Earl’s Costco Auto Buying Program Tutorial

I’m a strong advocate of the Costco auto-buying program. In full transparency and disclosure, I’m also a certified Toyota dealership for Costco. I get more questions about the Costco Auto buying program than just about anything else and that’s my reason for writing another article on the subject.

My only complaint about Costco’s program is that, in my opinion, there’s too large a burden of due diligence placed upon the Costco car buyer. I believe that a Costco member should be able to go online at www.CostcoAuto.com and get the out-the-door price of the vehicle they want and the dealership they can buy it from. Sadly, this is not often possible, and what follows is a “tutorial” of the precise steps you most follow to get the true Costco member price. 

1. Go to www.CostcoAuto.com. Click on “New Vehicles” and enter your zip code. Select the year, make and model of vehicle you want to buy. NEVER GO TO THE DEALERSHIP WITHOUT REGISTERING ONLINE. You may be deceived by a non-Costco certified salesman into believing you’re getting the Costco price.
2. Click on “Locate Dealer”.
3. Enter your name, Costco member number, and email address. Click again on “Locate Dealer”. If you’re not a Costco member, I recommend you pay the nominal annual member ship, $65, and become a member. Your savings on buying a car will exceed this cost many times.
4. You will be given the name of the dealership and the name of the sales people at that dealership that are certified Costco representatives. DO NOT, UNDER ANY CIRCUSTANCES, DEAL WITH ANY OTHER SALES PEOPLE.
5. You will be contacted by phone and email almost immediately by the Costco representative. Verify that she or he is named on the Costco website.
6. Ask the Costco representative to email you the out-the-door Costco member price on the vehicle you have selected. Explain that this price must include all charges by the dealership except government fees…sales tax and license tag and registration. If she or he refuses, report this to Costco at 800 755-2519.
7. If you must visit the dealership to further evaluate the vehicle you’re buying, demand that you see theCostco Member-Only Price Sheet. This price sheet on the specific car you’re buying should disclose any added price for dealer installed accessories. If there are dealer installed accessories, DEMAND A CAR WITHOUT THEM. This price sheet must also disclose any added, hidden non-government fees aka “dealer fees” by many names like doc fee, electronic filing fee, tag agency fee, dealer prep fee, administrative fee and notary fee.
8. Determine your own out-the-door price by adding any of these hidden fees or dealer installed accessoriesto the “Costco Price”. Also beware of hidden fees that aren’t disclosed on the Costco Member-Only Price Sheet. These will “pop up” later in the F&I or Business Office and are unknown and unacceptable to Costco.
9. To be safe, you should shop and compare the final out-the-door price you’ve calculated with at least two other dealers.
10. If your experience with the Costco dealer was not a good one and they did try to deceive you, contact Costco at 800 755-2519. You will be asked by Costco to fill out a customer satisfaction survey after your purchase which will entitle you to service and parts discounts with that dealer.

Costco requires their certified dealers to sell Costco members cars at a LOWER PRICE THAN THEY SELL CARS TO ANY OTHER CUSTOMER. You may or may not know that most car dealers sell the same car to different buyers at vastly different prices…depending on the sophistication of the buyer, the salesman, type of advertising, and even the time of the month. A few buyers get extremely low prices which requires a certified Costco dealer to sell a Costco member the car at an even LOWER price. Car dealers don’t like to do this and come up with very clever ways to trick Costco buyers into paying more…hidden fees and dealer installed accessories are two of their favorite tricks. COSTCO MEMBERS BEWARE.

How Do You Learn the Dealer’s Cost on a Car?

It’s almost impossible for you to determine the true cost of a new car. This might sound crazy, but many dealers don’t know the true cost of their cars. The manufacturers and distributors “invoice” their dealers for an amount when they ship them a car that is almost always several thousands of dollars more than the true cost. It’s fair to say that in virtually every case the “invoice” for a new car is much higher than the true cost. By true cost, I am referring to cost as defined by GAAP, generally accepted accounting principles.

You probably have heard the term, “holdback”. That is an amount of money added into the invoice of a car ranging from 1% to 3% of the MSRP which is kicked back to the dealer after he has paid the invoice. In some cases, there are two holdbacks…one from the manufacturer and one from a distributor. Some manufacturers include the cost of regional advertising in the invoice which offsets the dealer’s advertising costs. Another common charge included in invoices is “floor plan assistance”. This goes to offset the dealer’s cost of financing the new cars in his inventory. Another is “PDI” or pre-delivery inspection expense which reimburses the dealer for preparing the car for delivery to you. I could name several more, depending on the manufacturer or distributor. Some of these monies that are returned to the dealer are not shown as profit on dealers’ financial statement and some are. Technically a dealer could say that the cost he showed you reflected all the profit defined by his financial statement, but the fact remains that more money would come to back to him after he sold you the car. To me (and the IRS) that’s called profit.

Besides holdbacks and reimbursements for expenses, you must contend with customer and incentives or rebates (usually referred to as “customer cash” or “dealer cash”) when trying to figure out the cost of that new car. You may be aware of the customer incentives, but not the dealer incentives. Most dealers prefer and lobby the manufacturers for dealer rather than customer incentives just for that reason. Also, performance incentives are paid to dealers for selling a certain number of cars during a given time frame. These usually expire at the end of a month or a quarter, and are one reason why it really is smart to buy a new car on the last day of the month.

Last but not least, remember the hidden fees named whatever the dealer chooses… “dealer fee”, “dealer prep fee”, “doc fee”, “dealer inspection fee”, “electronic filing fee”, “e-filing fee”, “tag agency fee”, “taxable fees”, etc. which are added to the advertised price or the price you were quoted by the salesman.. They are printed on the buyer’s order and sometimes the worksheet and are lumped into the real fees such as state sales tax and tag and motor vehicle registration fees. Most dealers in Florida (it is capped or illegal in many states) charge these fees which range from $500 to $3,000. If you’re making your buying decision on your perceived cost of the car, even if you were right, here is up to $3,000 more in profit to the dealer.

Hopefully you can now understand why it is virtually impossible to precisely know the cost of the new car you are contemplating buying. Most often the salesman and sales manager are not completely versed on the cost either. Checking the cost on a good Internet site like www.kbb.com or www.edmunds.com is about the best you can do. Consumer Reports is another good source. One reason that Internet sites don’t always have the right invoice price is that different distributors for cars invoice their dealers at different prices.

Do not decide to buy a car because the dealer has agreed to sell it to you for “X dollars above his cost/invoice”. This statement is virtually meaningless. You are playing into the dealer’s hands when you offer to buy, or he offers to sell, his car at a certain amount above his cost. As I have advised you in an earlier column, you can only be assured of getting the best price by shopping several dealers for the exact same car and getting an “out the door” price plus tax and tag only,GOVERNMENT FEES.

How and Why Car Dealers Sell You Things You Don’t Need or Want (or even know about)

If you bought a new car recently, the probability is almost 100% that there were products and services added by the car dealer to the price you paid for the car. You may not even know that you paid extra for items like interior fabric protector, paint sealant, rental car assistance, roadside assistance, nitrogen in your tires, glass etching, pin stripes, and window tint. The one thing all these items have in common is that they’re over-priced. The markups on these products are much higher than any factory accessory installed by the manufacturer. Factory accessories like cruise controls, sunroofs, and navigation systems are marked up in the range of 15% to 25%. Dealer installed accessories are marked up 100% to 500% and higher.

