do drive home, but you can always return and buy the car the next day for the last price they quoted you. They may tell you that you have to buy today, but nine times out of ten that is a bluff. The only exception is when there are factory rebates and incentive expiring.

(7)   The last day of the month really is a good time to buy a car. The salesman’s bonus money is maximized, the factory incentives are in effect, the managers are desperate to make their quotas, and it is the one time of the month when the buyer has the best edge in negotiation.

Caveat emptor “let the buyer beware” could have been written specifically for what you can expect when you walk into a car dealership to negotiate the best price. You are up against experts who negotiate for living. But, if you will follow my advice above, you should be able to hold your own and maybe even get a great deal. 

What’s My Trade-in Worth? Not Very Much at CarMax

I've written about trade-in values previously, but a recent experience drove home how scary it is for car buyers to get an accurate and fair dollar amount for their present car.

CarMax is the largest retailer of used cars in the world. They also sell new cars in a few of their locations but used cars are their forte. As a Toyota dealer for 37 years, I routinely shop my competition as do most businesses. Last week I sent my mystery shopper to CarMax in Boynton Beach. He drove there in a 2004 Mazda6 and feigned an interest in buying a 2010 Mazda6 using his old car as a trade-in. The CarMax salesman, Paul, gave our shopper a price of $14,999. That was plus a $199 dealer fee, and a $12 markup on the electronic filing fee. In addition to that was the standard sales tax and tag and registration fee. The next step was to appraise our shopper’s 2004 Mazda6 trade-in. This process takes about 30 minutes and the appraisal was for $2,000. Now, CarMax is one of the few car dealerships that truly don’t haggle over price, neither the price of the car you’re buying or the car you’re trading. Some dealers advertise that they have fixed prices with no haggle, but they will haggle if you try.  Our shopper tried to haggle, but to no avail. 

Here’s where it get interesting. More people buy used cars, sell used cars, and trade in used cars to CarMax than any other car dealer in the world. Because of their no-haggle, no-hassle one-price policy and very friendly and ethical reputation, they have grown to dominate used car sales worldwide.  CarMax doesn’t have the lowest prices, but they have the highest trust of their customers. They even have a 5 day money back guarantee on the cars they sell…no questions asked. Other dealers advertise guarantees, but it’s always an “exchange” for another car, not your money back.

We carefully appraised the 2004 Mazda6 before we visited CarMax. Three of our appraisers agreed that the wholesale market value was $3,000. One guide book, Kelly Blue Book valued it at $3,500. When I found out that CarMax had appraised it for one-third or $1,000 less than the true value, I was incredulous. I thought we might have made a mistake, but upon careful scrutiny I was reassured that the $3,000 value was accurate.

One of my appraisers was a former appraiser for CarMax and I discussed this discrepancy with him at length. Here’s what I discovered. CarMax adjusts all of their appraisals downward by a factor dictated from their central corporate office. This factor is called the “Appraisal Cost Adjustment” or ADR and it is based on an algorithm or matrix which is determined by CarMax’s central office. The local CarMax appraiser appraises a customer’s car for the true market value and then subtracts the dollar amount dictated by the ADR. The bottom line is that our mystery shopper’s trade-in was reduced by about $1,000 to just two-thirds of its true wholesale market value. I say “about” because I don’t know what the CarMax exact appraisal was and I don’t know exactly what the CarMax ADR is. However, I can tell from looking at the 2012 fiscal year CarMax annual stockholder’s report that CarMax averages $953 wholesale profit on every used car they sell. This means that they pay their customers, on the average, $953 less than the true wholesale value.

