Responding to the Dateline NBC report
'Tricks Of The Trade'
Dateline NBC last Friday (December 5) aired a one-hour special investigative report on car dealerships. The report focused on a number of dealerships, and as we expected, was highly negative. While we recognize that many of the incidents documented in the report occurred at a limited number of dealerships, it is important to realize that the consumer public is unlikely to distinguish the behavior of a handful of individuals from the general practices of the industry at large.
The American International Automobile Dealers Association (AIADA) has had the opportunity to analyze the report, and in an effort to help dealers respond to inquiries from customers and the media, has prepared the following responses.
General Comments:
Most dealers are ethical and honest. The vast majority of auto dealers in this country are reputable. Most have longstanding ties to their communities. They are not so much in the business of selling cars, as they are in the business of building lasting relationships with customers, neighbors and other members of the community. It was irresponsible for Dateline to repeatedly state dealers were orchestrating a "well-organized nationwide scheme" to cheat customers.
Dealers are committed to improving the customer experience. Dealers continually seek new ways to improve the sales experience. In fact, dealership and sales performance is continuously measured through intensive customer service surveys. These surveys invite customer feedback and gauge satisfaction in virtually every aspect of the sales experience.
Most dealers welcome the findings of the report. Dateline's investigation exposed a handful of unscrupulous dealership employees. To the extent that this occurred, the industry as a whole gains. The average dealership benefits when a handful of salesmen with bad business practices are exposed.
Dealers frequently offer lower-than-average rates and terms on loans. In the Dateline report, consumer advocate Remar Sutton was asked about lowest-possible loans offered by car dealerships. He responded to reporter Lea Thompson by saying, "that never happens." Sutton is either incredibly misinformed, or else he was deliberately misleading viewers. In fact, dealers very often offer rates to consumers that, even 10 years ago, were unheard of. And these ultra-low interest loans are generally made available by manufacturer-owned lending institutions.
Thank auto dealers for low interest rates on new cars. No one deserves more credit for the wide array of finance options available to consumers on new cars than auto dealers. As AIADA board member Jack Fitzgerald points out, "When I began as a Ford salesman in the 50's, I recall there was much less competition among car loan providers, although there were more than twice as many new car dealers than today." Fitzgerald credits manufacturer-owned lending institutions for forcing banks to drop the average rate of car loans from about 10% for customers with good credit, to the low rates widely available today. Dealers offer consumers a valuable service because they borrow money at a wholesale rate - a rate that is typically not available to the average consumer. And these low rates are often passed on to consumers. Dealers do earn a commission, or a mark-up, on the loans they process, but they deserve this commission because of the overhead costs associated with serving as a loan clearinghouse. Today's car dealers provide all the car loan functions needed to complete a loan transaction that local banks do.
Dateline employed an atypical subject. Dateline's report employed "consumer" Tori Cocain, a 22-year-old native of Charlotte, NC. Cocain, in addition to having virtually no credit history to speak of, had an annual income of only $12,000. Most consumers probably would not be surprised to learn that Cocain does not qualify for the lowest possible terms on the purchase of a new vehicle. But Dateline not only seemed shocked by this, they suggested impropriety on the part of dealers was at play. Unlike many consumers, Cocain (by her own admission) embarked on the purchase of a new car without a clue about how much she intended to spend, what car she wanted to purchase, and what her available monthly funds were.
Dateline employed a biased expert. While consumer activist Remar Sutton has done much to educate the public about car buying practices, he can by no means be considered an impartial consumer advocate. In fact, Remar Sutton has extremely close ties to credit unions (in light of this, it should be no surprise that the Dateline report heavily advised financing through a credit union). Credit unions, like banks and lending institutions owned and operated by manufacturers, compete for a share of consumer auto loans. Remar Sutton also has very close ties to trial lawyers - a group whose interests have historically been in direct conflict with those of small business owners.
