Fraud and Scam Awareness: New Auto Sales
Despite the many clichés, most dealerships, like our
Dealer Partners, are honest and will
help you make the best deal possible. However, everyone knows that people can "fall in
love" with a car. Love-struck consumers can be easily manipulated, so don't lose your head
if you lose your heart.
Here are some schemes to be aware of:
Bait and switch
"Loss leaders" are a legal way to offer a limited number of heavily discounted vehicles to
early-bird shoppers. When loss leaders are sold—you’ll notice stock numbers under the
advertised special—the remaining stock is available at the regular price. When shoppers go
in to dealerships for advertised specials, they may find that the advertised car is not
available. A salesperson may explain that there will be a long waiting period to order the
special, or they may disparage the value of the advertised "bait." The advertised special
may also be a "stripped-down" model or an undesirable design package. The dealer may even
refuse to take orders for the advertised vehicle, or claim that the special has sold out.
Consumers are then directed toward a more expensive model, or the same model (available
only with costly options).
Blank spaces
Some dishonest dealerships and salespersons have left blank spaces on contracts with the
intent of swindling unwary consumers. Once a shopper agrees to buy a new car, they are shown
a pile of papers to sign. Blank space schemes rely on consumers who do not carefully read
documents. All signed papers and copies are then taken away to "management" for approval.
After this, false agreements can be added to the contract. When the papers are brought back
to the unwitting buyer, the incriminating documents might not be returned with other papers.
In some cases, buyers immediately receive copies, which have already been doctored.
Blank spaces can be used to increase the sticker price or to add extra options (and
costs) to the sale. Some buyers also realize, too late, that they’ve signed blank odometer
statements on a trade-in. This can leave the seller liable for dishonest dealers who roll
back odometers prior to resale. Few consumers ever realize when they’ve been victimized by
this shady trick—sadly, many realize the treachery only when they balk at the deal. The
victim is then shown a "legal" contract and threatened with lawsuit if he doesn’t go
through with purchase.
Credit worthiness lies
Unscrupulous finance companies have no qualms about charging up to 36% for auto loans and
offer dealers excellent rewards for setting their customers up with these outrageous loan
rates. Ouch! This drives some dishonest dealerships to happily tell inexperienced shoppers
that they aren’t “worthy” of a better interest rate. Lies about a customer’s credit
worthiness can also be used to force a larger down payment or subdue customer haggling.
High balling
Some unethical new car salespersons practice high balling. The salesperson verbally
promises an extremely generous trade-in allowance (or other attractive deal) to a
prospective buyer. Later, the sales manager will turn this down, claiming that the buyer’s
trade-in offer is "unreasonable." By this time, the consumer is already too excited to turn
down the deal. Remember: most dealers expect to make a good profit on both the cars they
sell and the cars they take on trade-in.
Low balling
Dishonest salespeople can also downplay the value of a buyer’s trade-in. Low balling
accomplishes several things. If a buyer feels bad about his trade-in, he may be more
agreeable to a bad deal—the buyer can feel some urgency to "unload" his previous vehicle.
Salespersons can also falsely represent a trade-in’s "dis-equity," the imbalance between a
car’s value and it’s remaining loan balance. Unsavvy buyers will then agree to add that
"dis-equity" balance to the amount they finance for their new car. Low balling can also
leave the salesperson more room to offer a false discount on the new car.
Playing the "buckets" game
If a buyer balks at the conditions of a sale, a salesperson may "work the angles" to help
the buyer think he is getting a better deal. Salespersons know that "a better deal" in any
of the following areas will eventually move anyone to buy: low payments, high trade-in
value, low down payment, short- or long-finance period, or "low" interest rates.
Salespersons can offer a better deal in the area that excites the shopper, while increasing
the cost of the vehicle in another area. For example, a buyer might say she wants low
payments—the dealer can afford this by adding years to the contract and "requiring" a larger
down payment. The salesperson may even increase the finance company’s regular interest rate
in order to add in more dealer profit. While this is not necessarily illegal, the savvy
buyer should be aware that outrageous bargains can mean outrageous costs in other parts of
the deal.
Unhorsing
In this scheme, the salesperson convinces an undecided customer to take a new car
home—supposedly for a no-obligation try-out. The customer leaves her own car "as security,"
or "to be evaluated for trade-in value." When the customer returns, with a decision not to
buy, she is told that her car has already been taken as trade-in and sold. The customer has
become "unhorsed." The dealer may even blame miscommunication or dishonest "borrowing" on
the hapless customer. Of course, the borrower perceives an urgent need for transportation,
and becomes all too willing to accept any deal to get a new car. Immoral dealers have even
charged "repair" or "reconditioning" fees to victims of this scheme.
Various misrepresentations
Remember that dishonest salespersons will tell a shopper anything to make a sale. Common
misrepresentations include: fuel economy, performance, reliability, warranty coverage,
parts availability, service costs, waiting periods on special orders, option costs, finance
rates, and various additional fees (from luxury car taxes and dealer’s preparation to
delivery charges). The buyer has no recourse against lies and misrepresentations if the
promise isn’t in writing.
Tips for new car buyers
- Acquaint yourself thoroughly with the warranties that apply—there can be separate
warranties on the car and drive train, the tires, maintenance parts, electronics, and after
market options
- Check all claims made by the salesperson before you buy
- Check the dealer's reputation with the Better Business Bureau. Don't accept delivery
until all the defects you noted are corrected
- Don’t let a finance manager tell you that you have to pay an unfair finance rate
- Don't shop at night, in the rain, or under any conditions that hamper inspection
- Get promises, guarantees, and other agreements in writing
- Hold on to a copy of everything you sign. Never sign anything with blank spaces or
conspicuously open areas
- Read and understand all documents prior to signing
- Read everything available about the car you are considering (Consumer Reports, Buyer’s
Guides, other Periodicals, and reviews of previous model years)
- Remember to shop around for the best deal and the best financing
- Report all fraudulent experiences to the Department of Consumer Affairs. Resist
pressure to buy coatings and treatments if you won’t need it
- Resist pressure to buy credit life insurance if you don't want it
- Resist pressure to buy mechanical breakdown coverage on new cars
- Test-drive the specific new car—even special orders, where possible—before signing a
purchase order or sales contract
- Thoroughly inspect the car to be sold—note all defects (scratches, dings, option
problems or omissions, trim and detail errors, high test drive mileage, lot vandalism,
noisy or rough-operating parts, etc.)