By on March 10, 2011

The Federal Trade Commission has announced that it will be holding a series of round table discussions aimed at investigating misleading dealer practices in the areas of sales, financing and leasing. According to the Commission’s release, the round tables will

gather information on consumers’ experiences when buying or leasing motor vehicles. The roundtables will explore consumer protection issues related to the sale, financing, and leasing of the consumer vehicles consumers most often use – cars, SUVs, and light trucks.

For many consumers, buying or leasing a car is their most expensive financial transaction aside from owning a home. With prices averaging more than $28,000 for a new vehicle and $14,000 for a used vehicle from a dealer, most consumers seek to lease or finance the purchase of a new or used car. Financing obtained at a dealership may provide benefits for many consumers, such as convenience, special manufacturer-sponsored programs, access to a variety of banks and financial entities, or access to credit otherwise unavailable to a buyer. Dealer-arranged financing, however, can be a complicated, opaque process and could potentially involve unfair or deceptive practices.

The National Auto Dealer’s Association says [via Automotive News [sub]] it will attend the round tables and represent dealers’ efforts to “increase financial literacy” and “promote regulatory compliance.” Auto dealer finance was one of the only finance sectors exempted from the Consumer Financial Protection Act, despite protests from the Pentagon.

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21 Comments on “FTC To Examine Auto Dealer Practices...”


  • avatar
    obbop

    “…one of the only…”
    That declaration does not make sense to me.

  • avatar
    Spartan

    This process needs to be simplified on both ends, customer and the dealer.  Why is car buying so complicated?  I’d rather have no haggle pricing across the board and it’s either you have the financing or you don’t.  That way I don’t have to be angry when I find out that Joe Schmo paid $300 less than I did.

    • 0 avatar
      FromaBuick6

      Agreed.  Every other brand new consumer good sells at a no haggle price that’s ultimately determined by market demand…why should cars be any different?  And the financing process needs to be more transparent.  Let the dealers make their money on used cars and service.

    • 0 avatar
      HerrKaLeun

      Fromabuick6:
      good point, but cars also should lose all the fees the dealer charges. The price should include all cost. When I buy a TV, it is common that the price tag of $ 1,000 will cost me $ 1,000 + tax. the price includes shipping, putting the TV in a box etc. I understand shipping the TV from china cost $ 100 and is part of the price, but they don’t cheat me by saying the TV is $ 900 and all of sudden they add $ 100 for bringing it to the store in the first place. For some reason that works with cars.

    • 0 avatar
      readingthetape

      FromaBuick6

      EVERY product (or service) is a “haggle” price. From the biggest big box store to the corner merchant, always ask for a discount. First, make it clear you’re paying cash; right there the merchant knows he won’t be paying a percentage to the credit card company. Second, any sale at a lower profit is better than having you go down the street to his competitor. Cash is king.

      Just be pleasant and polite, but firm, and you almost always can get at least 10% off anything.

    • 0 avatar
      NulloModo

      Spartan -
       
      You don’t have to be angry if someone else paid less than you as it is.  You can find the same TV for sale at different prices at Best Buy, HHGregg and WalMart, they all offer no-haggle prices, but there prices aren’t always the same.  There are a few brands (like Apple or Bose) and a few products (like gaming consoles) where prices are set by the manufacturer and retailers aren’t allowed to change them, but those are more the exception than the rule.  In the end though, why are you mad if someone else got a better deal?  If you didn’t think the price that you paid was fair, you wouldn’t have bought the product.  The price someone else pays has nothing to do with the price you are willing to pay.
       
      Fromabuick -
       
      The interest rate and total amount that will be paid in finance charges are both clearly printed on the contracts to purchase a new car.  Customers are also free to contact lending institutions on their own and come in with their own financing already worked out.  What is wrong with the dealer making a profit by offering financing?  It takes work to shop the loan to various banks to get the most attractive terms, and the dealer deserves to be compensated for that.  If the customer doesn’t want the dealer to bump the rate to make a profit, the customer can do the legwork and arrange their own financing options.  The no interest for 12 months type of deals you often see at consumer goods retail stores are ploys to make money from financing as well – in many cases if the entire balance of the purchase is not paid off by the end of the promotional period, the customer is suddenly hit with retroactive interest on the entire purchase price at a fairly high rate from the date of the original purchase.
       
