You spent days looking for the perfect vehicle. You finally find it, and the $280.00 per month payment is just what you were looking for. The dealer then offers you more than expected for your barely running trade in. Things are going great! The car buying process is taking forever, but you don’t mind because the dealer seems so nice. He is talking about the weekend he had with his kids and his young family. The dealer is in and out of the office. He blames the delay on a a back-log in financing. Hours later he walks in with a stack of “routine” documents that need to be signed so you can purchase and finance the vehicle.
The dealer says that the lender requires that you purchase a warranty and GAP insurance. He explains this is required, and that because you are getting such a great price on the car it will have little effect on the monthly payment. The dealer then starts to present each document and points out where you should sign while keeping one hand on the document and talking about his recent trip to Mt. Hood. The dealer apologizes for the delay and shakes your hand. You drive off the lot with a big grin on your face.
When you get home that big grin quickly turns to a frown once you review the paperwork. It is at that time that you notice the dealer charged you $3,000.00 for the required GAP insurance. You don’t know what GAP insurance is, but he said it was required. You also notice that the car is under factory warranty but you paid $2,000.00 for a service contract that covers the same thing as the warranty. This $15,000.00 car has now become $20,000.00. You also notice the increased monthly payments were the agreed $315.00, but instead of a 48 month loan you have a 60 month loan. You call the dealer and he says he will look into it and call you back. After that first call, the dealer won’t take your calls anymore. Unfortunately this unlawful scenario is all too common. However, consumers can mitigate their chances of being ripped off if they educate themselves about “add-ons.” Here are five things Oregon consumers should know about add-ons before they buy a car:
1) What are Vehicle Add-Ons: Vehicle add-ons are the extra goods, services, and accessories the dealer sells you in addition to the vehicle. Common add-ons are service contracts, pre-paid maintenance plans, extended warranties, GAP insurance, rust proofing, VIN etching, anti-theft devices, fabric protection, nitrogen in tires, window tinting, chrome-plated wheels, all-season floor mats, splash guards, wheel locks, cargo trays and alarm systems. These add-ons will almost always increase the price of the vehicle.
2) Dealers Can Make a Significant Profit on Add Ons: Dealers do not typically make a large profit on simply selling a vehicle. A dealer can substantially increase their profit if they are able to sell you add-ons. This is why they may be willing to substantially drop the asking price of the vehicle or increase your trade in value. This gives the illusion that you are getting a great deal when in reality you are being over-charged for the add-ons. Dealers are willing to drop the price of the vehicle if they can make up the difference by selling over-priced add-ons. For example the dealer may charge you $2,500.00 for GAP insurance. The dealer then only pays GAP insurance company $500.00 for your GAP insurance policy. The dealer will then keep the $2,000.00 as her profit. This is important to know If you want to purchase an add-on, because there is usually room to negotiate with the dealer.
3) Dealers Cannot Charge an Unconscionable Price for Add-Ons: Oregon law prevents the dealer from making false or misleading representation about the amount charged for add-ons that are sold with the vehicle by selling them at a price which is unconscionably higher than the price typically sold to customers. See OAR 137-020-0020 (3)(f). What this means is that the dealer cannot sell VIN etching for one customer for $50.00 and then sell the same product/service to you for $1,500.00.
4) Dealers Cannot Require You to Purchase Add-Ons in Order to Finance the Vehicle: Oregon law prohibits dealers from informing consumers that the dealer won’t sell the vehicle or obtain financing for the vehicle unless the consumer purchases add-ons, accessories, or insurance. See OAR 137-020-0020 (3)(L)&(v). The dealer can ensure that the consumer has liability insurance that is required by law, but cannot condition the sale based on the consumer purchasing that insurance from the dealer, GAP insurance, or other products or services. To put it another way, you do not have to buy any add-ons in order to buy the car.
5) The Dealer Must Be Up Front About the Cost of the Add-Ons and the Price of the Vehicle: Dealers often try and pack add-ons into the price of the vehicle. This enables them to conceal the actual price of the add-ons. This is called “packing” and it is unlawful. The law requires that during negotiations the dealer cannot quote monthly payments or the total sale price of the vehicle with the add-ons included unless the dealer clearly and separately delivers in writing, during negotiations and prior to any purchase order, the individual price of the add-ons, and the total costs without the items included. See OAR 137-020-0020 (3)(m). What this means is that during negotiations the dealer should provide you something in writing noting the total cost of the vehicle and the monthly payments without any of the add-ons included. The dealers should also provide you the individual price of each add on.
How Can You Protect Yourself from a Car Dealer?
1) Read the Documents: It is a no brainer that you should read what you are signing. However, dealers use tactics to prevent this. Dealers are trained to keep their hands on the documents and point where to sign while engaging in conversation with you. You can protect yourself by asking the dealer to step out of the office or away from the desk and give you time to read the documents. You can also politely ask the dealer to stop talking as you are going through the documents, and remind them that you are trying to focus. There is never enough time to read all of the small print. However, before you sign the documents you should have an understanding of the major aspects of the deal.
2) Shop Based on Total Sale Price: Many people purchase cars solely based on the monthly payments. Focusing on monthly payments puts the consumer at a disadvantage because the dealer can tweak the financing and price of add-ons to keep the monthly payments roughly the same, but the actual amount financed of the vehicle is substantially higher. You can protect yourself by shopping based on the “Total Sale Price” of the vehicle. That price is located on the truth in lending act disclosures that the dealer requires you to sign.
3) Don’t Be Afraid to Walk Away If Something Doesn’t Feel Right: If you think the dealer is trying to take advantage of you then walk away. Dealers use long delays to exhaust buyers so that the dealer can get them to rush through signing the paperwork. You can combat this by giving them a certain amount of time to prepare the documents or you walk. You can also walk out if you get the sense that the dealer is trying to pull a fast one or take advantage of you.
Add-ons may be a good deal for some people, but buyers should beware. Selling add-ons is a fertile area where dealers can increase their profits on a deal substantially. That means the consumer will end up paying more unless they understand what they are purchasing and the amount they are paying.
If you or someone you know has been ripped off by a car dealer please call Ross Law PDX at 503.224.1658. Oregon Consumer Lawyer Jeremiah Ross has represented numerous consumers who have been victims of auto fraud, unlawful car sales, and vehicle financing schemes. Please remember that rules and laws are constantly changing. Please contact a lawyer or refer to the law rather than simply relying on this post. This post could be considered ATTORNEY ADVERTISING.