Every story has two sides. In today's age of media balance and fairness, it is important to note that Dateline apparently made no attempt to document a positive buying experience. Dateline spent the better part of a year producing the report, so it is difficult to understand why they did not seek more factual information. One major omission Dateline producers made in the report was that they failed to mention four independent, credible surveys - Gallup, Wirthlin Worldwide, Ernst & Young and Consumer Reports - measuring customer satisfaction levels. Each report independently confirmed that consumers expressed between a 90%-95% satisfaction rating when purchasing a new car.
Specific Points:
Dateline's report raised numerous issues designed to buttress the premise of the report - that auto dealers are engaged in a "well-organized nationwide scheme" to cheat, defraud and otherwise take advantage of unsuspecting consumers. The following points address some of the specific charges raised by Dateline.
Falsification of credit scores. It is illegal for a salesman to intentionally deceive a customer about a credit score. The vast majority of automobile dealers are ethical and do not tolerate this type of deceptive and illegal practice from an employee. It was irresponsible for Dateline to suggest that because one employee broke the law, an entire industry must also be guilty.
The '0 down, 0 interest, 0 payments for a year' scheme. Zero percent auto loans are a very good deal for some consumers, particularly those with good credit who are capable of paying off the agreed upon car loan during the period of time that the interest rate remains low. This is not illegal; it is not even a scam, as Dateline suggested. It is no more an unethical business practice than zero- or low-interest promotions regularly offered by furniture and electronics stores.
The 'bait and switch'. The Dateline report suggested that dealerships advertise low-interest loans primarily to lure naïve customers. But that low-interest rates are typically swapped with high-interest loans once the paperwork begins. This is false. Dealers and manufacturers alike routinely advertise low-interest incentives; however, one would be hard pressed to find such an advertisement without a disclaimer informing consumers that the low-interest loan is contingent on a number of factors including term of lease and credit history.
Dealers never offer lowest-possible terms on loans. In the report, consumer advocate Remar Sutton was asked about lowest-possible loans offered by car dealerships. He responded to reporter Lea Thompson by saying, "that never happens." Sutton's assertion was patently false. In fact, dealers frequently offer lowest-possible terms on car loans. While an average 22-year-old with a non-existent credit history who earns $12,000 a year, may not necessarily qualify, the fact is that plenty of consumers do.
Lenders and dealers are in cahoots, scamming consumers together. The Dateline report made this assertion on several occasions. Reporter Lea Thompson stated that dealers and lenders frequently coordinate schemes in which dealers sell loans at outrageously high rates, and profits from the loan are subsequently divided equally between the lender and the dealer. Thompson then seemed to contradict herself when she reported that lenders are wholly unaware dealers are "scamming" customers by "stuffing" cars with expensive but unnecessary add-ons (Dateline mentioned protection and environmental packages, as well as extended warranties and gap insurance). It is difficult to understand how lenders can be at once complicit in the "well-organized nationwide scheme" of ripping off consumers, and at the same time unfairly caught up in the practice of cheating customers.
The contract you signed may not be the contract given to the lender. In the Dateline report, former finance manger Duane Overholt suggested that dealers occasionally change the terms of a contract after the customer has taken delivery of a vehicle. According to Overholt, a customer who signed a contract has reason to worry that the lender was given a "different" contract - one that typically has a higher interest rate. The fact of the matter is that purchase contracts are completed in triplicate. The customer always gets a copy.
Dealers routinely charge dubious fees. Dateline's report spent a considerable amount of time on the subject of window etching. Window etching is a product designed to provide some economic relief to a victim of car theft. Some etch products will provide the customer with $1,500 and up to $1,000 of their deductible in the event of theft. Additionally, some products also offer an additional $1,000 coupon to the original selling dealer towards the purchase of a new vehicle. A large percentage of automotive insurers will discount rates for the consumer that purchases an etch product. Many local police departments recommend etch products to the public as a deterrent to the soaring auto theft rates. Dateline apparently didn't bother to ask police and insurance companies about the value of window etch products.
