Dealer Fraud

Car dealer scams vary and being aware of them becomes more and more important. Awareness may save you a lot of trouble and money. So make sure that you have done your homework accurately enough and are ready to enter the car dealership without the potential threat of becoming a car dealer fraud victim. Below are some useful questions to ask a used car dealer:

• If the car is certified, can you show me the mechanic’s pre-certification inspection?

Every certified car has to go through a car inspection before it can be certified. Ask to see that paperwork to find out what was fixed. It’s a good piece of paper that will support your future problems.

• Who was the vehicle purchased from?

If it was a trade-in to that dealership, ask the dealer to show you the maintenance records. Tell them they can black out the owner’s name and address. If it was bought at auction, make sure it is gone over with a fine-tooth comb by a mechanic who specializes in inspecting used cars.

• Who certified a used car that is called certified?

The only certification that really means anything is a manufacturer certified pre-owned car. All others are insurance backed programs.

• How long of a test drive may I take?

See if the dealer will allow you to take the car overnight for an extended test drive. Put it in writing that you won’t put more than 100 miles on the odometer, prove you have insurance, and you’ll bring it back with a full tank (if you leave with a full tank).

Ask these questions to the car dealer and hopefully you will not need a dealer fraud attorney’s help in the future.

Car dealer tricks are various and may be used by the car dealer in various situations. The aim of car dealer scams is to get more money out of you and sell cars that wouldn’t be sold so easily in case no tricks were used.

High Balling

An excessive price will be offered for your trade in. Some customers are attracted by this thinking that they are getting one over on the dealer. Rest assured, however, that you’ll pay for it in the end, when the dealer charges too much for your new car.

Loss Leader  Advertising

A car dealer will identify one/two cars of a particular model. These will be the “worst” cars. The dealer will then launch a large advertising campaign based on these cars with the price e.g. $200 below cost.

When the customers rush in from all around the city, they are promptly “switch sold” to another car. All the salesperson has to do is to point out why the car is undesirable, and then get the customer to pay more for a better car.

The Lap Dog Trick

When a customer leaves a dealership and says to the car dealer they will look around for other prices, the dealer tells him/her to come back once the “best price” has been obtained. The dealer will then either match the price, or try to increase it slightly by taking advantage of the fact that the customer is sick and tired shopping and is itching to buy the car. This car dealer trick is very common and works well for most dealers. It relies mainly on getting the customer to feel obliged.

Bouncing the trade in

The dealer will contact you before the new car is delivered and say there’s an issue with the trade in. They will ask you to bring it back for an inspection and claim to have found it’s really only worth $500 less than what they have offered for it. If you fall for it, the salesperson earns another $500.

Trade-in Scam

Many customers who trade in their old cars become victims of car dealers who are not truthful about the value of the trade-in. Customers who are unaware of what they can get for their car if they were to sell it today are likely to accept statements like these and may walk away with very little money received for their trade-in.

What you should do:

•    If you are not sure of your car’s condition and/or its market value, you may want to take it to a few dealerships. Tell them that you are thinking of trading in your vehicle and see what they offer you for it. This amount may be a more truthful estimate of your car’s market value.

•    If you want to trade in your old car, make sure you know its current market value. You can go to the bookstore or library to find a book that lists values of most cars.

Co-signer Scam

When customers don’t qualify on their own for financing, car dealers often suggest that they get a friend to co-sign. Often, however, a salesperson tells the co-signer that he/she is only signing as a reference to help the primary buyer. This is not true. If you are asked to co-sign for someone, you should know that the co-signer is equally responsible for paying the debt and can be sued if the primary buyer doesn’t make payments.

What you should do:

• In most cases, it is not a good idea to be a co-signer for any type of loan.

• Only co-sign if you are ready to make the payments for the car.

Below you may read 4 of car dealer advertising scams that are used for tricking naive buyers.

1) Push, Pull, or Drag Sale

There are ads claiming that no matter what condition your trade-in is in, they’ll give you $1500, $2000, or even $3000 for it in trade.

Foolish people get tricked.  Some even drive off with a new or used car.  They are given $3,000 for their 1983 Chevette and feel like they have just ripped somebody off.  The truth is that they have probably got ripped off.

Most car dealers have nearly $2000 to $2500 worth of markup built into the price of their lower end vehicles and more built into their higher priced ones.  When they put on their Push, Pull, or Drag sale, all they do is mark up their vehicles an additional amount equal to their “minimum trade allowance.”  By doing this, they can give you some money for your Chevette and make thousands.

2) Buy a Car, get a “Free_______”

Whatever the item is (a big screen, camcorder, computer), it isn’t free.  The price is simply built into the cost of the vehicle.  As a rule a car deal that would bring $3000 profit may “only” bring $2200 after they give you the $800 gift certificate to Circuit City or Best Buy.

3) We’ll pay off your trade irrespective of how much you owe when we make a deal!”

