The Dealer Fee Deception Grows but is Ignored by Florida Regulators

Last week I sent a mystery shopper into a Kia dealership in West Palm Beach. Her assignment was to respond to TV, radio, and Internet advertisements to buy a new Kia Soul for $179 per month or “less than $6 per day”. Every Saturday morning my wife, Nancy, and I host a radio talk show, Earl Stewart on Cars and we always feature a shopper who visits a south Florida car dealership. I report the results of that experience, positive and negative.

We give our mystery shoppers code names to protect their real identities because most car dealerships listen to my weekly radio show. This shopper’s code name is “Agent K”. Agent K told the sales person who greeted her that she was responding to the advertisement for a new Kia Soul for only $179 per month. The salesman led her over and showed her the advertised car and as they walked over to the car he said “the advertising for this car is not all true”. Interestingly, a comment like this from car salespeople is not unusual. The sales people don’t write the advertisements and are not responsible for the sales tactics of the dealership they work for. Many are apologetic and do not like to have to explain unfair and deceptive advertisements to their customers. They are the ones that have to face angry customers when they find out that the advertisements aren’t true. Jobs are hard to come by these days and I can almost understand why someone might compromise their ethics to put food on their family’s table.

The salesman explained that the advertised car was a stick shift. He also explained that she would have to make a cash down payment of $4,000 and make monthly payments for the next six years and three months. Furthermore, she would have to have a credit Beacon score of at least 750 to qualify for the 2.79% interest rate they used to calculate the low payment.

The salesman asked Agent K if she would like to take a demonstration ride in the new Kia Soul but she responded “no” because she had already test driven one at another dealer. She didn’t tell him the real reason she wouldn’t test drive it was because she didn’t know how to drive a stick shift. Of course, this is the exact reason that car dealers advertise cars that don’t have automatic transmissions because 99% of car buyers don’t want to buy a stick shift and most have never driven one.

Another thing that the car salesman did not tell Agent K was that there was only one car available at the advertised price. This was not clearly disclosed in the advertisements but indicated only in the very fine print by a “stock number”. The stock number for this bait and switch car was 130940 which is probably the last six digits of the VIN. The only way I was able to view this number was by looking on the Internet ad, printing it out, and then using a magnifying glass to read it. It is literally impossible to read the fine print on the TV advertisements and impossible to hear the disclosure on the radio advertisements. The fine print on TV appears only for a second or two as a blur on the bottom of the screen and the radio audio disclosure is deliberately obfuscated by speeding up the sound track and lowering the volume.

The reason that car dealers use a stock number in the fine print is so that they can abide by the Florida law that requires that the dealer fee be included in all “advertised” prices. This anemic law resulted from the powerful lobbying of the Florida Automobile Dealers Association, FADA. This means that a salesman can quote you a price on new car in person, on the phone or via email without disclosing that there is an extra charge (without limit!) that he can legally add after you have agreed to buy the car. A car dealer must only tell the truth about the full price of his cars when he advertises that specific car.

The Kia dealer in West Palm Beach has three dealer fees totaling $971.45. He doesn’t name any of them “dealer fee”. Florida law allows dealers to name this extra, hidden profit anything they choose. This just makes it easier for the car dealers to hide this hidden profit from their customers. The Kia dealer decided to name one of his dealer fees “delivery fee” and it is $699.95. He probably chose this to make the customer believe that this was for inspecting, washing, and adjusting the new car. What most customers don’t know is that these costs are actually paid for by the manufacturer. His second dealer fee he chose to name “document and handling fee” and in the fine print on his buyer’s order says it’s “preparation, processing and handling of the documents required in registration, filing and licensing of the vehicle” and this extra profit to him is $218.55. This West Palm Beach Kia dealer does have expenses for processing and handling documents. He also has expenses for his monthly utility bills, sales commissions, and lease payments for his building, not to mention his deceptive advertising. But businesses are supposed to include all of their expenses in the prices of the products they sell. They are not supposed to tell you the price and then make you pay their expenses on top of that price. The third dealer fee this Kia dealer chose to name Electronic Filing/Private Tag Agency Fee which amounts to $64.95. He does pay a company to process his tag work but he doesn’t pay them $64.95. It’s $10 or $15 and then he marks it up and adds this to his profits.

