Massive Consumer Rip-Offs in Automobile Sales Industry,
Public Citizen Calls for Investigation
by Law Enforcement
Report Documents How Consumers Are Defrauded When They Purchase
Vehicles; Whistleblower Tells Firsthand of Industry Methods
Dec. 8, 2003: Public Citizen Press Releases: Providing
the latest information about Public Citizen activities WASHINGTON,
D.C. - Every day, consumers across the country who
buy automobiles are bilked of hundreds and sometimes thousands
of dollars apiece by fraudulent auto sales representatives
perpetuating one of the most pervasive scams in this country,
according to a new report by Public Citizen.
The report, Rip-Off Nation: Auto Dealers' Swindling of America,
outlines the way auto dealerships rip off customers and is
supported by documents obtained by auto sales industry whistleblower
Duane Overholt, who worked in Florida auto sales for 20 years.
Industry-wide practices range from inflating the cost of warranties
and reporting one set of numbers to the customers and another
set to the bank, to stuffing the contract with extras that
the customer never agreed to pay for. The size of the purchase,
the flurry of paperwork and the complicated financial deals
make consumers particularly vulnerable to the schemes developed
by dealerships to squeeze the highest possible profit from
each sale.
The fraud is rampant. Customers in California, Florida and
at least 37 other states have been robbed, according to a
recent "Dateline" report. Further evidence is provided
in a host of lawsuits documenting patterns similar to those
explained in the report in at least nine states. Public Citizen's
report, background information and statements given at a press
conference today are available at http://www.citizen.org/autosafety/dealerscam/.
"The scams are not restricted to a few areas or dealerships.
Customers are being cheated on both coasts and everywhere
in between," said Public Citizen President Joan Claybrook
at a press conference. "The tactics used are so sly that
informed customers, customers who have done their homework
and exhausted every measure to ensure they don't get ripped
off, are taken just as easily as anyone else."
"I was not a nice guy," said Overholt, who came
clean in 1999. "Back-of-the-envelope calculations show
that I ripped off consumers for about $33 million over my
career - and that's a conservative estimate. While you're
working in the auto sales business, you get the feeling that
you are invincible. You think you can do anything and get
away with it. And you often do."
As outlined in the report, auto buyers are cheated in many
ways:
- The dealer boosts the manufacturer's suggested retail price
with extras, some of which may already come with the vehicle.
- Sales managers run credit reports on potential buyers without
their permission, using the driver's license the customer
provides before going for a test drive. With this information,
the dealer can learn how much credit the customer has and
even what the customer's last car payments were, for use in
price negotiations.
- Banks that have good relationships with dealers may insist
on a higher interest rate in order to kick back to the dealer
the dollar value of a few percentage points of the loan, without
the buyer'sknowledge.
- Customers are manipulated during the sales process to pay
more than the agreed-upon price. This is often done with the
use of worksheets listing add-ons, although few of the items
are associated with a specific price.
- If the sale is made after hours, customers are asked to
sign blank bank forms that the dealer offers to fill in later,
ostensibly after talking to a bank during business hours.
The numbers reported to the bank may not reflect what the
customer agreed to.
- The dealer may add products to the sales contract after
the customer leaves. And because customers don't know they
paid for a warranty or service contract, for instance, they
never make any claims using it.
Victor Lewton, a Public Citizen employee, recently purchased
a Toyota Matrix. He thought he was making a savvy purchase
until Overholt reviewed his documents and found a number of
places where Lewton may have been scammed, including being
charged $199 for an "appearance package" that Lewton
told the dealer he didn't want.
"Had I been made aware of my options regarding these
items, I could have saved between $400 and $600," Lewton
said. "Even with all that research, I still spent more
money than I should have for options I didn't want."
In addition to calling for state attorney general investigations
by letter today, Public Citizen called on state and local
law enforcement authorities to enforce consumer protection
laws, and on state and federal lawmakers to require that financial
and dealership documents be contained in a single file available
to the consumer on request. Public Citizen also called for
changes to the law to require disclosure of the interest rates
that the lender agrees to provide and disclosure of any kickback
to the dealer, to require dealer employees to tell consumers
that they represent dealers and not the consumer, and to forbid
mandatory arbitration clauses in sales contracts. Public Citizen
has set
up a Web site, www.autodealerscam.org
to provide consumers with more information.
Meanwhile, consumers should:
1) Obtain financing independently of the dealer;
2) Refuse to sign any arbitration clause;
3) Never sign blank financial forms;
4) Remember that dealers make money from extras and add-ons;
5) If financing is unavailable except from the dealership,
never drive a car off the lot before all financial transactions
have been agreed upon by the lending institution.
"Given the range of cases that have been filed in a
variety of states nationwide, it appears that what we now
know is only the tip of the iceberg," Claybrook said.
"It is imperative that law enforcement authorities take
swift action to protect consumers and seek civil redress and
criminal convictions before the evidence of wrongdoing is
destroyed."
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Public Citizen is a national, nonprofit consumer advocacy
organization based in Washington, D.C. For more information,
please visit www.citizen.org.
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