      As it is, car prices are determined by market demand.  A high demand vehicle that sells quickly will sell at very close to sticker price, while a dealer will discount and reduce profits on something that is languishing on the lot to get rid of it.  Demand also differs by region.  A black on black AWD Escape is virtually unsellable in south Florida, but that same combination might be very popular in a colder snowy climate like Boston.  Competition amongst dealers also effects pricing, but that holds true in other industries as well.
       
      HerrKaLeun -
       
      Certain costs differ from place to place – your tag and registration costs are different in PA than in FL, for example.  Destination and Delivery fees are already clearly printed on the window stickers, and in most cases when you see the MSRP being quoted, in already includes that item, though I do agree it should just be included in the base price, I’m not sure why it isn’t.  Some states also regulate dealer fees, but since those are charged by the dealer, not the manufacturer, the manufacturer can’t standardize it.  At the end of the day, a dealer fee or ‘market adjustment’ is just supply and demand at work – if two dealers in the same area are selling the same brand of car, and one has a lower fee than the other, all other things being equal they will get more of the business which will prompt the other dealer to lower their fee.  In many cases however, all things aren’t equal.  If the dealer with the higher fee uses it to provide more inventory selection, a nicer showroom with amenities like premium coffee and nicer service waiting rooms, or customer services like free loaners for overnight service or a free shuttle service, those perks might make it worth it for customers to pay the higher fee on the same car to take advantage of those things.

    • 0 avatar
      ajla

      @Nullo:
       
      I wouldn’t mind dealer fees so much if they had to be fully disclosed in ads and they were printed on an additional window sticker when walking the lot (even the $400 pinstripes and $200 sun screens get that courtesy right now).
       
      Right now the additional fees just seem like a “gotcha” game dealers play with people. You sit around all day negotiating your trade/financing/purchase price and then once you think you’re all finished, they sneak in another $500-$1200 that you didn’t know existed. They just hope you are so worn out you don’t question it.  I’m sure you don’t like it when customers spring new information on you when you’re ending negotiation. It’s the same thing here.
       
      Plus, many dealers give their fees very official sounding names to trick people into believing they are legally required fees and not dealer created.
       
      The only way I can think to avoid it is to begin negotiating using an OTD price.
       
       
       

    • 0 avatar
      NulloModo

      Ajla -
       
      I can’t speak for everyone, but we do print our dealer fee on a sticker next to the official one in the window of each car, and it’s also always listed in the fine print at the bottom of our ads.   I do agree that playing it as a ‘gotcha’ is a bit unfair, plus it tends to piss people off who would otherwise not have an issue, which is why we make a point to disclose it.
       
      A lot of customers do want to negotiate with an ‘out the door’ number, which is fine.  Everyone has their own hotbutton, some people only care about how much we give them for their trade, others only care about the difference between the trade and our car, and some are only concerned with what the payment is, whichever way you want to buy, we’ll make it work for you.

  • avatar
    twotone

    The “Payday Loan” industry is much worse than buy here, pay here, in my opinion.
     
     

    • 0 avatar
      FromaBuick6

      I live in a seedy military town.  ”Buy Here, Pay Here” car lots, along with cash advance and title pawns litter the main drag outside the base.  They all prey on the young and the uneducated.  They’re all pretty deplorable if you ask me.

    • 0 avatar
      Advance_92

      Colorado Springs? *ducks*

      Seriously, though, you’ll see this in any poor area of any town.

  • avatar
    Ken Elias

    Not all dealers are exempt – there are certain criteria that have to be met IIRC which basically all franchised new car dealers meet.  However, the law does not exempt lenders – even if they sell through an exempt dealership – so the net effect is the same as the burden comes onto the banks which have to prove non-predatory lending even if the loan is arranged by a dealer.  In turn, the banks will thus effectively force the exempt dealers to comply with the intent of the law.
     
    The Pentagon is/was upset with exactly what FromaBuick6 posted above – naive soldiers are certainly being taken advantage of by dealers.  Again, going from memory here, the Senate committee made specific mention of the problems outside military bases as being an issue which the regulations are designed to stem.

  • avatar
    straightsix

    “The Federal Trade Commission has announced that it will be holding a series of round table discussions aimed at investigating misleading dealer practices in the areas of sales, financing and leasing. ”

    Geez, take those things away and there’s nothing left to the car buying experience at the dealer.

  • avatar
    Zackman

    One of the issues involved primarily with used cars is the “unknown” – what are you really buying? It’s different from buying, say, a “refurbished” computer or other electronic device from Best Buy or other retailer because the amount of money and the risk of serious loss is daunting and can financially ruin the less fortunate. Now, along with that is the financial risk these dealers assume for the same reasons. Add to that unscrupulous people – dealers and consumers - trying to “get over” on each other and you have the circumstances we have.