You’ll notice that all of the dealer fee names have something in common. They all end in “fee”. This is by design because the word fee has an official sounding sound about it. This is to lead you to believe that all of these fees are federal, state, or local taxes or fees. One way to detect real fees from additional profit to the dealer is by whether or not the dealer charges you sales tax on that amount. He is required by law to pay Florida sales tax on the full, true selling price of the vehicle which must include his all of his profit and expenses except for tax and tag.

Just as an aside, I’ll also mention that this dealer marks up the manufacturer’s suggested retail price, MSRP, sticker on all of his cars by $2,999. He places this addendum label next to the official Monroney sticker and calls the extra markup “Regional Market Value Adjustment”. This is actually reduction from a few months ago when his “Regional Market Value Adjustment” was $6,999! Dealers do this so that they can offer inflated discounts and trade-in allowances. This practice is clearly in violation of spirit and intent of the federal law mandating that a Monroney label be placed on every new car to afford buyers a common basis for comparing prices.

I hope Pam Bondi, Florida’s Attorney General, reads this article. I wonder how she would feel if a relative or friend of hers were victimized by this dealer or one of the other Florida car dealers, most of whom use the dealer fee and the “phony Monroney” to overcharge their customers. Maybe she would join me in mystery shopping some car dealers to learn how Florida car buyers are being victimized and then do something about it. I’d love to have Ms. Bondi call my radio show sometime to discuss this. She can stream the show live any Saturday morning between 9 and 10 AM by clicking www.SeaviewRadio.com. I’ll gladly accept her call and put it ahead of my other callers so that she doesn’t have to wait.

Open Letter to Car Dealers - 2012

Dear fellow Florida car dealer,

 I started in the retail car business in 1968, about 44 years ago, and I have seen a lot of changes in the way we dealers sell cars and the expectations of our customers. My remarks in this column are made sincerely and with a positive intent toward you and your customers. I am not trying to tell you how to run your business; I am suggesting a change that will reward both you and your customers.

Virtually every car dealer in Florida adds a charge to the price of the cars he sells, variously referred to as a “dealer fee”, “documentary fee”, “dealer prep fee”, etc. This extra charge is printed on your buyer’s orders and is programmed into your computers. This “fee” is capped in many states like California which limits it to $80, but in Florida, a dealer can charge any amount he wants…$5,000 or more if thought he could get away with it!  You charge this fee to every customer and it ranges from a few hundred dollars to over $2,000. Florida law requires that you disclose in writing on the buyer’s order that this charge represents profit to the dealer. Florida law also requires that you include this fee in all advertised prices. You don’t always do this and you get around the law by limiting the number of advertised vehicles (as few as one). Recently you’ve begun marking up the fee you pay outside companies to do you tag and registration paperwork, electronic filing fee, and passing this along to your customer. Some dealers mark this $12 cost up as high as $500. Some dealers are also double charging for freight which the manufacturers always include in the price of the car.

 The argument that I hear from most car dealers, when I raise this issue, is that the dealer fee is fully disclosed to the buyer on his buyer’s order. But, most car buyers are totally unaware that they are paying this. Who reads all of the voluminous paperwork associated with buying a car? The few who notice it assume it is an “official” fee like state sales tax or license and registration fee. Those few astute buyers who do question the fee are told that, by law, the dealership must charge this fee on every 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 cost of the car and your profit in such a manner that it is not noticed by your customer. This is just plain wrong. Dealers will admit this to me in private conversations and some will admit that they have considered eliminating the fee as I have, but are afraid of the drastic effect to their bottom line. By being able to count on an extra $999.95 in profit that the customer is not aware of or believes is an “official fee”, you can actually quote a price below cost and end up making a profit. Or, if the price you quote the customer does pay you a nice profit, you can increase that profit by several hundred dollars.

