Skirting the Anti-Packing Law (Car Sales)

[zuluzerosix]

Hello folks.

I don’t post too much around here unless it is a topic I know something about; which is why I don’t post too much. There is something I do know about and that is auto financing. As some of you I know I am the Director of Finance at a Ford, Lincoln-Mercury dealership in Northern California. I wanted to make you all aware of a new a potentially illegal tactic on the rise at dealerships.

Background
I am sure that most of you know how to buy cars and you don’t need any advice from me, but there is a new trick in town. Most states have anti-packing laws in place to protect the consumer. Packing is when a dealer “throws” in products such as Extended Warranties, GAP Protection, window etching, paint protection, ding and dent repair, maintenance plans, low jack etc.. Dealers also sometimes add these products in to your payment when they submit a loan to the bank or credit union. Then they quote you a payment with these products then try to “slip in” the paperwork for them when you sign the contracts. This is still Packing.

The law in California (and other states) is very clear. Dealers must disclose optional products, the costs and how they affect your payment before the deal is finalized and the contracts are signed. (Please check your local laws) There are separate documents to be signed such as the Optional Product Disclosure (Please check your local laws). They also have to be disclosed on the LAW 553-CA Retail Installment Contract-Simple Finance Charge contract.

Here’s the scam:
Some dealers are combining certain products together and pumping up the prices. You think you are buying just one product when in fact, you are buying several. For an example; one dealer combined Paint Protection, Window Etching and Dent and Ding Repair for a price of $1485. Sound like a bargain? The dealer costs for the products are; Paint protection-$150, Window Etching-$75, and Ding Repair-$150. The dealer made $1110. These are considered by banks as “Hard Adds.” That means they get tacked on the front-end of the deal (or the price of the vehicle).

(All of it goes on the front-end except Warranties and Maintenance, they go on the backend-I will explain later)

Some dealers may even add this to their “invoice costs.” That is another cheap trick. This is how some are trying to get around the anti-packing law. Then they call it some sort of Total Protection Package and show one low price of $1485, “and look you get all these benefits!” They may even tell you can’t get the paint protection without buying the package-another lie.

This can be dressed up any way they want, it is still packing. Some dealers are creating funky names for their “Total Protection Packages.” The best one I have heard so far was the Automotive Investment Protection Plan.

It is just my humble opinion, but the only things worth paying for when you buy a car is a Factory Extended Service plan (only if it is bumper to bumper coverage (ask to see the dealer’s cost-you should never pay more then $500 over cost-most dealers charge $1200 to 1500), Factory Maintenance Plans (but they must cover the maintenance listed in the owner’s manual-or no deal) and GAP (Guaranteed Auto Protection-only if you are financing 72 months or longer or are paying high interest). I have a factory extended service plan with no deductible and Factory Maintenance plans through Ford and have had no issues with them. But buying those is up to the buyer and some folks don’t believe in them. I can understand that and I am not going to argue that.

Any time the word “Protection” and “Investment” are used together in the car sale process, something is up. Remember most banks with finance 120% up to 130% of the purchase price to include Tax, Title and License Fees and any negative equity from a trade in. In California, Bank of America does not include Tax, title and license in that percentage. The reason the banks finance this overage is so the dealer can sell you these products. Then the banks will allow usually up to 15-20% of the purchase price or amount financed for back end stuff. That would be the Warranties and Maintenance plans.

Remember you are entitled to a copy or everything you sign when you buy a car.

Just wanted to let everybody know. I hope I didn’t waste any bandwidth.

Zulu

[dr. mabuse]

*

[The Reaper]

Good info, from our F&I guy on the inside.

Thanks!

TR

[ksgbobo]

Thanks for the info. Something to consider, since I plan on buying a new car within the next year.

[Red Flag 1]

zulu06,

Great info, and thank you!!

RF 1

[zuluzerosix]

Thanks for the info. Something to consider, since I plan on buying a new car within the next year.