The key phrase in this sentence is “When we make a deal…” Paying off the trade is part of making the deal.  If they cannot pay off the trade as the consumer owes too much, they won’t make a deal.

4) Buy One, Get One Free

Buy a car , and get a second one for no additional cost.  WOW! Just make sure you get a good driver to bring the flood damaged 1989 Nissan Sentra home with you after you overpay for your other vehicle.

In order to avoid becoming a dealer fraud victim, one should have certain knowledge about the most common dealer scams. In this blog we will discuss the situations when a car dealership cancels the purchase contract and the options and rights you have in those cases.

• If the dealership cancels the contract within 10 days, you get your down payment or trade-in back.
  

The purchase contract requires that the car dealer return to you everything given for the purchase. This includes your trade-in vehicle. If you gave a $2,000 down payment and a car as a trade-in, the car dealer must give you back both the $2,000 and the trade-in when you return the car you purchased.

Sometimes a car dealer may tell you that it has already sold your trade-in, and will offer you the value of the trade-in as listed on the purchase contract. The conditions of the purchase contract do not appear to give the car dealer this option. It requires the return of the trade-in. However, if the car dealer does sell your trade-in, at the very least, you should tell the car dealer that it has to give you whatever is the highest value for your trade-in out of either

(1) the value of the trade-in as listed on the purchase contract,

(2) the fair market value,

(3) what the car dealer received when it sold your trade-in.

• The car dealer cannot charge you for using the car you purchased from them.

For instance, it cannot charge you for the miles put on the car during the 10-day period. However, you are responsible for any kind of damage to the car during the time it is in your possession.

• The car dealer cannot cancel the contract after the 10-day period has expired.

If a car dealer tries to do this, you should clearly state the car dealer is no longer entitled to cancel the purchase contract, and ask the car dealer to send you a letter explaining why they think they can still cancel the purchase contract.

Scam #1: “We promise to pay off your old trade-in.”

How the car scam works: Due to passive car sales some dealerships are shutting down and not paying the loans off on customer’s trade-in. This leaves you responsible for paying off two vehicles.

How to avoid the scam: Make sure you fax all the dealership’s paperwork showing that they are paying off the loan to your previous loan company. No guarantees but this should get you off the hook in case the dealership chooses not to pay. Better idea, payoff your old loan or sell the car to someone else. That way you’ll avoid this mess.

Scam #2: “We’ll pay off your loan or lease no matter how much you still owe!”

How the car scam works: They do get you out of your loan, but those penalties must be paid to the bank to end the contract. The dealer will not do any favors, he/she just wants your trade-in so they may give you less than what it’s worth, while selling you a new car at a high profit. Then they resell your trade-in for a high price, while you are stuck paying off 2 cars. With this scam, the dealer pays off your loan, and then you owe that dealer for your trade-in car loan. Your payments are spread out over sixty or seventy-two months so you don’t notice what just happened. The more months are added to the loan, the lower the payments. In fact, it’s likely that the payments could be less than your current loan, so you think you’re saving money when you really got swindled. This gets many people deeper into financial trouble.

How to avoid the scam: If you are in a loan now, it’s best to stay in it until the end. If you are upside down on a loan, you need to wait until the car is worth more than what you still owe on it. If you really need to get out of your loan, think about finding someone to take over the loan. If someone takes over the loan their name is now on the contract and you are completely off the hook.

Dishonest car dealers might fiddle with your financing as a way to jack up their profits. The most popular way of this car scam involves calling back car buyers into the dealership a week or so after purchasing a car. Once you’re back, the car dealer tries to renegotiate the interest rate based on whether you buy extra services, accessories or warranties. They might also try to focus on the amount of the monthly payment to divert attention from the fact that the total amount being financed has gone up. Another variation of this scam involves dealers letting you drive off the lot without finalizing the loan papers, promising that they’ll work it out. But when they call after several days, the terms of the loan have changed or the monthly payments are more than the buyer can afford, which opens the door for the dealer to “refinance” the vehicle and increase his/her profits.

Warning Signs

Dealers who offer to let you take a car home but don’t finalize the loan terms might not have your best interests at heart, especially if you have already agreed to leave your trade-in with them. If you get a call about a problem with a loan several days after signing an agreement, be suspicious. Also, a dealer shouldn’t lower or increase the loan interest rate based on whether you’ll buy extra warranties or dealer services.

How to Protect Yourself?

Before going to a dealership, line up your own financing. Compare the interest rate of the loan you already have with what the dealer offers and go with whichever one is better. When negotiating with car dealers, it is recommended to focus on the total cost of the car, not the monthly payment. Dealers may sometimes monkey around with the total amount being financed if you’re too focused on the monthly payment.

If you are already involved in such a car scam, try to find an experineced dealer fraud attorney to asset your rights.

