Dealer Fraud

The first thing you should know when you go shopping for a new or a used car is how car dealers make money. During the negotiation and the sale process there are two times when the car dealer can make more money off of you by using different dealer tricks. This is referred to as the front-end and the back-end.

Here is what happens at each of these places during the negotiation process.

The amount the car dealer earns of the car itself is known as the front-end profit. For example the dealer may buy a car for $15,000, and then spends another $1,000 into cleaning, repairs and reconditioning. When the customer goes to the dealership the dealer sells the car for $20,000. The dealer made a front-end profit of $4,000.

The add-ons and extras, such as financing, warranties, gap insurance, special coatings and other items and services are the back-end profit of the car dealer. You should watch out as most car dealers make most of their profit on these items and services.

Be aware when the dealer offers you a “great” front end deal, because he will probably try to make profit by selling you back-end items.

Many consumers become victims of dealer fraud after they have already closed the deal. This is when the dealer gets you on the extras and the warranties.

The extras may include rust proofing, scotch guarding and others. The trickiest closing cost scam is the extended warranty scam. This warranty is not the one factory gives you for the car and usually covers the cost of repairs.

Often consumers are not informed that extended warranties cover mainly small repairs and don’t cover major problems with the car. Also never consider buying an extended warranty if you are only leasing the car for a small time period like 36 months. It’s a good idea to purchase an extended warranty not directly from the dealer, but from online warranty companies.

Other extras that dealers use to offer you at closing may include rust proofing, paint sealant, car alarm, credit/insurance costs, detailing and pin striping. You should try to avoid purchasing these extras. Remember that you can save a lot of money if you purchase them somewhere else as well as avoid dealer fraud.

It would be a good idea if you decide to never finance a vehicle through the dealership because when you meet the finance manager whatever payments, interest rate, etc. you had may get tossed out. This is when the dealer fraud may begin. For example the dealership may try to “stuff” your contract with extras like unnecessary warranties, costly etching, glazing, environmental packages, etc., and the dealer may try adding it to your contract. These extras are where the dealership makes most of their profit.

Moreover, finance managers may ask you or even ask you to ask your employer to lie about your income. If you agree you could possibly end up getting charged with a felony, not the dealer, for knowingly defrauding the lender. New car dealerships have even been accused by former employees of forging car buyers’ signatures to lenders.

Car dealers do anything to persuade consumers purchase as many extras as possible. Each “extra” car buyers purchase means another commission to the Business Manager. However, most extras purchased are not necessary. For example, car dealer will most likely offer you an Extended Service Warranty. All new cars and trucks come with comprehensive warranties so you don’t need to buy another one. Or you may be offered Paint Protection, which you can apply yourself by buying any inexpensive “over-the-counter” polymer sealant car wax. You can apply Fabric Protection yourself by buying a can of Scotchguard. You may be able to purchase Window Tinting, Alarm Systems, Pinstriping and other after-market items cheaper on your own. Rustproofing is usually applied automatically in the factory so you certainly don’t need to pay twice for it.

Car dealers and dealerships make most of their profit from extras and add-ons such as car alarms, appearance packages, service contracts and extended warranties. This is the main reason why a lot of unscrupulous car dealers trick customers and make them believe that they must purchase one or two accessories to obtain the price quoted by a salesperson or advertisement.

If you shop for a car you should to know that accessories are optional. Remember that reputable dealerships have strict policies against requiring the purchase of any extras. If the salesman tells you that the accessories are mandatory, insist on the quoted price without the accessories or simply walk away from the deal. You should also consider contacting the Better Business Bureau and the Department of Consumer Affairs and report the dealership.

During the purchase or lease process automobile dealerships use numerous schemes to increase profits defraud consumers. Some of the most common scams include:

• altering the contract terms and forging signatures;
• failure to disclose the discounts in advertising and not disclosing important limitations;
• adding amounts owed on trade-in vehicles to a purchase or lease contract without informing the consumer; and
• inflating quotes of monthly payments and then selling extras and add-ons (service contracts, paint sealant, alarms, etc.) as if they were part of the deal.

It is very difficult for consumers to realize they’ve been defrauded as these schemes are often complex and complicated.

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