4 Signs You Are Talking to a Shady Car Dealer

May 14, 2016

Bad dealerships ruin it for the rest of us who try to sell vehicles. Luckily, the number of shady terrible used-car ‘sweat shops’ is going away, and gradually being replaced with more organized and structured good operators (e.g. Carmax and Autonation).

The problem with shady dealers is that they ALWAYS pose as the “good guys”, much like used-car lemons themselves. To avoid running into one of these unscrupulous operators, here’s some more modern tricks you should never fall for:

(1)  It’s got a “Clean Carfax”

Here’s an unexpected secret – Carfax actually picks up very few minor accidents.

Yet – because consumers have become so adamant about checking reports (and mistakenly believing them!), dealers have begun to advertise using deceptive language mentioning Carfax’s false approval.

You’ll see tons of ads suggesting “Clean Carfax”, “No accidents on Carfax”. This doesn’t mean the car hasn’t been heavily damaged previously. We once accepted a 2011 M3 trade in which had no accidents on Carfax – and had been hit at 40 mph by a Suburban from behind (Note: we sold this car to another dealer, and would NEVER sell something like this to a consumer).

(2)  You’re annual APR is 3.49% (except its 1.99%)

Not all lenders are the same, and not all dealers treat loans the same way. Most credit unions offer great rates and forbid dealerships from artificially marking up their rates.

To make some additional money, you won’t always get the best rates from the dealership – instead they’ll give you the best loan for THEM. They often mark-up interest rates arbitrarily to make additional money on the loan (so you’re 1.99% APR becomes 3.49%).

Always ensure to benchmark your lending APR through multiple banks or credit unions. It helps to get a loan directly (and simply work with the participating dealer). Local credit unions often give the best rates.

(3)  Hidden items in your financing contract for things you didn’t intend to buy!

Here’s another unscrupulous activity from shady dealerships and how it typically works:

  • The dealer offers you a variety of payment options, all while communicating the terms in “monthly payments.”
  • After a bit of negotiations you get an APR you’re happy with and a final payment that works.
  • In between, the dealer has actually been adding in service contracts and Gap insurance automatically into the deal.

So while you may be happy with the payment amount and a low APR (the two dimensions you’ve heard were important), the dealer has been gradually adding high-margin to the total costs!

(4)  Insane trade-in offers

You’ll naturally want to trade-in your old vehicle. If a dealership knows you’re not ready to purchase today but wants an immediate price quote on a deal, here’s what’s sometimes done –

Rather than give you an honest estimate of what the vehicle is worth, he’ll offer way more on the trade-in than almost any other dealer. Why would he do such a thing?

As a consumer you’ll anchor your vehicle-trade in value on that dealer’s offer and inevitably try to get that same offer elsewhere. Except no dealer who actually has to go through with a transaction would ever offer that amount! It was a fictitious offer so you would return to that same dealer.

Only now, you’ll be offered a myriad of excuses why that same offer doesn’t apply:

  • Market circumstances
  • Condition has changed
  • Different appraiser

What to do as a consumer.

To avoid these pitfalls, just follow a few basic steps.

  • Always have a vehicle evaluated properly (e.g. by someone who knows what they’re doing).  Carfax and AutoCheck don’t substitute for someone actually evaluating the vehicles exterior and interior.
  • Don’t optimize for one dimension of the deal (e.g. don’t aim to get the lowest APR or the lowest payment, instead aim for lowest net-deal). Look at:
    • Financing Charge (total amount spent on interest, which takes into account the APR and the length of the term)
    • Trade in Amount
    • Cash vehicle price

The best deal is one, which suits the payments that you want, and still minimizes the terms above.

These are some of our initial observations and advice for consumers to protect themselves while they are visiting dealerships this spring.  There are reputable dealers out there; it’s really a matter of knowing the scams to avoid the bad ones.