This “extra, unseen” profit is even better for you because you don’t pay your salesmen a commission on it. That’s being unfair to your employees as well as your customers.  Because theoretically there is some liability exposure for removing the dealer fee for only sophisticated customers, you could just reduce the price by the amount of the dealer fee. Your salesmen often won’t permit this because he will lose his commission (typically 25%) on the decrease in his commissionable gross profit.

If you don’t know me, I should tell you that I don’t profess to be some “holier than thou” car dealer who was always perfect. Although, I never did anything illegal, when I look at some of my advertising and sales tactics 20+ years ago and more, I am not always proud. But, I have evolved as my customers have evolved. My customers’ expectations, level of education, and sophistication are much higher today. Your customers are no different. As I began treating my customers, and employees, better I discovered that they began treating me better. Yes, I used to charge a dealer fee ($495), and when I stopped charging it many years ago, it was scary. But I did it because I could no longer, in good conscience, mislead my customers. Just because everybody else was doing the same thing did not make it right.

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

Why am I writing this letter? I’m not going to tell you that I think of myself as the new Marshall that has come to “clean up Dodge”. In fact, I am well aware that this letter is to some extent self-serving. Lots of people will read this letter and come to the conclusion that 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.

Sincerely, Earl Stewart

Some Car Buyers Can Be Fooled All of the Time

As most of you know, I’m a consumer advocate for those who own or lease automobiles. I write a  blog, www.EarlStewartOnCars.com, a weekly newspaper column in Hometown News, host a weekly live talk show on Seaview Radio, and I just wrote a book, Confessions of a Recovering Car Dealer. I also speak regularly before groups at libraries, civic clubs, condo associations, and other organizations.

I’ve been doing this for many years and one of my greatest frustrations is that there is segment of society that I’m unable to reach. I was watching 60 Minutes on TV last night and there was segment on U.S. companies being unable to fill job openings for lack of qualified applicants. It wasn’t about not having enough scientists, engineers, or other college educated applicants with specialized skills; it was about not having applicants who could complete a grammatically correct sentence on a resume, show up for work on time, or comprehend basic instructions on how to perform an entry level job.

My frustration, as a person who advises others on how to buy or lease a car and service their cars without being taken advantage of, is that there is a segment of society that I’m unable to reach. I know this because people call me daily about how they were taken advantage of by car dealers. I just had a call from a man who wanted to know if I could match an offer from one of my competitors who said they would allow him the original MSRP on his four year old car as a trade-in on a new car. Fortunately I was able to explain that this “too good to be true” offer was, in fact, not true before the man was tricked into buying a car.  I also know this because I know of many car dealers who blatantly deceive and take advantage of their customers and are financially successful.

Further fueling my frustration is that car buyers today have immensely more information at their fingertips to make an intelligent decision in buying, leasing, or servicing their cars. I consider Google to be an “annex to my brain”. Writing this column, I’ll use Google and other Internet sources many times. My wife, Nancy, and I don’t buy anything without first clicking on www.ConsumerReports.org. When we do buy, more often than not we buy from www.Amazon.com because we can determine the lowest price and choose the vendor with the best reviews. If was buying a car, I would go to www.TrueCar.com and I would also check out www.Edmunds.com and www.KBB.com. These are only a few of the sources of information available to us that was not 20 years ago.

I’m not telling you something you don’t know when I say the USA is falling behind the rest of the world in education. Many countries in Asia and Europe are educating their children and young adults better than we. I’m not going to go into a lot of depth and detail on this because you hear about it every day. The rest of the world’s children attend school 12 months out of the year, vs. only 9 for ours. Many of our teachers are inferior to those in other countries. The subjects taught in our classrooms are not those that best prepare students for life or the workforce. We graduate a large number who don’t have the fundamental skills of reading, writing, or speaking correctly. One of the biggest problems I see with our educational system is that we turn out a high percentage of students without work or moral ethics. Of course, the parents play a big role in all of this but often the parents were also the product of our inferior educational system.