Title fraud is on the rise because of the current recession and is often the result of poor business management on the dealer’s part. It mostly happens when dealers on the verge of bankruptcy, without enough money to keep operations going, can’t pay off the liens on titles for the vehicles they’ve purchased and sold. Surprisingly, a lot of car dealers don’t technically own the vehicles they sell. They borrow money from financiers, called “flooring agents,” to pay for them. Once a dealer sells a car paid for by a flooring agent, he or she is supposed to pay off the agent to get the title — or clear the lien on the title — and pass it on to the buyer. The problem arises when the car dealer doesn’t pay off the loan. In such cases, car buyers will come back to pick up their license plates and title, only to find that they aren’t available and the dealer is nowhere to be found.

The same applies to trade-ins. The dealer is supposed to pay off the lien on a trade-in, but either is unable to pay or pockets the money and shutters the business after pulling this stunt a number of times. As a result, the trade-in’s original owner is left with a car payment on a vehicle he or she no longer owns, and the new owner, who bought the trade-in with a title that has a lien on it, now technically owns nothing.

Warning Signs

As a warning sign of this auto scam may serve a dealer who says he/she doesn’t have a title but can get it.

How to Protect Yourself?

Always ask to see the title and examine it carefully. If the dealership owns the car or is honest, it will have the title on hand or be willing to produce it. If it doesn’t or won’t, then something’s not right. Remember also never to trade in a financed car with a balance left on the loan. If you can’t pay it off for any reason, insist that the dealer put in writing that he will pay off the trade-in within 10 days. If the dealer is trustworthy, he/she shouldn’t have a problem with this request.

If you are already a vitim of dealer fraud, don’t delay to turn to a qualified dealer fraud attorney.

In our previous blogs we have already presented some tricky questions that may lead to dealer fraud. Below are three more questions and the most preferable ways of answering them in order to avoid becoming a dealer fraud victim.

1. “What were you hoping to get for your trade?”

This may be an honest question, but why tell the price first? If you say you want $10,000 and the car is really worth $12,000, you’ll give the dealer a $2,000 present. It’s essential to have a realistic idea of what your trade-in is worth and let the dealer throw out the first number. Don’t get confused in case he/she offers a ridiculously low price; this may be a dealer tactic to make you think the car is worth less than it is.

So you’re better give an answer like: “Let’s see what you come up with. Make me an offer.”

2. “Can you hold on a few minutes while I check the computer/talk to my manager/make a few calls/do whatever?”

Some dealers will try to prolong the negotiating process as long as possible in the hopes of wearing you down or confusing you with even more numbers. Set a fair time limit for negotiations and when half an hour is left, tell the dealer you need to leave and will be back tomorrow. This will likely speed things up greatly. Just ask the sales rep what his hours are tomorrow, and then go home, get a good night’s sleep, and return to the dealership well rested and well fed. You’ll be in a much better mental state to negotiate.

Give an answer like: “I have to leave in X minutes. I’ll come back tomorrow and we can conclude the deal in case we can’t finish up by then.”

3. “What can I do to get you to buy this car today?”

The answer that the sales rep hopes to hear is: “Get the monthly payment under $X,” “Get the down payment under $Y,” or “Give me $Z for my trade”. Then they will focus on it and close the deal: “See, I got the payment under $X, let’s sign the papers.”

Try to give an answer like: “Give me a fair price and a fair offer for my trade, and I’ll buy this car today.”

Car dealers usually ask key questions for diverting your attention and maximizing their profit. Knowing these questions and refusing to take the bait will help you stay in control of the negotiations and get the best deal. Below are some of these tricky questions and the best ways of answering them and thus avoiding various dealer tricks.

1. “What kind of monthly payment are you looking for?”

In some cases, this question doesn’t presuppose any upcoming vehicle scam. If you’re looking to buy a $50,000 car on a budget of $300 per month with a $1,000 down payment and no trade-in, the dealer will know right away that you’re wasting his time. In any case, it much better to negotiate based on the cash price of the car and not the monthly payment.

Before negotiating on any car, do a little math: Start with the sticker price of the car, add in 15% for taxes and finance charges, subtract your down payment, and divide by 36, 48 and 60 to get a rough idea of monthly payments. Also don’t forget that your vehicle insurance premiums may go up as well. Can you really afford this car? If you can’t, you might want to respond by asking what a lease payment would be like. (Leases offer lower payments, but may also have mileage limits and require you to give up the car at the end of the term.)

So the most proper answer in this case is: “Let’s negotiate a cash price, and then we can figure out what the monthly payments will be.”

2. “Are you going to trade in your old car?”

Many people rely on the cost of their trade-in to offset the price of the new car - but negotiating with a trade-in just complicates matters and gives the unscrupulous dealer yet another set of numbers to manipulate. Remember, the value of your old car isn’t going to change in the time it takes you to hammer out a deal. If you intend to use your trade-in as a down payment, you should have an idea of what it’s worth. Still, it’s important to take one thing at a time - and the first thing is to negotiate the price of the new car.

Your answer to this question should be something like: “I haven’t decided yet. Let’s figure out the price of the new car first.”