Dealer Fraud

The bait and switch is the type of scam that’s been used in just about every industry. This scam involves providing a vehicle for advertisement or promotion which is probably a very base model. This item is probably not very desirable for some reason, but attaching it to a very low price to get you in the door. Once you are in the car dealership, the salesman will point out the frailties or the letdown of that vehicle while shifting to another vehicle that has a higher profit margin and is probably more desirable. The bait and switch scam is one of the oldest games in the book. It could be okay if you find out that the vehicle’s not going to meet your needs, but don’t go in expecting that every vehicle’s going to be priced as aggressively.

Payment or deal packing is considered a dealer fraud because of the uneven bargaining power in the exchange. In this case the dealer is not given the opportunity to make an informed decision about whether he/she really needs to purchase each add-on item. Most customers often end up paying more than a package is worth. This happens because the customer is not given the price of each item and allowed to comparison shop.

Remember, that many add-ons are not covered under the manufacturer’s warranty. If things go wrong, you’re out of luck. Which is even worse, add-ons might even void parts of your vehicle’s original warranty!

Besides payment packing or deal packing, dealers can engage in a number of other unfair or fraudulent practices, so be aware.

California Law provides a number of reasons to justify rescinding a contract to purchase or lease a new or used automobile. In other words, California allows an automobile purchase or lease agreement to be rescinded if it is based upon fraud, mistake, or significant non-disclosure or concealment. The basic concept is that there must be a “meeting of the minds” in order for a contract to be valid.

A contract that is put in writing tends to eliminate significant “he said-she said” arguments over what exactly was agreed to, since the significant terms of the contract are usually contained in the writing. California law requires that the contract have no blank spaces when signed, and that the consumer receive a copy of any contract after signing.

However, California provides consumers with vast protections against misrepresentations that are made during the negotiations for the purchase or lease of goods or services. Further, there is no requirement that the salesperson intended to make a misrepresentation; the fact that a representation was made during the negotiations which in fact is not true is all that is required.

Some examples of misrepresentations justifying rescinding the sale, may include the following:

• The inaccurate representation that the vehicle (or other consumer product) is new, when in fact it is used or reconditioned (if your “new” vehicle had several hundred miles on the odometer, it was not likely a “new” vehicle);
• Any inaccurate representation concerning the quality or benefits of goods or services (this would usually cover anything told to you by the finance or sales manager, including how mechanically sound the used car is, how much you’ll be protected by the service contract, that the finance rate is the best available, etc.);
• Significant non-disclosures of information required to be disclosed (such as the fact that the vehicle was a “demonstrator,” was previously totaled due to body damage or flood, has a salvaged title, was a previous “lemon law buy-back”, was involved in an accident involving damage to the frame, and a whole host of other problems which should have been disclosed but were not.
• Often, used car dealers will attempt to persuade you that you bought it “As-Is“, and therefore whatever problem you are experiencing is your problem. However, this is not true with respect to most problems discovered soon after the sale, since the buyer’s decision to buy “As-Is” was usually based upon some representation made about the vehicle that proves not to be true. The most basic of these misrepresentations concerning the mechanical condition of a used vehicle center on the requirement that the DMV requires all dealers to have a basic safety check performed on the vehicle to verify that the vehicle is safe to operate on the road, as it has such basic safety features as brakes, brake lights, turn signals, lights, etc. Invariably, this “safety” check is described by the salesperson as the service department having gone over the entire vehicle with a fine tooth comb, and found it to be in superior mechanical condition good for at least another 100,000 miles.
• The most egregious examples of misrepresentation can be found at any used car dealership catering to individuals with bad credit, who are often persuaded to buy pieces of junk for over-inflated sales prices and interest rates. These poor individuals think no one else will sell them a car, so pay large down-payments on useless vehicles so they can get to work and pay their bills, only to find out their car payment money is being spent making repairs to a vehicle that should be retired, with the end result that the car gets repossessed, and, you guessed it, sold to the next poor individual with poor credit.