Non factory installed accessories are also pre-installed by auto distributors. When cars first were retailed in the early 20th century, they were sold to the retail buyer through dealerships that were owned by the factories like GM, Chrysler, and Ford. This evolved as sales grew to factory owned distributors that distributed cars to independent dealers. When imported cars like Honda, Nissan (Datsun), Mazda, and Toyota became popular, they were mostly sold through independently owned distributorships that established networks of car dealers. Most of these distributorships have vanished and the manufacturers sell most of their car directly to independent car dealers. The largest and most notable exception is Southeast Toyota (SET) headquartered in South Florida. SET buys all their new Toyotas directly from Toyota and resells them to all the Toyota dealerships in Florida, Georgia, North Carolina, South Carolina, and Alabama.

Because Toyota is, by far, the best-selling vehicle in the Southeast USA, the impact of the non-factory, pre-installed package named “ToyoGuard” is worthy of mention. Most Toyota dealerships in the Southeast and nearly all in South Florida order most of its cars with this distributor installed accessory package. The platinum ToyoGuard package retail price is $699. The cost to the dealer (if he orders at least 75% of his vehicles so equipped) is only $225. That’s a 311% markup! I’m not sure what the actual cost to Southeast Toyota is, but it’s probably a lot less than $225. Included in this package are fabric protection, paint sealant, rental car assistance, roadside assistance, 2 oil changes, and 4 tire rotations. One can debate the value of this “$699” package, but the fact that the true cost to the dealer is only $225 and the true cost to SET is less than that is indisputable.

The fact that the true cost of ToyoGuard and all dealer installed accessories is a tiny fraction of the retail price is not the main reason I object to them. The main reason is that I believe the retail buyer of a new car is entitled to choose the accessories on the car she buys. Extra, over-priced accessories on an “addendum label” next to the factory window sticker are likely not something the buyer wants or, most likely, even knows about.

I fully support the right of car dealers and distributors to sell extra accessories to their customers. But the features, benefits, and value of these accessories should be presented first, and sold only if their customer agrees that they are a true value at the price charged. When a car dealer or distributor adds accessories to almost every car he sells before the retail customer has a chance to say “no”, it’s ethically and morally wrong.

To avoid being duped into buying something you didn’t want or know about, always ask the salesman this question. “Does the advertised price and the price you quoted me include any accessories that were not installed by the vehicle manufacturer?”

11 RED FLAGS TO WATCH FOR WHEN BUYING A CAR

(1) The “Big Sale Event”. If you look in today’s newspaper, you will find that most car dealers in your area are having a sale of some kind. It may be because of a current holiday, “too large an inventory” of cars, to “reduce their taxes”, “the manager is out of town”, or some other nefarious lure. Advertising 101 says that you should give the prospective buyer a “motive to act”. Unfortunately, it doesn’t matter whether the motive is real or not. The fact is that most car dealers do not sell their cars for less during “sales events” than they do at any other time. I point this out so that you don’t rush your buying decision. If you don’t buy a car during the tight time constraints of a phony sales event, you can negotiate just as good a price the next day. The exceptions to this are legitimate rebates offered by the manufacturer. These often expire at the end of the month which is one reason why the “last day of the month” really can be the best time to buy a car”.


(2) This is the out-the-door price, plus FEES. Every car dealer I know of adds (except me) raises the price he gives you by tacking on multiple PHONEY FEES, disguised asgovernment fees. Many buyers never realize that the total price includes an average of over $1,000 (as much as $3,000) in hidden added profit to the dealer. Customers don’t know this because the paperwork you sign when you think you’re buying the car is not a legal document (vehicle buyer’s order), but a worksheet. You sign the legal documents in the F&I or business office when the law requires disclosure of non-government fees. These are hidden in the fine print along with lots of other fine print that nobody reads. Most buyers assume that the big increase in the price they thought they were paying is from sales tax and license-registration government fees. The names of these fees disguise them to make you think they’re paid to the government…electronic filing fee, e-filing fee, doc or documentary fee, tag agency fee, etc.

(3) “The Price I’m giving you is only good for today”. If a salesman or sales manager tells you that, it is probably only a tactic to push you into buying the car. The only exception would be the expiration of a factory rebate. Once again, this is simply a tactic to push you into buying before you have a chance to do your comparative price shopping.

(4) “Take the car home tonight and see how you like it”. Driving the car you are considering buying home can be a good thing. It will give you a lot better idea about how the car performs, etc. However, there are two reasons the car salesman offers this. One is that you must leave the vehicle you might be trading in with the car dealer. This means that you cannot shop prices with other dealers. The second reason is the psychological impact of parking that new car in your driveway where your family and neighbors can see it. The slang expression for this is “the puppy dog”. If you were to take home a little puppy from the pet store, you and your children would fall in love with her and could not return her the next day.

(5) “You must give me a deposit before I can give you a price”. This must be one of the most insulting ways that some car salesmen have of intimidating a prospective buyer. It’s amazing how many people succumb to this which allows the salesman an element of control…. you can’t leave until they give you your money back. If confronted with this ultimatum, simply walk away.
“Are you ready to buy a car today”? Often, if you say no to this question, the salesman will tell you to come back when you are ready to buy. He will tell you to shop around and come back with your best price so that he can beat it. The salesman is afraid that, if he does give you his best price, you will go somewhere else and that salesman will beat it. Of course, that is the whole idea of competition and that is exactly what you want to do. If the salesman is afraid to give you a price because his competitor will beat it, it must not be the best price!


(6) “Make me an offer and I will take it to my manager for approval”. This is a very common tactic which you have probably already encountered. It is not unethical. It is simply part of negotiating. I point this out so that you are fully aware that this is part of the negotiating game. Be aware, that no matter what price you offer, the manager will ask you for more money. Even if you offered a high price that would be a very large profit for the dealer, the manager would ask you for more money. The psychology behind this is that if you suddenly accepted the offer, you may frighten the customer by thinking he had offered too much (which he would have). When you negotiate, you must be well versed on what is a good price for that car. Start out below the best price you think you can buy it for. If you cannot negotiate a price close to your best price, get up and leave. Continue this process with another car dealer.

(7) The “really big” discount. The other day a friend showed me direct mail advertising piece from a new car dealer with a coupon good for $2,000 discount on any car in his inventory. This is very common for newspaper and TV ads too. Federal law requires new cars to have a price sticker on the window named the Monroney label. A discount from this suggested retail price gives you a fair basis for comparison. Unfortunately, most car dealers today, increase the suggested retail price substantially with the use of an addendum to the Monroney sticker often referred to as a “Market Adjustment Addendum”. This “adjustment” can be several thousands of dollars. Be sure you know what the asking price is for the car when you have been offered a “big discount”.

(8) The” really big” trade-in allowance. Car salesmen are trained to seek out your “hot button”. Some car buyers are focused on how much the car dealer will offer for his trade-in. It’s very easy to offer you more for your trade-in than it’s truly worth by simply inflating the price of the car you’re buying by hidden fees, dealer installed accessories, or by simply inflating the MSRP.

(9) The “very low” monthly payment. Everybody is a “sucker” for a low monthly payment. That’s why leasing is so popular today. We budget all our spending around our weekly or monthly salaries. It’s easy for us to overlook the fact that it’s not only the amount of the monthly payment but the total number of payments and the down payment hidden in the fine print that counts.

(10) Just $100 above “dealer invoice”. Webster defines “Invoice” as the price the buyer pays to the seller. It should be ILLEGAL for manufacturers and car dealers to label the document that they send car dealers when they sell them a new vehicle as an invoice. THE INVOICE IS NOT THE SELLING PRICE BY THE MANUFACTURER TO THE DEALER. The invoice conceals multiple hidden kick-backs to the dealer by innocuous names like holdback, dealer incentive, advertising fee, floorplan assistance, etc. A car dealer averages thousands of dollars of kick-backs on each vehicle invoice he buys. Many dealers sell most of their new vehicles below invoice. Interestingly many manufacturers don’t allow their dealers to advertise prices on new cars below dealer invoice. One could conjecture that this may have the effect of artificially inflating the fair market price of new vehicles.

