How Auto Dealerships Rip Off Customers
Created | Updated Jan 28, 2002
I have noticed many people dissatisfied with auto dealerships lately. I used to work in a dealership and now my friends and co-workers often come to me to ask questions before they buy a car. In the past few weeks they have told me their experiences of unscrupulous business dealings at dealerships. They do not trust salespeople, they think of haggling as a chore, and they are scared of getting screwed.
The auto service center used to be the profit center in dealerships, but lately the action has moved to the used car lots. Dealers are able to buy at dealer-only auctions where the public is kept out. The cars are mostly lease-returns, reposessions, and, frighteningly, wreck-rebuilds. The dealers pick these cars up for prices the public only dreams of, usually far less than the vehicle's blue-book value. Wreck-rebuilds, if spotted as such, often go for much less due to their lack of quality. The dealer then turns around and sells the cars for incredible prices by manipulating the financing.
Most dealerships have a 'guarantee' that infers a complete inspection where any problems are repaired so the customer will not end up with a lemon. Often the repairs are only cosmetic, fixing broken trim pieces, touching up paint, replacing bald tires, etc. As an example, when inspecting used cars I was told not to replace belts or brake pads unless they were making noise. Major repairs were only undertaken when there might be a liability issue relating to safety, or if the car could not be test driven without the problem being apparent. When presented with a sports car with no oil pressure and a loud engine knock, I was told to replace the clogged oil-pickup tube and put a quart of transmission fluid in with the oil (it helps break up deposits, but is not recommended). Often, wreck-rebuilds had airbags that had been replaced by salvage-yard airbags - a violation of federal law (deployed or defective airbags must be replaced with new units from the original equipment manufacturer). Many wreck-rebuilds are sold to customers without any mention of the car's origins. If taken to court the dealers will always claim they had no knowledge of the car having been in an accident. That information is not required to be attached to the title, although I always logged any damage I found on the repair order for my own liability.
Dealerships often have what they call 'draw-ins'. These are usually bottom of the barrel cars, either trade-ins or really cheap auction cars that can be polished up. They offer these cars for low prices that fit their condition and show them in advertisements. Most customers take one look and shy away, but since the dealer already has them on the lot they might be interested in looking at something else. The tactics often border on bait-and-switch.
Most managers at auto dealerships are driven by 'the numbers'. They have bonuses based on how much money they send up to the next highest level. If they make their numbers for consecutive months the numbers are moved upwards, thus driving them to cut costs and raise profits more. In turn the managers often try to cheat employees to improve their numbers. It is not uncommon to hear salepeople complain that they think their manager is ripping them off. Often the manager will tell them the dealership has too much money in a car, so the salesperson's cut will be smaller, even though he sold it for an outrageous price. As an example a used car manager once bragged that he could buy a certain vehicle for a low price. Employees were able to buy cars for five hundred dollars over what the dealership had in them. The vehicle happened to be a wreck rebuild of extremely poor quality, and the dealership did very little work to it. A few days later a saleperson confided she had sold the vehicle for an exorbiant price, well over what it was worth and little under what a new one cost. I commented on how nice of a check that must be. She replied that the manager had told her they had too much money in it. She made the dealership over ten thousand dollars but got a check for under a thousand. The used car manager had used the money to bump his monthly numbers into his bonus range. When I told her, she was furious but knew she could do nothing at the time; the general manager's numbers were also raised by the used car manager's actions.
There are occasions where dealerships end up with more invested in a vehicle than it is worth. The managers act upset and stomp around pretending they are losing money. The truth is they almost always make up the difference in the finance office. By manipulating numbers and 'packing' finance office personnel make money on the worst deals. The first thing they do is perform a credit check on the customer. This is supposed to tell them if the customer is a credit risk, but they really use it to see how much the customer can afford to pay a month. This is why 'no credit' is a problem, they don't have any idea how much a person can really afford. After they find out the customer's disposable income they manipulate figures to arrive at a monthly payment that matches that number. Their tactics include tacking on made-up fees, adding accessories and saying "that comes with the car, we can't take it off", and not including downpayments or trade-ins in the deal (the result of which is the customer giving them the downpayment or trade-in and then paying off the full sale price). The financing contracts are usually written in confusing legal terms and waved in front of the customer. The salesperson and/or finance person will badger the customer into signing without giving them a chance to really read it and check out the numbers. In reality most customers do not know how to calculate interest and don't know what to look for in the wording, especially since dealers use invented jargon to cover practices and added fees the customer would not appreciate. Sales and finance people are also known to lie when customers ask for explanations, but unless the customer has proof of the lie they have no backing in court.