Please contact me if you have any questions.

[greenberetTFS]

Good Info since I'm planning to by a van equipped with handicapped capabilities...This is a "package deal " that they are putting into the original paperwork..

[zuluzerosix]

Good Info since I'm planning to by a van equipped with handicapped capabilities...This is a "package deal " that they are putting into the original paperwork..


Whoa....

Most manufactures offer rebates to help with that. Find out who is building out the mobility devices. The dealer may be marking up the work that the company does. Find out who the company is, contact them and go see them do the work. I have done several of these and they can go way south. AS musch as I hate to pump another brand, it has been my experience that Toyota Vans make the best vans for out fitting handicap gear. This is a big deal and the dealership can take you to town on this. I know of one instance where a Finance Manager at a Dodge Dealership quoted a lady $10,000 for a Braun Companion Seat that costs $4,000 installed.

BraunAbility Here (http://braunability.com/companion-seat.cfm)


Just plain wrong.

I have done a few of these. PM inbound

[AngelsSix]

My old man and I went to buy a new Wrangler today and got the whole speil. He damn sure tried to sell the gap insurance. I told him we had never bought gap insurance. He damn near fell out of his chair. I asked him why we needed it. He claimed that with vehicle depreciation, that you would have negative equity in a vehicle if you had a wreck and the vehicle was totaled. That is what the gap insurance covers. But on a three year loan it isn't going to depreciate enough if you take care of the car.

[Dan]

I'm now a believer in if you have to buy a car on credit you can't afford it; it's a whole different mind set and is one of the best financial decisions you'll probably make.

On this topic here is a quote from one of the following links:

Forget the extras. Don't pay for things that you don't need like pin striping, special detailing and extended warranties. If you have your full emergency fund in place, it'll cover any costs you have if the car breaks or has problems. That is actually one of the beauties of buying a two-year or older paid-for car; it has a lot of the kinks worked out of it.

Car Shopping Dos and Don'ts (http://www.daveramsey.com/etc/cms/car_shopping_6417.htmlc)

Why Buy A Used Car? (http://www.daveramsey.com/etc/cms/why_buy_a_used_car_5153.htmlc)

[Dan]

But on a three year loan it isn't going to depreciate enough if you take care of the car.

From looking at KBB and other links it's commonly known that on many cars you'll lose 40-60% of a new car's value in the first four years. Not sure the exact amount a Wrangler would depreciate, but I imagine it's fairly high.

[The Reaper]

Some cars depreciate a lot faster than others and cost more to operate.

I do not necessarily believe that it is wrong to borrow money at less than 5% interest for a car loan when you have money elsewhere making more for you.

While a used car may be a good deal and avoid some of the depreciation, it is also more likely to break down. A one or two year old vehicle may be a good bargain, if you know that it is reliable, has not been wrecked, and has been well cared for. I prefer to have a vehicle under warranty, at least initially, but I do agree that keeping vehicles and driving them until they are pretty well used up is a good plan. I usually keep mine for ten years or more, or 200,000 miles. By the time the warranty expires, I know how reliable it is going to be and can choose to dump it, if it looks like it is going to be a problem.

I used to try really hard to buy American, but with the lower quality, accelerated depreciation, and bad attitudes at the dealership, I am sticking with Honda and Toyota products these days.

As Z06 stated, the packs are never a good deal for the buyer. Same with people who do not do their homework, are bad negotiators, or who worry more about the amount of the monthly payment than the total cost of the deal.

TR

[Defender968]

It never ceases to amaze me the things some dealerships will try to do to get some more of your hard earned money. I once had a dealer in Texas that added a color paint protection option, the saleswoman who clearly didn't know the first thing about cars tried to tell me it was the clear coat. I looked at her laughed real hard and explained to her she needed to get her scam right, what they were trying to sell me was a $1495 dollar wax job, still a hell of a great deal :rolleyes: needless to say I took my business elsewhere.

