On Not Falling In Love
Published on Fri, May 18, 1990
By: Len Frank
In every survey of attitudes about occupations, Americans place auto salesmen and dealers somewhere just above politicians and about even with tax collectors and professional plague carriers. – Len Frank
And it’s been this way since anyone can remember—probably a heritage left from the days when horse traders had the same reputation.
Shortly after WWII, “system” sales began to develop, replacing individual techniques developed by each salesman. In those days it was “salesman” rather than “salesperson.” Anyway, systems took advantage of gullibility, lack of experience, and ignorance of the consumer with heavy emphasis on bait-and-switch tactics (the practice of advertising a car at an extraordinarily good price—the bait: then claiming the car had been sold when the customer rushed down to buy it, substituting a slightly more desirable car at a far greater price—the switch), financing practices (usually confusing the customer with different methods of figuring interest), and misrepresenting the product itself by confusing models, performance, and especially, the price of the vehicle itself. There are now consumer protection laws, both state and federal, to prevent all of these practices and more. But in more sophisticated and generally legal (not to be confused with ethical) ways, abuses continue.
The “system” is part of the organization within the agency. Before systems, the salesman either greeted or “prospected” the customer, then “qualified” him (“qualifying” is evaluating the customer’s ability to buy a car), helped him select a particular car, arranged a price, estimated the value of the trade-in, figured the monthly payments, arranged financing, possibly helped the customer with insurance, demonstrated the operation of the new car, and complimented the customer’s necktie and his wife’s hat. If the customer was misled, fooled, defrauded, overcharged, or, treated with courtesy and given helpful council, it was the salesman himself who was responsible.
In a system dealership, the salesperson is just a greeter. He (or she now) meets the customer and “helps”the customer to select one particular car. At this point the various systems differ in detail: a sales contract may be written (by the greeter) on the car with the very low price the customer would like to pay. The salesman takes it to his “manager” who of course, disapproves and makes a big show of disciplining (perhaps even “firing”) the salesman. The manager, most often known as a “closer”, at this point may step in and begin to negotiate with the customer. The asking price for the car will now be considerably higher. When the customer bargains or complains, the closer can become very tough, even abusive. If the customer attempts to leave, some concession will be made. Then the closer tries to take back part of what was conceded. The whole process most often is repeated until the customer is confused and signs a sales agreement. There are near endless variations of this process but only two objectives: to make sure the customer buys a car then and there, and to maximize profit for the dealer.
When the customer reacts badly to a closer, another closer takes over, usually with a new approach, playing “friend” or “counselor” or “consumer advocate”, appearing to side with the customer against the unfair practices of the previous closer, then substituting misleading practices and figures of his own.
Eventually, the customer tires. Probably he wants the more expensive car the closer has switched him to. His ego impels him to deny that the process has confused him, that he cannot afford the higher price. Sometimes the value of a trade-in will be inflated to the point where it will make an adequate down payment–then the price of the vehicle will be raised the same amount greatly increasing sales tax and interest, but by this time the customer has convinced himself that he wants the car as much as the closer wants to sell it to him.
At this point, the customer is taken to the “F & I” (Finance and Insurance) office. If the buyer’s credit is not absolutely perfect, and sometimes, even if it is perfect, the F&I manager will try to question the buyer’s ability to buy (largely psychological), then raise the interest rate paid on the amount financed; or the F&I person may try to meet the payment amount (usually unrealistic) desired by the buyer by extending the period of the payments. Although the dealer is seldom actually the lender, most dealers profit greatly from arranging the loan, and the greater the amount of interest paid, the greater the commission (called reserve) to the dealer.
The F&I manager will also attempt to sell the customer insurance on the loan—life, accident and health, and income interruption. Many times the customer is already covered for these emergencies by another policy, but is seldom aware of it. Not only is the principle of the policies added to the loan month-by-month (remember that the payment premium is the same in the last month of the loan, when the payoff is miniscule, as it was in the first month when the amount was at its maximum), but further interest is charged on them.
An extended service contract will also be pushed on the customer. It represents considerable profit for the dealer, and, since it is very difficult to find out what the dealer pays for it, it’s hard to ask for a discount. In fact, as with the loan insurance and interest rates, most buyers don’t even realize that it can be negotiated. Too, it is difficult, especially in the heat of the moment to intelligently read the warranties that come with the car, let alone read a high-priced service contract that certainly duplicates in part what the manufacturer of the car has already covered in the warranty. It may also contain unpleasant surprises in the form of deductibles, extraordinary service requirements, and interpretations of “normal wear” and “regular service items.” The cost of the service policy alone, before further financing charges, can run well over $1000.
Rebates have become a fact of auto merchandising in the last few years. Since they really reduce the profit made by the manufacturer and sometimes that of the dealer, the manufacturers try to leave them as the last inducement to buy.
The original rebate simply had the manufacturer send the buyer of the car a check for the amount rebated—about $500. It seldom occurred to the customer that he had just borrowed that money, given it, in effect, to the dealer, who forwarded it to the manufacturer, who then sent it back to the buyer. The buyer, just happy to get a check, never realized that it was his own money that he was paying interest on for three, or four, or five years that had just come back in the mail. Far better to simply have the amount of the rebate deducted from the purchase price.
A variation on the rebate scheme may have, in very fine type at the bottom of the ad, “dealer participation may affect overall price,” or words to that effect. What it really means is that if there is, say’a $600 rebate (or a very low interest rate) offered on a sale, the dealer may have to contribute, say, $200 of the amount. And that means that the dealer must ultimately get $200 more for the car.
There are books available to consumers that list the invoice prices of all of the cars currently sold in the US (Edmund’s Guide to New Car Prices, and Consumers Guide are two). The invoice price is not exactly what the dealer pays for the car and its accessories, but it’s close. The invoice does not include interest (called “flooring”) that the dealer must pay to keep the car in stock. It also does not account for a refund (called “holdback”) that the manufacturer gives to the dealer if the dealer meets a sales quota. A few dealers actually make their profits by selling solely at “invoice,” plus financing reserve, plus service contracts and undervaluing the trade in.
Although consumer advocates and publications try to make the process of choosing a car sound like one of straightforward objectivity, choice of a car is a very personal matter—highly emotional and almost as personal as choosing a mate. Objectivity in choice is, for the most part, an illusion, but as far as it goes, make sure that the car is affordable, that there is a good service organization behind it, and that it works best for the primary purpose. (If the car is going to be used for an hour’s urban commute with a carpool five days a week, buying a 4wd 2-seater with turbocharger and ski rack is not going to work very well. But is certainly will be emotionally satisfying.)
Top image: Robin Williams as Joey O’Brien, the salesperson in “Cadillac Man” (MGM Studios, Orion Pictures)
The late Len Frank was the legendary co-host of “The Car Show”—the first and longest-running automotive broadcast program on the airwaves. Len was also a highly regarded journalist, having served in editorial roles with Motor Trend, Sports Car Graphic, Popular Mechanics, and a number of other publications. LA Car is proud to once again host “Look Down the Road – The Writings of Len Frank” within its pages. Special thanks to another long-time automotive journalist, Matt Stone, who has been serving as the curator of Len Frank’s archives since his passing in 1996. Now, you’ll be able to view them all in one location under the simple search term “Len Frank”, or just click this link: Look Down The Road. – Roy Nakano