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The Way We Buy Cars

Thumbnail image for Thumbnail image for Thumbnail image for New cars.jpgBuying a car in America is different from almost any other type of shopping experience. Car dealerships understand this. Unfortunately, many car buyers do not.

Imagine visiting your local big box store to purchase a toaster, a common household appliance that most people use frequently, perhaps daily.  But you do not intend to buy on a toaster on a regular basis - more like every 5-10 years.

If you are a typical consumer, you may have a rough idea of what a new toaster might cost and what features will increase that price.  However, unless you have the time and resources to research different toaster models in advance, you may not have information to help you understand the range of prices for a toaster. You may reasonably assume that the cost of a toaster may be determined by the brand, features, and appearance.

Suppose that you're not interested in making a fashion statement and that your primary focus is an appliance that will reliably toast bread.

Surveying the assortment of toasters at a store, you see that prices start at about $20 and increase to more than $100 for a top-of-the-line toaster oven with numerous features. You select what you believe to be the best value for your needs - a basic, 2-slice model made by a company that manufactures reasonably priced consumer appliances. Upon closer examination, you notice that there isn't a price listed for this model. You assume that it is going to be priced comparably to the $20 model and go to the cashier to make your purchase.

While that might or might not be the smartest approach a consumer can take, you are operating under the following assumptions:

·         The price that you pay will be related to the wholesale cost the store incurred to stock the toaster.

·         The price you pay for the toaster you have selected will be less than what you would pay at this store for the top of the line, 4-slice toaster oven with broiler feature made by the same manufacturer;

·         The price  that you pay should  be within the ball park of what comparable stores would sell the same model; and

·         The price that you pay will be the same price that the store would charge to other customers.

For most types of purchases, these assumptions would be appropriate. Yes, some businesses may charge more for a particular item, but prices for a consumer good tend to fall within a reasonable range of variability.

Now, think about what might change if the cashier who rang up your purchase order did not have a set hourly wage, but rather was paid by commission.  Additionally, imagine that cashier also has the discretion to charge you whatever amount for the toaster that she thought you would be willing to pay. Imagine also that the cashier had the ability to check your credit history and to learn about both your financial circumstances and your experience in buying toasters - all before the cashier set the price that she was going to charge you for that toaster. Under that scenario, some consumers might wind up paying $20 for that toaster model, while others might wind up paying twice as much.

That is how we buy cars in America.

Just to be clear -- many car dealerships treat their customers fairly and make reasonable profits by selling quality automobiles. Unfortunately, many other dealerships see the primary objective of the sales transaction as a game - a game in which the objective is to make as much money as possible in every aspect of the transaction, including the trade-in, the sale, the financing, and the selling of extra features and services.

This game does not offer a level playing field for consumers. First, the dealer is the only one who has all the information (i.e., the rules). Second, many consumers don't even know that they are playing a game in which the dealer is trying to maximize its profits. And, perhaps most importantly, most consumers are novices at this game, but the dealer is an experienced player who gets to play every day.

In my practice as a consumer protection lawyer, I have examined thousands of car purchases. I have deposed and examined dozens of car dealership employees, who (under oath) have disclosed their employers' tactics, secrets, and tricks.  I have seen up close the games that dealers play when they sell cars to consumers, and much of it is ugly.

I have represented single mothers barely getting by who paid practically all of their savings as a down payment on dramatically overpriced cars that were not mechanically sound. I have represented disabled veterans who bought used cars that they were told had been "certified" by a dealership, only to learn later that the cars in which that they drove their families had severe structural damage and were not safe to drive. I have represented elderly consumers who unknowingly thousands of dollars more than the manufacturer's suggested retail price for a new car. And, I have represented countless inexperienced car buyers who entered into contracts to buy cars for more than double the cost

Thankfully, consumer protection laws exist that permit consumers to fight back against the most outrageous abuse by car dealers. Still, many of the games that dealers play are considered legal but nevertheless cause even experienced buyers to overpay for their cars by hundreds or even thousands of dollars.

My family owned a retail store when I was growing up. My parents taught me that "profit" is not a four-letter word. So, I recognize and respect that car dealers are entitled to make a reasonable profit when they sell cars. Unfortunately, the current car dealership system rewards unscrupulous dealers,  who lure consumers with deceptive advertisements and then subject them to predatory sales practices. Many Even honest dealerships are forced to engage in some gamesmanship in order to compete.

But, car buying doesn't have to be a game where the dealer always wins and the consumer always loses. The purpose of this book is to educate consumers about the games that dealers play. Everybody can win if informed consumers buy cars from dealerships that earn fair profits.  That is a game worth playing.

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