According to the Better Business Bureau, issues with new-car dealers remain among the top consumer complaints. Here are 10 hair-raising scams to watch out for.
Now we’re far from suggesting that the industry is rife with rip-off artists, but the typical new-car transaction contains many avenues for manipulation – if not outright fraud – that can easily be leveraged to an unsuspecting buyer’s disadvantage.’
“People can get into trouble because no one has ever taught them how to really go about buying a car,” says former car dealer and current consumer advocate and radio show host Nicole Markson. “People are not skilled at negotiating because they do it once every three to five years, while dealership personnel do it all day every day. The field is not level from the start.”
According to the Better Business Bureau, issues with new-car dealers remain among the top consumer complaints, and even a cursory investigation on the topic opens the proverbial floodgates to torrents of woeful tales. While some grievances can be attributed to inattentive or rude personnel or overly aggressive salespeople, many consumers find themselves the victims of egregious tactics that would make even the most brazen hucksters shake their heads in disbelief. Consider these horror stories provided to us by Edmunds.com:
1. The Bait & Switch
This is the classic sleight of hand in which the promise of something – whether it’s a dollars-off coupon, a low advertised price or interest rate, promised trade-in value or what seems to be a bona fide price quote from a web site – is used to lure a shopper into a dealer’s showroom.
After inhaling that new-car smell and getting in a buying state of mind he or she is told that the offer is expired, the price has gone up, the advertised car has already been sold or any other number of excuses why that particular offer is no longer in effect. Instead, the buyer is offered a higher priced vehicle, more expensive interest rate, lower trade-in value – you get the idea.
If a dealership won’t honor its offers, head for the door and find one that will.
2. Multiple window stickers
In addition to the standard window sticker that verifies a vehicle’s retail price, you may also find another price tag that details charges levied for overpriced dealer-installed equipment and other add-ons that are typically of little value.
Some dealerships use a second sticker to tack on additional charges to recover advertising expenses or for something that may be called “ADM,” which is a clever way of collecting “additional dealer markup.”
Refuse to pay such charges outright, though they may be unavoidable for a just-introduced model, typically a long-awaited sports car, that’s in short supply but is enjoying great demand.
3. Good for one day only
Some auto dealers loathe to let buyers cross-shop at multiple dealerships – or for that matter take the time to think a deal through before signing the paperwork – so they’ll often do whatever they can to ensure one only walks out through the front door if it’s with the keys to a new car.
Typically, you’ll be told that a given deal on a particular model will stand for that day only and will cost more if you decide to come back tomorrow. It’s pure butcher shop-grade baloney. The only instance where this tactic might have a shred of truth is if a manufacturer’s rebate is about to expire, and that usually happens only on the last day of the month.
4. The 4 square method
This isn’t so much of an outright swindle as it is a car dealer’s equivalent of Three Card Monty. Only instead of trying to keep your eye on a particular card as its being shuffled around face down on a table, you have to keep your eye on the bottom line as a salesperson manipulates various aspects of a new-car deal.
It’s called the 4-square method because the salesperson often illustrates the various components of the transaction on paper sectioned into four squares. The idea is if a buyer focuses firmly in on one facet, usually the monthly payment, he or she can be easily fleeced by manipulating the other parts of the deal to the house’s advantage.
Fortunately, this scam is easy to counteract by simply treating each component as a separate transaction and shopping around for financing ahead of time to find the most favorable rates and terms. And never buy a car based solely on a given monthly payment.
5. Trade in tribulations
While a new-car buyer can usually get the most for his or her current ride by selling it outright to a private party, this is a time consuming process that’s fraught with its own elements of peril. That’s why most consumers choose the convenience of trading-in their cars at a dealership and using the proceeds as part (or all) of the down payment on a new model.
Unfortunately a dealer may artificially inflate the value of your trade-in to help seal a deal and ultimately exact that cost – often more – by manipulating other aspects of the transaction. Always research the estimated trade-in value of a car ahead of time via an car valuation web site like Kelley Blue Book or NADA Guides to get an idea of what it might be worth, and always negotiate the trade-in value separately from the new car’s price.
It’s often worthwhile to bring a car in to the dealership’s used car department and get a bona fide trade-in quote ahead of time.Beware that salespeople have been known to hold the keys to a trade-in “hostage” while negotiating to pressure customers to buy a new car, so never just hand them over – always accompany the salesperson or used-car manager while they’re giving your trade-in a once-over.