    • 0 avatar
      NulloModo

      Buying a used car is a risk/reward proposition like any other purchase.  You save money (the reward) but you don’t know the provenance of the vehicle (the risk).  It’s also a sliding scale – you can buy a one or two year old CPO used vehicle that has been thoroughly vetted, and has a warranty similar to a new car, but the price will be more similar to a new car as well.  On the other hand, you can buy something older, with higher miles, with no warranty left, and spend a lot less up front, but that comes with the higher risk of costly repairs down the road.  You also have the chance to buy a warranty with a used car, and it’s your choice whether the cost up front is worth the reduced risk of more costly repairs in the future.
       
      To your point about refurbished computers, I’d say that those are closer to demo cars.  A demo is still a new vehicle, that comes with the fully warranty (minus the miles already on it) and is eligible for all of the factory incentives/financing options, but you pay less because it may have a little bit of wear on it, like a refurb or ‘open box’ computer or TV.  Buying a used car in most senses is more like buying a used computer or TV off of Craigslist or a second-hand store – you don’t expect it to be just like brand new, but you are paying significantly less.

  • avatar
    mikenem

    It’s about time. Had no idea how the “Buy Here Pay Here” places operate until recentlly. Apparently it’s a rent to own agreement (no bank involved) where the seller counts on the buyer to be late with a payment so they can quickly reposess the vehicle without any kind refund of course. Then offer it to the next sucker who walks in the door. Rinse, dry, repeat…

  • avatar
    JMII

    I too wish the entire process was no haggle and truly transparent (no “fees” tacked on). Why is so hard to give me the final out-the-door price right up front?
     
    Actually I know why… the F&I (finance and insurance) is the area (along with service) where most car dealers get their largest profits by tacking on all sorts of bogus numbers. I always knew this, but worked at a place that produced “marketing materials” for various companies whose services were built with ONE purpose in mind: get more $$$ out of the auto sales process, in particular the F&I department. Their material was very clear that profits were easy by padding deals and upselling all sorts of stuff. Its not illegal (buyer beware) but its clearly designed to confuse consumer and give the dealer a few hundreds more per sale. The reason is simple: you’ve bought the car and paperwork has started so now your pretty committed and excited to have a shiny new ride, so a few hundred dollars shouldn’t worry you – the dealership fully capitalizes on this situation. Those old jokes about rust-proofing and paint-sealing are completely true, these companies use FUD (fear uncertainty and doubt) to make you believe you need to pay for various extras.
     
    I always found this to be completely ridiculous… after the sales guy told me how the great the car was (can’t kill these things, never rusts, super safe, etc) the F&I pencil pusher tells you need an extended warranty because your new metal & leather object could explode killing your wife and kids, or that it could be stolen at any second so you need glass etching, alarms and extra insurance. The word scam doesn’t even being to describe the whole process.

  • avatar
    straightsix

    “Nice avatar.”
    Thanks. It’s my ’73 TR6.

  • avatar
    nrd515

    I’ve been buying cars since 1974, and I’ve bailed twice during the time the F&I guy is putting everything together, and almost walked one other time due to the games they play. The last few times I’ve gone in there with the loan all set up ahead of time, and I tell them if they can beat the rate, I will go with them, if not, it’s going to be a cash deal. It seems to keep their bad behavior to a minimum. A friend recently bought an Acadia, and the same slimy finance guy who nearly made me walk started his nonsense, and he almost walked. I’ve complained about the guy twice to management, and I’ve been there when he’s had people threaten to leave more than once. I don’t know why they keep him on, he’s got to be hurting their bottom line. He “assumes” all kind of things, like you’re going to lease, get the gap insurance, extended warranty, etc. We told our salesman last time, that we were going to walk if we didn’t get someone else, as his “assuming” and generally smart ass attitude was annoying the hell out of us. His replacement was a nice kid, and we had no further issues.
     
    A friend of mine has no credit, he’s a young guy who was supporting his mother until recently, and he never really had any chance to make a major purchase on credit before, so he went to one of the big chains, the one with a made up guy’s name, and got reamed. He had to have a car right away for work, and he ended up with a decent enough looking Taurus, and so far it’s been fine, but the interest is like 15%, and between that and his insurance, he’s really getting hammered. His millionaire lawyer father wouldn’t dream of helping him out, of course, just like he never helped support the ex wife he bled dry in the divorce either.


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