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5 ways car dealerships are trying to rip you off

by TLTheLiberator
12 replies
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5 ways car dealerships are trying to rip you off - Salon.com
  • Profile picture of the author yukon
    Banned
    Back in the early 90s I was looking at a used truck (looked like new) on a car lot, the salesman came out & asked If I wanted to take a test drive, I said sure, why not. I came back from the test drive & he asked If I wanted to buy the truck, I said I would have to think about it. He asked If I wanted to take the truck home overnight, I did & bought the truck the next day.

    The guy was cool, no hype or anything. My idea of the perfect salesman.

    I probably wouldn't have bought anything If I hadn't took the truck home overnight. The more I looked at the truck sitting in my driveway the more I liked the truck.
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  • Profile picture of the author seasoned
    Those are NOT the oldest tricks in the business. Not by a LONG SHOT!!!!!! In financing, there is what I would call the IDIOTS game! The closure acts like he is an idiot trying to pass himself off as a loan manager! Say you want a $20,000 loan at 2% for 5 years. The PROPER way is to consult an amortization guide, or usea finance calculator, or a computer. OK, I will do that NOW! Interest the FIRST month: $33.33
    PRINCIPLE FIRST month: $317.22. REMEMBER though, the closure is trying to play IDIOT! OK, He takes 1.10%(2%*5 on top of principle) of 20000, which is 22000. You then divide by 60(5*12). CONGRATS, your loan payment is only $366.67! You just saved -16.12 in your FIRST month ALONE! WHAT A DEAL! You can already see how your costs went up approximately 50% here. As the term of the loan, or the interest rate goes up, the increase does as well. A 3% loan should cost 359.37, so it is even higher than THAT! It is about 3.8% which is a $366.52 payment. So the amortization benefit that YOU are supposed to get, THEY get.

    Steve
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    • Profile picture of the author SteveJohnson
      Originally Posted by seasoned View Post

      Those are NOT the oldest tricks in the business. Not by a LONG SHOT!!!!!! In financing, there is what I would call the IDIOTS game! The closure acts like he is an idiot trying to pass himself off as a loan manager! Say you want a $20,000 loan at 2% for 5 years. The PROPER way is to consult an amortization guide, or usea finance calculator, or a computer. OK, I will do that NOW! Interest the FIRST month: $33.33
      PRINCIPLE FIRST month: $317.22. REMEMBER though, the closure is trying to play IDIOT! OK, He takes 1.10%(2%*5 on top of principle) of 20000, which is 22000. You then divide by 60(5*12). CONGRATS, your loan payment is only $366.67! You just saved -16.12 in your FIRST month ALONE! WHAT A DEAL! You can already see how your costs went up approximately 50% here. As the term of the loan, or the interest rate goes up, the increase does as well. A 3% loan should cost 359.37, so it is even higher than THAT! It is about 3.8% which is a $366.52 payment. So the amortization benefit that YOU are supposed to get, THEY get.

      Steve
      Steve, you have such a roundabout way of saying things that makes people go, "huh?"

      Dealership financing works on a point spread. The dealer gets the difference between the contracted percentage rate and the buy rate. It usually is paid in a lump sum when the financing institution buys the contract from the dealership. The dealership is usually on the hook for the difference between the point spread paid and the accrued interest if the contract is paid off early (for instance, when the buyer trades the car in after 3 years).

      I spent almost 10 years in the car business. It's been a while ago, but things are still pretty much the same. I worked six + years as the F&I guy, the one who handles the contract details - and gets you to part with more money than you think you're parting with.

      As for the Salon article:
      1. Totally true. Good closers will hook you on a payment amount and bypass the sale price and trade-in value completely, if you allow them to. You'll find out the details when you get to the finance office. By that time, you want the car so badly you'll not often say no. I had deals come through that were rough to hold the payment because I had nowhere to stuff the extra money we were making. Look up 'liner-closer' sales and four-square car negotiations.

      2. Interest markup. Also totally true. See above.

      3. The delivery scam. Not so true. It happens, but dealerships rarely do it on purpose. If they do, it's because the general sales manager orders it, then puts the monkey on the finance manager's back to get the contract bought somehow, somewhere. It usually happens when the GSM is too optimistic that he can get the contract bought but all of the financial institutions will only buy it under certain conditions.