(11) “We want to buy your used car”. First, let me say that car dealers do like to buy used cars from the public; it’s not always a ruse to sell you a new car. Dealers like to buy used cars from you because they can buy them for much less than they must pay at the auto auction where other car dealers are competing to buy the same vehicle. However, most advertisements that you see (especially direct mail) are just trying to trick you into coming into the dealership so they can sell you another new or used car.

The best protection from all the above is to find a car dealer that you can trust. Ask your friends about their experiences with dealers and call the Better Business Bureau and the County Office of Consumer Affairs. Check the dealers’ Google rankings. A good tip on reading Google rankings is to ignore the “5 stars and “0 stars”. Read the 3- and 4-star ratings. They’re likely to be more real and thoughtful. All things being equal choose the dealership that has been in business a longer time and an owner or general manager who will make himself accessible to you and all his customers.

THE BOX: Car Dealers’ New, Major Profit Center

Okay, 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 (finance and insurance) office or the business office. This is the place that you sign all 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 most car dealerships it’s the most profitable department. It’s not uncommon for car dealers to make an additional $2,000 profit or more in “the box” on each car they sell.

In the last few years, the average profit margins on new and used cars has narrowed. This is for a variety of reasons including the knowledge explosion (Google), the Internet, big data, third party car-buying sources like Costco and TrueCar, and the pressure from the auto manufacturers on dealers to increase their sales volume. Maybe the single biggest pressure on car profit margins is the education and sophistication of the 21st century consumer. The biggest auto retailer in the world is AutoNation. Because they were losing money selling new cars, they made the decision over a year ago to raise new car prices even though this cost them volume. They also made the decision to emphasize profits from the sale of “products” like extended warranties and the “interest spread” in their Finance and Insurance departments, aka THE BOX.

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 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, don’t commit. You can always go home, think about, and seek advice from friends and advisors.

Another important tactic is to never go into “the box” alone. If it’s just you and the F&I manager [often called business manager], and there’s 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 many 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 if you did not use it. In Florida, 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 one thing. Do not hurry the process of financing your car and signing the papers. Don’t let the car dealer pressure you into signing 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.

Dealing with Hidden Fees (aka Dealer Fees)

Hopefully by now, all but my newest readers know about the infamous “Dealer Fees”. If you don’t know, they’re hidden price increases on the car you purchase disguised to look like a federal, state, or local tax or fee. It’s 100% profit to the dealer. “Dealer Fee” is the most common name for this disguised profit, but they go by many names such as doc fee, dealer prep fee, service fee, administrative fee, electronic filing fee, e-filing fee, tag agency fee, pre-delivery fee, etc. The names are only limited by car dealers’ imaginations. Almost all car dealers in Florida charge a Dealer Fee. The dealer fees range from around $700 to as high as $2,000!

This is the Florida law that is supposed to regulate the Dealer Fee: “The advertised price must include all fees or charges that the customer must pay excluding state and local taxes.” The law also requires that the Dealer Fee must be disclosed to the buyer as follows: “This charge represents costs and profits to the dealer for items such as inspecting, cleaning, and adjusting vehicles and preparing documents related to the sale.”

This law is very weak and almost never enforced. When enforced, it isn’t enforced by the letter of the law; it’s done so as to “accommodate” the car dealers. The law is “weak” because it requires only that the dealer fees be included in the “advertised” price. The word “advertised” is narrowly interpreted to mean a specific car shown in a newspaper, TV, radio, or online ad, but, what about when you get a price on the phone, online, or from the salesman? You don’t find out about the Dealer Fee until you’re in the business office signing a bunch of papers. The dealers get around advertisements very easily by including a “number” in the fine print. This number is their stock number that designates one specific car. When you respond to the ad, this car is no longer available (sales people are usually not paid a commission for selling the “ad car). The advertisement might say “many more identical cars are available.” It’s true that identical cars are available for sale, but they are not available for sale at the sale price because they are not the advertised stock number car. If you buy one of those “exact same cars” you will pay from $700 to $2,000 more.

The reason I’m told that the law is rarely enforced is that the Florida Attorney General’s office is understaffed and too busy enforcing other Florida laws. I’m also told that Florida car buyers don’t file very many complaints against car dealers for violating the Dealer Fee law. I don’t believe that there can be too many other infractions of the law that take more money annually from consumers than dealer fees take from car buyers. Just one car dealer selling 1,000 cars a year and charging a $1,000 dealer fee is taking a $1 million annually from car buyers. Most car dealers in South Florida sell a lot more than 1,000 cars annually and many charge more than $1,000 dealer fee. I believe that the reason more complaints aren’t filed on the dealer fee is because most car buyers don’t know that they are being duped. They either don’t notice the fee or assume it’s an official federal or state fee. Dealer often tell their customers that all dealers charge it and that it’s required by law…not true.

The Attorney General also “accommodates” the dealers by not interpreting the law the way it was intended. For example, the law says that the dealer fee must be included in the advertised price. The Florida Senate has ruled that the law requires that the fee be “included” rather than “specifically delineated.” But the Attorney General allows car dealers to advertise car prices without including their dealer fees in the price if they mention their dealer fees in the fine print. They also allow car dealers to simply state in the fine print that they have a Dealer Fee but not even mention the amount. To me they are simply allowing the car dealers to break the law.

Lastly, the required disclosure of the Dealer Fee on the vehicle buyer’s order or invoice is confusing, misleading, and incorrect: “This charge represents costs and profits to the dealer for items such as inspecting, cleaning, and adjusting vehicles and preparing documents related to the sale.” It should not say “costs” because any cost that you pass along to the customer in the price of a product is pure profit. A dealer can pass along his utility bills, sales commissions and advertising if he wants to and call it a “dealer fee”. It should not say “inspecting, cleaning, and adjusting vehicles” because all car dealers are reimbursed by the manufacturer for “inspecting, cleaning, and adjusting vehicles”.

So, what should you do when you are confronted by a car dealer with the “Dealer Fee”? Besides “LEAVE”, here are some suggestions that may help you:

(1) Make it clear from the very beginning that all prices you discuss must be “out-the-door” prices. This way you don’t care if the dealer fee added up front because you will shop and compare their bottom-line price with at least 3 competing car dealers. Ideally you should require that they include tax and tag in that price. If you don’t, they might try to slip in something they call the “electronic filing fee” or “e filing fee” and trick you into believing it’s part of the license tag and registration.

(2) The dealer will often tell you that all car dealers charge Dealer Fees and that they are required by law to add the dealer fee on every car they sell. Simply tell them that you know this is not true and you can cite me and other car dealers like OffLeaseOnly.com who do not charge dealer fees. Print out a copy of this article, show it to them, and tell them that you know that there is no law that says he must charge you a dealer fee.

(3) As long as you and the dealer understand that the out-the-door price is the price you will shop and compare with his competition, you don’t need to be concerned whether there is a dealer fee showing on the vehicle buyer’s order. To be competitive, the dealer can simply reduce the price by the amount of his Dealer Fee and the bottom line is what you are comparing. You can download a legal form,www.OutTheDoorPriceAffidavit.com, that you ask the car dealer to sign before you sign the vehicle buyer’s order. The dealer legally commits that the price he quoted or advertised is an honest out-the-door price. If he won’t sign this affidavit, than you won’t sign the buyer’s order.