As a competitor to CarMax, this is amazing to me. Most car dealers actually lose money on the average wholesale cars they sell at auction. The goal of most dealers is to break even on wholesale profit or loss. The reason for this is that attempting to appraise a car below the true value can cause the dealer to lose the sale of the new car or used car they are retailing. This is simply because the dealers’ competitors will offer that customer higher trade-in allowances and win the business. In their last fiscal year CarMax made $300 million in profits on wholesaling cars that their customers traded in. Put another way, CarMax made “double profits” on their customers…a profit on the car they sold the customer and a profit on the car the customer traded in. Now remember, I’m not talking about making a retail profit on the customers’ trade-ins. This is something all dealers try to do, including me. I’m talking about making a wholesale profit on those trades that they couldn’t or wouldn’t retail. This kind of wholesale profit is unprecedented in the retail/wholesale auto industry.  Now, please understand that car dealers will deliberately under-appraise a trade-in when they think they can “get away” with it. The common vernacular for this is “stealing the trade”. This occurs when a customer is so focused on getting a very low price on the new or used car they’re buying that they neglect to carefully consider their trade-in allowance. Also, trade-in allowances can be inflated beyond reality through the use of artificial markups on the new car via addendum labels, or, as I call them “phony Monroneys”. But, most car dealers average about $100 loss on every trade he wholesales vs. CarMax making an average of $953 profit.  I can understand now why Warren Buffet bought stock in CarMax.

Now don’t get me wrong, I’m not accusing CarMax of doing anything wrong. There’s absolutely nothing illegal or unethical about allowing a customer below market value for her trade-in…any more than it’s illegal or unethical to charge a higher price for the new or used car you retail than your competition does. CarMax does a lot of things better and smarter than most other car dealers which has allowed them to earn the trust of their customers. CarMax customers, not only trust them, but they look forward to a true haggle, hassle free buying experience. You combine all of that and it gives CarMax something called “pricing power”. Customers are willing to pay CarMax a higher price for the car they are purchasing and accept less for their trade-ins.

However, my advice to CarMax customers is to “have your cake and eat it too”. Enjoy the haggle, hassle free and trusting environment of CarMax, but shop your trade-in with at least three other sources. You will likely be able to sell your car to another dealer of the same make as yours for more than CarMax will allow you. Had all of CarMax customers done that during the last year, they would have saved an average of $953 per car, totaling $300 million! 

The Dealer Fee… “Just Following Orders”

For the benefit of new readers, the “dealer fee” is the dirty little secret of most Florida car dealers. It’s an extra charge ranging from about $400 to over $1,500 and averaging about $800 that the dealers surprise you with after you've been quoted a lower price. If you want to learn more about this rip off to the car-buyer, just Google “dealer fee” and “Earl Stewart”.

Battling the dealer fee for years, I've often wondered why so many car dealers, sales managers, and sales people could go along with this unfair and deceptive sales practice. I truly believe that most people (including lawyers, politicians, and car dealers) are inherently good, honest people. I have to ask myself why an honest person would quote a price that he knows is a lot lower than the real one to a customer. 

I was watching CNBC and there was a discussion about the “Milgram Experiment”. This psychological experiment was conducted at Yale University by Professor Stanley Milgram. What motivated him to perform the experiment was to discover why millions of good Germans followed the orders of evil Nazi’s like Adolph Eichman while conducting the Holocaust during WWII.

The experiment involved volunteers called “teachers” who questioned other people called “learners”. The teacher asked the learner to correctly match certain pairs of words. The teacher and learner could not see each other, separated by a partition. The experimenter instructed the teacher to push a button sending an electrical shock through the leaner for each incorrect answer. The initial voltage was very low and not enough to cause any discomfort. However, the experimenter told the teacher to increase the voltage with each successive wrong answer. The learner and the experimenter were in on the ruse, which was that no electricity was actually flowing. The machine was connected to an audio device which emitted recorded shouts of pain when the fake voltage reached higher levels…all the way to 450 volts.

The amazing results were that 65% of the “teachers” went all the way to 450 volts, hearing screams of pain. They did this even though they believed their actions were causing intense pain and may also cause permanent bodily damage.

Psychologists ascertained that there were two reasons for this. The first is called “the Agentic State Theory”. This is the “I was just following orders” reason as repeated often in the Nuremburg Trials. The essence of obedience consists in the fact that a person comes to view himself as the instrument for carrying out another person’s wishes, and he therefore no longer sees himself as responsible for his actions.

The second reason psychologists believe accounted for this behavior is the “Theory of Conformism”. A person who has neither ability nor expertise to make decisions, especially in a crisis, will leave decision making to the group and its hierarchy.