My Toyota dealership is extremely successful and is one of the largest volume car dealerships for car and service sales in the USA. We are growing rapidly and dominate our market. Earl Stewart Toyota is located in Lake Park, FL, which is a very small town with a population under 9,000. In fact, because very few people have heard of Lake Park, we advertise that we are in North Palm Beach when we are actually on the border between the two towns. We sell and service so many more cars than all the other dealers in our market by selling and servicing customers that drive for many miles, south from Ft. Lauderdale and north to Ft. Pierce and beyond.

We are able sell and service so many cars to those who live so far away because we have established the Earl Stewart brand as being the car dealership that will give you a fair price and treat you with courtesy, respect and integrity. We don’t guarantee the lowest prices as so many car dealers claim because we can’t. We tell our prospective customers that we give them what we believe it’s the best price, but we encourage them to shop and compare it with the competition.

Now, the fascinating result of our success is that we have captured virtually all of the educated, intelligent, sophisticated car buyers in our market. People who buy and service their cars from us cannot be fooled by the “too good to be true” offers from our competition. In fact, their intelligence is insulted when dealers bait them into their stores with a low price and then add a “$999.95 dealer fee”; or when they mark up the MSRP price by $7,000 so that they can pretend to be giving a large discount on the advertised car. Smart people run, don’t walk, away when they are told that the discounted price is good only if you’re on “active duty in the military and graduated from college within the past six months”. We hear these horror stories daily from our sophisticated and educated customers who found sanctuary with us.

But, as successful as my dealership is, I can’t forget about those poor souls who fall prey to the deceptive advertising and sales practices designed to take advantage of the uneducated, unsophisticated, very young, very old, and English language impaired. I wrestle with this every day, thinking of how I can reach this group of consumer-victims. My blog, newspaper columns, radio shows and even my book will not be read by most of these people. You, who are reading this article, now, are enlightened consumers and in that sense I’m preaching to the choir.

I welcome any suggestions on how I can reach those who are being taken advantage of daily. I want to believe that, in the long run, the size of this group of car buying victims will shrink to the point where those car dealers that now successfully exploit these defenseless buyers have to stop their unfair and deceptive sales practices and advertising to attract buyers like you.

10 New Year’s Resolutions for Car Dealers in 2013

It’s hard to believe that we’re approaching the end of 2012. The older I get, the faster the time flies. This might be wishful thinking, but here’s another list of recommended ways that dealers should change for the better in the coming year. I know a lot of car dealers read my blog, my column, and listen to my radio show. You dealers should understand and  take responsibility for the fact that we rank ethically last among all professions, tied with politicians, lobbyists, and lawyers.

(1)   Eliminate your dealer fee. We had shown some progress in dealers eliminating their dealer fees in Palm Beach County. Palm Beach Toyota and Royal Palm Toyota dropped their dealer fee three years ago and Treasure Coast Toyota eliminated there’s two years ago. This was due, not to a “moral revelation” by the dealer or legislative action but economic pressure. Palm Beach Toyota, Royal Palm Toyota and Treasure Coast Toyota are my three nearest competitors. But unfortunately, all three of these dealers recently reinstated their dealer fee. In fact, Royal Palm and Palm Beach increased their dealer fee to $999. The only additional costs passed to your customer should be federal, state, or local taxes and/or fees like Florida sales tax. This is the generally accepted practice in retailing all other products and services. A price is quoted to your customer when you communicate a price in any fashion including advertising a price in the newspaper, radio or TV, painting a price on a windshield or sign, saying a price over the phone or in person, or giving a price over the Internet. Your “dealer fee” is profit for you. It is not a “fee” and it should be included in your price.

