Car Buyer Beware: Shady Dealings 

  
Shady Dealings 1: 
Inflating Trade-In Value to Cover Negative Equity

This shady tactic is frequently used if you are “Up-side Down” in the loan on the car you are trading in (meaning: you owe more than the car is worth).

To keep the deal moving forward on the car you intend to buy, the dealer will frequently allow you to believe that they are valuing your trade-in at the same amount that you owe on it. Now keep in mind that ‘no one’ is really going to ‘cover you’ on the deal so you come out even. Auto dealers are not exactly known for their charity.

On paper, it looks like the dealer is valuing your trade-in at what you owe on it, and that you won’t own any money to the original lender on the old car.

The trick here is that they are actually giving you less than what you owe on the car, and probably less then what the car is worth (they are in business to make a profit). The difference between what you owe on the old car and what the car is actually worth is loaded into the purchase price of the new car (or the capitalization costs of a leased car). Rest assured, you are the one who will be paying that difference not the dealer.

By inflating the cash price or other costs of the newer car, you are tricked into (illegally) paying more than the advertised price, more in finance charges, and more in sales taxes and registration fees. A similar illegal practice may occur when a lease balance is paid off. Keep in mind, that even if the dealer tells you what they are doing, these practices are still illegal.

Shady Dealings 2:
Manipulating the Advertised Price

According to the law, dealerships can not sell a vehicle for more than the advertised price (even when the customer is not aware of the advertised price.) If a dealership inflates the selling price of a vehicle, whether to improve the profit margin, cover other costs, or (presumably) help a customer out of a prior loan, the resulting sale is at a higher price than advertised and is a violation of the law.

An advertised price is broadly defined to include news paper, direct mail, Internet, radio or TV advertising as well as the window sticker on the vehicle.

Shady Dealings 3:  
Packing (inflated monthly payments)

Packing is a trick intended to get you loaded up with a lot of added cost accessories and services that carry a higher profit margin for the dealership.

How this works is that you are quoted an inflated monthly payment and once you accept that monthly payment amount, the dealership goes to work “packing” accessories, service contracts, GAP insurance, paint or fabric protection, etc. into the deal, in order to reach the inflated monthly amount.

They count on you not realizing that the accessories and services are optional, instead you are led to believe the accessories are included with vehicle or not told anything at all.

Shady Dealings 4. 
The Deferred Down Payment

Dealerships will sometimes encourage customers (who can’t aford the down payment at purchase time) to make their down payments in the form of additional payments, referred to as deferred down payments. The law does recognize payments of this type and requires that deferred down payments be itemized, including the amount and date due for the deferred down payments. Some dealership, rather than disclosing deferred down payments, will have customers write all of the checks for the deferred down payment with different dates on them and then agree not to cash the checks until those agreed upon dates.

What’s wrong with this? As part of this transaction, the dealer and the customer are creating terms and obligations that are not included in the purchase agreement (the single document law).

Shady Dealings 5. 
Full Disclosure on the Used Cars

Are they telling you everything about that slightly used vehicle you have your eye on?  Are they telling you what a great buy it would be?  Ask questions!

Dealerships are required by law to disclose “material known facts” about any used vehicle they are offering for sale. They are also prohibited from misrepresenting anything related to the facts of the vehicle's history. “Material known facts” means:
 

• Is the odometer reading for this vehicle accurate or been replaced?

• Was the vehicle involved in an accident that resulted in substantial damage?

• Was the vehicle ever a rental or fleet vehicle such as a Taxi Cab, Police Car, etc.?

• Was the vehicle ever repurchased by either the manufacturer or dealer under the “Lemon Law?”

Shady Dealings 6. 
It Depends on How You Define the Term New or Used?
 
Dealerships are required by law to describe the vehicle being purchased as either "new" or "used".  Technically, the used vehicle definition also includes a demonstrator (Demo) vehicle used by dealership employees or manufacturer representatives.  Often the sales contract will state the vehicle is "new" with the dealer arguing that it has never been "titled to anyone" but, it is a used vehicle.   

Additionally, there are vehicles that were previously sold but returned due to failed financing, or some other reason.  It is not uncommon for a dealer to  attempt to list this vehicle as new.  The dealer will want someone else to pay for the depreciation on vehicles in their inventory.