These are just a few examples of facts which would justify rescinding a sale, and you are encouraged to call us for a consultation.

When a new vehicle is sold, it becomes a used vehicle. And if the dealer cannot obtain financing for the person who bought the vehicle originally, then the vehicle “rolls back” and is considered to be a used car. However, there are many dealers that try hard to represent this as a “new” vehicle. It is not, and everything about this vehicle is different than other cars. For instance, it’s the only vehicle on the dealer’s lot that must display both a MSRP label and a Buyer’s Guide form (the form that indicates whether a used vehicle has warranty). Moreover, if the vehicle costs less than $40,000 miles then the dealer must offer you the option to cancel the contract. It’s really a liability for the dealership because of the gray area these vehicles fall into. If you bought one of these vehicles, then there’s a high likelihood that there was auto fraud somewhere along the line (just like the person before you was, most likely).

Big dealerships have to sell a lot of cars to maintain their profit margin, so they will get very creative. However, small dealers still need to get customers through the door and in order to compete they might turn to “aggressive” marketing. Plus, the retail auto industry is fairy homogeneous and the people move around fairly frequently (as in the case of the inside contact that inspired this post). The point is this - there is a reason that vehicle disputes and complaints is the reigning number one consumer complaint! That’s because consumers are getting ripped off by dealers.

Sometimes in high-pressure sale situation car dealers push consumers into purchasing options which they might not have otherwise taken if they had time and information on their side. When you purchase a vehicle from a reputable dealership, you may dismiss the idea of auto dealer fraud or unfair practices. However often you put our trust where it may not belong.

When you reach the point of sale and financing on a vehicle, car dealers try to tack on additional items or services (add-ons) you may not want or need. They may practice payment packing, also known as deal packing, where they ask what kind of payment you can afford. You may sign off on entire add-on packages without ever being aware that “no” is even an option!

Add-on packages may include:

Alarms
LoJack security systems
Scotchguard protection
Paint protection
Upgraded tires and rims
Extended warranties
Under the law, dealers must supply an addendum to the purchase agreement that lists the price of each add-on, item by item. If the dealer fails to do this, it is dealer fraud.

Changing the paperwork is an auto dealer fraud and is very troubling because in this car fraud the dealership is actually modifying legal documents. What happens is the dealership changes the original contracts signed by their customers and then mails the signed contracts out two to three weeks later.

There is also another type of this fraud when the buyers would sign blank contracts and afterwards the dealership would go back in and change the documentation by changing pricing or amounts on extras purchased. Later the buyers receive the paperwork and find out that prices in fact exceed the ones they agreed upon.

In this case dealerships would often use the buyers financing to work against them by raising the actual price of the car, but keeping the monthly payments the same by stretching the payments out over a longer extent of time. Car buyers should be really careful with this scam as contracts often include a lot of small print. Most consumers don’t take the time to read it, but the small print does matter and binds you legally. Buyers should ask questions about anything they don’t understand on the contract.

The more the buyer is informed the wisest is his purchase. However, there are customers who go to the dealership without doing any research. Often they get confused by the seemingly endless stream of complex information that comes with buying a car. Car dealers often use a trick which bounces profit potential from one transaction to another. If a customer is set on getting a good deal on their trade-in, a car dealer may then choose to concentrate on inflating monthly payments or the down-payment.

There is no law obligating car dealers to offer customers the lowest interest rate they qualify for. When the car dealer run your details on the credit check they’ll know your income, housing status and if or when you were late paying your rent or mortgage. Often dealerships manage to get this information when the customer is taking a test drive, and the car dealer is already adding up just what price they think you’ll pay.

And if you sign up for a higher rate than the car dealership pays back for the car, you’ve just gifted them some more. Often this difference lies in fractions of percents on your rate. Find out which rate you qualify for first.

Following are all important questions to ask before you purchase an extended auto warranty.