(2)   The buck stops with you. You are responsible for the actions of your employees. Your salesmen, service technicians and service advisors are virtually all paid on commission. If you do not police your people and hire ethical people your customers will be taken advantage of. If you are an absentee owner, as most owners of car dealerships are in South Florida are, you have to have someone running your store that knows and cares about what is happening to your customers. Your ignorance of the mistreatment of your customers is no more an excuse than being ignorant of a law when you break it. You may think you know how your employees are treating your customers, but I promise you that you don’t unless you communicate directly with some of them. You cannot rely exclusively on reports from your managers to tell you the truth.

(3)    Don’t advertise a car at a price that you don’t want to sell it for. If you advertise a car for a specific price, you should be willing and able to sell that car to as many customers as respond to the ad. If you run out of stock, give the customer a rain check. Also, pay your salesmen a commission on the ad cars. Now most of you don’t pay a salesman a commission if he sells the ad car. What do you think that salesman is going to tell the customer who comes in on the ad? If you run out of that model, you should give your customers a rain check. When you don’t do that, it’s called “bait and switch”.

(4)   Don’t insist or encourage your customers to buy and take delivery of their car on the same day. This is called a “spot delivery” in the trade. There are lots of thing bad about this. A car is the 2^nd largest purchase a person makes. The customer should be allowed time to reflect and think about this decision. Cars are often spot delivered when the credit has not been approved, especially nights and weekends when the banks are closed. Customer often have to be called back to sign another contract at higher payments, higher interest, and/or higher down payments. This is sometimes done deliberately because customers are often too embarrassed to tell their friends that they really haven’t bought that shiny new car they were showing off. Attorneys in other states have filed class action suits against car dealers and attorneys in this state are working on doing the same. 

(5)   Give customers who are” just looking” a price when they ask for it. It’s insulting to today’s sophisticated buyers to be told when they ask for the price that they can buy the car for, that they have to make an offer in writing with a deposit first. It’s also insulting when you tell the customer that you won’t give her a price until she’s “ready to buy”. Can you imagine being told this by a salesman at Best Buy when you asked the price of 50” Plasma TV? Your salesmen won’t give prices to your customers because they are afraid the customer will compare his price with the competition. This is what the free market place is all about! Customer should shop and compare. If you treat your customers with respect, integrity, and courtesy, they will return to you an offer you the right to meet or beat a lower price.

(6)   Don’t advertise discounts from “dealer list” price. When you mark up the manufacturer’s list price by thousands of dollars and then advertise a discount, you are misleading you customers. The federal government has a law that every new car displays a “Monroney label” [named after the U.S. senator who sponsored this bill] on the window when it is sold. The reason for this law is to give car buyers a fair, even basis for comparing prices between different dealers. By confusing your customers between “dealer’s list” and “manufacturer’s list” you are circumventing the law.

(7)   Don’t advertise lease payments that require large down payments hidden in the fine print. Most people lease cars to minimize their monthly payment. When your customer comes in on the ad finds out she has to pay $4,000 cash down to get the lease payment you advertised, it’s just plain wrong. There are some dealers who actually advertise prices with a qualification that the customer pays an additional sum first to get the advertised price.

(8)   Do not advertise that you can get anybody financed no matter how bad their credit. This is not true and just plain cruel, especially during these terrible economic times with very tight credit.

(9)   Don’t guarantee the lowest price with qualifications that cannot be met. Your qualifications are usually that you “reserve the right to buy the other car from the other dealer who beat your price” and that the customer must have a signed buyer’s order from the other dealership. You know that the other dealer will never agree to sell you that car and you also know that the chances of the customer getting out of the dealership with a signed buyer’s order without taking delivery are slim and none. Dealers reading this, I dare you to show me evidence that you have honored your guarantee with just one customer. I’ll make you a bet that you have never honored that guarantee.