The bottom line? There are two approaches. The first is to buy an old car and learn how to maintain it yourself. The second is to do your homework, have any used cars inspected by an independant mechanic, and read any contracts and forms carefully. It also pays to know your local laws. There is a law where I live that a customer has forty-eight hours to return any purchase for a refund, but the courts never uphold that for auto sales.
The auto service center used to be the profit center in dealerships, but lately the action has moved to the used car lots. Dealers are able to buy at dealer-only auctions where the public is kept out. The cars are mostly lease-returns, reposessions, and, frighteningly, wreck-rebuilds. The dealers pick these cars up for prices the public only dreams of, usually far less than the vehicle's blue-book value. Wreck-rebuilds, if spotted as such, often go for much less due to their lack of quality. The dealer then turns around and sells the cars for incredible prices by manipulating the financing.
Most dealerships have a 'guarantee' that infers a complete inspection where any problems are repaired so the customer will not end up with a lemon. Often the repairs are only cosmetic, fixing broken trim pieces, touching up paint, replacing bald tires, etc. As an example, when inspecting used cars I was told not to replace belts or brake pads unless they were making noise. Major repairs were only undertaken when there might be a liability issue relating to safety, or if the car could not be test driven without the problem being apparent. When presented with a sports car with no oil pressure and a loud engine knock, I was told to replace the clogged oil-pickup tube and put a quart of transmission fluid in with the oil (it helps break up deposits, but is not recommended). Often, wreck-rebuilds had airbags that had been replaced by salvage-yard airbags - a violation of federal law (deployed or defective airbags must be replaced with new units from the original equipment manufacturer). Many wreck-rebuilds are sold to customers without any mention of the car's origins. If taken to court the dealers will always claim they had no knowledge of the car having been in an accident. That information is not required to be attached to the title, although I always logged any damage I found on the repair order for my own liability.
Dealerships often have what they call 'draw-ins'. These are usually bottom of the barrel cars, either trade-ins or really cheap auction cars that can be polished up. They offer these cars for low prices that fit their condition and show them in advertisements. Most customers take one look and shy away, but since the dealer already has them on the lot they might be interested in looking at something else. The tactics often border on bait-and-switch.
Most managers at auto dealerships are driven by 'the numbers'. They have bonuses based on how much money they send up to the next highest level. If they make their numbers for consecutive months the numbers are moved upwards, thus driving them to cut costs and raise profits more. In turn the managers often try to cheat employees to improve their numbers. It is not uncommon to hear salepeople complain that they think their manager is ripping them off. Often the manager will tell them the dealership has too much money in a car, so the salesperson's cut will be smaller, even though he sold it for an outrageous price. As an example a used car manager once bragged that he could buy a certain vehicle for a low price. Employees were able to buy cars for five hundred dollars over what the dealership had in them. The vehicle happened to be a wreck rebuild of extremely poor quality, and the dealership did very little work to it. A few days later a saleperson confided she had sold the vehicle for an exorbiant price, well over what it was worth and little under what a new one cost. I commented on how nice of a check that must be. She replied that the manager had told her they had too much money in it. She made the dealership over ten thousand dollars but got a check for under a thousand. The used car manager had used the money to bump his monthly numbers into his bonus range. When I told her, she was furious but knew she could do nothing at the time; the general manager's numbers were also raised by the used car manager's actions.
There are occasions where dealerships end up with more invested in a vehicle than it is worth. The managers act upset and stomp around pretending they are losing money. The truth is they almost always make up the difference in the finance office. By manipulating numbers and 'packing' finance office personnel make money on the worst deals. The first thing they do is perform a credit check on the customer. This is supposed to tell them if the customer is a credit risk, but they really use it to see how much the customer can afford to pay a month. This is why 'no credit' is a problem, they don't have any idea how much a person can really afford. After they find out the customer's disposable income they manipulate figures to arrive at a monthly payment that matches that number. Their tactics include tacking on made-up fees, adding accessories and saying "that comes with the car, we can't take it off", and not including downpayments or trade-ins in the deal (the result of which is the customer giving them the downpayment or trade-in and then paying off the full sale price). The financing contracts are usually written in confusing legal terms and waved in front of the customer. The salesperson and/or finance person will badger the customer into signing without giving them a chance to really read it and check out the numbers. In reality most customers do not know how to calculate interest and don't know what to look for in the wording, especially since dealers use invented jargon to cover practices and added fees the customer would not appreciate. Sales and finance people are also known to lie when customers ask for explanations, but unless the customer has proof of the lie they have no backing in court.
The bottom line? There are two approaches. The first is to buy an old car and learn how to maintain it yourself. The second is to do your homework, have any used cars inspected by an independant mechanic, and read any contracts and forms carefully. It also pays to know your local laws. There is a law where I live that a customer has forty-eight hours to return any purchase for a refund, but the courts never uphold that for auto sales.
