Who needs car dealers?

If you want a new car, unless you are buying a Tesla, you are probably going to be forced to buy from a car dealer. That’s because car dealers in all 50 states have paid legislators handsomely to enact special franchise laws that give them monopolies over new car sales. This leaves new car buyers with little choice, but to buy from a dealer.

But used cars are another story. Each year, millions of American consumers buy and sell used cars directly to each other — without having to pay a middleman.  Why is this kind of transaction so popular?

  • You can save thousands of dollars
  • You can avoid major headaches and hassles
  • You can get a newer, cleaner-running, safer, better vehicle — for the same amount of money you would have paid for an older, dirtier, less safe vehicle from a dealer.

According to the Better Business Bureau, year after year, auto dealers are the #1 source of consumer complaints to the BBB.  So why go there?

The average dealership sales transaction takes approximately 4 hours, and is designed to wear you down and get you to the point where you will sign anything, just to get it over with and leave.  Some consumers have been literally held hostage at dealerships that took the keys to their cars– supposedly to evaluate them as a trade-in — then refused to give them back — until they bought a car.

Common scams you can avoid when you buy from a private person —

  • Sales of unsafe, recalled vehicles — it seems incredible, but — the National Automobile Dealers Association has taken the official position that its dealer members should be able to sell you an unsafe, recalled used car that hasn’t been fixed. Even though the fix is FREE. In some cases, innocent, unsuspecting used car buyers have been maimed or killed in recalled vehicles sold to them by licensed dealers — who claim it’s not their responsibility if the car was under a recall.
  • “Yo-yo” financing — basically, bait and switch on the terms of the loan. You sign a contract with the dealer, that says you’re going to pay 4% or 5% interest. You leave a down payment and trade in your old car. You drive off the lot and everything seems fine. Then you get a call from the dealer telling you that you have to come back because the financing “fell through” — which is a lie. But if you refuse to return and sign a new contract to buy the car at, say, 16% interest, or give the dealer a bigger down payment, or both, the dealer threatens to repossess your car, or report it as stolen.  The dealer refuses to give you back your down payment and traded-in vehicle, to trap you and keep you from being able to go elsewhere to buy.
  • Dealer “markups” — hidden kickbacks that increase the price of auto loans from car dealers, and cost consumers over $25.8 billion in a single year.  Dealers get kickbacks from lenders, in exchange for raising the interest rate on your car loan beyond the rate you actually qualify to get. This extra charge is not based on risk, but on the dealer’s assessment of how much they can get away with charging you, after sizing you up, including  checking out your profile in databases that have your personal information sliced and diced by literally hundreds of criteria.

Read more about auto dealer markups

  • Falsified loan applications — after you fill out and sign an application for a loan, indicating that your income is $2400 a month, the dealer changes it to $12,400 a month, to get you into a loan that you can’t possibly afford. But the dealer gets credit for the sale anyway, and collects a bonus from the manufacturer, even if you eventually default and lose your car, and your credit is trashed.
  • Forgery — The dealer signs your name on documents that allow the dealer to access your personal checking account and set up an automatic payment to the dealer, every month. Or the dealer signs your name on documents saying that you purchased a $3000 extended warranty, when you turned it down. While this is a crime, it’s extremely rare for any law enforcement officials to do anything about it.
  • Identity theft — Some dealers have been arrested and convicted of committing identity theft.  Hundreds of others have gone out of business, leaving loan applications, purchase contracts, and other documents with personal information in dumpsters, or abandoned dealership buildings, leaving customers vulnerable to identity theft.
  •  Odometer tampering — this crime is burgeoning, thanks to crooked dealers who purchase gadgets on the internet that allow them to simply re-set odometers. This can cost you thousands by tricking you into buying a car that is worth far less than what you paid. It will also need major, expensive repairs that will not be covered by a warranty or extended service contract, since warranties and service contracts exclude cars with odometer discrepancies.
  • Salvage fraud — Dealers sell wrecked or flooded vehicles they obtain at auction for a fraction of what they would cost, if they hadn’t been severely damaged. Then they give them a quick, cheap once-over, to make them look appealing, without doing any of the expensive repairs necessary to make them safe and reliable. For example, the dealer fails to replace the air bags, which deployed in a crash. Or fails to replace the electronic systems on a flood car, which have been contaminated and will corrode and malfunction.
  • Binding mandatory arbitration —  If you have a major problem with a car dealer, you may think you can sue. The law may even be on our side. But  you may never get to court, since the contract you signed had a clause — hidden in the fine print — that says you are giving up your Constitutional right to a trial before a court of law. Instead, you must submit your complaint to a private “arbitrator” who works for a company that is funded by the dealer. Studies show that “arbitrators” almost always rule in favor of the company, and against the consumer. Plus the “arbitrators” are totally free to ignore the law.  Consumer groups tried to change the federal law that allows car dealers to get away with this — but the dealers killed it.  Now all of them have clauses in their contracts to keep you from being able to haul them before a judge.

Why subject yourself to being scammed by a shady auto dealer, when you can take control of the sales process and get a much better deal from another consumer? If you follow about a dozen simple steps, you can get a safe, reliable, fuel-efficient car and save yourself a lot of time and money.

Tips from CARS on how to buy a good, safe used car

Tips from Cars.com on how to sell your own car