(10)                       Don’t offer a minimum $10,000 [or some other high number] for every trade-in. Sometimes these ads, say “if you can push, pull, or drag your old car in we will give you at least $10,000 toward the purchase of a new car. You then mark up the new car so high; you are not really offering the customer anything more than the wholesale value, if that. 

Confessions of a Recovering Car Dealer

I’m excited and proud to announce the publication of my first book, Confessions of a Recovering Car Dealer! If you’ve been reading my blog or my Hometown News column for the last 7 years, I know you will really enjoy this book. Some subjects may be familiar, but I also have added tons of new information as well as lots of historically interesting pictures, dating from 1937 to the present.

Before you get mad at me for using this column to sell books, be aware that 100% of the selling price of my book is going to charity. Not only am I not making a nickel off this book, but I’m also including my cost of publishing in the amount I’m donating to charity. My purpose in writing this book is the same as my purpose in my Hometown News column and blog, to help you through the hazardous process of buying, leasing, and servicing your car. You can buy this book at my dealership, Earl Stewart Toyota of North Palm Beach, or you can buy it online by going to www.EarlsBook.com. You can charge it to your Visa, MasterCard, American, Express, Discover card, or use PayPal.

If you’re curious about my title, it goes to the fact that I wasn’t always a consumer advocate for car buyers. I’ve been a car dealer since 1968 and I used to be a lot like the very car dealers that I criticize today. Frankly, my advertising and my sales practices back in the day are things that I’m ashamed of now. I refer to myself as “recovering” in the sense that a drug addict or alcoholic is recovering. This column, my blog, and my radio show are like parts of the “Twelve Steps” of a recovery program. People ask me all of the time “What made you change?” but I can’t give them a simple answer.  It wasn’t an epiphany or an instant revelation, but more of an evolution. It might have begun when I sensed how much smarter and more sophisticated and demanding my customers were becoming. I know that my sons coming into the business had a major effect as did my second marriage.  My oldest son told me that he chose to come into the business with me because he could tell his children, my grandchildren, how proud he was to work at Earl Stewart Toyota. Fighting a successful battle against colon cancer several years ago also was a factor. There’s nothing like the realization of one’s mortality that puts the important and unimportant things in life in perspective. Lastly, I would chalk it up maturity. I’m one of those that believe we truly get wiser as we age. Notice I said “wiser” not smarter. There are a lot of young, very smart people but, in my opinion, they lack the wisdom of their elders. 

My book is divided into six sections. The first is “Research” which explains how you should go about deciding what type and make of car you should buy and how to select the right dealer from whom to buy it. Section two gets into the actual buying process. One chapter is entitled “Emotion is Your Enemy When Buying a car” and another is “Holdback is Holdup for Consumers”. Section three is “F & I (Finance and Insurance). Two of the best chapters are “Buying a Car When You Have a Credit problem” and “Should You Buy an Extended Warranty?” Section 4 is “About Used Cars”. If you read the chapter “Ten Tips for Buying a Used Car”, you’ll be forearmed and forewarned against making a huge mistake. Section Four is “Leasing”. More people get taken advantage of when they lease a car than when they buy. Read this section very, very carefully. Section six is “Service”. This is the longest section of my book because you spend a lot more time buying service and repairs for your cars than you spend buying the car itself. This section also addresses the body shop which you hopefully use very seldom but which can be very hazardous if you don’t understand your rights.

If you have a friend or relative who you would like to do a favor, why not consider making a gift of Confessions of a Recovering Car Dealer? It would make a great present for a son, daughter or grandchild. Most of the complaints on car dealers that I hear from callers on my radio show or read on my blog could have been avoided if the victim had been better educated on the car buying and servicing.  

New Car Warranty Repair Rights in Florida Under Attack by Manufacturers

There was an obscure legal decision made last month by Chief U.S. District Judge M. Casey Rodgers that if upheld, will make it much more difficult for you to have your new vehicle repaired under warranty by Florida car dealers.