(4) Be aware that dealers usually do not pay their sales people a commission on the amount of their dealer fee. In fact, dealers often misinform their sales people just like they do their customers. The salesman who tells you that the all dealers charge Dealer Fees and that the law requires everyone pay a dealer fee may believe it. Sale people who understand that the Dealer Fee is simply profit to the dealer will be resentful of not being paid their 25% commission on it. A $1,000 dealer fee costs the salesman $250 in commission.

(5) When you respond to an advertisement at a specific price for a specific model car, object when the dealer adds the dealer fee. Unfortunately, the law allows him the loophole of claiming that the ad car is a different stock number, but you might be able to shame him into taking off the dealer fee. If you raise a “big enough stink”, the dealer would be smart to take off the dealer fee than claim that technicality, especially if you were to advise the local TV station or newspaper.

I hope that these suggestions help you and I hope that you will file a complaint with the Florida Attorney General, Ashley Moody. If enough consumers (who are also voters) let our elected officials know how they feel about Dealer Fees, it will bring positive results.

Why Your Car Dealership Won’t Tell You the Price

I’m sure that you noticed that the last time you went car shopping you were unable to get a firm price on the car…unless you were willing to sign on the dotted line and put down a deposit. It’s impossible to get a firm price on a car over the telephone, in person, and very difficult to get one online. If the salesman agrees to give you a price, it excludes hidden fees and dealer installed accessories. If on the off chance you’ve never bought a car, or haven’t bought one in a long time, try this. Call any car dealership and ask for a price on a specific year, make, and model. I can almost guarantee that you won’t be able to get an honest, firm price.

Have you ever wondered why you can get a firm price on just about any other product except an automobile? You can call a jewelry store and get a price on a diamond ring that costs as much or more than a car. You can go on Amazon.com, get a firm price, and buy virtually anything. Walk in or call any department store and they give you a firm, out-the-door price.

Car dealers don’t want to give you a firm price because they want to deprive you of a fundamental right of our American free-market economy, which is to be able to shop and compare prices so that you can choose the lowest one. There are some countries where the prices are dictated by the government or giant cartels. We have anti-trust laws in America that prohibit price fixing, monopolies, or collusion between companies which keep prices artificially high.

In fact, there’s even a federal law that says auto manufacturers must put a sticker on all vehicles that discloses the Manufacturer’s Suggested Retail Price, MSRP. This law was written by Senator Mike Monroney back in 1958. Senator Monroney felt there was a need for this law because, before then, car dealers could ask any price they wanted for car. They could put their own price sticker on their cars and mark their cost up any amount they chose. A car-buyer, pre-1958, had absolutely no basis for comparing prices between competing car dealers. The MSRP gave every car shopper a common basis for comparing discounts from MSRP. All dealers pay their manufacturers the same price for a car and all MSRP’s for a specific year-make-model have the same percentage markup. The Monroney label was a great idea and it worked well for a while, but it wasn’t too long before the car dealers figured out ways around this “handicap” to their profit margins.

The easiest way around an MSRP is simply to refuse to give the customer a firm discount unless they agree to buy the car, and therefore you can’t get a price from a car dealer until then. Another way is to give you a firm discount but add hidden charges like dealer fees, doc fees, electronic filing fees, or dealer installed accessories after you agree on the discount from MSRP. “Bait and switch” is a popular tactic which simply brings you in to buy a specific car only to find out that its “just been sold” …but here’s another one almost like it”. Another popular tactic is to advertise discounts from “list price”, “dealer list price”, or “sticker price”. Dealers even have counterfeit Monroney labels printed that they display alongside of the real Monroney label. These counterfeit price stickers I’ve named “Phony Monroney’s”. I’ve seen advertisements from a South Florida car dealer, advertising “$10,500 Discounts on Every Vehicle in Stock”. The discounts aren’t from the MSRP but from “dealer list” which is clearly thousands of dollars above MSRP.

The best defense against all of this is to insist on an out-the-door price. The definition of an out-the-door price is “the full amount paid to the dealer plus government fees (tax and tag) only. Explain the following to the sales manager at the car dealership. “If you give me an honest out-the-door price, I will compare it with the two prices I already have from two other car dealerships. I will buy from the dealer with the lowest price. If you agree to give me your best price, you have a 33% chance of selling me a car. If you refuse to give me a price right now, you have 0% chance of selling me a car, because I will walk out that front door and you will never see me or hear from me again.” You can accomplish the same thing over the telephone or via email. You can download a form for the dealership to sign to guarantee this price at www.OutTheDoorPriceAffidavit.com. If the dealership refuses to sign this, they aren’t being honest about giving you their lowest price. Buy your car elsewhere.

I also recommend that you try www.TrueCar.com in addition to the tactic I just described. By way of full disclosure, I’m a TrueCar dealer, I own stock in TrueCar, and was member of the TrueCar national dealer council for three years. Another good third-party buying source is www.CostcoAuto.com. Costco requires an annual membership fee of $65 which is well worth the investment.

Minimizing the Pain of Having Your Car Serviced

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

(1) If you decide to have your vehicle serviced by a dealership rather than an independent, choose the dealer with the best service department, not necessarily the dealer you purchased your vehicle from. You don’t have to have the same dealership service your car that sold you your car. You probably bought your car from the dealer who gave you the best price. You should have your car serviced at the dealer who can best maintain and repair your car. Your manufacturer doesn’t require that you have recommended maintenance done by their dealers, but you should keep receipts from the independent you choose to prove you had it done in the event of a warranty claim. You must have warranty repairs done by the dealer. The price of service is important, but secondary to the quality of the service and repairs. Do a little research. Ask friends and neighbors who drive your make of car. Check with the BBB and the County Office of Consumer Affairs. Ask the service manager at the dealership to show you his factory score on CSI (customer satisfaction index). Every manufacturer surveys dealers’ service customers and ranks that dealer by how well he treats his customers. Many auto manufacturers are measuring service satisfaction by the percentage of customers that return to their dealer for service, Service Retention. This is the most accurate measure of how well your dealer will service and repair your car.


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

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

(4) Always road test your car, preferably with the technician. If you brought your car in for a drivability problem such as a noise, vibration, or pulling to the right or left, don’t accept the car back until you ride in the car with the technician or service advisor and confirm that the problem has been remedied. I also recommend that you drive the car with the service advisor to demonstrate the problem when you bring it in. His experiencing what you experience always communicates your problem more accurately than listening to your description of the problem. If your problem is a troublesome “noise” which the technician or service advisor cannot hear, but your do, insist on someone else driving with you who has better hearing.

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

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

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

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

(9) DO NOT BUY ANY SERVICE THAT IS NOT RECOMMENDED BY THE MANUFACTURER. Modern cars require far less maintenance than cars built ten years ago. Car dealers and independents are suffering from the small amount of factory recommended maintenance. To supplement this, they are inventing unneeded maintenance under the guise of dealer recommended maintenance. Be sure that you carefully review your car’s owner’s manual each time you bring your car in for routine service. Be especially careful not to buy “FLUSHES” of the radiator, transmission, fuel system, power steering, engine oil and brake fluid. These are inventions of the dealer and independent service departments to make money and are not recommended by your car’s manufacturer.

Car Dealers Make More Money Financing Your Car than Selling it

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 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 most car dealerships it’s the most profitable department. It’s not uncommon for car dealers to make over $1,500 in “the box” on each car they sell. AutoNation, the world’s largest auto retailer makes over $2,000.