1. Are you a Member of the BBB and in good standing?
2. Do you offer financing?
3. Can I choose the repair facility?
4. Do you pay the repair facility directly?
5. Where can I take my car for repairs? Your dealership, or any ASE Certified repair facility you choose.
6. Depending on the age and mileage of a used car, do you offer bumper to bumper coverage for vehicles out of manufacturer’s warranty?
7. Do you include Wear & Tear?
8. Is overheating covered?
9. Do you offer a per visit deductible?
10. Do you offer a Zero Deductible option?
11. Do you offer Road Hazard protection?
12. Do you offer Car Rental reimbursement with your extended auto warranty?
13. Is the agreement transferable / renewable?
14. Are High Mileage plans available for up to 102,000 miles?
15. Are claims handled by the same company that sells car warranties?

Sometimes buying extended car warranties for new or used car can be confusing and expensive for the car owner.

However, these warranties are very important because if you don’t have an extended warranty after your factory warranty ends, then you are on your own and with the high cost of repairs. An extended auto warranty can pay for itself even the first time you use it.

Most car buyers decide to purchase an extended auto warranty from a car dealer. These buyers can usually expect an extremely high pressure and unpleasant experience in the finance department.

The reason is because extended car warranties are one of the most profitable things that a car dealer offers.

The sale of them is handled in the car dealer’s finance department and the pressure to buy their extended auto warranty can be intense.

What should the customer do in this situation? Of course, you need a car warranty and even though car dealers will try to make you feel like an idiot for turning down their expensive warranty - there is an alternative.

Make sure you ask for the drive away price, which is the final cost to you including all fees, taxes and options. However, there are other ways to get the best deals on a new car. For example, call the car manufacturer directly and ask about cash back programs because local dealers may be unaware of them. Or if you are in college or are a recent graduate within the past few years, you may qualify for a manufacturers rebate up to $500. In addition, ask the manufacturer for a factory-to-consumer direct incentive. Tell the automaker the type of car you want and they may offer you a cash rebate or low financing. However, check around concerning financing because you may be able to find a lower interest rate from another source entirely, like from a credit union. Or better yet, ask your local car dealer about a customer loyalty rebate which can be worth a few hundred dollars if you already own or lease a car from a particular dealer you are seeking to buy a new car from. Also, if you plan on having future repairs or general services performed at the dealership, let the dealer know this upfront. It may warrant a few hundred dollar rebate since dealers make much of their profits on parts and repair services.

In addition, dealership salespeople may have a secret code you may want to break! The code tries to hide the real value of the car you are trading in and/or the profit the dealer is making on your particular car deal. The code is not standardized throughout the industry, so you may have to put your thinking cap on. Here is how it may work. Look for handwritten notes at the top of the paperwork you are asked to fill out. If you see alphabet letters scribbled on your trade-in appraisal, like for example, FJJJ, this may mean the dealer thinks your car is worth $6000. The F stands for the 6th letter in the alphabet and the Js stand for zeros, which equals $6000. The idea here is if you see notations like this, you may safely assume the dealer thinks your trade-in is worth something different from what is being offered to you. Be subtle, but this is your cue to try and get more for your trade-in. Always get your trade-in appraisal in writing. This keeps the dealer from offering you much less for it when your new car arrives if the new car you want is not on the lot when you make your final deal with the dealer.

Furthermore, consider ordering your new car direct from the factory instead going to a dealership car lot. This way you can possibly avoid costly options that too many dealership cars come loaded with. A dealership may likely accept a small profit from a factory order because it is a quick and easy sale, plus the dealer then does not have to pay the automaker for storing the new car on the dealers lot!

However, the flip side to this is if the dealer thinks you may opt to order from the factory, he may be willing to significantly cut the price of the cars on the lot more so than usual. Also, any rebates and incentives you get deducted from the price of a new car, always make sure they do not expire before you take delivery!