In May of 2008 a state law was passed that required manufacturers to reimburse their dealers the same rates for warranty parts and labor that the dealership charges retail customers. Up until this time, only warranty labor was reimbursed to dealers at the same rate as the labor rate charged to customers. Immediately, the powerful lobbying group, Alliance of Automobile Manufacturers, AAM, filed a legal challenge to this law, attacking retail reimbursement for parts and labor. This powerful lobbying group represents 12 manufacturers including GM, Ford, Chrysler, Toyota, and Volkswagen. As you know, money talks and few lobbying groups have more money than AAM. Ironically, a lot of that money, at least from, GM and Chrysler, came from you and me, the taxpayers, when we bailed out these two companies not long ago.

Judge Casey’s decision issued last month said “Automakers’ claims regarding warranty reimbursement have merits and the case should move forward in court.” The AAM lobby charges that “the parts and labor reimbursement provisions violate the due process clause of the Florida Constitution and the contracts clauses of the U.S. and Florida constitutions.” That is legal gobbledygook created because they can’t come up with a real reason why this law isn’t a good and fair one for the car owner, dealer, and manufacturer, so they’ll look for technical loopholes in the law and “creative” interpretations of the Florida and U.S. Constitutions.  

As is virtually always the case, legal disputes are about money. For the automakers, warranty reimbursement to auto dealers is measured in billions of dollars annually. These billions of dollars comes out of the pockets of GM, Ford, Chrysler, Toyota, Volkswagen, and all other automakers and go into the pockets of their dealers. Shockingly, the only party that isn’t represented in this legal battle is you, the car owner. But you have a huge financial stake in this because, if the automakers prevail in court, you will find it much more difficult to get your car repaired under warranty by any car dealer in Florida. This doesn’t only apply to repairs but to “free maintenance” which most manufacturers are now touting for their new cars. You may even find yourself paying for warranty repairs and “free maintenance”.

I’ll explain. I’ve been a car dealer for 44 years, since 1968.  Back then, there were no laws requiring the automakers to reimburse their dealers for performing warranty work at a fair rate. As a consequence, dealers didn’t want to repair cars under warranty. The reimbursement was so low that they actually lost money or, at best, broke even. The amount of reimbursement by the automaker wasn’t enough to pay the technician for his work and cover the dealers’ overhead expenses. If you’re old enough, you remember that back then you could take your new car back only to the dealer from whom you bought it for warranty work. Your selling dealer had more motivation to do warranty work on y our car even though he made little or no profit because he did make a nice profit when he sold it to you and wanted to sell you your next car. If you were on a trip, far from your selling dealer, it was almost impossible for you to find a dealer who would agree to fix your car under warranty.

Another negative consequence of under-reimbursing dealers for warranty labor and parts is that the dealer is not inclined to tell you that the repairs are covered by your warranty. When you drive in to the service aisle of your dealer, that person who greets you is paid on commission. He doesn’t call himself a service salesman, but that’s what he is. His title will be service “advisor”, service “writer”, or assistant service manager. This person feeds himself and his family by how much commission he can make on the profit he makes repairing your car. If he repairs it under warranty at a very low rate and no profit, he doesn’t make much of a commission. Today, because dealers make the same profit on labor and parts for warranty as the do for non-warranty work, they love to repair your car under warranty. In fact, they will even cajole the manufacturer to stretch and perform repairs under warranty when your car is only slightly out on miles and or time.

There’s still another negative consequence for automakers not fairly reimbursing dealers for warranty labor and parts. The technicians who repair your car and perform maintenance on it also work on commission. Today, they love to repair your car under warranty because they make just as big a commission fixing a car under warranty as they do when it’s not covered under warranty. If the automakers have their way in court, the technicians will not want to work on your car. What happened many years ago before there were laws requiring fair warrant reimbursement is that the lowest paid, least trained and experienced technician in the shop ended up doing your warranty repairs. Usually this was the new apprentice who was learning to fix cars and was paid a low, starting wage. If you were lucky enough to find a dealer to do the warranty repair, you had good reason to fear that the repair wasn’t done in a proper, safe, and timely fashion.