The auto manufacturers put a lot of pressure on their dealers to sell more new cars. Dealers have minimum quotas that they must meet or exceed. If they don’t, they can be penalized by losing large cash bonus rewards. To ensure that they don’t lose these bonuses, dealers are being forced to price new cars so low that many dealers are losing money in their new car departments. This puts even more pressure on car dealers to make up for the lost new car profits by increasing their finance department’s profits.

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 3% and loan it to you for 5% 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’re unclear on the merits of a product, don’t commit. You can always go home and think about and seek advice from friends and advisors. If the finance manager tells you that you must decide immediately, just leave. He’s not being honest.

Another important tactic 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 the bank’s willingness to approve your financing 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 to protect the bank’s collateral. This is simply a lie. Another common form of deception is to not disclose the products or interest rate, and have you sign the contract without reading it. There are many 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 if 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, but the amount is taken off the principal amount you are financing through the bank. You can 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. Don’t hurry the process of financing your car and signing the papers. Don’t 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.

Top Ten Car Ad Scams

I could write a “Top 50 Auto Ad Scams” because the ingenuity for deception in “getting car buyers in the door” is virtually limitless. However, I chose to concentrate on the ten most popular with South Florida dealers. Just beware that there are many more schemes than these I list.

(1) Discount from Dealer List. Anytime you read or see a car advertised with a large discount, determine whether that discount is from the MSRP [manufacturer’s suggested retail price] or the dealer’s retail price. An all too common practice is for a dealer to mark up his cars thousands of dollars over the MSRP and call it “dealer list” so that he can show huge discounts that aren’t real.

(2) Prices exclude “impossible” rebates. Manufacturers often offer cash rebates to customers who qualify for special reasons. Some of these are being on active duty in the U.S. military. This rebate can be as much as $1,500. If you graduated from an accredited 4 year university within the past 6 months you can qualify for $500 to $1000 from some manufacturers. There is a customer “loyalty” rebate which affords you $1,000 or more if you own the same make car that you are buying. There’s a similar rebate for lease customers. There’s even a “Farm Bureau” rebate which qualifies you for $500 if you’re a farmer. Dealers are combining all of these rebates and deducting them from advertised prices of their cars. Of course, what are the odds that any customer would simultaneously qualify for all these rebates? The average reader of these ads qualifies for none of the rebates.

(3) Lease payments based on large down payments. Virtually every lease payment advertisement requires a large down payment which is concealed in the fine print. Most people lease because they want to lay out as little cash as possible. If they had $4,000 cash to spend, they would probably opt for a purchase. Those that fall for this trick often end up leasing the car at the full retail. Leasing companies will allow dealers to lease cars for “only” up to 110% of capitalized cost. When you make a down payment, this reduces the net capitalized cost which allows the dealer to sell your contract to the leasing company.

(4) Lowest Price Guarantee. This guarantee is worthless. If you read the fine print, you will note that it says that “the dealer reserves the right to buy the car from the other car dealer [his competitor] at the same price his competitor quoted you”. No car dealer is going to accommodate his competition so that they can steal away his customer. Of course, the other fact that makes this guarantee worthless is that it requires that you prove the lower price by presenting a buyers’ order from the other dealer signed by a manager. Very few car dealers will give a signed copy of the vehicle buyers’ order to a customer unless they drive the car home or make a substantial, nonrefundable deposit.

(5) Only one car available at ad price. When you are reading or listening to an advertisement, you will often see a strange number next to the advertised car. If you are watching the ad on TV or listening on radio, the number will be unreadable or undecipherable as is the fine print. An example is STK #T91832. This is the stock number of the car and means it is the only car of that model and accessories you can buy at the advertised price. They don’t say “only one car available at this price” because you would realize that the chances of that car being there [or sold to you if it is there] are very slim. Don’t be misled if the ad also says, “many more identical models available at this price”. Florida law requires that dealers include the dealer fee in their advertised price. But if that specific stock number car is unavailable, they can add their hidden dealer fees to the price of an identical car. This scam is why I continue to lobby Tallahassee to require that all profits to the dealers be included in all prices whether advertised, verbal, or on the Internet.

(6) Advertised price is “plus dealer installed accessories”. All this means is that the price you see is notthe price you get. Dealers love to add their accessories to their cars because they can set any price they want and drastically increase their profit margins. A dealer charging you $299 for pin stripes and floor mats would have a real cost of about $100, allowing him a 300% margin.

(7) Lease payment based on unrealistically low mileage allowance. All leasing companies limit the number of miles you can put on their car without paying a penalty. This is because the higher the mileage, the lower the resale value and the leasing company must sell their car at the end of the lease. The average American drives her car 15,000 miles per year. It’s very common to see mileage limits of 10,000 and even 7,500 miles per year with penalties of 25 cents per mile. For an average driver in a four-year lease, that would be a penalty of $7500! The dealers don’t get this money, the leasing company does, but the dealers do this so that they can advertise an unrealistically low lease payment.

(8) Lifetime Warranty. A lot of dealers are advertising these “lifetime warranties” on every car they sell. This is a very limited warranty which applies only to the car’s powertrain. The term powertrain has different definitions as to which parts of the car it consists of. It typically means only those parts of the engine, transmission, drive shaft, and rear axle that are lubricated. These parts virtually never fail if you change your oil as prescribed by the manufacturer or by the issuer of the warranty policy. If you fail to change your oil as prescribed, the warranty is null and void. It’s a win-win for the car dealer. You must come in to have your car serviced regularly so that he can make more profit and, if you do comply with this, there will never be a claim. Dealers do pay outside warranty companies for these warranties, but the cost to the dealer is minuscule, around $25. The low price the dealer pays the warranty issuer is further proof that the warranty is worthless.

(9) Purchase payments include “balloon payment”. How would you like to buy a new BMW 328i for just $339 per month only to discover that your last payment was $12,983! Oh, and you also had to make an upfront down payment of $2,500. ALWAYS READ THE FINE PRINT!

(10) Internet Quotes Exclude “Dealer Fees”. The average “dealer fee” in South Florida is over $1,000. At least half of car buyers are using the Internet to buy cars today. Almost 90% used the Internet for information about buying their car before going to the dealership. Virtually every car dealer in Florida charges multiple, hidden dealer fee and they all exclude those from the price you are quoted on the Internet. I spoke to a woman just the other day who drove all the way from Lakeland to West Palm Beach to pick up the new Infinity that she had purchased on the Internet. When she got to the dealer, he added an additional about $1,000 in hidden dealer fees.

Deaths from Dangerous Recalls Are the fault of our Legislators

Clearly auto manufacturers are partly to blame for the millions of vehicles on our highways with unfixed, dangerous recalls, like Takata airbags that explode in the driver’s face like a hand grenade. But the auto makers didn’t build cars with dangerous problems on purpose; it was a mistake.

Our lawmakers could get virtually all these cars repaired very quickly just by passing a law to make it ILLEGAL TO SELL A VEHICLE WITH A DANGEROUS RECALL. Their lack of action on this issue is not a mistake; it’s premeditated to enhance their chances of reelection.

You may be thinking that the auto makers are doing all they can because they issue recall notices to drivers and will fix their cars free when the owner brings it to one of their dealers. One wonders how many recalls would be issued if they weren’t required to do so by the National Highway Traffic Safety Association, NHTSA.

The reason that recalls don’t solve the problem is that only 1 out of 4 recalled cars is ever fixed. That’s because most drivers of recalled vehicles are unaware that their vehicles have been recalled and many procrastinate or just don’t care enough to have it fixed. Also, there are hundreds of thousands of recalled cars for which there’s no fix available.

