FTC Proposal Would Target Shady Car Dealer Tactics

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New Rule: A Dealer Will Have to Tell You How Much a Car Will Cost
What to do now: Get the price in writing before you go to the dealer.

The FTC’s proposal would force dealerships to disclose the full price of a car to any consumer who asks, excluding only required government charges such as registration fees and sales taxes. Currently, dealerships can refuse to give any price over the phone or e-mail—a tactic that CR’s anonymous shoppers say is a red flag. “Don’t deal with a dealer who tells you that you have to come in to get a price,” says Gabe Shenhar, who supervises our test car purchase program. “You as a consumer want to know every line item—the price, the options, the fees. And from there, you negotiate.”

Daniel Blinn, managing attorney of Consumer Law Group in Rocky Hill, Conn., who has represented more than 1,500 consumers in cases involving auto dealerships, says consumers should begin their communication with a car dealer in writing, and ask for an itemized “out-the-door” price including all add-ons. That way, consumers can start their negotiations with an expectation of how much the dealer plans to charge in total—and if a dealer tries to charge more than that amount, the consumer will have some recourse.

“At the very least, if you show up at the dealership and they do play some of these games, you have a record,” he says.

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Other tactics that will be banned include telling consumers that they have won a prize or sweepstakes that they have not won, falsely advertising a military discount, or marketing a vehicle that is no longer available on the dealer’s lot.

New Rule: Dealers Won’t Be Able to Sell You Worthless Add-Ons
What to do now: Watch out for add-ons in the F&I office.

You might think that you’re done negotiating once you and a salesperson have agreed on a price. But you’d be wrong: The FTC, which is tasked with protecting consumers and stopping unfair business practices, calculated that half of a dealer’s profit on a new car—about $1,200—comes from the finance and insurance (F&I) office, including financing, leasing, and add-on products and services. For used cars, it’s about a third of the profit, or about $900.

The visit to the F&I office usually takes place at the end of your car-buying experience, and you might be told you just have to sign some insurance and registration paperwork. But the F&I manager is also a salesperson, and some of the things they might try to sell you could be totally useless.

The FTC proposal would prohibit dealers from selling add-ons that are of no value to the consumer. For example, “nitrogen-filled tires” that contain no more nitrogen than the air we breathe, or extended warranties on cars that aren’t eligible for them. The same goes for some sales of gap insurance, which will pay off a lease if a car is stolen or totaled, and which covers the difference between the value of the car and the loan balance on financed cars.

Blinn says that he’s seen cases where a dealer charged more than $1,000 for gap insurance even though the consumer made such a large down payment that they’d never end up owing more than the car was worth.

“Dealerships will sell this, they’ll make a good commission on it, and the consumer will receive absolutely no benefit,” he says.

New Rule: You Won’t Have to Buy Any Add-Ons in Order to Buy the Car
What to do now: Don’t pay any more than you have to.

We’ve heard this one before: Because of some excuse—the car is the last one in stock, the buyer has a low credit score, the add-ons have already been installed—a dealer won’t sell a car unless the customer also buys an add-on. The new FTC proposal would ban this practice. Until then, don’t pay a cent more than you have to for the car.

Dealers may add extras as the sales process drags on, hoping that consumers won’t notice, says Christine Hines, legislative director at the National Association of Consumer Advocates. That means you need to check the price every time you get new paperwork.

“When you see it online, when you see it when you’re going to the dealer, when you see it on the contract—all that pricing, is it all the same? Or is that pricing suddenly not what you assumed it to be?”

If there is an add-on that you want, don’t pay any more than you have to. For example, we’ve seen reports of dealers charging as much as $495 for a true nitrogen tire fill, even though Autopro, a company that sells nitrogen filling equipment, recommends that dealers price a fill at between $8 and $12 per tire. That’s an upcharge of more than 1,000 percent.

If a car already has an add-on baked into the price and you don’t want that add-on, ask for it to be removed—even if it’s already installed on the car. Our car buyers have often had success telling dealers to remove the cost of VIN etching from a sale price, even after the vehicle’s VIN has been etched into its windows and windshield. We’ve also had a dealer remove an optional appearance package.

New Rule: Dealers Won’t Be Able to Advertise Unavailable Discounts
What to do now: Don’t fall for a bait-and-switch.

More than once, our anonymous car buyers have arrived to pick up a new vehicle only to be told that the dealership made a mistake and that they now have to pay more money before they can drive the car home, that the vehicle they agreed to buy just sold but that there’s a slightly more expensive one still available, or that they have to pay for an add-on for the sale to be final.

One experience that’s all too common: A dealership will advertise a price that includes various rebates that not all customers will qualify for. For example, a dealership may include one discount that only applies to active military personnel, another for recent college graduates, and another for existing owners of cars from the same brand. Customers who don’t qualify for all three won’t get the low advertised price. The FTC says that it can be hard for honest dealers to compete with those who try these unscrupulous tactics, as it allows dishonest dealerships to get customers in the door with artificially low prices.

These practices have become even more pernicious in recent years, as a dwindling supply of new cars gives the dealer the upper hand. Again, the new FTC proposal would prevent dealers from trying these bait-and-switch tactics—which are already prohibited by laws in some states.

“If somebody’s quoted a specific price and they come in and they’re told they have to purchase something else, that’s a switched price, and that is in most places an unfair trade practice,” says Blinn.

New Rule: Dealerships Would Have to Make It Clear When a Car is Actually Yours
What to do now: Find out if your financing is final.

Sometimes, car dealers will give a consumer the impression that they have just bought a new car, but fine print in the contract will give the dealership the ability to make changes to the sale after the fact—usually based on financing terms. Days or weeks later, the dealer will call the customer and tell them they need to come back to sign some paperwork. When they get there, the dealer might say that the financing terms have changed and that they owe more money, or that they need to accept a less expensive vehicle. This is known as “spot delivery” or “yo-yo financing.”

Even if they return their new vehicle to the dealership, the customer might not get back the money they put down or the car they traded in, Hines tells CR. “Losing their down payment, losing their trade-in—there’s so much harm related to that practice,” she says.

While Hines says the FTC’s new rules don’t go far enough to protect consumers from this specific practice, they will at least force dealers to make it clear when a sale is final. In the meantime, consumers should make sure that their finance paperwork is complete and that financing has been approved before they leave the dealership—no matter how anxious they are to get home.

New Rule: Dealers Must Provide Up-Front Disclosure of Costs and Conditions
What to do now: Complain, complain, complain.

Consumer Reports and other consumer advocates often tell car buyers to walk away if a car dealer starts any of these shady tactics. But the FTC proposal recognizes that not all car buyers have that option.

“Restarting the hours-long process at another dealership might mean having to take an additional day off work, and for those who cannot afford a second car, finding other means of transportation to travel to another dealership,” the agency wrote.

If a consumer realizes after the fact that they paid for a worthless add-on or that they fell prey to a bait-and-switch, Blinn suggests they contact a local attorney.

Hines suggests that consumers who feel they have been wronged by a dealership file a complaint at reportfraud.ftc.gov. The agency already has the power to bring enforcement actions against dealerships for unfair or deceptive practices, and an individual’s complaint can help make a case.

“This is an opportunity for consumers to share with a federal agency what they have experienced at the hands of auto dealers,” she tells CR. “Their experiences are evidence.”

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