Now, I think you understand why it’s so important to you, the new car owner, that Florida’s law requiring fair reimbursement by automakers to car dealers for warranty repairs and maintenance is upheld. The court battle is being waged between the car dealers lobbying group, the Florida Automobile Dealers Association, FADA, and the automakers, Alliance of Automobile Manufacturers. You, the new car buyers, don’t even have a dog in this fight. This is one of the rare cases where the car buyer and the car dealer on the same side, albeit for different reasons.

It’s unfortunate that we don’t have a powerful consumer lobbying group in Florida like they have in other states like California. This legal fight is all about who has the most money and unfortunately the automakers have the auto dealers outgunned. The Florida Automobile Dealers Association is struggling to raise another $2M on top of what they’ve already spent. That’s “chump change” to GM, Ford, Chrysler, VW, and Toyota.  The odds aren’t even 50-50 that the car dealers can win this and all you can do is sit back, watch, and say a prayer.

TELL YOUR CAR DEALER TO BE NICE

About seventeen years ago a car dealer in Dallas, Texas wrote a book entitled Customers for Life. His name is Carl Sewell and the book describes in detail why treating your customers with care, courtesy, respect and dignity is the surest way to success in the retail automobile business. When I first read this book many years ago, I wished that I had written it myself. I learned a lot from Customers for Life and it had a major impact on my business and my life.

If you would like a free copy of this book, just go to my Web site, EarlStewartToyota.com. Click on the link under the picture of the book where it says “complimentary copy click here”. Some of the chapters in the book are “The customer will tell you how to provide good service, if the customer asks, the answer is always yes, there’s no such thing as after hours, under-promise and over-deliver, and you can’t give good service if you sell a lousy product. When you read this book, you should have a pretty good idea of how you should expect to be treated by your car dealer, or any retail business establishment.

Remember that Carl Sewell is not just a “nice guy”, but also a very shrewd businessman. He learned that by treating customer so nicely and fairly that he actually exceeded their expectations, these customer continued to buy from him “for the rest of their lives”; Hence the title, Customers for Life. Back in 1990 he calculated that the average customer for life bought $517,000 in cars and service from him over their lifetime. Adjusted for inflation, that would amount to closer to $1,000,000 today. Furthermore these customers referred their friends, neighbors, and relatives. Also, Carl Sewell did not have to spend any advertising money to persuade them to buy from him. It is no wonder that he is one of the largest volume and most profitable car dealers in the USA.

Carl also believes in treating his employees with the same courtesy, care, and respect that he treats his customers. Have you ever been embarrassed in a retail business when a boss chewed out a subordinate in front of you? Chapter 13 is entitled “Who’s more important? Your customer or your employee? A: Both.  When you enter a car dealership where the employees are more like team mates and genuinely care for each other and their supervisors you can practically feel it in the air. You feel more comfortable and trusting and more confident that, if they treat each other like this, you will be treated similarly. This is a direct quote from Customers for Life. “It’s very rare to see a manager who treats his customers one way and his employees another. And it’s awfully hard for employees to treat customers well if the boss treats them badly.”

After you read Customers for Life, why not loan it to your car dealer? Remember that this is not a “do-gooder” kind of a book. The message is that a businessman can be more successful and profitable by employing the recommendations of this book. Loaning your car dealer this book would be doing him a favor. Most car dealers should have heard of Carl Sewell. He is one of the most successful car dealers in the county and his book is considered by manufacturers and dealers to be the “bible” for customer satisfaction. If they haven’t heard about Carl Sewell, feel free to use me as a reference. Reading Customers for Life had a major positive impact on my success and the reputation I enjoy as a car dealer.

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