6. Fun with numbers
There’s a lot of paperwork involved in buying a new vehicle, and wading through it all can become unnerving when a salesperson or finance manager is waiting impatiently for you to sign at the bottom of each page.
Those with an aversion to numbers and/or lacking math skills can find themselves at a distinct disadvantage. “Mistakes” in paperwork are common, and to no one’s surprise they usually favor the dealer. The price of the car or trade-in value may not exactly be what’s been agreed upon or the interest rate quoted may be inflated. Sometimes the discrepancies can be flagrant, such as when a buyer is asked to sign a leasing agreement thinking it was actually a sales contract, or when the value of a trade-in is “inadvertently” left out.
In other cases the numbers may simply be off by a few hundred dollars or a half percent. Always take the time to read all documents carefully, make sure the numbers all jibe with what’s been agreed upon and use a calculator to check the math before signing anything. And refuse to pay for spurious charges that may suddenly appear in the paperwork, like for “prep” and “advertising” that are essentially part of the dealer’s cost of doing business.
7. Finessed financing
Automakers regularly offer cut-rate financing on select models through their affiliated finance companies that can be real money savers. Unfortunately, as the ads state they’re reserved “for qualified buyers only.”
While lenders have been easing up on their credit qualifications in recent months, only those with top FICO scores (usually 690 or better out of a maximum 850) will even come close to qualifying for the most favorable financing terms. Everyone else will be asked to pay higher rates and sometimes even a higher down payment; if your credit is particularly tarnished, you’ll pay dearly.
Even those with stellar credit might find themselves being quoted a higher rate at the dealership than they might garner elsewhere. Facilitating financing is a major profit center for new-car dealers.Always shop around for a car loan ahead of time among local banks (and a credit union if you’re a member) to find the lowest rates for which you qualify.
If the dealer can do better thanks to a promotional financing plan, so much the better; if not obtain a lower-cost loan elsewhere.
8. Negative equity scams
Never trust dealers who promise to pay off your existing car loan – no matter how much you owe on it. Motorists who’ve bought their current vehicles with low down payments and long loan terms often have “negative equity” in them, meaning they owe more than the car is worth in trade.
Sure, the dealer will pay off the loan, but will simply wrap the amount of negative equity into the new-car deal, resulting in a higher balance, a costlier monthly payment and even a longer loan term. You’ll also be in the uncomfortable position of paying for two cars at the same time. It’s better to hold onto your current car until it’s paid for, or at least until the balance is whittled down sufficiently to realize actual equity.
9. The spot delivery scam
Perhaps among the most onerous of car-deal cons, this swindle involves sending a buyer – often one with sub-prime credit – home in a new vehicle before the final financing arrangements have been completed.
The dealer calls back in a day or two to tell the customer there’s a problem with the loan terms, subsequently subjecting him or her to a higher interest rate than expected and perhaps even requiring a larger down payment in order to qualify. The idea is that since the buyer has emotionally “bonded” with the vehicle by already taking possession, he or she will pay whatever it takes to keep it.
Again, the best defense here is to shop around ahead of time for financing, especially to be aware of for which rates and terms you’ll qualify given your credit rating.
10. ‘Back end’ Add-ons
According to the National Automobile Dealers Association, an average dealership loses $180 for every new model sold. While doesn’t seem like a sound business model, there are far more ways for a dealership to make money and there’s no more profitable way that the so-called “back end” of the deal.
In addition to financing, you’ll be offered – perhaps pressured is a better word – to purchase assorted add-ons that can suck the value out of what would otherwise be a good deal. These range from credit life insurance (conventional term-life or disability insurance is usually a better buy) to fabric protection (a can of Scotchguard can suffice), rustproofing (largely unnecessary with today’s cars) and paint sealant (little more than a good coat of wax).
imply refuse to pay for any of these high-profit items and threaten to walk out on the deal if they’re insisted upon. Buying a costly service contract that extends a manufacturer’s warranty for an additional two years or more may seem like a good idea, but they’re just insurance policies in which the actuarial odds favor the house and rarely deliver any real value for the money. If you feel it’s a necessity, try to get the dealer to lower the price or, better yet, shop around after the fact (or even ahead of time) to find one for less money.