Some dealers forge signatures. Forgery is a crime. Period. The overwhelming majority of dealers are honest and ethical. No serious businessman or businesswoman would ever allow an employee to break the law by forging a customer's signature.
Arbitration clause. The Dateline report suggested that dealers pressure or compel customers to sign mandatory arbitration clauses. This is false. In fact, in the report, Remar Sutton himself indicated to a dealer employee that he was opposed to signing the clause. The dealer noted that no such clause was included in the purchasing contract. But it's important to note that arbitration clauses are encouraged by insurance companies and other advocates of small business, because they have the overall effect of reducing frivolous lawsuits. The most vocal opponents of arbitration clauses are trial lawyers who make a living by preying on small businesses. In survey after survey, Americans overwhelmingly favor small business interests over those of trial lawyers.
Extended warranty. The Dateline report implied that add-on options such as extended warranties amount to little more than "stuffing," something they characterized as a "scam." Again, Dateline got it wrong. While extended warranties are not for everyone, the majority of customers who purchase new automobiles also purchase extended warranties. Why? Extended warranties offer peace of mind. Not only do they expand the manufacturers warranty from one that simply covers the power train, to one that protects bumper-to-bumper, but they also extend the duration of the warranty. Extended warranties are a particularly good investment for customers on a fixed income who cannot afford the cost of an unforeseeable major repair.
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The information contained above reflects the thoughts and opinions of AIADA only. We believe the information presented in this document to be factual and accurate. This document is intended to serve as an informational resource only.
AIADA members have permission to share the information presented herein with their employees. AIADA also grants permission to members to duplicate this document - in its entirety or in a segmented fashion - to customers.
For more information on this or any other AIADA publication, please contact Marianne McInerney or Ed Patru at AIADA, 703-519-7800.
$2,000 Clean-Fuel Vehicle Tax Deduction for Honda Insight and Civic Hybrid Buyers
Torrance, Calif. 05/31/2002 -- Two Honda models powered by ultra-efficient gasoline-electric powertrains - the Civic Hybrid and Insight - are eligible for a $2,000 federal tax deduction as confirmed in new guidance from the Internal Revenue Service (IRS).
In just issued guidance, the IRS clarifies that hybrid vehicles are eligible for the "clean-fuel" vehicle deduction provided by section 179A of the Internal Revenue Code. Vehicles considered hybrids include those powered both by a gasoline internal combustion engine and an electric motor that is recharged as the vehicle operates.
For hybrids purchased in past years, the IRS has said "the deduction would apply not only to returns being filed for tax year 2002, but also for the previous two years for which hybrid vehicles were available. The deduction could be claimed for a past year by a taxpayer filing an amended return."
Under current law, the clean-fuel vehicle tax deduction is phased out for tax years 2004 to 2006. The above is provided for general informational purposes and does not constitute tax advice. For details on the deduction, consumers should check with their tax advisors or the IRS website at www.irs.gov.
Introduced in April 2002, the new Civic Hybrid sedan uses Honda's patented gasoline-electric Integrated Motor Assist (IMA) technology and never needs to be plugged in. Its 1.3-liter 4-cylinder gasoline engine and 10-Kilowatt electric motor achieve an EPA estimated fuel economy of 46/51 city/highway, squeezing 650 miles from a single tank of gas. The Civic Hybrid seats five passengers, is available with an automatic or manual transmission, and has a starting MSRP of $19,550.
The Honda Insight, a 2-passenger hatchback, also features Honda's gasoline-electric IMA technology, a 1.0-liter 3-cylinder gasoline engine and a 10-Kilowatt electric motor drivetrain. The Insight has a starting MSRP of $19,080 and the model equipped with manual transmission achieves an EPA estimated fuel economy of 61/68 city/highway.
Media information and high-resolution photography of Honda vehicles can be found at www.hondanews.com. Consumer information is available at www.honda.com and tax information is available at www.irs.gov.