[82ndtrooper]

I'm one of the those guy's that would rather voluntarily have a needle put into my eye than visit a car dealership. :munchin

I want the leverage when I walk onto the car lot and that usually means that I need to have the cash already in the bank earmarked for the automobile that I want. In other words, I'm not looking for a friendly payment schedule or GAP insurance or extras. As I would suppose most are not. If I'm heckling a monthly payment schedule, then I can't afford the car in the first place and I'm having to think about what I'l do without to afford that payment schedule that is being put in front of me. Not going to do it, not going to even allow that game of checkers to enter my buying decision.

The last automobile that I purchased was the Audi S4. I spotted it off the road. I went during dark hours to peer inside the car and out and look at the sticker. Ok, I want it. Here was my steps to buying the it.

1. Phone call, asked for salesman.

2. I want that silver S4 in the front row.

3. Here's what I'm offering in cash and if you can sell me the car for that amount then I'll have my bank wire transfer the money to your finance department, can we agree on that price ?

4. I'll be over once the bank has cleared the transfer of funds. Please have it detailed and ready to drive off the lot.

5. Showed up, signed paperwork, assumed insurance over the phone with my agent, and took the key's and drove off the lot. Less than 20 minutes on in the building.

I don't remember the salesmans name that got the sale, but he said it was not only the easiest sale, but also the strangest that he'd ever encountered.


I don't want to be sold anything. I've sold more in this lifetime than most car salesmen and I know when I'm being sold so I avoid it all costs.

[GratefulCitizen]

Food for thought:
http://www.askstudent.com/money/true-cost-to-own-a-car-10-worst-states/


Can't stand the idea of buying a new car.
Rather buy cheap transportation and fund the local economy by sending it to the mechanic.

[The Reaper]

I had a similar experience with my last purchase. I wanted a hot new model, and they were in short supply. I used the internet to get pricing from a dozen or so Acura dealers within a hundred miles, and usually dealt with the fleet manager at the dealership, who is under a LOT less pressure than the sales staff. One dealership had the best price, I used it to try and beat a couple of others down, but they could not match the deal.

First, get your money/financing in order BEFORE you start car shopping. Know what you can afford, and do not fall in love with a car and forget that number. Do not talk to the dealer yet, or tell them how much that is.

I prefer not to have to go into the dealership and talk to a salesman till the deal is done. Going in puts you on their turf. The dealership's sales staff's job is to sell you the car for as much as they can, and they are paid for their ability to do that. In most cases, the more they make on the deal for the dealership, the higher their percentage commission. I do my internet research, and try to deal by email. Do not give them your phone number till you are ready to close a deal. If you have to walk in and are ready to deal, IMHO, the best time is the end of the month, near closing time, on a rainy day. Most salesmen are straight commission, and are hungry to put one more deal on the board before the end of the month, especially on a day with no customers.

Understand what the dealership has in the car, and what it is worth. Do your homework. I like Edmunds.com and KBB.com. Know the retail, dealer cost, and true market value of the car, with all warranties, delivery, etc. They are not running a charity, and have to make something on it. How much is between you, and them. Know the trade, personal sale, and dealer retail value of your trade. Even if you are going to be trading in a car, tell them no till you arrive at the price on the new car. Then ask them what they will give you in trade. You will then know what they are really giving you for it. Otherwise, you are getting with one hand and giving with the other. Do not be afraid to keep your trade, and sell it on your own if the offer is too low.

Do not accept any packs or add ons, except for a good deal on the extended warranty, as Z06 explained. Any additional charges on the contract, ask about them.

Know your price ahead of time and stick to it. No matter how much pressure is applied, be prepared to walk. Despite what they may say, it is your money, and you know what the car is worth to you.

The Finance and Insurance guy can be an assist for you, or a big profit center for the dealership. I had a sight draft for my last deal, but let the dealer F&I guy finance it with Honda American Finance. He offered the same rate, and the dealership got credit for it. Later, Honda Finance screwed up the monthly draft, and had poor custoner service, so I refinanced it with the original credit union I had the sight draft from, and paid off the note from Honda. Be aware that most dealerships have no problem sending you out the door with your new car "upside down" owing more on it than the car is actually worth.