Older recalled cars are often the most dangerous, especially those recalled for defective Takata airbags that become more dangerous over time. A driver of a 2010 used Honda could easily be the second, third or even fourth owner. The chances of that owner receiving a recall notice in the mail are slim. When the car was purchased new, there was no recall. When the car was subsequently sold by used car dealers, there was almost certainly no disclosure made to the buyer. Most states don’t require the disclosure. When and if a disclosure is made, it’s usually buried in the fine print. Yes, this information is available to buyers online via CarFax, NHTSA, and the manufacturers, but the reality is that very, very few used car buyers avail themselves of this.

I’ve mystery shopped dozens and dozens of car dealerships in South Florida over the last three years and virtually everyone is selling cars with dangerous recalls and no disclosure. Many car salesmen lie about the recall, saying there is no recall, or the recall was fixed. Many tell the buyer that all she must do is take it the new car dealer and have it fixed when he knows there is no fix available. You can read these mystery shopping reports at http://www.mysteryshoppingreports.com/.

The auto manufacturers and car dealers are fully aware of all the above, but if they voluntarily refused to sell a recalled car to a customer it would have a significant negative economic impact. The auto manufacturers and many of the car dealerships (AutoNation, CarMax, Penske, Sonic) are publicly owned companies. A public company has a fiduciary responsibility to their stockholders to make a profit by every legal means. Mike Jackson, then CEO of AutoNation, made the right and moral decision not to retail used cars with defective recalls to its customers. After a year of declining used car profits and outcries from stockholders, he reluctantly began retailing these dangerous cars.

The only way to get these dangerous vehicles off the road, fixed and safely back on the road is for our federal and state legislators to make it illegal to sell a vehicle with a defective recall. This is almost laughably simple and obvious. It’s also sadly simple and obvious that the only reason they don’t is because they will lose the financial support for reelection from the auto makers and auto dealers.

Should I Pay Cash for My Next Car or Finance It?

Most people don’t have any choice except to finance their cars. However, if you are reading this column, the chances are you’re in that fortunate higher demographic income group and can afford to pay cash for your next car. People who read newspaper columns and blogs tend to be more intelligent and affluent. But, just because you can, is it the right move?

Many people think they can get a better deal on a car if they pay cash. This was true 50 years ago before dealers discovered the new profit center referred to as the Finance and Insurance Department aka “Business Office”. Today this is not true. In fact, paying cash may even make the actual vehicle cost you more! The reason for this is that car dealers make money when they handle the financing with the bank or with the manufacturer’s lenders like Honda Finance, Chrysler Credit or normal banks like Wells Fargo or Capitol One. A dealer typically averages about $4,000 on every car he handles the financing on. Therefore, if the dealer’s minimum acceptable profit on the car’s markup was $1,000, he may sell it to someone who he could make $4,000 finance profit on for less than someone who he knew was a cash buyer. Dealers will sometimes sell a car for zero profit or even lose money on the car because they can make a good profit on the financing.

If you plan on paying cash for your next car, my recommendation is DO NOT TELL THE CAR DEALER THIS. Tell the car dealer that that you are considering financing with him. This will help you get a lower price because the dealer still has hope that he can make money when he finances our car. The average profit a car dealer makes financing cars is much larger than he makes marking up the selling price. AutoNation, the world’s largest retailer of new vehicles, made the decision about one year ago to increase their new vehicle prices because they were losing money in their new car departments. They were always very profitable in their finance and insurance departments…averaging over $2,000 per vehicle on every car sold. In fact, they’ve focused more on increasing profits in the finance department even more with “branded products” …AutoNation GAP insurance, Auto Nation Maintenance Plan, AutoNation Extended Warranty, etc.

My second recommendation is check interest rates and terms with your own bank or credit union before you talk to the car dealer’s finance people. The finance manager (aka business manager) is on commission and paid a generous percentage of the profit he makes by marking up the bank’s interest rates and selling you extra “products” like extended warranties, GAP insurance, and car maintenance.

One argument in favor of financing a car is being able to keep your money invested, and earning a greater return than your interest cost of financing. There has never been a never time in our history that this is true. The bad news is that interest rates are not only at historical lows for borrowing but also for CD’s and interest income. With very good credit, you can finance a new car today for between 3% and 4%, but you can’t find a short federally insured CD for that amount. However, you can find secure equity and bond investments that will earn considerably more than your cost of interest on financing a car.

There is one very important intangible reason why some people should pay cash for their car. That intangible is called “peace of mind”. My older brother, Doug, grew up during the Great Depression. When he built his new house, he paid cash for it. I couldn’t believe this and was severely critical of him. It was entirely illogical for him to pay cash when he could get a very low interest rate and home mortgage interest is tax deductible. His investments earned him far more than the interest rate on his mortgage would cost. After a while I finally realized why Doug was right and I was wrong. He paid cash for his home because it made him feel better. Growing up in the thirties, like many of my customers did, made an indelible impression on his emotions. Owning his home with no debt made him feel happy and secure and what could be more important than that?

Should You Exercise Your Option to Buy Your Leased Car?

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

The best thing about making this decision is that you’re holding the best hand in the card game between you, the leasing company, and the dealer. That’s because you know your car better than they do. You’ve probably been driving it for close to three years, you know how well you’ve maintained it, how worn the tires are, whether it’s been wrecked and repaired, and how many dings, dents, or upholstery stains there are. You know if it was garaged, how carefully you drove it and the exact mileage. You also know, better than anybody, how well it runs. All these things determine the value of your car.

Unless you buy a new car, you can’t have as much confidence in any other used car that you buy as your own used leased car. The only assurance that you have when you buy somebody else’s used car is their word, or the dealer’s word, about how it was driven and maintained. A CarFax report offers good information, but it’s not 100% reliable. That means if you did take very good care of your leased car, drove it carefully, kept it in a garage, waxed and washed it faithfully, maintained it carefully and didn’t put too many miles on it, it’s worth more to you than anybody else. That’s because you’re the only one who knows that. And you can never be sure about that for any other used car you might buy.

Given that you like your leased car and want to keep it, the next step is determining the current wholesale market value for your car. Car dealers call this the “ACV”, for actual cash value. Check the Internet for information on the value of your car. The best check on the wholesale value is to drive your car to 3 or 4 car dealerships that are franchised for your make. If you drive a Ford, visit as many Ford dealerships as you can and tell them you want to sell your car. You aren’t misleading them because it’s a lease car. You could exercise your option to buy it from the leasing company and then resell it to the dealer, if the dealer’s offer was higher. If you live near a CarMax store, the largest retailer of used cars anywhere, they buy a lot of used cars “over the curb” and their prices are often competitive. Be sure you get a quote from them. Two other sources for an accurate wholesale market value of your car are www.Carvana.com and www.WeBuyAnyCar.com. You can get an online estimate from each of these companies and they will also give you a firm cash offer when they see your car.

Now that you’re armed with the actual market value for your car, you can compare it with the residual value in your lease contract, the price you have an option to buy it for. You might get lucky and be able to sell your car to a dealer, www.WeBuyAnyCar.com, CarMax, or www.Carvana.com for more than your option price. If so, you can flip the car for a fast profit. It’s not unheard of to make $1,000 or more by doing this. If you want to keep your leased car, you should be sure that your option price is less than, or very close to the true wholesale market value. If not, you’re better off to give the leased car back to the leasing company and buy similar used car at a lower price. Car dealers, of course, mark up the wholesale value of their used cars by anywhere from $1,000 to $4,000+, so even if your option price is $1,000 or so above actual wholesale, it can still be good buy. Remember, you know that used car better than anybody and if you buy another used car, you don’t.

