The saleslady at CardinaleWay Mazda in Corona, California, about 50 miles east of Los Angeles, was rushing Mario, a 20-year-old first-time car buyer, through a new loan agreement, asking him to make electronic signatures on a small tablet. When asked if Mario could see the physical agreement and all its terms, the saleslady insisted that the signature must be added in order to move forward. Anyway, she assured, it was a better deal than what he initially signed; the term was dropping from 84 to 75 months, and the interest rate from 13.77 percent to 10.99 percent.
Jase Patrick had flown in from Miami that day to advise Mario, who had contacted Jase’s company Mozy about a loan that was full of red flags. Jase asked the saleslady if it was true that the extended warranty bundled with the deal was required to get the lower interest rate. She said it was.
Jase asked Mario and his family to leave the room.
“How long have you been doing F&I?” Jase told me he asked the woman, using the initials for the finance and insurance department. The woman said three years. In that case, Jase replied, she should know it’s illegal to tie a warranty to a lower interest rate. He said the dealership needed to unwind the sale, and he wanted to speak to the sales manager. The woman promptly left the room.
Jase put his feet up on the desk, and the sales manager, walking in on him, asked if he was comfortable. This set Jase off. How could the manager be comfortable with jamming a young kid? According to the original sale contract, F&I had added about $7,100 in extras—the warranty, a “door guard,” nitrogen-filled tires, two anti-theft systems, and a guaranteed asset protection (GAP) policy—onto a $24,335 Mazda3. Jase called it a “box close,” where the sales agent works out a monthly payment and sends the customer to F&I—the box—to negotiate the rest, layering on as much junk as possible. Jase even alleged that F&I doubled Mario’s actual income on the paperwork to get the bank to sign off.
The initial loan, Jase figured, must have evaporated upon the bank inspecting the numbers. This new one, with the lower terms and interest rate, still represented thousands of extra dollars padded onto the sale. “It only sounds like a good deal because of how poorly they treated him to begin with,” Jase told me later. With access to fairer financing and no add-ons, Jase estimated that Mario could have saved $20,000 over the life of the loan, a figure approaching his annual income.
“This is the ideal customer,” Jase said. “This is what they train for.”
The sales manager denied that the interest rate was tied to the warranty, and said that Mario could take it off. But Jase wanted the whole deal cancelled, and for Mario to get the $2,500 back that he already put down on the vehicle. And it seemed like he wanted more, too: some signal that confusing and squeezing customers was the wrong way to do business. So he asked for the owner.
About ten minutes later, the general manager walked in. Jase explained the situation; the general manager claimed he never heard of a box close, though he later conceded that completing a deal in F&I was common. He also didn’t like having his authority questioned, asking Jase how he knew so much about selling cars.
“I’ve been doing this 15 years, OK?” Jase told me he said. “I’m a regional finance director and now I have an F&I company, and we are bringing an ethical way to doing F&I. And you’re going to ruin this industry if you keep doing business like this.”
The manager threw Jase off the lot and threatened to call the cops for trespassing.
MOST CONSUMER SPENDING IN AMERICA, at least for now, has become standardized; you pay the price offered or find another product. Homes and autos, the biggest purchases most Americans will ever make, are more a matter of negotiation. Cars have a suggested retail price, but just about everything else—trade-in value, financing rate, dealer markup, optional extras, and ultimately the total payment—is up for discussion.
It’s an uneven negotiation from the beginning. Customers don’t spend their every waking hour thinking about how to buy a car, but they’re up against an entire architecture that does—a small army of sales, F&I, and service staffers, and a tight network of managers and dealers. They have deep experience in these transactions, and practiced techniques for how to maximize revenue.
The result is an experience that most people view as a grinding, tortuous journey, being upsold and pitched and bombarded with numbers until they resign themselves to the egregious overcharges as the price one must pay to get behind the wheel. A March survey found that 86 percent of auto customers expressed concern about hidden fees, and 76 percent lacked trust in dealership pricing.
Even a completed CARS rule, Jase Patrick believes, would not fully stop dealers from engaging in prohibited behavior.
Lina Khan, chair of the Federal Trade Commission, told me about a public comment she received from a veteran, who likened the experience of car-buying to preparing for war. “It was such an apt way to put it,” Khan said. “You’re kind of gearing up for battle every day to be pitted against corporations that have so much more money and resources and information, to just try and make sure you’re not getting harmed.”
As a tool in the fight, the FTC has introduced the CARS rule, which stands for Combating Auto Retail Scams. The rule attacks the most deceptive practices of the auto buying experience. Under the rule, dealers must provide up-front pricing, including the total amount paid after financing, not just the monthly payment; obtain “real consent” for all add-ons rather and not tie them to lower finance rates or rebates; and only charge for products deemed to have real value. The FTC estimates the rule will save customers $3.4 billion a year.
But in January, the National Automobile Dealers Association (NADA) filed suit to block the CARS rule, calling it “terrible for consumers… because it will add massive amounts of time, complexity, paperwork and cost.” The lawsuit remains under active litigation.
Even a completed CARS rule, Jase Patrick believes, would not fully stop dealers from engaging in prohibited behavior. “We’re not ready for it,” he told me. “There’s going to have to be a widespread effort to tell the police that you arrest people when this happens.” He cites as evidence his years of service inside the rooms where auto dealers perfected these techniques. He’s now on a quixotic quest to establish more honorable business practices in the industry. Getting to that place is a steep drive on rough terrain.
by David Dayen, The American Prospect | Read more:
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[ed. The amount of time wasted just trying not to get punked by every business under the sun probably represents a pretty significant percentage of most people's lives. See also: Economic Termites Are Everywhere (BIG); and, Hello From the Middleman Economy (AP):]
"The common thread here is an economy of middlemen, a group of linkers, connectors, and bridgers that offer little in value (or in these cases actively detract from it) and much in opportunity for skimming and causing prices to rise. This has in a real sense become the U.S. economy in microcosm, and in many ways it speaks to public frustration with it. (...)
America runs on middlemen. They have insinuated their way throughout the products and services we rely upon, and they make them more expensive, poorer in quality, and more vulnerable to hidden risks.
These risks can be seen most sharply in the information security realm. As Cory Doctorow writes, “This is the American story of the past four decades: accumulate tech debt, merge to monopoly, exponentially compound your tech debt by combining barely functional IT systems. Every corporate behemoth is locked in a race between the eventual discovery of its irreparable structural defects and its ability to become so enmeshed in our lives that we have to assume the costs of fixing those defects.”