Sometimes, the gap between what you have, and what you want, is too great, and it might be time to walk. Do not fall for the "How much per month are you willing to pay" scam. Longer finance periods mean higher rates. Poor credit history means higher rates. Young and no credit history means higher rates. Etc., etc. Dealer offered insurance is rarely a bargain. If you are in the service, call USAA. They will usually finance your car at a good rate as well. Pentagon Federal is another good source for financing.

I also used a few nagging problems with the car to get the extended warranty for free. Not all companies will do that, but Acura is very customer service oriented. The last warranty problem I had with a Dodge, they refused to address it, even after multiple complaints and the truck doing it right in front of the regional service manager. They told me to "live with it". That was my last American car experience.

Remember, you are the one with the checkbook. If you do not like the deal, walk. You can always come back again later.

Hope that helps.

TR

[zuluzerosix]

Jeez. If everybody bought cars the way TR does, it would make the sale process easier. Customers would be happier, and they would would buy more cars and the dealerships would make more money.

The problem with American quality is what is killing the big three now. We did it to ourselves. Quality is determined by "things gone wrong" in the first year of ownership. (we are talking about new cars here.)

JD Powers (for what it is worth) reports that in the 2008 initial study the industry average was 118. That is 118 things gone wrong in the first year of ownership. Here are some numbers:

Porsche- 87
Infinity-98
Lexus-99
Mercedes-104
Toyota-104
Mercury-109
Honda-110
Ford- 112
Jaguar-112
Audi-113


These numbers came from reported warranty claims.

Those are your top ten. Then, the Detroit News on 04/05/2008 reported that Ford had tied Toyota in initial quality.

Great for us right? I don't think that we will ever get back the customers we lost to the Japanese brands. Many people left us because of quality. The big three was so concerned about the numbers and mass production that we forgot about quality. Consumers went to other brands and bought cars that stood the test of time. Ford Motor Corp is getting it's act together in terms of quality. Does that mean consumers loyal to Toyota and Honda are going to come running back to us?

If we ever get those folks back, it will be after years of proving ourselves as the producers of quality product. Furthermore we will have to change the way we sell them. I don't think the Big Three can get there from here.

BTW,

Never, ever buy a GAP contract for a loan tern less than 60 months.

[PSM]

Here's an interesting podcast with an auto dealer sales manager:

Steve Cole, the Sales Manager at Ourisman Honda of Laurel in Laurel, Maryland talks with EconTalk host Russ Roberts about the strange world of new car pricing. They talk about dealer markup, the role of information and the internet in bringing prices down, why haggling persists, how sales people are compensated, and the gray areas of buyer and seller integrity.

http://www.econtalk.org/archives/2008/06/cole_on_the_mar.html

Pat

[Gypsy]

Thanks to all for this thread, it's highly informative.

I've always been a Toyota fan, though my brother has talked me into a Honda Accord for my next vehicle...he's had 4 and swears by them. Having had many problems with various American made cars, it's sad to say I don't believe I would really consider purchasing American again.

Though I'll say this, I currently drive a '99 Grand Prix and LOVE this car. Knock wood it will last me another couple of years...I'm at about 125K miles and have THE best mechanic (small town guy who truly takes good care of me). I bought the Grand Prix used from a friend of mine in 2001, only because I knew he took better care of the car than his girlfriends. :D

[The Reaper]

After driving this thread way off topic, I started a new thread for service horror stories and mechanical problems.

Please keep this one focused on car SALES issues.

Thanks.

TR

[Arwr]

Zulu,

Thanks for the skinny, but you are right. I owned a Ford Bronco in the '80s. POS! I have owned a Toyota truck ever since then. Toyota, and their trucks, have me for life.

Arwr