Don’t be TRAPPED into Leasing For the Rest of Your Life

I’ve written several articles on which is the better choice, leasing or buying your next car. As a rule of thumb, I recommend buying because it’s less complicated and offers fewer opportunities for car dealers to deceive you. I also issue a special warning to seniors who, because of health issues, may not be able to drive at some point during their lease contract. They, or their *estates, are still obligated to make the remainder of the payments.

However, there is another negative on leasing which I was remiss in not mentioning in prior articles, and this applies to all age groups. When you buy a car, you’re building equity ownership in the car you’re driving; leasing is just like renting and you build zero equity. If you buy a new vehicle and finance it for 36 months, you can build equity from 50% of the original cost to has much as 70%. The average new vehicle today costs about $40,000, leaving you with an asset worth from $20,000 to $28,000!

Why is this important? According to USA Today, 40% of U.S. adults don’t have enough savings to cover a mere $400 emergency! The median amount of the average American’s savings account is only $4,830. When you buy a home or a car, you’re forced to save. More and more Americans are renting their apartment or homes and leasing their vehicles.

The auto manufacturers and auto dealers are focusing almost exclusively on leasing rather than selling today, for good reasons. Car dealers make substantially more money when they leaseinstead of sell, over $1,000. The likelihood of you repeating with the car dealer and the manufacturer is much higher when you lease vs. buy. Why? You must return the lease car to the car dealer, and the dealer begins soliciting your next lease about 6 months before your current lease expires. If you don’t repeat with that dealer/manufacturer, there’s a penalty called the “lease disposition fee”, about $350. There’s also the likelihood that you will be charged more for “above normal wear and tear” if you buy or lease a different brand. It’s easy for manufacturers and dealers to lure you into leasing, because almost everybody thinks in terms of monthly payments, not the purchase price. If you feel like you can fit the car into your monthly budget, you don’t care what the purchase price is.

That’s why so many people are now caught in the “lease trap”; not just the lease trap but forced to repeat with the same make of car they leased previously. They have no equity for a down payment on a purchase and are penalized if they switch to a different make of vehicle.

When you’re caught in the “lease trap”, you’re also precluded from buying a used car. Leasing companies and banks won’t lease used cars. A good, late model used car is a better value than a new one. It retains its value much more than a new care. Many people with limited savings and income should be buying used cars instead of new ones, but cannot if they were lured into the lease trap because of a low monthly payment.

If you’re fortunate enough to have a substantial savings or investment account that allows you to make the necessary down payment when you purchase a vehicle, that’s great and this article doesn’t apply to you. Unfortunately, it does apply to many people that are being lured into the LEASING TRAP.



*Legal pre-arrangements can be made to protect the lessee’s spouse from liability

Why Even “Honest” Car Dealers Lie to You

If you owned a business that employed a lot of people, including family and friends, that all depended on their earnings from that business to support themselves and their families, how important would the SURVIVAL of that business be to you? Of course, you and your family also depend entirely on the earnings from that business to provide housing, food, medical care, and education for you and your family. Arguably the strongest instinct in all living creatures, including humans, is SURVIVAL. Would you break the law, act unethically, or deceive someone if it was necessary to provide food, shelter, or medical care for you and your loved ones?

All retail businesses must advertise their products to sell them. Arguably, the most important factor in the consumer’s decision to buy is the LOWEST PRICE. Granted, quality and reliability of the product are important too, but once a buyer has decided on the best product, she begins looking for the lowest price. Most car dealerships each sell one brand of cars and a few sell several. Once the consumer chooses the brand, they begin shopping for the lowest price. A Ford, Honda, Jeep, or Toyota at one dealership is the same as those at all other dealerships. Furthermore, the car dealers all pay the manufacturers the same price for their cars. Despite what car dealers may tell you, large volume dealers don’t pay less for their cars than small volume dealers.

Consumers learn the lowest prices from car dealers advertising…online-digital, TV, radio, newspapers, email and snail mail. This is where the problem arises. If you’re in the market to buy a New 2019 Jeep Wrangler Unlimited Sahara 4X4 with an MSRP of $53,940, you’re going to check prices at all the Jeep dealerships in your market first. Usually there are at least 3 dealers for each brand in a market, but when you add shopping online a buyer can shop prices at DOZENS of dealerships. You’ll buy your Jeep from the dealer that gives you the biggest discount from MSRP, the lowest price.

All car dealers, of course, know that you will visit the dealer with the lowest price, so they must be sure their advertised price will be either lowest or close to it. They can only ensure that you won’t find a lower price by pricing their Jeep lower than they can afford to sell it, often below their true cost. This is how HIDDEN FEES, aka DEALER FEES came to exist. These hidden charges aren’t fees at all…at least not legitimate government fees; Hidden dealer fees are PROFIT TO THE DEALER which are not revealed to you in the advertising or the prices quoted to you online, by phone, or in person. A car dealer with $1,000 in hidden fees (average in South Florida) can advertise a car for $1,000 lower than he can afford to sell it for and still make a profit after he adds his hidden fees.

HAVE YOU EVER BOUGHT A CAR FOR THE ACTUAL ADVERTISED PRICE? Most people will say “no” and those that say “yes” probably were tricked into believing the hidden fees that were added were legitimate government fees like sales tax and license plate. Dealers can “name” a hidden fee anything they like. They typically choose names that sound “official” like tag agency fee, electronic filing fee, doc fee, notary fee, doc stamps, administrative fee, dealer handling fee, and dealer prep fee. Often, buyers never see the fees because they aren’t added until you’ve signed the dealer “worksheet” which you thought was a purchase agreement. It’s not a legal document and this disclaimer is in the fine print. Dealer do this, so they don’t have to disclose all of their hidden fees. These are printed out on the real buyer’s order in the Finance Office, along with reams of other paper and fine print that nobody has the time to read.

Who’s to blame for this sad state of affairs? The answer is our legislators and regulators, both federal and state. The political contributions by auto manufacturers, car dealers, and their associations dwarf that of the gun manufactures and NRA and rival those of Big Insurance. If the auto manufacturers and dealers don’t want a politician elected, he just must find another line of work.

About the only thing you can do to get the best price on a car is to outsmart the car dealer, and I have tool that you can download that will help you. It was invented by Nancy Stewart, my wife and co-host of my consumer advocacy radio show, “Earl on Cars”. Download this form at www.OutTheDoorPriceAffidavit.com. It is a legal affidavit that you insist your car dealer sign before you sign to buy any new or used vehicle. The car dealer is swearing that the price he advertised or quoted is the true out-the-door price plus government fees only. If the car dealer won’t sign it, buy your car from the dealer that will.

Seniors… Think Twice Before Leasing

Leasing a new vehicle is very different from renting. When you sign a 36-month or 48-month lease, you obligate yourself for 36 or 48 monthly payments, even if you can no longer drive. You’re also responsible for maintaining insurance on the leased vehicle, even if it’s not being driven. You may become incapacitated or your driver’s license can be revoked. If you die, your estate is obligated for the remaining payments.

It’s possible to have your lease assigned to another person, but this must be approved by the leasing company. There are companies that, for a fee, specialize in finding people to assume lease payments, but these people must have the approval of the leasing company.

You may have noticed that most new car advertising is for leasing, not buying. This is becausecar dealers average a much higher profit from a leased car than a purchased car. Also, the car dealer has a much better chance of keeping you as a customer if you lease. You must return the car to the dealer at the end of the lease. The car dealer and leasing company (usually the manufacturer) have monthly contact with you, because your making lease payments. Leasing companies penalize you with a “lease disposition fee” if you opt not to buy or lease another car of that make.