So there you have it. Car sales people follow the orders of their sales managers, who follow the orders of their general manager who follows the orders of the owner of the dealership. But why do the owners, the dealers, trick customers with the dealer fee? They aren’t following anybody’s orders. The car dealers fall under the “Theory of Conformism”. They feel that as long as everybody else is doing it, it must be OK for me to follow suit.

A great local example of this started about two years ago when Ft. Pierce Nissan began charging a $799 dealer fee plus a $750 freight fee, totaling $1,549. Napleton Nissan in Riviera Beach picked up on this and matched Ft. Pierce by adding $750 freight to their current $795 dealer fee. Next, Royal Palm Nissan in Wellington followed suit. Then most Nissan dealers from Ft. Pierce to Riviera Beach add over $1,500 to the price you are quoted on a Nissan. Recently, I haven’t seen advertisements adding the double charge for freight to the dealer fee and I suspect the Attorney General’s office may have had something to do with this.

Now you can understand why that smiling salesman can so guiltlessly throw the lever causing 450 volts of electricity to course through your body which is about the way most car buyers feel when they realized that they’ve been deceived. The salesman was “just following orders”.

Silent Majority Wants 343 ft. Flag Honoring First Responders of 9/11

The flag honoring the First Responders of 9/11 will go up and it will be the tallest American flag in the World. I'm writing this from my hotel room in New York City where I had lunch on Tuesday, June 5 with Mayor Rudy Giuliani. We discussed the First Responders of 9/11, he is totally supportive of the flag, and I will invite him to speak at the flag-raising.

The flag might not go up in Lake Park, FL but it will go up somewhere nearby and soon. I will give the town commission of Lake Park one more chance to understand what this flag will mean to Americans and the World, but I'm confident that other local municipalities would be honored to be the home of such a tribute to our First Responders who willingly gave their lives to save other Americans. I firmly believe that a majority of Lake Park residents want the flag to be in their community. As happens all too often, the vocal few are mistaken for the silent majority and these “professional naysayers” got the ear of the Lake Park town commission.

I have spoken with elected officials in other towns and cities in Palm Beach and Martin County who are very positive about being the home of this memorial flag. Although I would l prefer to keep the flag in Lake Park where my business has been for 37 years, I will change the location if I have to. Lake Park borders North Palm Beach, Palm Beach Gardens, Riviera Beach and Palm Beach County. In fact, Martin County is just a few miles north, bordering Jupiter and Tequesta which Jupiter Inlet Colony borders and is where I live.

The flag will be so tall (I've decided to make it 343 feet tall rather than 341 because 343 is the exact number of firefighters who died at 9/11) that whether or not it's in one municipality or another, it will be visible to all for many miles.

The objections that have been raised against this flag are not surprising. I've been told all my life that I can't do things but I do them anyway and successfully. People laughed when I told them I would become the largest volume car dealer in Palm Beach County because my dealership is in the tiny town of Lake Park, population about 9,000. I was told that I would never dare put red phones all around my company so that any customer can call me personally anytime. They said the same thing about giving my home telephone and cell phone numbers to all of my customers. They told me that if I did a TV commercial in Spanish, it would tarnish my reputation and hurt my business but my business thrived.

It's always interested me how my ideas are attacked. When I made the Hispanic TV commercial, I was attacked from the far right and defended by the far left. With the flag, I'm attacked from the far left and defended by the far right. The extreme left and right are always the most vocal and visible. What neither "far side" understands or cares about is the vast silent majority who, in the long run, determine the direction in which we move. The silent majority hears and sees what the left and right are making all the noise about, but they are too busy going about their daily lives, raising kids, going to work, and enjoying life to immediately "jump into the fray". However, they are not too busy to get involved when they have to. They usually vote the best candidates into office and they vote with their pocketbooks when they buy products and services. If I had to tell you one thing that has been responsible for my success it's that I think like a member of the silent minority but I've not always been silent. Maybe I should think of myself as a "spokesman" for the silent majority. 

When the flag honoring the 9/11 First Responders is raised soon in one of our local communities, I and the silent majority will prevail as we usually do and the ranting of the fringes will be long forgotten. Florida, Palm Beach County (or Martin) and a local town will be known as the home of the World's tallest American flag and a memorial to the First Responders of 9/11. The vast silent majority will benefit all economically and righteously even the fringes who always protest progress.
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