      Dealers do not like to bring cars back in to have the deal re-signed. The chances of the deal falling through increase exponentially. Buyer's remorse has had a chance to raise its head. Dealers will do everything they possibly can to get a contract bought as written, even if it means relinquishing claim to some or all of the point spread. Also, the business office works quickly to get titling done. If the vehicle is titled and the contract walks back, the car is no longer new and can't be sold as new.

      4. Unneeded extras. Happens all the time, but not usually after the deal has been made. Biggest 'extra' around here is the 'doc fee'. Bunch of crap, that one. The last dealership I worked at accounted the doc fee as going directly to the dealer, not against actual doc/accounting expenses. Salesmen don't get paid on it as being profit on the sale, it's just juice money.

      5. This is kind of a mixed deal. The extended warranties backed by the manufacturer can be a good deal, if you can get the price down. Service contracts on used cars are a waste of money.

      6,7, and 8: LA&H - Life, Accident, and Health insurance. Something not mentioned in the article. One of the biggest profit centers in the dealership related to car sales. There are occasional benefits, but for the most part the coverage is overpriced and it only pays against the contract. You can buy term life insurance for an amount equal to the contract, for the same number of years, for 25% of the price.

      A dealer I worked at sold a Mustang to a young man, his father co-signed. The father insisted on life insurance as a condition for signing. The first weekend the guy had the car, he wrapped it around a telephone pole. The contract hadn't even been officially bought yet by Ford Motor Credit. Was tragic, but one of the times where the insurance came in useful.
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      • Profile picture of the author seasoned
        Originally Posted by SteveJohnson View Post

        Steve, you have such a roundabout way of saying things that makes people go, "huh?"

        Dealership financing works on a point spread. The dealer gets the difference between the contracted percentage rate and the buy rate. It usually is paid in a lump sum when the financing institution buys the contract from the dealership. The dealership is usually on the hook for the difference between the point spread paid and the accrued interest if the contract is paid off early (for instance, when the buyer trades the car in after 3 years).
        How the money gets paid to the dealer is immaterial. The fact is that they take more than they claim from the buyer, and the dealer gets more.

        I spent almost 10 years in the car business. It's been a while ago, but things are still pretty much the same. I worked six + years as the F&I guy, the one who handles the contract details - and gets you to part with more money than you think you're parting with.
        I have seen this happen with 4 different people, and they tried it with me TWICE!


        As for the Salon article:
        1. Totally true. Good closers will hook you on a payment amount and bypass the sale price and trade-in value completely, if you allow them to. You'll find out the details when you get to the finance office. By that time, you want the car so badly you'll not often say no. I had deals come through that were rough to hold the payment because I had nowhere to stuff the extra money we were making. Look up 'liner-closer' sales and four-square car negotiations.

        2. Interest markup. Also totally true. See above.

        3. The delivery scam. Not so true. It happens, but dealerships rarely do it on purpose. If they do, it's because the general sales manager orders it, then puts the monkey on the finance manager's back to get the contract bought somehow, somewhere. It usually happens when the GSM is too optimistic that he can get the contract bought but all of the financial institutions will only buy it under certain conditions.

        Dealers do not like to bring cars back in to have the deal re-signed. The chances of the deal falling through increase exponentially. Buyer's remorse has had a chance to raise its head. Dealers will do everything they possibly can to get a contract bought as written, even if it means relinquishing claim to some or all of the point spread. Also, the business office works quickly to get titling done. If the vehicle is titled and the contract walks back, the car is no longer new and can't be sold as new.

        4. Unneeded extras. Happens all the time, but not usually after the deal has been made. Biggest 'extra' around here is the 'doc fee'. Bunch of crap, that one. The last dealership I worked at accounted the doc fee as going directly to the dealer, not against actual doc/accounting expenses. Salesmen don't get paid on it as being profit on the sale, it's just juice money.

        5. This is kind of a mixed deal. The extended warranties backed by the manufacturer can be a good deal, if you can get the price down. Service contracts on used cars are a waste of money.

        6,7, and 8: LA&H - Life, Accident, and Health insurance. Something not mentioned in the article. One of the biggest profit centers in the dealership related to car sales. There are occasional benefits, but for the most part the coverage is overpriced and it only pays against the contract. You can buy term life insurance for an amount equal to the contract, for the same number of years, for 25% of the price.