For all the above reasons, the car dealers and manufacturers will encourage you to lease rather than buy. Be forewarned that unscrupulous salesmen will give you bad advice to persuade you to change your mind about buying and leasing instead. They earn much higher commissions on leases, and they’re more likely to lease or sell you another car. The expression used by car salesmen when they attempt to do this is called the “Lease Flip”. The sales manager will instruct his salesman who is having difficulty making a big profit on a car purchase to “Flip her to a lease”. The salesman will try to focus your attention on the lower monthly payment of a lease and not mention the fact that you are building no equity when you lease like you do when you purchase. He won’t mention the higher cost of insurance, excess mileage charge, lease inception fee, lease disposition fee, or the charge at the end of the lease for excessive wear and tear. Some sales people will imply, or say, that you can return a lease early without any penalty. Too often your trade-in is undervalued or not valued at all on the lease contract. Lease contracts are very complicated compared to purchase contracts. There’s lots of fine print and variables that affect the total cost. The main numbers you have be aware of are the lease factor (interest rate), residual value (estimated value at the end of the lease) and the capitalized cost. The capitalized cost should reflect the fair credit for your trade-in and should represent the discounted price if you were buying the car.

With all that said, a lease can be just as good a value as a purchase, but leases are far more complicated. This gives the car dealer, manufacturer, and car salesman more of an upper hand. There’s an old joke that goes like this…” If you sit down at a poker table, look at all the other players, and can’t figure out who the sucker is…it’s probably you. Always be extra careful when you’re playing somebody else’s game.

$100,000 DEALER FEE CHALLENGE

Debate the Resolution to Make Dealer Fees Illegal


WHAT? DEBATE RESOLVING THAT DEALER FEES SHOULD BE MADE ILLEGAL
WHEN? ANY SATURDAY MORNING 8AM TO 10 AM
WHERE? TRUE OLDIES RADIO STATION, 8895 N MILITARY TRAIL, PBG, FL

The first car dealer to accept my challenge will debate me for about one hour on my regularly scheduled Saturday morning 8-10 AM radio show (WSVU, TrueOldies 95.9 FM & 106.9 FM; Stream www.EarlOnCars.com) The audience will judge the debate, hearing both sides of the dealer fee issue and vote for the winner. The loser pays the winner $100,000. If I win, I pledge to contribute the $100,000 to Big Dog Ranch Rescue (www.BDRR.org).

DEBATE RULES: 

1. Earl Stewart and the Car Dealer will jointly agree upon, and choose a neutral, unbiased moderator; if no agreement can be reached, a flip of the coin will allow the winner to pick the moderator.

2. The Car Dealer must be a legally appointed dealer, named in the franchise agreement between him or her and the manufacturer of the vehicles he or she sells. 

3. Earl Stewart will open the debate, explaining to the audience why the dealer fee should be made illegal. The length of time will be 5-10 minutes.

4. The car dealer challenging this proposition will take 5-10 minutes explaining why dealer fees should remain legal. 

5. Earl Stewart rebuts the car dealer challenger for 5-10 minutes.

6. The Car Dealer rebuts Earl Stewart for 5-10 minutes.

7. Earl Stewart has a second 5-10-minute rebuttal.

8. Car Dealer has a second 5-10-minute rebuttal. 

9. There can be no interruptions of either speaker.

10. The listening audience will cast their votes for the winner by texting their votes or posting their votes to Facebook, Twitter, YouTube, or Periscope. All votes must be accompanied by a name and phone number for verification. Any employee of a car dealership, car dealer association and family members of either are ineligible to vote. 

I invite all challengers to contact me directly on my cell phone, 561 358-1474 or email me at Earl@EarlOnCars.com. If I receive more than one challenge, the participating challenger will be “drawn from a hat”. The $100,000 prize will be deposited in the escrow account of an attorney mutually agreed upon by both parties at least one week before the debate. If they cannot agree on an attorney, he or she will be decided by the toss of a coin. 

For those unfamiliar with my position on dealer fees and/or unclear on exactly what the dealer fee is, I refer you to my numerous blogs and newspaper articles on this subject, http://oncars.blogspot.com/search?q=dealer+fee

Good People Make Good Car Dealerships

In my columns over the years I’ve always advocated carefully choosing the car dealership that you buy your vehicle from or allow to service it. I still believe this is important. In fact, I publish a list of dealers that I recommend you buy your car from and a list that I recommend you avoid,www.GoodDealerBadDealerList.com. We’ve all visited a restaurant or retail store and had a terrible experience with a waitress, sales person, or other employee and never returned. Yet, we’ll hear friends recommending the same store that we swore never to patronize. We condemned an entire company because of one person.

I also wrote a column a couple of years ago in which I suggested that you carefully choose the individual who advises you and sells you service on your car. These individuals are really commissioned sales people who sell you service just like car sales people sell you cars. Unfortunately, most dealerships call them something else like “assistant service manager” or service advisor. In my dealership we used to call them Assistant Service Managers because that’s the term that Toyota uses. We now call them “service advisors” because too many people thought they were dealing with the service manager. In all candor, I’d feel more comfortable naming them what they are, “service sales people” and I may make that change.
It occurred to me that the same recommendation applies to all companies, not just car dealerships and it applies to all departments in a company. Whichever car dealership you choose, take the time to pick and choose those individuals you deal with. Car dealerships, just like other organizations, are nothing more than the sum of their parts…their people. You should get to know the person who sells you service and, if you don’t like him, ask for another person to handle your service requirements. You should also meet and cultivate a manager in the service department.

The same holds for the sales department. When you buy a car, don’t settle for the first salesman who approaches you. For example, if you’re a woman you may feel more comfortable dealing with another woman. Or, if your first language is Spanish or Cajun, you may feel more comfortable with one who can converse with you in your native tongue. Don’t be shy about asking, and don’t feel bad about hurting the feelings of the first sales person. An automobile is the 2nd largest purchase most people make and it’s very important that you feel comfortable with the person selling it to you. Furthermore, if after dealing with your sales person for a while, you think you made a bad choice, ask to speak to the sales manager or general manager. Believe me, car buyers hold all the cards (until they get your money), and no sane sales manager is going to lose a sale because a prospective customer doesn’t like or trust the sales person she’s dealing with. He will handle your sale personally or choose another sales person you do feel good about.

Car dealerships have other departments including parts, finance and insurance, accounting, and some have body shops. My same recommendation applies to all departments. A word of caution, when you ask to speak to a manager, be sure you’re really are truly speaking to one. Car dealerships are notorious for calling rank and file employees managers to trick the customer.

My purpose in writing this column is in realization of the fact that there are no perfect companies, especially car dealerships and that includes mine. I employ about 160 individuals and I would be less than candid if I didn’t say I have a few rotten apples in my barrel. Unfortunately, I don’t know who they are and finding them is a continuous work in progress. The same thing applies to all companies including car dealerships. In my list of recommended dealers, there are some employees of those dealerships who would take advantage of you, but most would not. In those dealerships that I recommend you don’t buy your car from, there may be a few honest, courteous employees. Then there are all the dealerships that I don’t put in either category. Your odds of finding the right individual are much better if you patronize a good company or car dealership, but never let your guard down.

Just stay away from the ones that I recommend you don’t deal with. In every organization there’s a tipping point. A great company reaches a critical mass of good employees and as their reputation grows, more good employees from other companies seek to be employed there. Honest, hardworking, courteous people enjoy working in an environment where others are like them. The same holds true for evil dealerships and bad companies (those on my “don’t buy” list). A good person with a conscience has a very difficult time functioning in an environment where, from top management all the way down, the design is to trick and take advantage of customers. These few good people don’t last long in evil dealerships and flee to a place where they can treat their customers in a manner that lets them sleep at night.