        A dealer I worked at sold a Mustang to a young man, his father co-signed. The father insisted on life insurance as a condition for signing. The first weekend the guy had the car, he wrapped it around a telephone pole. The contract hadn't even been officially bought yet by Ford Motor Credit. Was tragic, but one of the times where the insurance came in useful.
        I never said THAT stuff wasn't true, merely that it wasn't the oldest, etc.... As for the life insurance? ANOTHER SCAM! I hope it was considered valid. A lot of times, it is too expensive, and has a waiting period. ALSO, there are laws as to when it is to start.

        Steve
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        • Profile picture of the author SteveJohnson
          Originally Posted by seasoned View Post

          How the money gets paid to the dealer is immaterial. The fact is that they take more than they claim from the buyer, and the dealer gets more.
          No, Steve, they don't. Consumer contracts are strictly regulated under the Truth In Lending laws. There are a number of figures that MUST be disclosed to the buyer, and they are in a big box at the top of the contract. They are:
          • amount financed
          • number of payments
          • interest rate
          • payment amount
          • total of payments

          The TIL disclosure is the biggest hurdle for the F&I guy. The numbers don't lie.

          But you want to know the honest truth? Most people don't even look at them. I was required to show each figure separately, and get the buyer to initial the box. Maybe 10% of the people even paid attention.

          A good percentage of people, at least another 10%, were what we affectionately called 'grapes'. You could squeeze any amount of profit you wanted from a grape, as long as the payment came in where they wanted it.

          Over my time in the biz, I had a half-dozen or so contracts that no institution would purchase unless we reduced the addons, sale price, interest rate. Those were the only walk-backs that we were ok with bringing the people back in. After all, who wouldn't be overjoyed when the dealer calls up and says he's going to reduce your payment?
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    • Profile picture of the author Dan Riffle
      Originally Posted by seasoned View Post

      Those are NOT the oldest tricks in the business. Not by a LONG SHOT!!!!!!
      Steve, I've got to ask: do you actually have a book titled, "The Oldest Tricks in the Car Business" that lists tricks in chronological order?
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      • Profile picture of the author whateverpedia
        Originally Posted by Dan Riffle View Post

        Steve, I've got to ask: do you actually have a book titled, "The Oldest Tricks in the Car Business" that lists tricks in chronological order?
        He probably does.
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  • Profile picture of the author Kurt
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    Discover the fastest and easiest ways to create your own valuable products.
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  • Profile picture of the author celente
    Kurt ...that video was just awesome. :-))))))
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  • Profile picture of the author Dennis Gaskill
    Back in the mid-80's I made an offer on a car and said it was my top offer. The salesman said he had to check with the owner if he could let it go for that price. He came back a minute or two later and said it was OK'd.

    We went his office and he was doing the paperwork when the owner walked into the room looking at a sheet of paper, then he looks at me and says, "I'm sorry, but I just can't let the car go for that price. I need $300 more just to break even."

    I said, OK ... he looked like he thought he just won, but then I got up and started toward the door. He asked if something was wrong or something to that effect, don't remember the exact words, but I told him I already made a deal and if he didn't want to honor it I'd look elsewhere.

    All of sudden he could make that deal. I bought the car for my price, but he lost all future business with me for trying to pull that stunt. I've bought several cars since then, including three new ones, but he never got a chance to sell to me again.
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    • Profile picture of the author bizgrower
      Originally Posted by Dennis Gaskill View Post

      All of sudden he could make that deal. I bought the car for my price, but he lost all future business with me for trying to pull that stunt. I've bought several cars since then, including three new ones, but he never got a chance to sell to me again.
      Nor did he get a chance to sell to all the people you know, probably.

      I've lived in the same general area all my life. Numerous bad experiences with dealers
      and about three good experiences. Two of those dealers are no longer around.

      The worst experience was when they kept my car keys while "evaluating my trade in"
      and making it a real battle to get my keys back when I wanted to leave.

      I never did understand why they don't operate in such ways that they will get repeat and referral
      buyers. It seems to me that the numbers would be phenomenal if they did.

      In my experience this applies to the sales and service sides.
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